AS Australia assesses its relationship with China in terms of trade, productivity, security and more, the government is obliged to find the right policy balance to bring Australia maximum benefits with minimal risk.
What does Australia risk by deeper engagement with China? What are the risks to our nation's economy, security, productivity? What risks are posed by the role of China in the telecommunications sector? While that debate progresses, I believe there can be only one overarching response: the greatest risk to Australia's future prosperity is from missing out on the innovation China has to offer.
In no other industry is that fact quite as pronounced as in telecommunications.
For many, Australia's relationship with China is measured in numbers, usually very large numbers. Most Australians would be well aware of the overwhelmingly positive impact that trade with China has had on Australia's economy. According to the Australia China Business Council, the average value of trade with China was worth $13,470 to each Australian household last year alone. That's an increase of 93 per cent since 2007.
However, what is unknown to most Australians is that telecommunications plays such a central role in our trade relationship with China. During 2010-11, Australia imported more than $7.9 billion worth of telecommunications equipment from around the world. It was No 5 in the list of Australia's major imports. Of that $7.9bn figure, 53 per cent of Australia's telecommunications imports came from China. Let me make that point clear: Australia imported more telecommunications equipment from China than every other country in the world combined.
Equally startling is the fact the dollar value of telecoms imports from China has more than doubled in the past four years.
Of course, that figure does not just represent Huawei. The reality is that all major telecoms vendors, no matter where in the world they may have their headquarters, manufacture their equipment in China.
The result of this has been a significant drop in the price Australians pay for telecommunications technology. For operators and consumers alike, the role of Chinese innovation has continued to drastically reduce prices and rapidly bolster technological advances in the industry.
Turning again to the statistics around Australia's global imports, the figures are even more staggering when we look at the breakdown of Australia's imports from China. Of Australia's principal imports from China, telecommunications equipment is second only to textiles, footwear and clothing, accounting for roughly 10 per cent of Australia's total.
During the past four years, telecommunications equipment import prices have decreased at an annual average rate of 10 per cent. This compares with an increase in the consumer price index of 3.2 per cent within the same period. If Chinese innovation has led to price decreases of 10 per cent annually, can you imagine the flow-on effects if Australia were to reassess its stance on Chinese telecommunications equipment?
I raise all of these impressive numbers because they indisputably support the argument that the real risk facing Australia is not from China itself. The real risk is Australia missing out on the innovation that China has to offer.
Innovation is a very different thing to imports and exports, but it is equally measurable. Huawei has played a significant role, possibly the most significant role, in China's intellectual property boom.
Huawei became the world's No 1 company for new patent applications in 2008 and has been in the global top-five companies for new patent applications every year since. It's even more impressive when you consider that Huawei is filing more patents than household names such as Samsung, Microsoft, Sony or GE.
Australia cannot risk being left behind in the digital age. If Australia is overly cautious in its stance towards Chinese innovation, our nation risks becoming "digitally stranded" while our regional neighbours leap ahead.
In the Australia China Business Council submission to the Australia in the Asian Century white paper, it notes that China has surpassed Japan as the globe's second largest spender on industrial research and development, and is slated to overtake the US before the end of the decade.
China's total R&D investment accounted for 12.8 per cent of global spending in 2009, up from only 2.2 per cent in 1993.
To quote from its submission: "China has embarked on the largest investment in R&D in human history."
China's 12th five-year plan aims to increase total R&D spending to 2.2 per cent of gross domestic product by 2015, an increase from 1.75 per cent in 2010 and 1.3 per cent in 2005. This will mean 3.3 patents for every 10,000 Chinese citizens. Can Australia really risk missing out on the innovation that will bloom from "the largest investment in R&D in human history"? At the cusp of the Asian Century, the greatest risk facing Australia is missing out on the innovation that China has to offer.
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