Australia

Australia in the
Asian Century
White Paper
November 2012
Australia in the
Asian century
Opportunities and
challenges
2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
2
The world is changing rapidly. Political and economic power is shifting, globalisation
continues apace and technology is having a profound impact on business and
society. The data, both quantitative and qualitative is irrefutable we can see and
feel the change as well as measure it. In particular, economic power is shifting
from west to east and bringing with it a myriad of related impacts ranging from
the nancial to the societal. The White Paper, Australia in the Asian Century, is
therefore both timely in its publication and critical to our nation.
The key question of course is what does this mean for Australia?
The White Paper provides a roadmap, albeit a complex one. The objectives and the
destination it envisages essentially a prosperous Australia participating actively in an
Asian-driven world economy makes sense and will likely attract broad agreement.
However, there are decisions to be made on this journey that will require some brave
choices. How we as a country navigate this path will ultimately determine how, when
and if we reach the destination.
Government has a critical role to play. Strong, active leadership, a long-term and clear
vision and the establishment of related policy frameworks and settings are critical.
A long-term commitment to staying the course is imperative. So is the need to
transcend successive governments.
The White Paper makes an very important contribution to the discussion about
Australias future, setting out the opportunity clearly and mapping out the elements
that will help us navigate a path to continued prosperity.
Are we ready to seize the opportunity?
Foreword
Call to action for the private sector
The White Paper is not simply a matter for
government. Business and unions must view the
White Paper through a highly strategic lens and make
decisions accordingly. As with government, decisions
not to act or not to respond are simply not viable.
Peter Nash Geoff Wilson
National Chairman Chief Executive Ofcer
KPMG Australia KPMG Australia
Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
FIVE PRIORITY NATIONS
China
India
Indonesia (inc ASEAN)
Japan
South Korea
KEY SECTORS
Mining and resources
Agriculture and food
Manufacturing
Financial services
Health and aged care
Sustainability and natural
resource management
Tourism and sport
ASIA READY?
White Paper Summary
KPMGs publications
CONTACTS
CONCLUSION
3
It was with interest I read the recently released White Paper from the Australian
Government Australia in the Asian Century. Asias rise has changed the way
of life and social structures of many Asian countries, but it also presents us
with challenges on stability of energy, food and water supplies for our growing
populations. It is heartening to see that Australia has outlined the opportunity these
challenges have created, and is putting a proactive agenda in place to respond.
Asia is a diverse region with many different languages, cuisines, economies and
political structures. This creates a dynamic and interesting place to do business,
which I nd exciting and challenging in my role as Chairman of KPMG in
Asia-Pacic. The skills programs that the government plans to put in place will help
Australians navigate this diversity in the future. Business needs to build these skills
now as they respond to the growth opportunities. An inability to adapt will make
placing even the most innovative product difcult.
The White Paper makes an important contribution to Australias vision for the
future, but also to the future of Asia, as we continue to work closely with our
neighbours, utilising each others strengths.
Our unity, working together, will be the key to success.
Hideyo Uchiyama
Asia-Pacic Chairman
KPMG
Business needs to build skills now as they respond to
growth opportunities. An inability to adapt will make
placing even the most innovative product difcult.
KPMGs Asian footprint
Australia is well placed to have a role in the rise of
Asia this century, and KPMG has invested in this
certainty. We have a strong presence throughout
Asia and are committed to helping our clients continue
to succeed as the region continues to be globalised.
KPMG Australia has always been a key part of our Asian
footprint and plans for the region.
Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
White Paper Summary
KPMGs publications
CONTACTS
CONCLUSION
4
The release of the White Paper Australia and the Asian Century represents a
paradigm shift in Australias policy within the Asia-Pacic region. A comprehensive,
long-term plan for engagement within the region, the paper calls for a far more
active relationship between Australia and Asia, and far deeper relationships, based
on foundations that need to be established now.
The diverse complexity of Asia presents key
opportunities across sectors and countries. At the
same time, demographic, political and economic
change in Australia and a number of Asian countries is
creating new synergies and challenges for the future.
A exible approach will be required, as will deep
knowledge and understanding of market dynamics,
culture, business practices and strong mutually
benecial relationships.
The real challenge of the White Paper
When the excitement of the paper is over, the real
challenge ahead will be the effective implementation
of policy to achieve its objectives to create a robust
foundation and environment for effective and mutually
benecial relationships throughout the region.
We stand at a unique crossroads in Australias history
we can challenge the status quo of our role in the
region or we can remain passive. We have undertaken
major reform in the past and it can be achieved
again, but it will require long-term and unwavering
commitment to ensure the critical enablers are
in place: t for purpose infrastructure, favourable
regulatory and tax environments, and step-change in
innovation, skills and education.
This paper shares the views and insights from a
number of KPMG partners on the opportunities and
challenges of expanding and deepening relationships
with our Asian neighbours. We share our insights from
three perspectives the critical productivity enablers,
key regional nations, and sector specic opportunities
and challenges.
Introduction
When the excitement of the paper is
over, the real challenge ahead will be
the effective implementation of policy
to achieve its objectives.
A business strategy for Asia
Australian businesses have a signicant role to play in the Asian century and being
proactive in developing their Asia strategies is key.
Assess how Asia and each country in Asia could create new opportunities and
challenges for your business.
Articulate a clear plan to take advantage of the opportunities ahead.
Build appropriate Asia capability, knowledge, skills and experience.
Identify and build appropriate business relationships.
Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
White Paper Summary
KPMGs publications
CONTACTS
CONCLUSION
5
Australias productivity has declined over the last decade. To maintain our
relevance on the regional stage, we urgently need to boost performance to
previous levels.
The key themes of the White Paper implicitly
reference Australias declining productivity and clearly
emphasise the need to reverse this worrying trend.
The government has nominated ve of these themes
as the ve pillars of productivity. These pillars have
the power to position Australia rmly and squarely
as a key regional partner for Asian economies and to
transform the Australian economy.
Objectives and pathways
The White Paper outlines a series of high-level
objectives and pathways to improve outcomes for
each of these pillars. To ensure the ambitious goals
are achieved, these objectives need to inspire detailed
planning and action.
Australias productivity is clearly a challenge today.
The Asian century provides a signicant incentive to
address these challenges head on.
Critical enablers
The ve pillars of productivity
These pillars have the power to
position Australia rmly and squarely
as a key regional partner for Asian
economies and to transform the
Australian economy.
The ve pillars of productivity
Infrastructure
Tax reform
Innovation
Skills and education
Regulatory reform
Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
White Paper Summary
KPMGs publications
CONTACTS
CONCLUSION
6
Given the importance of infrastructure to both national productivity and our ability
to access global markets, bridging the chasm of Australias infrastructure decit is
an urgent national priority. The White Paper emphasises the need to resolve our
infrastructure crisis to enable Australia to take advantage of the opportunities in Asia.
A framework to encourage investment
Australia needs to make signicant progress
on establishing a more attractive investment
environment. Some important steps have already
been taken, for example the establishment of
Infrastructure Australia, the National Infrastructure
Construction Schedule, and the 2011-12 Federal
Budget carrying forward and index tax loss provisions.
Butmore is required.
Key focus areas include:
The creation of a long-term national
infrastructure strategy.
Nationally-consistent procurement processes
and streamlined regulatory approvals to reduce
complexity and bid costs.
More private sector involvement in
nancing infrastructure.
More government capacity to fund future
infrastructure investment programs.
Regional connections
Asia is playing an important role in developing
Australias infrastructure; this role is becoming more
signicant. Asian investors are increasing their
allocation to this asset class for example, South
Koreas National Pension Service has earmarked
10percent of its A$300 billion plus fund for alternative
investments and Australian infrastructure assets are
increasingly attractive to these investors.
Developing and
delivering infrastructure
by Julian Vella, ASPAC Leader, Infrastructure
Australia needs to make signicant
progress on establishing a more
attractive investment environment.
A$600 700 billion.
Australias estimated infrastructure decit.
2 percent.
Global infrastructure investment bythe two largest
Asian investors India andJapan.
US$8.3 trillion
1
.

Estimated infrastructure spend in the Asian region by 2020.
1 ADBI (2009)
Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
White Paper Summary
KPMGs publications
CONTACTS
CONCLUSION
7
Asian contractors are well-placed to play a growing
role in delivering Australias infrastructure solutions.
China now boasts more than 2 million kilometres
of highway, the worlds third largest rail network,
three of the worlds ve largest shipping ports and
approximately 20 new nuclear power plants are under
construction. South Koreas Samsung C&T, together
with Australia-based Smithbridge, was recently
awarded the construction contract to build Abbot Point
T3 port by GVK.
Australia is also well positioned to lead infrastructure
development across the region with several Australian
engineering and nance rms already involved in
projects across Asia, including in emerging markets
such as Mongolia.
To facilitate the kind of engagement Australia needs
with Asia we need to make signicant progress on
establishing a more robust infrastructure framework.
While some important steps have been taken, the
scale of investment required represents a huge
challenge. In a difcult economic environment,
where Australia is competing with other countries for
nancial, labour and other resources, developing the
funding capacity to meet the required investment,
whilst further opening our market to enable foreign
players to participate in our infrastructure sector by
bringing innovation, expertise and capital are important
steps to meeting this challenge.
Asian entities with ownership stakes
in Australian infrastructure assets include:
- Adani
- China Investment Corporation
- Marubeni
- Mitsubishi Corporation
- National Pension Service
- CKI
The Australia Japan Business Cooperation Committee (AJBCC), of which KPMG is a
member, has for some years been working with its Japanese counterpart, the Japan
Australia Business Cooperation Committee (JABCC), on ways in which Australian
and Japanese rms can partner with each other in developing infrastructure in both
markets, and in other Asian markets, such as India and Indonesia.
With US$8.3 trillion
2
in infrastructure project spend expected in the Asian region
over the next decade, there will be plenty of opportunities for Australia to export
skills and expertise across the spectrum of infrastructure capabilities including
planning, nancing, constructing and asset management.
2 ADBI (2009)
Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
White Paper Summary
KPMGs publications
CONTACTS
CONCLUSION
8
Ongoing tax reform is critical to favourably positioning Australia for the decades
to come. Given the increasing importance of Asian capital, introduction of preferred
Asian investment structures must be on the agenda if Australia is to continue
toattract investment.
Tax reform in Australia is unnished business. The
White Paper establishes a combination of broad and
specic pathways that have the potential to change
domestic dynamics and be more Asia-friendly.
The bigger picture
It is clear that tax reform is critical; we need to
consider the following:
A wider debate on the right revenue base
mix. Australias level of company tax is high by
international standards and consumption tax is
relatively low. This is not an efcient mix.
Investment structures: Many Asian investors are
unfamiliar with trusts, and would prefer to invest in
see-through company structures similar to those
in the US.
Asian benchmarking: We need to widen our view
considerably if we are to reform our system in
the optimal way. In the future we can look to Asia
as a benchmark for our own system, not merely
North America and Europe as we have historically.
Singapore will be an important comparison country
for Australia as both economies are increasingly
reliant on services into Asia.
While our revenue needs have been different in the
past including differing requirements for social safety
nets forthcoming decades may see convergence.
