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Increasing pressure from China on Aussie manufacturers

28 August, 2006

Australian manufacturers are experiencing increased competitive pressures in their dealings with China, while at the same time they now see China as the most important market in which to grow their business outside Australia, according to a major new study released by the Australian Industry Group.

"Australian Manufacturing and China: Deepening Engagement" has estimated that while Australian manufacturers in 2005/6 have accumulated over $6.8 billion in benefits from China (eg. through increased exports to China and savings from using Chinese global supply chains), the benefits fall short of the losses in sales in domestic and overseas markets from competition from China (totalling over $7.6 billion), resulting in a net financial loss of $880 million.

Ai Group Chief Executive, Heather Ridout, said the findings, based on a survey of 700 Australian manufacturers, confirm that China is imposing ever increasing competitive pressures on their businesses.

"Over the past two years, the proportion of companies impacted by China has grown from 70% to 84% and China is making deeper inroads into Australia's domestic and overseas markets.

"Manufacturers identified China as the strongest potential overseas market.  The Study found that among surveyed companies around 8% of manufactured exports go to China; one in every 16 surveyed companies has an operation in China; and China is the chief source of foreign inputs into domestic production.  Annual income from manufacturing investments in China is estimated to be close to $1 billion," Ridout said.

"While very large manufacturers and affiliates of foreign owned entities are starting to reap slight net financial gains, the majority of manufacturers are finding it tough to secure benefits. Overall there remains considerable concerns about non-tariff barriers in China, including the lack of intellectual property protection.  A major finding of the study was that Australian businesses are highly concerned about the incidence of Chinese made counterfeit and pirated goods being sold on the Australian market. The perception of Australian manufacturers is that dumping of Chinese goods on the Australian market (at below the price to make and sell in China) is also accelerating significantly.

"Consequently, many manufacturers remain unconvinced of the overall benefits of a Free Trade Agreement, although support for an FTA is growing and has increased from 13% in 2004 to 24% in 2006," she said.

Ridout called on the Federal Government to put in place mechanisms as part of its planned Industry Statement so that Australian manufacturers can boost their competitive position in their business dealings with China. 

"We need to strengthen our innovative capacities, build world-class skills among our manufacturers, and be prepared to deal with the ever increasing impact of Chinese competition, as well as helping to open up the Chinese market to Australian businesses so that they can establish partnerships and build supply chains," Ridout said.

Ai Group has welcomed the recent clarification of the government's position that the existing tariff phase-down plans for the Textile, Clothing and Footwear and auto industries were "not negotiable" under FTA discussions with China.

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