Business Insight 18th Jul 2016

A labour dump is unlikely under the China Australia free trade agreement

Fears that the Chinese Australian Free Trade Agreement (ChAFTA) will lead to a flood of Chinese workers in Australia are unfounded. The amount that China invests overseas is not linked to the flow of Chinese labour and in fact Australia could stand benefit from the investment the agreement will promote.

Shanghai

The Chinese and Australian governments negotiated ChAFTA with the goal of supporting future economic growth, job creation and higher living standards through increased capital investment and exchange of goods and services, including access to labour markets.

After exactly one year of ChAFTA’s ratification, questions have been raised about the benefits and risks of opening the flow of people looking for jobs between Australia and China.

The temporary migration of workers is dealt with in chapter 10 of ChAFTA. It entails not only economic possibilities, but also the overall social and cultural issues related to the movement of labour between the two countries.

Most of the concerns from Australians about how ChAFTA deals with labour migration stem from the inclusion of Article 10.4.3, which says that neither side shall:

“impose or maintain any limitations on the total number of visas to be granted to natural persons of the other Party; or require labour market testing, economic needs testing or other procedures of similar effect as a condition for temporary entry”.

Critics of this maintain that labour provisions in the ChAFTA offer too much leeway for Australian businesses to import Chinese workers in spite of the protection of Australian workers. On the other hand, ChAFTA advocates argue that Australian workplace laws and standards still apply to this deal, as specified in the associated Memorandum of Understanding (MOU) on an Investment Facilitation Arrangement (IFA).

ChAFTA critics, such as those who fear that visa and industrial sector traps lurk in the ChAFTA, or that ChAFTA has opened door to unqualified workers, also argue that ChAFTA is yet another example of the Chinese government pushing for Australia to allow imported Chinese labour, which is assumed to be a common practice in Chinese economic activities around the world. They link the agreement to the recent lobbying of high-level Chinese officials for the further opening of the Australian labour markets.

However, the reality of recent economic data shows otherwise. A KPMG report argued that ChAFTA will spur Chinese investment in a number of key Australian industries such as agriculture, animal husbandry, food processing and infrastructure. The report also states that in return for investment, Chinese companies receive high-quality resources, technologies and experience.

This dynamic shows the fundamental end game of the Chinese-Australian economic partnership, a mutually beneficial flow of capital in exchange for complementary services. From this perspective, an opening of the Australian labour market to Chinese workers looks less concerning.

China offers much-needed large-scale infrastructure at a time when Australia is in need of the competitive advantages due to its budgetary restrictions and slow growth. In fact, the Chinese Government is now promoting international cooperation to match the production capacity of Chinese industries with existing global demand, focusing particularly on countries whose economic structures are turning less labour-intensive, that is fast-developing countries, but also post-industrial economies like Australia.

China is reversing the flow of foreign investment (less inbound, more outbound) to find a more effective way to approach the end of the era of low-end manufacturing. This reversal is evident in the data of the Chinese Ministry of Commerce analysed by KPMG, which shows a downward trend in foreign direct investment (FDI) in China, going from a 6% annual growth in 2010 to a 12.3% decrease in 2014, when the ChAFTA’s negotiations were completed.

FDI growth in China's manufacturing sector

One of the great misconceptions about China’s international business policy is to positively correlate its outbound flows of capital investment and labour. In other words, it is a myth that China necessarily dumps the labour markets of the countries receiving its foreign investment.

In fact, the latest statistics released by the Chinese Ministry of Commerce show no evidence of correlation between overseas flows of Chinese labour and capital (in the form of foreign direct investment and turnover of overseas contracted project) for the five years before the ratification of the ChAFTA. The chart below clearly shows the lack of correlation between Chinese labour and capital overseas.

Chinese labour and capital overseas

Interestingly, since 2011, the total number of Chinese workers going overseas has slowed when compared with combined capital flows (i.e. turnover of overseas contracted projects and foreign direct investment). A possible explanation for this trend is the ongoing urbanisation and industrialisation of China that is driving major upgrades to national infrastructure, which in turn leads to high demand for low skilled labour in China.

This trend is significantly increasing the cost of Chinese labour, making Chinese firms engaged overseas more likely to employ locally in the long term, even in more developed countries where wages have stopped growing and unemployment is rising.

All of this argument around ChAFTA highlights the need to thoroughly consider the threefold nexus between labour, migration and free trade. This may be a step forward to realise that domestic immigration laws cannot effectively harness the globalised flow of labour that multilateral trade law systems require.

This article originally appeared on The Conversation.

By Giovanni Di Lieto

  • Giovanni Di Lieto, International Business

    Dr Giovanni Di Lieto

    Lecturer, Bachelor of International Business

    Read more
    in