Whether or not this is the case, our tax system will
need to be far more efcient to take full advantage of
the opportunities.
A more efcient tax system
by Grant Wardell-Johnson, Partner, Tax
Australias level of company tax is
high by international standards and
consumption tax is relatively low.
This is not an efcient mix.
Keeping up with neighbours
Australias high corporate tax
rate and complex system can
be a disincentive to foreign direct
investment from Asia.
Singapore: 17 percent
Hong Kong: 16.5 percent
Australia: 30 percent
Key tax reforms will support our
Asian relationships
A better revenue base mix.
Better investment structures for Asian investors.
An Asian benchmark for our tax system.
Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
White Paper Summary
KPMGs publications
CONTACTS
CONCLUSION
9
The Australian Governments Australia in the Asian Century White Paper correctly
recognises the value and importance of innovation of doing new things. The Paper
is ambitious, aiming for a top ten innovation system globally as a national objective.
This will require us to do more for Australia to push ahead on innovation.
KPMG supports the White Papers innovation
objectives. Our view is based on experience
working every day alongside many of Australias most
innovative companies, entrepreneurs, and research
and education institutions.
Australia: the regional innovator
Asia has a wealth of innovators China, South
Korea and other countries in our region are clearly
leveraging research and innovation to drive growth,
employment and development. It is therefore
imperative for Australia to ensure we have the policy
settings and commitment from businesses to keep
up with the neighbours, be competitive and attract
investment. Australia is ideally positioned at the nexus
of east and west to be a regional innovator through
its relationships, physical proximity, track record
and information and communications technology
enablement (including the National Broadband
Network (NBN)). However, it requires focus and
determination from government and business to move
in this direction.
Enabling new patterns
ofinnovation
by David Gelb, Partner, R&D Incentives
Creativity is thinking up new things.
Innovation is doing new things.
Theodore Levitt, Harvard Business School
Innovation and prosperity
The recently published Australia Report 2012 [Australian Davos
Connection Forum in collaboration with KPMG] found inadequate
investment in research and development to be one of the top risks
identied in terms of severity of impact on Australias prosperity (ranked
no.2 behind climate change). Australia clearly needs to invest heavily in
innovation if we are to take our rightful place within the region.
Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
White Paper Summary
KPMGs publications
CONTACTS
CONCLUSION
10
Important questions remain
Existing policy instruments such as the R&D Tax
Incentive, Commercialisation Australia and the
Clean Energy Future package offer signicant value
helping organisations prepare and deliver against
regional and domestic opportunities. However, there
is a need to understand the regional competitiveness
of our current innovation system and what changes
need to be made. The governments 2011 Innovation
System Report makes reference to inputs, outputs
and outcomes of innovation. These elements are
critical however there are still some questions to be
answered such as:
What changes may be needed to enhance or
redirect our networks, major collaborations,
organisations/entrepreneurs and their activities and
framework conditions?
Where should we focus the functions of Australias
innovation system? What areas are likely to be
most critical for Australia in the Asian century?
What specic social, environmental and
economic results are we trying to achieve, and
in what timeframes?
Acting on innovation initiatives
Action speaks louder than words particularly
when it comes to innovation. A range of forthcoming
and existing innovation initiatives and research
papers can inform and support our national innovation
objective, but we need a cohesive approach that
translates into real action.
Industry and Innovation Statement: to develop
industry and innovation policies.
National Research Investment Plan: a framework for
Government investment in science and research capacity.
Innovation policy plans: including the Food Processing
Strategy (2012), the Australian Innovation System Report
(2011) and the 10-year reform agenda, Powering Ideas (2009). Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
White Paper Summary
KPMGs publications
CONTACTS
CONCLUSION
11
The White Paper has been most prescriptive and specic in the area of skills and
education. The focus on preparing Australias future workforce to be better able to
do business in Asia is important and welcome; the goal to improve our educational
standards across the board even more so.
An Asia-literate workforce created through skills and
education is required to drive change and integration
across the region.
To create this workforce we need signicant reform
within our education system, but we also need to
transform the knowledge and understanding of Asia
within Australian businesses so they can achieve their
full economic and social potential.
Language skills: The White Paper marks a step-
change in laying the foundations for an Asia-literate
workforce by committing that every Australian school
student has access to one of the four designated
priority languages Mandarin, Hindi, Japanese and
Indonesian. Currently less than 6 percent of Year 12
students are studying an Asian language.
All Australian schools will also be required to connect
with at least one school in Asia, which will personalise
and provide a cultural context for the language skills.
Asia literacy: As one of Australias largest employers
of university graduates, KPMG supports Asia literacy
becoming a core part of the Australian education
experience for both secondary school and tertiary
education. KPMG has recently deployed China
Condent, a comprehensive e-learning program
for staff across all member rms to build
knowledge and appreciation for Chinese cultural
and business practices.
The role of business: Education of school children
is a long-term goal; business can take the lead
by supporting and investing in staff learning and
development and business exchange programs. The
Australian Government will take on this challenge
within its own workforce, with a strategy to be
developed to ensure Asia-capable leaders make up at
least one-third of the Australian Public Services senior
executive ranks.
A revolution in skills
and education
by Chris Leptos, Partner, Government
Creating connections
through learning
The Australia Awards has been
expanded to create 12,000
opportunities for Australians to study
in the Asia region, and for students,
researchers and professionals from the
region to undertake study, professional
development or work placements in
Australia. This will support the creation of
strong personal connections that underpin
collaborative relationships in all contexts.
Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
White Paper Summary
KPMGs publications
CONTACTS
CONCLUSION
12
Integration: Blending university level degrees with
skills training and experience to produce the high-
level workplace skills that the economy requires
is a key challenge. Some universities offer credits
from vocational to higher education. However, more
effective integration between university and skills-
based education as well as with secondary education
will be a key factor in improving productivity in the
Asian century.
Opportunities for business
Meeting the growing demands for educational
services throughout the region will benet a range of
Australian businesses.
Educational services: Opportunities range from
the design and teaching of course material to the
provisions of modern and exible educational facilities.
Leveraging university relationships: Many Australian
universities have a long-established presence in the
region and are supporting their research excellence
by establishing operations within key centres
of industrial and technology innovation. There is
considerable opportunity for businesses to leverage
the connections already forged by universities.
Expanding the university presence: The White Paper
calls on the number of universities represented in
the region to be increased. For educational providers
seeking to initiate, expand or re-orient their presence
in Asia, this requires a thorough understanding of the
approaches available to ensure nancial and business
arrangements are sound and support success in
the region.
Providing vocational skills and other pathway
courses to facilitate entry to university study:
Business and industry will play a role in ensuring
vocational education meets appropriate standards,
provides dened qualications and quality assurance.
Programs that are not just correctly translated but also
grounded in the nuances of the culture will be vital
going forward.
An Asia-literate workforce created
through skills and education is
required to drive change and
integration across the region.
Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
White Paper Summary
KPMGs publications
CONTACTS
CONCLUSION
13
Integrated Reporting (IR) can assist in attracting nancing as it provides
boards and executives with a better basis for explaining their business story
to their investors and other key stakeholders in a clear and actionable way.
Australia is taking a leading role in the global deployment of IR through the
Australian Business Reporting Leaders Forum. It can assist Asia to play a
key role in enabling the International Integrated Reporting Council to realise
its aims for global implementation, bringing a signicant improvement in the
efciency in global capital markets at a time of signicant uncertainty.
Economic growth and increased trade in the region will require increased levels of
nancial market integration, greater coordination between regulatory agencies and
frameworks, as well as a more robust market infrastructure in many countries.
Australia, with our highly-regarded regulatory
framework and supervisory regime, has a large and
important role to play in advancing regional nancial
integration and ensuring that nancial sector stability
is well-managed.
Collaboration and coordination
A range of initiatives will assist in promoting
collaboration and a greater understanding of Asian
nancial markets and regulatory frameworks, as
well as providing leading-edge research into regional
nancial integration.
The Asia-Pacic Financial Forum: The
establishment of this forum will promote regional
coordination and progress towards the regions
nancial development goals.
The Centre for International Finance and
Regulation: Bringing together leading Australian
universities, research centres and nancial
organisations to assist the nancial sector, government
and regulators to meet emerging challenges and
opportunities locally, regionally and internationally.
Australian Financial Centre Forums report,
Australia as a nancial centre (2009): The
White Paper endorses its recommendations,
particularly the Funds Passport initiative and the
Investment Manager Regime.
The industry eagerly awaits greater impetus to the
adoption and implementation of these initiatives which
will underpin greater nancial market integration
across the region.
An integrated regional
nancial system
by Ian Pollari, Partner, Financial Services
A new Asia-Pacic Financial Forum
A range of initiatives are underway to encourage nancial market integration including the
recent announcement by Financial Services Minister, Bill Shorten, that in 2013 Sydney
will host an international symposium on regional nancial market integration to explore
the creation of an Asia-Pacic Financial Forum to strengthen and promote regional
nancial architecture.
This is an excellent opportunity to showcase the strengths of our nancial services sector
and engage with business leaders and regulators from across the Asia-Pacic region.
Australia with our highly-regarded regulatory
framework and supervisory regime, has a large
and important role to play in advancing regional
nancial integration.
Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
White Paper Summary
KPMGs publications
CONTACTS
CONCLUSION
14
The White Paper outlines the opportunities that
increasingly dominant Asian economies present to
Australia. It is difcult, however, to talk about Asia
as a single entity. Asia is a number of very different
economies and cultures, tied by geographic proximity.
Our focus over the coming decades may be skewed
to China and India, but the White Paper recognises
growing opportunity in countries beyond China and
India, notably but not limited to, Indonesia, South
Korea and Japan.
Asia is a diverse region requiring exibility in approach
and deep knowledge and understanding of market
dynamics, culture and business practices in order to
create strong mutually benecial relationships.
KPMGs Asia Business country leaders share their
insights and views of how Australia can deepen and
expand relationships with the ve priority nations
specically referenced in the White Paper.
Five priority nations
Asia is a diverse region requiring
exibility in approach and deep
knowledge and understanding
of market dynamics, culture and
business practices.
Five priority nations
The White Paper identies ve priority nations where Australia
needs to develop deeper and stronger relationships.
China
India
Indonesia (and ASEAN)
Japan
South Korea
Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
White Paper Summary
KPMGs publications
CONTACTS
CONCLUSION
15
Opportunities for Australian trade and
investment in China
While historically Australian companies have preferred
to invest in the UK, Europe and US, the White Paper
encourages us to recognise the opportunities in
China and ensure the right strategies and resources
are developed.
The White Paper recognises that by 2025:
China will become the largest global economy with
annual growth of at least 7 percent.
China will continue to rapidly urbanise and will have
200 cities with populations over 1 million.
Chinese consumer discretionary spending will
increase from 34 percent to 45 percent of total
income as per capita incomes increase and middle
income sector tastes evolve.
Iron ore imports will increase to 1000 million
tonnes (of which Australia will provide 40 percent).
by Doug Ferguson, Partner in Charge, Australia China Business Practice
Chinese participation in major
Australian energy and transport
infrastructure projects represents an
enormous next wave opportunity.
Understanding State Owned Enterprises better
Chinese State Owned Enterprises (SOEs) in Australia act in many
ways like other international corporations
3
. They make foreign
direct investments for protable growth in order to secure high-
quality, stable supplies of natural resources; acquire knowledge and
technology, new brands, services; and accessing new markets for the
sale of Chinese products.
The management of SOEs in overseas locations are accountable
to shareholders, which also include listed company shareholders.
Increasingly, they are recognising the importance of having strong local
Australian partners, employees and stakeholder relations. There are some
differences in the ownership structure and political nature of appointments
of SOE executives that create unnecessary confusion in Australia. Foreign
investment regulators are justied in wanting to better understand the
implications and Chinese companies have an important role to play in
allaying misguided fears about their investment intentions.
3 KPMG research into SOEs was undertaken in conjunction with
The University of Sydney China Studies Centre.
Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
White Paper Summary
KPMGs publications
CONTACTS
CONCLUSION
16
China faces some major challenges in relation to inequality of income and wealth,
future water and food supply, desertication and environmental pollution, capital
markets development and regional security.
Each of these creates opportunities for Australia both in terms of Chinese
investment and trade and increasing opportunities for Australian companies in the
Chinese market.
Financial services and professional services, such
as legal, design and architecture, and engineering
companies have led the way for Australian companies
into China but there are many niche private companies
increasing their Chinese market business activities.
For example in the agriculture technology sector
opportunities for growth include areas such as soil
conservation, water pollution remediation, animal and
crop genetic technology food safety, and world-class
food production operations.
Capital markets (particularly risk management
and governance consulting), health and aged care
services, mining services, education, and high tech
manufacturing are just a few sectors where Australian
companies can compete and participate in Chinas
rapidly maturing economy.
Government agencies such as Department of
Foreign Affairs and Trade (DFAT) and Austrade play
a key role in facilitating these opportunities and the
announcement of new DFAT ofces in Chengdu and
Shenyang are welcomed.
Chinese investment in Australia is diversifying
Beyond mining and gas, Chinese corporate investment
in Australia is now rapidly diversifying towards real
estate, agriculture, architecture, renewable energy,
nance and other sectors by private and state owned
Chinese companies. There are more than 200 major
Chinese companies already operating in Australia and
we expect more privately owned companies to enter,
seeking investment and trade opportunities. Recently
proposed changes to the immigration visa laws should
enable larger number of high-net worth Chinese
families to relocate to Australian cities, which will
positively impact the real estate, education, tourism
and broader economy.
Chinese participation in major infrastructure and
transport projects represent an enormous next
wave opportunity. Chinese companies are extremely
experienced and credentialed for jointly delivering
Australias infrastructure solutions.
Australias largest trade partner and rapidly
increasing direct investor
Bilateral trade increased to over A$100 billion
in 2011, from less than A$100 million 40 years ago.
Chinese companies invested A$45 billion across
116 deals from September 2006 to June 2012 in Australia
4
.
However, China historically remains only 13
th
by ranking
of foreign investors in Australia.
Almost 80 percent of Chinese investment in Australia has
been in mining industries and 12 percent into the gas sector.
4 Analysis undertaken by KPMG/University of Sydney.
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Addressing the key issues and concerns and
building long-term relationships
Over the past 12 months, we have witnessed an
enormous increase in public debate about our
future with China in Australia. This has been a very
challenging, but an important and timely debate.
Informed and constructive discussion by business
and among policymakers about the nature and
extent of Chinese investment in Australia is critical
for stimulating greater opportunities for engagement
between Australian and Chinese organisations, which
in turn will impact Australias prosperity.
At the same time, the Chinese have been more vocal
in what issues they see as important for continuing
investment in Australia. We believe the key concerns
Chinese clients discuss with KPMG in regards to
Australia are addressed in the White Paper, including:
creating a fair, transparent and welcoming
environment for Chinese investment
addressing concerns about high operating costs,
declining productivity, lengthy decision-making
processes and changing tax environments
building stronger cultural, people and government
links to develop closer and trusted relationships in
Australia and in China for the long-term.
Building business relationships in China
Strong people-to-people connections are critical. While Chinese
language is helpful and cultural knowledge important, the best path is
having a previous trading relationship with the company and its owners
and senior executives, or intimate competitor knowledge. If you are
contemplating making an initial capital investment in the China market, a
robust market entry strategy and due diligence process is vitally important.
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Understanding Indias growth from an economic perspective and what this
growth enables India to do and be as a nation is central to a real and substantive
understanding of India. Australia needs a whole of nation engagement strategy
topartner effectively with India.
The Australia India relationship
The White Paper represents the most signicant
initiative by the Australian Government to foster a
broader and deeper platform for engagement with
India. There are already several initiatives of great
substance in the relationship between Australia and
India (outside of economic engagement), including:
Sciences: The A$130 million Australia-India
Strategic Research Fund is Australias largest fund
dedicated to bilateral research with any country.
Education: Indian students are the second largest
source of international students in Australia.
Several Australian universities have research
collaborations with Indian partner organisations,
and joint/twinning programs with Indian academic
institutions. The potential liberalisation of the
Indian higher education sector (through the
Foreign Education Providers Bill in India) should
allow the establishment of campuses in India by
foreign education providers and provide additional
opportunities. Vocational training organisations
across Australia are also targeting opportunities in
the Indian market.
Arts and culture: India and Australia have a long
history of cultural engagement and this continues to
expand. For example, in October 2012, the Australian
Government launched Oz Fest in India, the largest
Australian cultural festival ever staged in India.
Sport: Cricket and hockey have been natural points
of engagement between Australia and India. This
common interest extends to many other sports as
evidenced by the extensive coverage of various
Australian sports on Indian satellite television.
Rob Bazzani, Partner in Charge, and Mukund Narayanamurti, Director, Australia India Business Practice
There are already several initiatives
of great substance in the relationship
between Australia and India.
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19
The economic relationship between
IndiaandAustralia
Energy security concerns in India have resulted in the
coal sector being the standout area for cross-border
investments in the India-Australia corridor over the last
2 years. India has an energy decit of 8.5 percent and
a peak power decit of 10-12 percent.
Major investments include:
the development of the projected US$10 billion
dollar Carmichael coal project in Queensland
byAdani
the development of the projected US$10 billion
Alpha coal project in Queensland by GVK
the acquisition of a 99 year lease of Abbot Point
Coal Terminal by Adani for US$1.8 billion
the acquisition by Lanco Infratech of Grifn Coal for
approximately US$850 million.
The Australian Government must ensure that a
conducive investment environment is created to
continue to attract Indian investments, as countries
such as Indonesia and South Africa are also competing
for Indian capital in their coal sectors.
Indias major aspirations:
A more inclusive economy: Making fuel and
fertilizers more affordable: investing more
heavily in rural development, public health and
targeted programs to deal with malnutrition
and food security.
Managing urbanisation and growth: Indias
cities are expected to represent 40 percent
of Indias population and 70 percent of Indias
GDP
5
by 2030.
Infrastructure development: US$1trillion
in infrastructure expenditure over the next
5years, across power, roads, rail, ports,
telecom, water and irrigation.
Demographic proposition: Ensuring that a
falling dependency ratio creates a demographic
dividend. Ensuring Indian citizens obtain world-
class higher education and vocational training
opportunities.
Security: Resolving internal threats, terrorism
and border disputes.
5 McKinsey Global Institute, Indias urban awakening:
Building inclusive cities, sustaining economic growth, 2010
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20
India is a top 10 trading partner
India is a top ve source for proposed
investments in Australia
6
.
The total value of approved investment
proposals from India increased to US$11.3
billion in 2011 from US$1.5 billion in 2010.
Austrade has 11 ofces in India the largest
network of any country within India.
Sixty-ve Indian investments in Australia across
a range of sectors, over 140 joint ventures
involving Australian investors in India; and over
70 Australian nancial players with an exposure
to the Indian market through the foreign
institutional investor route.
An effective strategy for India
Australias India strategy should establish the strategic
framework for whole of nation engagement between
Australia and India. A central element of this strategy
would be the mapping of the national identities
of Australia and India with a view of harnessing
similarities and reconciling differences. This is pivotal
to ensuring a truly meaningful and substantive
understanding of the culture, values and social
workings required to succeed with India.
Emphasising the framework for engagement across
all segments including the arts, culture, sport, science,
education, trade and investment are also important
elements of this strategy. Trade and investment
engagement may be used as the platform to support
broader engagement.
6 Foreign Investment Review Board report
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21
Our closest Asian neighbour, Indonesia, is often overshadowed by the signicance
of other Asian growth engines, particularly China and India. However, Indonesia is
of great signicance, offering Australian businesses a landscape of great potential.
With Indonesia going through cultural and political shifts that are changing the
business environment, Australia needs to strengthen its ties with Indonesia.
Indonesias strong economic growth, which is
expected to continue, is driven by high demand for
its exports (predominantly resources) and a strong
domestic market. The sheer size and strength of the
Indonesian economy means Australian state and
federal governments and businesses need to seriously
consider how to establish an effective relationship
with this growing country.
Fertile ground
Cultural and political changes are making Indonesia
a far more fertile ground for investment and
cooperation. Recent improvements in the political
environment, action on corruption and lack of
transparency and the willingness of the current
government to embrace partnerships with western
economies has boosted the prospects of Indonesia
as a trading partner. Indonesia receives signicant
development aid from the US, Western Europe,
Australia and Japan a demonstration of a desire to
develop deeper relationships with this important and
growing market.
Australia and Indonesia
Indonesia should denitely rank alongside China
and India in its importance to Australia in the Asian
century. Australia, as a close neighbour, is well-
positioned to play a leading role in the development
of Indonesia as a leading global economy. A number
of sectors agriculture, infrastructure, resources
lend themselves to closer trading relationships and
bi-lateral partnerships.
The Australian Government has a key part to play
in managing and enhancing the on-going political
relationships between the two countries and
providing a platform for growth in cultural, economic
and security terms.
by Graham Brooke, Partner, KPMG in Australia and President Director of PT KPMG Infrastructure Advisory
(a joint venture between KPMG in Australia and KPMG in Indonesia)
Indonesia should denitely rank alongside
China and India in its importance to
Australia in the Asian Century.
A growing economy
Indonesias population is
expected to grow to 306 million
from 240 million by 2050.
The Indonesian economy is
growing at 6-7 percent per annum.
By 2030 the Indonesian economy
will be the seventh largest in
the world.
7
In late 2011 Indonesia regained its
investment-grade rating after losing
it in 1997.
7 Estimated by Citigroup
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22
ASEANs cumulative economic, political and demographic weight continues
to grow, positioning ASEAN as a formidable force within Asia for regional
stability and economic vitality.
ASEAN has embarked on a drive towards regional
integration and connecitivty with plans to establish
an ASEAN Economic Community (AEC) by 2015. The
ultimate goal for AEC is to transform ASEAN into
a region with free movement of goods, services,
investment, skilled labour and a freer ow of capital.
The key characteristics of AEC include:
a single market and production base in ASEAN
ASEAN will become a highly competitive
economic region
ASEAN as a region of equitable economic
development
a region fully integrated into the global economy.
ASEAN proposes to link this community with its key
external trading partners including Australia, China,
India, Japan, New Zealand and South Korea through
the Regional Comprehensive Economic Parthernship.
One of the major challenges facing the AEC is the
diversity between the member countries from a
cultural, political and economic perspective (e.g.
Myanmars GDP per capita in 2011 was US$1,325
compared to Singapore which was close to
US$60,000).
Individual ASEAN countries will need partners to
unlock the potential of AEC and Australia is ideally
placed to play an active role in this regard.
Key opportunities
The rapid growth of ASEAN is creating opportunities
across a broad range of industry sectors. As ASEAN
middle-class incomes rise, so to will the demand for a
wide spectrum of products (ranging from fast-moving
consumer goods to luxury goods) and services
(including banking, insurance, healthcare, education
and tourism).
Similar to other emerging markets in Asia, the
ASEAN region will require signicant investment into
physical infrastructure including roads, rail, ports,
power and water. It is predicted that over the next
decade, ASEAN nations will require approximately
US$60 billion each year to fully address the regions
infrastructure needs.
by Daniel Kim, Director, Asia Business Group
Individual ASEAN countires will need
partners to unlock the potential of the
ASEAN Economic Community and
Australia is ideally placed to play an
active role in this regard.
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23
Australia and ASEAN
There has been a long history of trade, political
and cultural collaboration between Australia and
ASEAN. ASEAN has become a very important trading
partner for Australia with the value of trade between
Australia and ASEAN totalling A$60 billion in FY2011,
representing 18 percent of Australias trade.
In contrast, Australias investment links with ASEAN
remain relatively small and notwithstanding the long
history of collaboration, there still seems to be an
insufcient depth of understanding and appreciation of
our nearest Asian neighbours.
Perhaps one exception to this is Singapore. As a result
of its geographic location, world-class infrastructure
and ease of doing business, Singapore has become
an important commercial hub for the region (e.g.
approximately 70 percent of all intra-ASEAN trade is
now with, or through, Singapore) and has been for
many years a strategic and attractive destination for
many Australian businesses seeking to establish a
presence in Asia.
Comprehensive strategy for ASEAN
Australia needs to develop a comprehensive strategy
for ASEAN which seeks to broaden our engagement
and deepen our partnership with individual ASEAN
countries, as well as with the institution itself in order
to capitalise on the compelling opportunities that
currently exist and best position Australia in the new
regional architecture which is emerging.
ASEAN the third emerging market growth
engine within Asia
Comprises 10 countries: Brunei, Cambodia,
Indonesia, Laos, Malaysia, Myanmar, the
Philippines, Singapore, Thailand and Vietnam.
Combined GDP of US$2.3 trillion in 2012
(forecast to grow to US$10 trillion by 2030).
Combined population of 613 million.
Middle class population is expected to rise
from 24 percent in 2010 to 65 percent in 2030.
GDP per capita forecast to be US$12,000 in
2030 (more than double the 2011 gure).
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24
Japans key strategic priority is creating stronger ties with economies that can
support its need for the kind of returns its domestic economy cannot yet offer.
Enter Australia.
The outward trajectory of Japanese investment
continues to be a dening characteristic of the worlds
third-largest economy. Twenty-ve years of economic
difculties and a new urgency around food and energy
security, and nding a way to fund the healthcare
and retirement needs of its 127-million strong
population, have translated into a role as a regional
investment powerhouse.
The attraction of Australia
Australia continues to offer Japan the attractive
combination of the opportunity for excellent secure
investment returns as well as access to the secure food
and energy supplies the country so urgently requires.
Industries in which Japan has a key national interest
are on the radar for investors. These include:
Mining: Securing access to the minerals and
energy assets Japan requires has fuelled a wide
range of partnerships with blue chip companies,
including BHP Billiton, Rio Tinto and Xstrata.
Infrastructure: Through public-private partnership
(PPP) projects and acquiring existing businesses.
Power: The move away from nuclear power
is underpinning strong investment in liquied
natural gas (LNG).
Agribusiness: Key investments in grains, beef
and dairy primary products.
Consumer goods: Ongoing concerns around
food security are driving investment, including
the acquisitions of Schweppes Australia by Asahi
Breweries and of Lion Nathan by Kirin Holdings.
KPMG also sees opportunities to deepen the
relationship through the provision of expertise in
areas in which Australia has world-class insight and
experience, such as advising on the benets of
PPP structures.
by Kevin Chamberlain and John Wigglesworth Co-Chairs, Australia Japan Business Practice
Mitsubishi Corporations alliance with BHP Billiton
is a great example of a successful partnership
between leading companies from Japan and
Australia working together since 2001 to achieve
a market-leading position in the global export of
metallurgical coal.
Despite all the media coverage around China and India,
Japan is still by far and away the largest Asian investor
in the Australian economy with sustainable and proven
business benets for both countries.
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25
As one of the worlds largest economies, Japan is
home to many leading multinationals. Japanese
companies are renowned for both innovation and
process improvement, and the Japanese business
community is highly experienced in entering new
markets and managing global operations.
In addition to providing capital for growth, Japanese
companies bring high quality products, processes
and skills to the Australian market, and provide their
Australian partners with opportunities to leverage their
global connections. However, Japanese companies
are highly sophisticated investors who carefully
analyse and monitor investment risks and rewards.
The continuation of regular bilateral exchanges
between political leaders of both countries is critical to
maintaining and building the trusted relationship that
exists between Australia and Japan.
Challenges ahead
The challenges to manage in regard to Japan include:
Changing regulation: The introduction of the price
on carbon and the Minerals Resource Rent Tax create
disincentives to investment in Australia compared to
other countries.
Industrial Relations: The need to improve
productivity and industrial relations issues are
concerning to Japanese investors.
Maintaining competitiveness: The high rate of the
Australian dollar and the high cost of doing business
in Australia are real concerns to Japanese investors,
particularly in a global commodities and energy market
with new and emerging players in Africa and South
America seeking investment capital.
Enhancing efciency: The overall efciency of the
economy is another issue for Japanese investors.
Important initiatives for the future will be improving
Australias productivity through better infrastructure,
a stable tax regime across the state and federal
governments, and more control of project costs.
Education: Creating greater mutual awareness,
through school and business exchange programs,
school language programs and a recruitment strategy
based on hiring skilled Japanese people will also be
pivotal in shaping our shared future.
Free trade agreement (FTA): Negotiations in relation
to the establishment of a bilateral FTA have been
underway since 2006. The nalisation of an FTA in
the near term is critically important to build deeper
and more integrated links between the Australian and
Japanese economies.
Japan is the third largest provider of
investment capital into Australia behind
the US and UK.
The Australia-Japan Agreement on commerce
was signed in 1957 and has been a foundation of
the business relationship for over 50 years.
Japan has invested A$123 billion in Australia
(source: Australian Bureau of Statistics
31 December 2011).
50
th
anniversary of Australian and Japan Business
co-operation recently celebrated in Sydney
demonstrating the sustainable and long lasting
nature of our relationships.
Japanese investment in Australia is focused on
infrastructure, mining, power and agribusiness.
In recent years, Japanese trading companies
have derived a signicant proportion of their
prots from Australian investments, in some
cases up to 50 percent.
Economic efciency and appropriate
infrastructure to support the mining and energy
sectors are paramount to Japanese investors.
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26
There is a compelling case to review the ofcial bilateral architecture between
Australia and Korea and further enhance the ties between both countries in order
togenerate even greater prosperity.
The White Paper identies Korea as one of ve key
regional nations for Australia and describes the
bilateral architecture in place between Australia and
Korea as being well-developed. While this might be
the case, this is no time to be complacent.
Dynamic outbound direct investment
Korean outbound direct investment is extremely
dynamic and constantly evolving, which is generating
new opportunities for Australia.
In recent years, Korea has embarked on an outbound
wave of investment and Australia consistently ranks
as one of the top target destinations. The value of
Korean investment proposals approved by the Foreign
Investment Review Board (FIRB) in the last 2 years
totalled A$5.3 billion
8
. The number of these approved
proposals exploded from only 14 in FY2009 to 90
in FY2011
9
. During this time, Korean investments
have broadened well beyond mining to include LNG,
renewable energy, infrastructure, commercial
property and agribusiness.
Key opportunities:
Energy and resources: Koreas energy and resource
security challenge will continue to drive outbound
investment in these sectors and create opportunities
for Australia to leverage the broad range of benets on
offer from Korean strategic partners.
Renewable energy: Koreas changing energy mix will
continue to drive increased interest and investment in
Australias renewable energy sector.
Infrastructure: Korean engineering, procurement and
construction companies (e.g. DSME, Hyundai Heavy,
Samsung C&T) will continue to seek out opportunities
to deliver infrastructure solutions around the world.
Australia has the opportunity to access both equity
and long-term debt funding from Korea in nancing
its infrastructure decit.
Agribusiness: Koreas food security challenge will
generate greater opportunities for collaboration
between both countries. One example is the joint
venture between CJ CheilJedang, Koreas leading
foodbusiness and Australias CassTech to undertake
an innovative cassava project in Queensland.
by Julian Vella, Partner in Charge, Australia Korea Business Practice
8 Source: Foreign Investment Review Board Annual Report
2010-2011
9 Source: Foreign Investment Review Board Annual Report
2008-2009, 2009-2010 and 2010-2011
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Innovation: There are signicant opportunities for
Australia to partner with Korea in undertaking R&D
(particularly late stage) and leveraging Koreas very
strong commercialisation capability.
Demographics: Koreas ageing population is driving
demand for aged care and other health facilities,
where Australia could potentially export its deep skills
and experience.
AU-KR Free Trade Agreement (FTA): A
comprehensive FTA will create opportunities to
strengthen the highly complementary trade and
investment relationship and could contribute US$22.7
billion over the period 2007 to 2020
10
.
Korean skills and cultural intelligence
There is a uniquely Korean way of doing business.
Cultural intelligence training must be tailored for each
country including Korea so participants understand
the subtleties between doing business with Korea
compared to other Asian countries.
Korean outbound direct investment
is extremely dynamic and constantly
evolving, which is generating new
opportunities for Australia.
Outbound wave of investment: US$33 billion
represents the total value of Korean outbound
M&A announced deals (2009-2011) making up
75 percent of all cross-border deals
11
.
Energy and food security challenge: Korea
imports 97 percent of its energy and resources
12

and its food self-sufciency ratios continue to
decline below 50 percent
13
.
Ageing population: Twelve percent of Koreas
population is aged 65 and over (forecast to be
38 percent by 2050
14
.
Investment in human capital:
Korea is ranked no.3 in the world for R&D
spending to GDP ratio
15
.
Rich club entry: Koreas GDP per capita is
forecast to be US$90,294 by 2050 (4 times higher
than 2011)
16
.
11 Source: Thomson Reuters and KPMG Analysis
12 Source: Asia-Pacic Economic Corporation, Korea: New and
Renewable Energy Industry 2009, http://egs.apec.org/more-
articles/158-korea-new-and-renewable-energy-industry
13 Source: Samsung Economic Research Institute, New Food
Security Strategies in the Age of Global Food Crisis, 2011
14 Source: The World Bank data 2011 and National Statistical Ofce
Korea data
15 Source: Korea National Science and Technology Council data
16 Source: Goldman Sachs, Global Economics Paper No: 153, 2007
10 Source: Joint Study by ITS Global and the Korean Institute for
International Economic Policy, Australia Republic of Korea
Free Trade Agreement Feasibility Study 2008
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28
Inuencing the world stage
Australia and Korea are classic middle powers with
shared common structural interests of liberalism and
sustainable security. We believe that one of the biggest
potential upsides for both countries is on the foreign-
policy front in multilateral forums from the G20 to the
OECD, where both countries are well positioned to play
a pivotal role on regional and global issues.
Comprehensive strategy for Korea
Australias bilateral relationship with Korea is unique
compared to the other four key nations identied in
the region.
In developing a comprehensive country strategy
for Korea proposed by the White Paper it will be
critical to fully understand and appreciate the long
history between the two countries which dates back
to the late 1800s. An appreciation of how and why the
bilateral relationship has developed to one which is
now based on shared values, trust and mutual respect
much broader and deeper than simply a transactional
relationship of buyer and seller will ensure that all of
the strengths of the bilateral relationship are identied,
leveraged and built upon.
Koreas increasing inuence on mega
multi-billion dollar projects
POSCO is the 4
th
largest steel maker in the world
(by volume)
17
and acquired a 15 percent equity
stake in Hancock Prospectings Roy Hill Iron Ore
project, signed a long-term off-take agreement
and is positioning its engineering and construction
business to assist with the mine, rail and port
related infrastructure.
POSCOs participation in the project has been a
catalyst for Japanese and Taiwanese support for
the project and potential long-term debt funding
from Korean Export Credit Agencies and Korean
Development Banks.
17 Source: World Steel Association, World Steel in Figures 2012
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29
The Asian century will present new challenges and opportunities for a wide range
of industry sectors. KPMGs industry leaders share their perspectives on the
opportunities and challenges of the Asian century for the following sectors:
Manufacturing
Financial services
Sustainability and natural resource management
Tourism and sport
Key sectors
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Emerging Asia is dependant on a stable and cost-efcient supply of minerals and
resources. The White Paper acknowledges that these elements are critical to the
ongoing development of the region.
Energy and minerals exports to Asia have and remain
the largest Australian export contributors to the
region. These are forecast to continue to dominate
as production comes on-line from LNG and mining
projects currently under development. Australia
and Asia will be increasingly entwined due to Asias
need for a secure supply of energy and minerals for
urbanisation and development.
Our long-standing relationship with countries such as
Japan, China and South Korea and emerging Indian
investment in supplying key minerals and energy
requirements have created a blue print for new and
expanded engagement in other countries in the region
as commodity demand shifts.
Key opportunities for Australia include:
Growing and diversied minerals and energy supply
to China, South Korea, India and Japan.
Mining services, technology, and innovation and
collaboration: however, the right policy settings are
needed to encourage investment.
Connecting with other emerging regions such
as Africa, Chile, Columbia, Mexico and Peru as a
mechanism between Australian and Asian skills
and capital.
Collaboration with diverse Asian skills and
technology developments supporting increasingly
sophisticated mining extraction, processing
techniques to address operational challenges.
Increasing engagement in renewable energy
investment and collaboration such as wind and solar.
Success in these areas will require government to
work hand-in-hand with industry to remain competitive
in Asia and beyond. The future success of the sector is
heavily reliant on collaboration, trade and investment
ows with Asia.
by Helen Cook, Partner, Energy & Natural Resources
Australia and Asia will be increasingly
entwined due to Asias need for a
secure supply of energy and minerals
for urbanisation and development.
Challenges to manage
There are a range of challenges for Australian mining and resources companies
tomonitor inAsia. These include:
Competitors: In addition to the many supply opportunities there is emerging
competition from Asia. For example Indonesia (coal) and Malaysia (LNG) are
emerging as major competitors in the region with both countries taking dominant
positions in global markets and continuing to expand.
Productivity and cost management: The high Australian dollar, cost escalation,
increasing regulatory burden such as climate change, and higher taxes and royalties
are putting pressure on the competitiveness of Australian resource companies.
Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
White Paper Summary
KPMGs publications
CONTACTS
CONCLUSION
31
Australia plays an important role in supplying food to Asia.As a result,
the agribusiness and food sector is one of Australias greatest medium to
long-term opportunities in the region.
Growing populations, changing diets resulting from
rising middle class incomes, and declining food
production capacity means there are long-term,
sustainable opportunities to work constructively with
Asian partners to help solve their food safety and
security needs.
At the same time, Asian companies have the
investment capital to help build the next stage of
Australias agricultural industry.
China, Australias largest agricultural sector trading
partner, is unlikely to be able to meet all of its own
food needs in the future despite a strong desire for
self-sufciency. Australia has the capacity to supply
China and other Asian countries with high-quality,
high-volume, safe and diversied food and agricultural
output.
Innovation, technology and improved productivity,
particularly capital productivity, will be required. In
addition, sizeable nished product off-take agreements
with major Asian customers could provide a scale of
manufacturing operations not seen before in Australia.
by Phillip Napier, Partner, Agribusiness
Australia has the capacity to supply
China with high-quality, high-volume,
safe and diversied food and
agricultural output.
Australia: Chinas food bowl
40% Proportion of agricultural
output that Australia consumes.
21% Proportion of the worlds
population resident in China.
8.5% Amount of the worlds arable
land in China
6.5% World water reserves found
in China.
Critical workforce challenges
Experienced and skilled agri-talent from Asia will
be critical to meeting the resourcing needs of
our farmers.
116,556. Number of Chinese agricultural
undergraduates and post-graduates in 2010.
700. Australian graduates from agriculture and
agri-related degrees
18
.
Creating partnerships with Asian agricultural
universities can leverage this talent pool into
commercial applications and help bridge the
Australian talent gap and provide Asian agri-talent
with experience in agricultural management.
18 National Farm Institute estimate.
Further Reading
FOREWORD
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Innovation
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China
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Japan
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KEY SECTORS
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CONCLUSION
32
Collaboration and innovation in practice
The joint venture between CJ CheilJedang,
Koreas leading food business, and Australias
CassTech to undertake a large-scale cassava
project in North Queensland is a good example of
collaboration and innovation in food production.
The project aims to produce 100,000t p.a. of
native tapioca starch using CassTechs innovative
mechanised farming system.
Cassava is not currently grown on a commercial
scale in Australia.Accordingly, the project could
potentially establish a whole new industry not just
for the Burdekin Shire but Australia more broadly.
Food security
The Australian Governments National Food Plan
green paper recognises the importance of food as
a comparative international advantage for Australia.
However, the green paper would benet from a
complementary National Plan for Agriculture to:
identify priority areas for investment
develop deeper, mutually benecial Asian
relationships
renew commitment to greater R&D and innovation
redress falling agricultural productivity in Australia.
Australias relationship with Asia regarding food
security is complementary. However, greater
transparency, clear pragmatic thinking and open
dialogue can elevate the investment debate beyond
selling the family farm, to a constructive discussion
on how each nation can mutually benet.
Food security is a shared challenge that will require
innovation and new levels of collaboration.

Further Reading
FOREWORD
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CRITICAL ENABLERS
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Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
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CONTACTS
CONCLUSION
33
Asia is a critical contributor to Australias manufacturing competitiveness.
A combination of strategic offshoring and high-value domestic manufacturing
should be pursued by Australian businesses.
To understand how Asia can add value to the
manufacturing sector, we need to redene
manufacturing to include the entire value chain.
This includes research, development and design,
supply management, production, go-to-market
strategies, logistics and services.
Competitive manufacturing for Australia is not about
offshoring the entire manufacturing value chain, but
only those elements that dont make strategic sense
for Australia. This will mean something different for
each manufacturing sector depending on its maturity,
strengths and weaknesses in the domestic and
international markets.
Importing goods or inputs produced in Asia is
economically sensible where Australia has no
international comparative advantage. However, in
select sectors, such as manufacturing inputs into
mining and energy as well as agriculture and food,
it makes sense for Australia to produce and add-
value. There is much work to be done to maximise
our potential in these sectors through industry and
government leadership.
Manufacturing
by Tony Young, Partner, Industrial Markets
Competitive manufacturing for
Australia is not about off-shoring the
entire manufacturing value chain, but
only those elements that dont make
strategic sense for Australia.
Important questions for Australian
manufacturers
Asia is an important competitor in Australian
manufacturing. Australian manufacturers can help turn
an apparent threat into a potential opportunity by being
deliberate in their engagement and asking some critical
questions.
How can you forge valuable and long-term
relationships in Asia to capitalise on growing Asian
demand and create economies of scale?
Where does your business have comparative
international advantages in Australia? Relative to their
sector, manufacturers may not be competitive in all
parts of the value-chain, however they can invest in
areas of strength to create a point of differentiation
and competitive advantage. Opportunities also exist
to export technologies and expertise in these areas.
Does it make sense for your business to partner and
possibly outsource parts of the value chain to Asia?
Where this is the case, which country in Asia is best
placed to supply that part of the value chain? How
will this increase value to investors, employees,
customers, society and the nation for both Australia
and the Asian country in question?
KPMG has detailed a
proposed framework and
approach to each sector in its
Manufacturing Competitiveness
in Australia paper. Further Reading
FOREWORD
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CONCLUSION
34
As our relationships and trade with Asian countries increases in the future, nancial
services will make up a large and growing percentage of our export activity.
Asia represents a large opportunity for Australian
nancial institutions.
Australias extensive experience in syndicated
lending, transaction banking, xed-income,
currency and commodity products, trade nancing,
treasury and capital markets operations and wealth
management offers a critical pathway towards
creating new revenue streams for both Australian
and Asian nancial institutions through partnerships.
Additionally, Australia is in a solid position to satisfy
Asian nancial institutions (e.g. China) long-running
interest in developing management skills in corporate
governance, risk management, internal controls,
technology, the adoption of best practices, product
development to help diversify income streams and
expertise in the operation of treasury divisions.
As China becomes an increasingly large exporter
of capital, allowing the direct convertibilitiy of the
Australian dollar with the yuan, will help foster
increased trade between Australia and China and is an
important area for continued progress to be made.
Fund management and insurance expertise
Australia has one of the largest, most advanced
funds management and superannuation industries
in the world and demand from ageing populations in
Asian countries and growing wealth in the region will
substantially fuel demand for our skills, knowledge
and products and services in the future.
Australian banks major advantage is their expertise in
governance, risk management, products, technology
and operations, and management experience.
Challenges relate mainly to a relative lack of familiarity
with the customer base in Asian countries, increased
levels of competition (from local Asian banks and other
international banks), particularly in the retail market,
challenges securing local deposits and funding, as
well as limited distribution capability. Asia is not a
homogenous marketplace and each country has
particular nuances which are important to recognise
and incorporate into strategic decision-making (e.g.
market entry).
Financial services
by Andrew Dickinson, ASPAC Leader, Banking and Ian Pollari, Partner, Financial Services
Asia represents a major growth
opportunity for Australian nancial
institutions, bringing product
manufacturing capabilities and deep
operational and risk management
expertise to the region.
Further Reading
FOREWORD
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Education
Financial System
China
India
Japan
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KEY SECTORS
Manufacturing
Financial services
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Tourism and sport
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CONCLUSION
35
For new entrants into the Australian marketplace, a
relative lack of familiarity with the regulatory system
and the corresponding network of relationships can
prove challenging.
Complementary advantages include providing each
other with rst-hand insights into the home markets
competitive and regulatory issues. The key to success
is to strengthen levels of co-operation and explore
partnering opportunities.
Developing management skills
Australia can help Asian nancial institutions
develop management skills in:
corporate governance
risk management
internal controls
technology
the adoption of best practices
product development to help diversify
income streams
expertise in the operation of treasury divisions.
New revenue streams for Australian and Asian nancial institutions
Australia offers extensive experience to Asian partners in:
funds management
life and general insurance
syndicated lending
transaction banking
xed income
currency and commodity products
trade nance
treasury and capital markets operations.
Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
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KPMGs publications
CONTACTS
CONCLUSION
36
For health and aged care, Australia in the Asian century is an excellent opportunity
for partnership and mutual learning. This will be about health and health services
and wider economic opportunities.
Australia is a superb hub for the training and
development of clinical professionals. Healthcare
professional training in Australia will continue to be a
growth industry and be in great demand throughout
Asia. The potential size of the opportunity will stretch
our limits and require new approaches and innovation
to meet the demand and help Asia mobilise population
health more quickly.
Development of tertiary and quaternary services:
As the Asian population ages and disease patterns
change there will be opportunities in the development
of tertiary and quaternary services in areas such as
cancer, heart and liver disease services.
Links to centres in Melbourne, Sydney and Brisbane
will secure credibility and help Asian sites attract high
quality professionals.
Partnership potential
Australia has a real opportunity to partner with Asia
in health sciences and to attract the life sciences
industry at a time it is predicted to decline in prole in
Australia. Australia can lead the development of drugs
and medical devices both with and for Asian partners.
For example, early drug development can continue
here while proof of concept through later phase trials
can articulate through Asian population centres.
by Shane Solomon, Partner, Healthcare
Australia has a real opportunity to
partner with Asia in health sciences
and to attract the life sciences
industry at a time it is predicted
to decline in prole in Australia.
Health science partnerships
Non-communicable disease disproportionately affects emerging Asian nations. We can partner with
research efforts across Asia on two levels:
Scientic level: Universities such as The University of Melbourne already collaborate with a number of
Asian counterparts.
Health system level: Linkage and exchange of knowledge can identify how all our health systems need to
adapt to meet changing population health requirements. Australia can learn from Asian health systems that
do not have the complex and conservative structures of developed world health services.
Heavy training
demand
If India is to populate its
health service with as
many General Practioners
per population as Australia
it would need all the medical
graduates of the worlds
medical schools for the
next ten years.
Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
White Paper Summary
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CONTACTS
CONCLUSION
37
Sustainability is a latent theme throughout the White Paper. Australian
companies need to position themselves as the partners of choice for Asian
corporates operating in markets where sustainability credentials will become
clear competitivedifferentiators.
As Asia becomes more aware of the constraints to
growth, such as environmental, water, access to energy
and food security, companies will be keen to partner
with organisations that have respected, reliable and
credible responses to sustainability challenges.
Asian companies have the potential to leapfrog over
inefciencies that have been experienced by western
companies on their path to sustainable growth and
avoid going through a period of dirty growth. As
a result Australian companies have the potential
to position as partners of choice for companies
across Asia seeking to enhance their capabilities in
sustainability. Through our experience with carbon
emissions trading and dealing with sustainability
challenges such as water scarcity within corporate
strategies and city planning, Australia has much to
offer our Asian neighbours in skills transfer, strategy
development and implementation.
The agribusiness and food sector is one of Australias
greatest medium to long-term opportunities in the
region. China is now our largest agricultural sector
trading partner.Australia has the capacity to supply
China with high-quality, high-volume, safe and
diversied food and agricultural output.
Emerging Asia is absolutely dependent on stable
and cost-efcient supply of energy, food and water.
The White Paper acknowledges that these elements
are critical to the ongoing development of the
region. The White Paper commits to healthy rivers,
strong communities, and energy and biodiversity
conservation. It also recognises the need to nalise
the Murray-Darling Basin plan. This will help Australia
be in a better position to respond to increasing
demand in an environmentally sustainable manner.
resource management
by Chi Woo, Partner, Climate Change & Sustainability
Further Reading
FOREWORD
INTRODUCTION
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China
India
Japan
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KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
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CONTACTS
CONCLUSION
38
Adaptation will be essential for managing the
unavoidable impacts of climate change and minimising
the regions costs associated with impacts on
infrastructure, health, food and water. The impacts
will also extend to the displacement of people
(climate refugees) and the ultimate costs that
have the potential to ow to Australia. This is a key
consideration for Australia as is being able to provide
assistance for adaptation and mitigation measures.
Pertinent policies
Asian companies will be increasingly looking to partner
with organisations with convincing solutions that
address constraints on future growth. Customers in
those markets will become more aware of business
role in mitigating carbon emissions, improving food
and energy security and enhancing infrastructure
resilience. This awareness will fuel expectations of
leading sustainability practices.
Australia is a leader in sustainability and environmental
innovation which will be advantageous to the region
as a whole, as it develops and has to adapt to the
effects of a changing climate, and evolving awareness,
attitudes and business practices.
Potential to leapfrog
Asian companies have the potential to leapfrog
over inefciencies that have been experienced
by western companies on their path to
sustainable growth and avoid going through a
period of dirty growth.
Emerging Asia is absolutely dependent on stable
and cost-efcient supply of energy, food and water.
Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
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CONCLUSION
39
As Chinas middle class grows and adopts more leisure behaviours, Australia
has a unique opportunity to benet from and advise this powerful neighbour.
One of the most powerful social and economic
forces to evolve in the 21st century has been the
rise of Chinas middle class. The demand for western
consumer goodswashing machines, mobile phones,
televisionhas driven demand for Australian resources,
energy and commodities. But beyond consumer
goods there are other lifestyle aspirations that the
Chinese and other developing Asian nations might
look to emulate. This includes modern consumer
behaviours and experiences such as tourism and
sport, both of which are features for relatively well-to-
do societies.
An opportunity for Australia
The opportunity for Australia is to write itself into
these new behaviours: establish air linkages between
Australian and Chinese ports as already exists between
Cairns and Osaka, for example. This requires liaison
with Chinese authorities as well as an understanding
of the experiences that middle class Chinese tourists
might want from the Australian market.
The same logic applies to sport, which can only truly
ourish in a society once the basics of survival have
been met. Since the 2008 Beijing Olympics China
has emerged as a powerful sporting nation, which
becomes more powerful as locals nd more time
to pursue leisure activities. Australia can provide
advisory, construction and coaching services in areas
such as tennis, swimming and golf. These activities
require the marshalling of municipal resources and
theoperation of clubs.
Looking beyond energy and
resources markets
Australia is a nation of travellers, tourists and
sportspeople this reects our economic wealth.
This culture can be expected to translate to the
developing Chinese middle class in coming decades.
Australia needs to look beyond energy, resources and
commodities to see how we can leverage expertise
that Asias rising middle class is likely to require in
the future. That expertise already exists in tourism
and sport, which Australia can and must package and
promote to the Chinese and other rising Asian middle
class markets.
Tourism and sport
by Bernard Salt, Partner, Demographics
Australia needs to look beyond
energy, resources and commodities
to see how we can leverage
expertise that Asias rising middle
class is likely to require in the future.
Chinese tourism in
Australia 2011-2012
19
583,000.
Number of Chinese tourists.
Chinese tourism has
risen 16%.
A$3.8 billion.
Expenditure from Chinese
tourism up 9.1%.
32%.
Increase in Australian tourism
over the next decade attributable
to China.
19 Tourism Research Australia, State of the Industry 2012
Further Reading
FOREWORD
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CONCLUSION
40
While the White Paper is a milestone on Australias
road to prosperity in Asia, we have been on the
journey for some time. Many Australian businesses
have already actively engaged in Asia. Some have
succeeded building knowledge, experience and
potentially a competitive advantage. Others have
come away scarred by the experience. Many other
businesses, however, have either ignored Asia, or
taken a narrow perspective of the opportunity.
The release of the White Paper is a good catalyst for
all business leaders to revisit their stance on Asia.
The Asian century will have implications for everyone,
and the businesses that succeed will be the ones
that have a clear view of the opportunities and threats
presented, and a plan for how they will tackle them.
However, the approach taken needs to be the right
one for your business. In the excitement of the White
Paper, it is critical to avoid a me-too strategy. It may
well be to focus on domestic opportunities created
indirectly, for example providing services to a growing
tourism industry.
The question is: what is the right plan for you?
Asia ready?
by Chris Gottlieb, Chief Strategy Ofcer, KPMG Australia
Executives need to have a clear view on the
opportunities and threats presented by Asia,
and a plan for how they will tackle them.
Are you ready for the Asian century?
Key questions for Australian businesses.
Strategy
Are you clear on how Asia (and each country
in Asia) could directly and indirectly affect you
over the next 5 to 10 years, in terms of your:
customers, suppliers, value propositions,
competitors and people?
Do you have a plan to take advantage of the
opportunities that can be clearly articulated to
stakeholders?
What are the extreme scenarios that could
dramatically impact your business?
What can you learn from the experiences of
others inside and outside your industry?
People
How Asia-ready are your leadership team
and Board?
Where in your business do you need Asia
capability, and what form does it take? What is
important to your business language, cultural
awareness, relationships?
Relationships
What relationships do you have in Asia? Which
do you need to build?
What help do you need and what do you need
to learn?
Further Reading
FOREWORD
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CONCLUSION
41
In Chinese culture the number ve has profound signicance. There are ve
elements wood, re, earth, metal and water ve founding Chinese blessings
wealth, happiness, longevity, luck and prosperity and ve sacred mountains.
Consequently, the number ve suggests fundamentality, encompassing a unique
mix of elements that strike a cosmic balance.
It is entirely appropriate that the number ve has such prominence in the White
Paper, which includes ve key pillars of productivity and 25 major objectives. The
purpose of the White Paper is to identify the unique combination of elements that
will create an integrated and mutually benecial Asia-Australia nexus.
The paper is an essential roadmap, but it is complex; implementation will be
challenging but rewarding for generations to come. The White Papers ambitious
scope will require long-term commitment from government and bold
decision-making.
Our regional future is not all governments responsibility; business plays a key role
in establishing and nurturing relationships and opportunities.
The White Paper is a clarion call to Australian businesses for those yet to consider
the potential impact, opportunities and risks the Asian century will present for their
business, the time to act is now.
Conclusion
Further Reading
FOREWORD
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CONCLUSION
42
The White Paper, Australia in the Asian Century,
provides a comprehensive and arguably complex
roadmap to enable Australia to actively participate in
and benet from an Asia-driven world economy. The
White Paper outlines ve key areas with 25 objectives
and over 130 pathways.
View the Summary
White Paper Summary
Further Reading
here
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General
(i) Australia in the top 10 in GDP per person by 2025
(13th in 2011)
(ii) Average real national income at approximately
$73,000 per person ($62,000 in 2012) in Australia
1. Skills and education
Australian schools in the top ve schooling
systems in the world
1.1 Improve early childhood education, schools,
universities and training systems
1.2 Increase participation through education, training,
child care, paid parental leave, employment services
for older Australians
1.3 Develop through the Fair Work Act 2009 a culture
of collaboration, continuous improvement and
productivity growth
2. Innovation
Innovation system in the top 10 globally with a focus
on a creative problem-solving culture, that attracts top
researchers, companies and global partnerships
2.1 Articulate an ambitious policy through the
Industry & Innovation Statement
2.2 Investment in scientic capabilities through the
National Research Investment Plan
2.3 Improve nancing options for innovation
2.4 Build scale and capability through collaboration
between business, the research sector and
governments
2.5 Support Australian researchers to broaden and
strengthen their partnerships across the Asian region
3. Infrastructure
Systematic national framework with at least
a 20-year planning horizon
3.1 Long-term national infrastructure strategy for corridor
planning, cross-jurisdictional networks and projects of
national signicance
3.2 Reduce barriers to investors to increase private sector
involvement including superfunds
3.3 Provide transparency and forward-looking analysis
to improve productivity, amenity and liveability of
Australias cities
3.4 Efcient energy network investment, promoting
greater competition in retail energy markets as
outlined in the Energy White Paper

4. Communications
World leading communications system to support the
rapid exchange and spread of ideas and commerce in the
Asian region
4.1 Complete rollout of NBN to enhance digital commerce
and productivity and boost trade
4.2 Review regulatory and other barriers to expanding into
new technological markets
5.Tax system
Encourage investment in the capital base and greater
workforce participation
5.1 Ensure tax system supports continued business
investment
5.2 Encourage greater workforce participation particularly
for older Australians
5.3 Lift tax-free threshold to $21,000 increasing
participation in the labour market
5.4 Facilitate State and Territory tax reform to phase out
inefcient taxes
5.5 Establish a Tax Studies Institute to inform debate on
tax reform
5.6 Continue the national conversation on tax reform with
business and community groups
Productive and resilient economy
2012 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
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43
Operating in and connecting
with growing Asian markets
Building sustainable
security in the region
Deeper and broader
relationships
Productive and
resilient economy
Building capabilities
6. Regulatory reform
Australia in the top ve most efciently regulated
places in the world
6.1 Progress the six priority areas for reform to improve
competition and productivity as agreed by COAG
inApril 2012
6.2 Enter into a National Productivity Compact with
Statesand Territory to pursue regulatory and
competition reform
6.3 Business Regulation and Competition Working
Group and the Standing Council on Federal Financial
Relationsreforms
6.4 Reduce reporting burdens on business by removing
overlaps and expanding on-line business reporting
6.5 Through COAG & Business Advisory Forum lift
regulatory performance through risk-based approaches

Productive and resilient economy
7. Environmental sustainability
(i) Reduce emissions by at least 5 percent below
2000 levels by 2020 and 80 percent below 2000 levels
for 2050
(ii) Australia as a world leader in sustainable food
production methods, in sustainable energy and water
use and in biodiversity conservation
7.1 Fully implement Clean Energy Future policies
7.2 Maintain commitment to 20 percent renewable
energytarget by 2020
7.3 Support Australia as a world leader on solar energy
technologies and becoming a world leader on
renewable energy technologies
7.4 Finalisation of the Murray-Darling Basin Plan to assist
in sustainable food production
7.5 Assess biodiversity impacts under the Biodiversity
Conservation Strategy 2010-2030 scheduled for 2015
7.6 Implement the worlds largest marine reserve network
and continue land protection
7.7 Support on-going development of environmental
accounting

8. Macro-economic and nancial
frameworks
(i) Continue to have Triple-A sovereign credit rating
(ii) Develop a deep corporate bond market to rely less on
offshore wholesale funding markets
8.1 Maintain current policy including oating exchange
rate, independent monetary policy and medium-term
scal outlook
8.2 Two percent cap on annual real spending growth
(average) until surpluses are at least 1 percent of
GDPand growth above trend
8.3 Implement Basel III capital and liquidity standards
8.4 Ensure Australia has an efcient and well regulated
funds management industry
8.5 Development of a deep domestic corporate bond
market by streamlining market disclosure obligations
8.6 Allow Commonwealth Government Securities to be
traded on a securities exchange

44
Deeper and broader
relationships
Productive and
resilient economy
Deeper and broader
relationships
9. School excellence
(i) Australia ranked in top ve country in reading,
science and mathematics literacy by 2025
(ii) 90 percent of Australians aged 20-24 will have
a year 12 or equivalent qualication
9.1 Deliver National Plan for School Improvement
improving teacher quality and empowering school
principals and providing additional information to parents
9.2 Implement an Australian Curriculum to upgrade
student skills through the National Plan for School
Improvement
10. Cultural knowledge and skills
inschools
Australian schools will engage at least one Asian school
to support teaching of a priority Asian language
10.1 Implement the Australian Curriculum which includes
Asia and Australias engagement in Asia
10.2 Work with education institutions to ensure the study
ofAsia becomes part of the core curriculum
11. Asian languages in Schools
All students will have access to at least one priority language
Chinese (Mandarin), Hindi, Indonesian and Japanese
11.1 Every Australian student to have continuous access to
high quality Asian language curriculums
11.2 Develop a collaborative approach for developing detailed
strategies for studies of Asia and Asian language take-up
11.3 Work with business and the community to increase
understanding of the benets of learning a foreign
language and to increase demand
12. Universities
(i) 20 percent of undergraduate enrolments from low
socio-economic backgrounds by 2020
(ii) 40 percent of all 25-34 year olds will hold a bachelor
degree or above by 2025
(iii) 10 of Australias universities in the worlds top 100 by 2025
12.1 Progress higher education reform including
strengthening the international sector
12.2 Work with universities to substantially boost the number
of Australian students studying in Asia
12.3 Support increases in the number of students studying
Asian studies and languages in Australia
12.4 Every Australian university to have a presence in Asia
and transferable credits arrangements with at least one
Asian university
12.5 Strengthen research links with Asia through the
Australian Research Council and other mechanisms
13. Vocational education and
training system
(i) More than 75 percent of working-age Australians to
have Cert III or above qualications by 2020
(ii) Vocational education and training institutions to have
expanded services in Asian markets
13.1 Implement the new National Partnership Agreement
on Skills Reform
13.2 Improve planning, investment and delivery guided
by Australian Workforce and Productivity Agency,
educators and Industry Skills Council
13.3 Build in-country partnerships and develop regional
complementary skills assessment, qualication
assessment and recognition
13.4 Strengthen networks between Industry Skills
Council,Australian industry, unions and counterparts
in theregion
45
Deeper and broader
relationships
Productive and
resilient economy
14. Asia-capable leaders, workplaces
and institutions
One third of board members of top 200 publicly
listed companies, Commonwealth bodies and senior
leadership of the APS to have deep experience in and
knowledge of Asia
14.1 Encourage boards to include more business people
with direct expertise from within the region
14.2 Encourage AICD to integrate Asian cultural
competency training into its Company
DirectorsCourse
14.3 Encourage annual reporting on progress through
theASX Corporate Governance Council
14.4 Encourage the ACTU to develop regional expertise and
build stronger partnerships in the region
14.5 Strengthen the Australian Public Service by improving
capabilities for integrated policy analysis, problem
solving and implementation
14.6 Build stronger relationships through regular exchanges
of senior ofcials at mid-career points
15. Adaptability
Australian communities and regions to benet
from structural changes in the economy and new
opportunities
15.1 Work co-operatively with business to develop
strategies for sustainable growth and jobs
15.2 Work with communities and regions to manage
structural transition, diversify their economies and
make the most of new opportunities
15.3 Accelerate the development of Darwin as a
sophisticated liveable city built around a gateway
toAsia
16. Social foundations
Australia will be a higher skill, higher wage economy,
multicultural and cohesive society
16.1 Maintain Australias stable, liberal democratic
institutions and laws
16.2 Maintain world-leading social systems, including
pensions and family support, NDIS, health and
agedcare reform
16.3 All levels of government to promote cohesive
and multicultural societies including for
IndigenousAustralians
16.4 Draw on Australias diverse population through
networks including migrants and Australians
livingabroad
16.5 Maintain a exible, responsive and well-planned
migration framework

46
Deeper and broader
relationships
Productive and
resilient economy
Operating in and connecting with growing Asian markets
17. Business connections
Australian businesses including SMEs will offer
high value goods and services in Asia
17.1 Strong dialogue between government and businesses
through the Asian Century Business Engagement Plan
17.2 DFAT, Austrade, Enterprise Connect, EFIC to work to
build capabilities and secure opportunities
17.3 Revise EPICs mandate to refocus on market failures
that impede SME exporters in emerging markets
18. Open Australian economy
(i) Trade-links with Asia at least one-third of GDP by
2025 (a quarter in 2011)
(ii) Region wide agreements reducing regulatory costs
18.1 Continue to reduce tariffs through scheduled
reductions as part of WTO
18.2 Reduce unnecessary impediments to Australias
domestic regulation of cross-border activity
18.3 Work with business and partner governments to
improve Australias border management framework
18.4 Make it easier for low-risk visitors to come to Australia
through longer period, multiple entry and online visas
18.5 Continue to welcome foreign investment in Australia
and promote Australia as a preferred destination
18.6 Enhance the transparency of the foreign investment
screening processes
18.7 Work to reduce trade barriers through WTO, G20,
APEC, ASEAN and bilaterally
18.8 Work towards an Asia-Pacic region free-trade
agreement
18.9 Promote rules of origin in trade agreements for
lowercompliance costs
18.10 Position Australia as a connecting rod with Latin
America and Asia
18.11 Work to increase access for Australian investment
inAsian markets
18.12 Continue to advocate market-based reforms in Asia
including direct trade between the Australian dollar
andthe Chinese renminbi
18.13 Support complementary nancial market regulations
18.14 Work with partners on behind the border initiatives
including infrastructure, agriculture and food,
education, health and aged care
19. Australias agriculture and food
sector (Case study)
Recognised as innovative and reliable producers and
processors of quality foods
19.1 Implement the National Food Plan to foster an
integrated food system
19.2 Maintain the rural co-operation model to boost
productivity through advances in collaboration
andscience
19.3 Provide services to assist food and agricultural
exporters and support two-way investment
19.4 Use trade negotiations and networks to promote freer
trade in agricultural and food products
19.5 Implement world class biosecurity reforms
19.6 Ensure Australian food producers and processors
makeefcient use of natural resources including,
soil,water and energy

47
Deeper and broader
relationships
Productive and
resilient economy
Building sustainable security in the region
20. Sustainable security
Australias policies contribute to sustainable security
with habits of co-operation the norm
20.1 Promote co-operative arrangements particularly
amongst China, Japan, Indonesia, India and the
UnitedStates
20.2 Continue to promote fair representation of Asian
nations in key international organisations
20.3 Support Chinas participation in the regions strategic,
political and economic development
20.4 Work with the US to ensure it has a consistent and
strong presence in the region
20.5 Maintain a comprehensive approach to security
including the release of a National Security Statement
and a Defence White Paper
20.6 Maintain strong support for global, regional and
bilateral security frameworks based on the United
Nations Charter
20.7 Work for global economic stability through the G20
20.8 Use Australias inuence in global forums (including
UN Security Council) to strengthen regional ties
20.9 Work to develop the East Asia Summit
20.10 Pursue practical co-operation on terrorism, people
smuggling, transnational crime, disaster mitigation
and management
21. Resilient markets
Strengthened security from energy, food and
watersecurity
21.1 Work within the region to support international
carbon markets, energy, food and water
21.2 Support on-going development and use of
environmental accounting
21.3 Build capability of the food supply system
including R&D
21.4 Build a well-functioning and comprehensive
international carbon market including China,
Indonesia, Japan and South Korea
21.5 Foster a constructive debate and co-operative
solutions on energy markets and support regional
partners to improve energy efciency
48
Deeper and broader
relationships
Productive and
resilient economy
Deeper and broader relationships
22. Australias inuence
Australias diplomatic network to have a broader
footprint across Asia
22.1 Work with and through all levels of government,
business, institutions and the community to promote
Australian interests in the region
22.2 Open a full embassy in Ulaanbaatar (Mongolia) and
consulates in Shenyang (China), Phuket (Thailand) and
eastern Indonesia
22.3 Appoint a Jakarta-based Ambassador to ASEAN
22.4 Ensure all government departments and agencies
embed international considerations into their domestic
policy analysis
22.5 Support stronger relationships with State and Local
governments through sister-state relationships
23. Key regional nations
Stronger relationships with key nations China,
India, Indonesia, Japan and South Korea
23.1 Extend our comprehensive bilateral architecture with
China and India as priorities
23.2 Develop our bilateral architecture in Asia with regular
dialogue at multiple levels
23.3 Work with the Australian community to develop
comprehensive country strategies
23.4 Strengthen the level of Track 2 diplomacy including
think tanks and university networks and similar
23.5 Ensure the Australian Network Service provides
an effective public diplomacy tool and large
onlinecomponent
24. People-to-people links
Deeper and broader people-to-people links with Asian
nations across the entire community
24.1 Commit 12,000 Australia Awards over 5 years to
nations in Asia to encourage people-to-people links
24.2 Expand work and holiday program agreements with
Asian countries starting with an increase to 1,000
places for Indonesia
24.3 Extend Australia Awards (Asian Century) to include
work placements and mid-career sabbaticals
24.4 Strengthen alumni networks through an Australia
Awards Ofce
24.5 Support high quality private sector scholarships that
bring future Asian leaders to Australia
24.6 Use the NBN and digital technology to boost
onlinecollaboration between researchers, schools
anduniversities
24.7 Nurture co-operation programs that promote Australian
and regional faith and other communities
24.8 Encourage sports, academic, professional and
scientic communities to become fully part of
theregion
25. Cultural links
Stronger, deeper, broader cultural links with
Asiannations
25.1 Highlight our unique cultural advantage as home to the
worlds oldest living culture welcoming diversity
25.2 Encourage cultural and arts communities through
two-way collaboration
25.3 Re-examine government activities supporting artists
including through the Review of the Australia Council
25.4 Revamp the Australian International Cultural Council
to better co-ordinate support for cultural and artistic
organisations
25.5 Work with the media industry to improve the content
and coverage of the Asian region
25.6 Request the ABC and SBS to examine how to promote
more extensive coverage of the region
25.7 Strengthen cultural diplomacy to build trust,
understanding and condence in our cultural, political,
security and economic relationships

49
Deeper and broader
relationships
Productive and
resilient economy
50
KPMGs publications
Refer to KPMGs iPhone app KPMG Insight for the latest publications.
Further Reading
The Growing Tide:
China outbound direct
investment in Australia
November 2011
kpmg.com.au
CHINA STUDIES CENTRE
> The Growing Tide:
China outbound direct
THE ENERGY IMPERATIVE: Australia-China Opportunities | 1
Preliminary Brief 25 September 2012
The Energy
Imperative:
Australia-China Opportunities
Chinas largest energy companies have rapidly increased their stakes in Australias energy sectors in recent years, motivated by the same factors that have underpinned their acquisitions in the resources sector: Australias abundant and high quality energy resources, geographic proximity, relative political stability, experienced workforce and mature institutions. Yet Chinese investment in Australias energy infrastructure sector is not as deeply embedded as could be expected considering the strong trade ties between the two countries and the overall volume of Chinese off take.
Undoubtedly, there is ample scope for greater Chinese investment and participation in Australias energy supply chain, given the complementary long-termenergy requirements and objectives of both countries. Australia is seeking investment partners in large and long-termenergy infrastructure projects. China is seeking deeper integration in Australias energy and resources sector to secure long-term access to resources, technologies and markets. While there are challenges, there are also considerable opportunities to be seized.
What does the future hold for Chinese energy and energy infrastructure investors in Australia? Will there be strong and diversied investment into these sectors for the long haul? Or will Chinese interest be drawn to other increasingly competitive and attractive global market opportunities as a result of our failure to address present, wide-ranging concerns in Australia?
> The Energy Imperative:
Australia-China opportunities
Preliminary brief
Global food and bre trade patterns are set to change dramatically over coming decades. Demand and supply trends should favour Australian agricultural producers, sustaining or increasing real price levels for many agricultural products. However, this outcome is not guaranteed innovation, investment and structural change are all needed if Australia is to make the most of its opportunities in agribusiness.
Demand for food and bre products will be driven by the twin forces of population growth and increasing material prosperity in developing countries.
United Nations demographers expect the worlds population to increase from its current seven billion people to more than nine billion by 2070. Feeding these additional mouths remains a huge challenge. A burgeoning middle class, particularly in Asia, will also transform demand patterns as incomes grow, people seek to eat better and to enjoy the convenience of processed foods.
Much of the increased middle class demand will be centred in Asia. Indeed Asia will account for nearly 60 percent of global middle class spending by 2030. China and India will account for most of this expansion, although other regional economies should also grow strongly over the same period.
These developments have several implications for Australian agribusiness:
development of a larger, more diverse export market for food and bre products
rising real prices for many agricultural commodities
potential shortages of agricultural inputs, particularly fertiliser
increasing foreign ownership of Australian agricultural assets
rising domestic food prices, refecting relatively high export prices
Food security and Asia-Australia relations
Australia in the Asian Century
Executive summary
The best opportunities for Australian producers are likely to include meat, seafood, horticultural produce, specialty food products and staple grains and bres. Australias considerable expertise in food transport and storage and in food hygiene, packaging, distribution and retailing should create attractive new investment opportunities for local rms across the supply chain, again particularly in Asia.
Competitive dynamics Australia is a generally high-cost agricultural producer. That is unlikely to change. However, Australian producers traditionally have been able to offset high costs by progressively lifting their productivity through increased mechanisation, improved crop and livestock genetics and better land management practices. Again this is likely to continue, but only if there is sufcient investment in innovation and the relevant infrastructure.
Many fear that the growth of corporate farming enterprises and increased foreign investment in agriculture and upstream processing and manufacturing will spell the death of the family farm. In fact, the family farm could be disappearing of its own accord. By some estimates, up to half of Australias current population of farmers could retire during the coming decade. The average age of Australian farmers in 2011 was 56, so for many retirement will be a necessity, not an option. It is unclear where the replacements will come from.
Whether corporate farming can supplant the family farm model will depend on the evolution of the corporate model. Conventional investment models struggle to accommodate the highly variable and uncertain returns from many agricultural pursuits.
The challenge around appropriate investment models is also being compounded by a growing agricultural labour shortage. The Australian Farm Institute estimated that in 2008 the demand for labour in the agricultural sector exceeded supply by 116,000 people. The Productivity Commission expects the sector to generate more than 32,000 new jobs each year; Australia will need to nd a way to ll the skills vacuum.
Consumer Markets
> Food security and
Asia-Australia relations
Chinas outbound direct investment in Australia | Demystifying Chinese Investment | 1
Demystifying Chinese
Investment
Chinas outbound direct
Update August 2012
kpmg.com.au
> Demystifying Chinese
Investment:
China outbound direct investment
in Australia
Expanding
horizons
Key highlights
Agribusiness in Australia 2011/12
kpmg.com.au
> Expanding horizons:
Agribusiness in Australia 2011/12
key highlights
Australia Report
RISKS & OPPORTUNITIES
2012
THE ADC FORUM IN COLLABORATION WITH KPMG
> Australia Report 2012:
Risks & Opportunities
Australias Energy Challenge | 1
Australias
Energy Challenge
Creating the right investment environment
kpmg.com.au
> Australias Energy Challenge:
Creating the right investment
environment
Opportunities for China and Australia in Food Security | 1
Opportunities for
China and Australia
in Food Security
kpmg.com.au
> Opportunities for China and
Australia in Food Security

Expect the
Unexpected:
Building business value
in a changing world
kpmg.com
KPMG INTERNATIONAL
PART 1
> Expect the unexpected:
Building business value in a
changing world
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
White Paper Summary
KPMGs publications
CONTACTS
CONCLUSION
51
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.
Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date
it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice
after a thorough examination of the particular situation.
2012 KPMG, an Australian partnership and a member rm of the KPMG network of independent member rms afliated with KPMG
International Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Australia.
The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.
Liability limited by a scheme approved under Professional Standards Legislation.
November 2012. NSWN10362MKT.
Geoff Wilson
Chief Executive Ofcer
+61(0)2 9335 7528
gwilson@kpmg.com.au
Doug Ferguson
Partner in Charge, Australia China Business
Practice
+61(0)2 9335 7140
dougferguson@kpmg.com.au
Robert Bazzani
Partner in Charge, Australia India Business
Practice
+61(0)3 9288 5594
rbazzani@kpmg.com.au
Graham Brooke
Partner and President Director
PT KPMG Infrastructure
Advisory (Indonesia)
+61(0)2 9455 9091
gbrooke1@kpmg.com.au
John Wigglesworth
Co-chair, Australia Japan Business Practice
+61 (0)2 9335 7670
wigglesworth@kpmg.com.au
Kevin Chamberlain
Co-chair, Australia Japan Business Practice
+61(0)2 9335 7112
kchamberlain@kpmg.com.au
Julian Vella
Partner in Charge, Australia Korea Business
Practice
+61(0)3 9288 5019
jpvella@kpmg.com.au
Contact us
kpmg.com.au
Further Reading
FOREWORD
INTRODUCTION
CRITICAL ENABLERS
Infrastructure
Tax
Innovation
Education
Financial System
China
India
Japan
South Korea
KEY SECTORS
Manufacturing
Financial services
resource management
Tourism and sport
ASIA READY?
White Paper Summary
KPMGs publications
CONTACTS
CONCLUSION

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