North Asia

Programs 1.1, 1.7 and 1.10

Overview

Australia strengthened its ties with North Asia throughout the year. This region is of strategic significance to Australia given the size and dynamism of its economies, the political and military weight of its major players, and the presence of disputes which can be a source of friction.

We pursued political engagement at the highest levels, including bilateral visits to Australia by Japan’s Prime Minister, Shinzō Abe and China’s President, Xi Jinping. The leaders of China, Japan and Korea also attended the G20 Summit in Brisbane. The Foreign Minister and the Trade and Investment Minister promoted Australia’s interests through regular exchanges with their North Asian counterparts.

A prominent achievement of the year was progress made in our economic relationships. The free trade agreements (FTAs) with Korea and Japan, negotiated in 2013–14, were ratified and entered into force in December and January respectively. Exporters in Australia, Korea and Japan began to benefit from lower barriers, and investors similarly started to take advantage of improved access. After nine and a half years of negotiations, the FTA with China, Australia’s largest trading partner, was concluded at a ceremony during President Xi’s visit (see video).

North Asia continued its dominant position in Australia’s trade statistics: it accounted for two-thirds of Australia’s goods exports and nearly a quarter of our services exports, making it home to three of our top four two-way trading partners.It is a growing source of foreign direct investment.

We were active in support of a stable strategic environment in the region, through direct bilateral engagement, participation in regional forums, and consultations with the United States. Our main preoccupations were Japan’s evolving security posture, which Australia welcomes; the larger regional presence being exerted by China; and the threat posed by North Korea’s nuclear and rocket programs and proliferation activities. Australia strengthened its political statements on South China Sea issues, prompted by the reclamation activities of China and other claimants.

Japan

The department supported the successful visit to Australia by Prime Minister Abe in July 2014, during which leaders strengthened the economic and defence relationship by signing the Japan–Australia Economic Partnership Agreement (JAEPA) and the Agreement Concerning the Transfer of Defence Equipment and Technology. We also provided support for a separate visit by Prime Minister Abe in November 2014 for the G20 Summit, and for a trilateral leaders’ meeting (Australia–Japan–United States) in the margins of the G20 Summit at which the leaders discussed deepening the trilateral partnership. (See also G20.)

The department assisted portfolio ministers in further strengthening bilateral ties with Japan. The Foreign Minister visited Japan, 22–23 May 2015, for talks on bilateral and regional issues and defence ties with Prime Minister Abe and Foreign Minister Kishida, and to attend the 7th Pacific Islands Leaders Meeting (PALM 7) to discuss the challenges facing our region. Ms Bishop maintained her engagement with senior Japanese leaders including Foreign Minister Kishida throughout the year, to advance cooperation on regional security, defence and economic issues.

The Trade and Investment Minister engaged in advocacy and public consultations for JAEPA, including through involvement in a national series of FTA information seminars. Following entry into force on 15 January 2015, JAEPA delivered an additional tariff cut on 1 April 2015, securing further preferential access for Australian exporters to the large Japanese market. Parliamentary Secretary Ciobo visited Japan, 20–22 April 2015, to promote economic opportunities arising from JAEPA, including opportunities for increased investment from Japan into Australia.

Australia and Japan continued to develop bilateral security cooperation. The Agreement concerning the Transfer of Defence Equipment and Technology, signed by both prime ministers on 8 July 2014, allows for greater bilateral defence science, technology and materiel cooperation as well as identifying potential areas of research for mutual benefit. Mr Abbott and Mr Abe also tasked officials to begin negotiations on an agreement to improve administrative, policy and legal procedures to facilitate joint operations and exercises. The department is taking this forward together with the Department of Defence through the Australia–Japan Foreign Affairs and Defence ‘2+2’ mechanism. We hosted the inaugural Australia–Japan Cyber Policy Dialogue on 13 February 2015 to deepen cooperation with Japan on cyber related issues.

The department also progressed the development of a joint strategy of cooperation with Japan on Pacific issues (as announced by leaders during Prime Minister Abe’s July visit).

The department continued to engage with Japan across a broad range of areas of shared interest. We worked together with Japan on taking forward the Trans-Pacific Partnership and Regional Comprehensive Economic Partnership (RCEP) negotiations. Our shared regional and global interests also allow for an effective collaborative partnership in many international forums including APEC, East Asia Summit (EAS), World Trade Organization (WTO), G20 and United Nations.

China

We achieved substantive outcomes in the relationship with China during the year, including a significant strengthening of economic ties and political linkages at the national and subnational levels. President Xi Jinping’s State Visit in November 2014, alongside his participation in the G20 Summit, built on the success of Prime Minister Abbott’s two visits to China in 2014. The Chinese President addressed the Australian Parliament and with the Prime Minister announced the conclusion of negotiations of the China–Australia Free Trade Agreement (ChAFTA). The agreement was signed on 17 June 2015 by Mr Robb and the Chinese Minister of Commerce, Gao Hucheng, in Canberra. ChAFTA promises to transform the bilateral economic relationship and adds another dimension to our comprehensive strategic partnership with China.

The inaugural meeting of the Australia–China State/Provincial Leaders Forum was convened in the margins of President Xi’s visit. This brought together key regional leaders from Australia and China and reaffirmed the commitment in both countries, at all levels of government, to deepening existing strong bilateral ties.

The department facilitated a busy agenda of high-level exchanges in both directions to progress issues of bilateral importance and strengthen economic ties. The Foreign Minister co-hosted the annual Foreign and Strategic Dialogue in Sydney, in September 2014, with Chinese Foreign Minister Wang Yi. In November, both portfolio ministers and the Prime Minister visited Beijing for APEC meetings. Ms Bishop also travelled to Chengdu to open the Australian Consulate-General and promote Australian business interests in western China. In March–April 2015, the Governor-General conducted a State Visit to China at the invitation of President Xi Jinping. Visits to Australia from China included Guangdong Party Secretary and member of the Politburo of the Chinese Communist Party, Hu Chunhua, in May 2015, as a Guest of the Australian Government.

We continued to work closely with China in key regional and multilateral bodies, including the EAS, the G20, the ASEAN Regional Forum and the UN Security Council. The department also continued to play an important role in negotiations on regional and multilateral trade agreements involving China, including the RCEP, and in the WTO.

The bilateral economic relationship continued to expand. China remains Australia’s largest trading partner, with two-way trade reaching around $150 billion in 2014 (almost one quarter of our total trade and an annual increase of 21 per cent). China is our largest source of overseas students (121,318 students in 2014) and second-largest source of visitors (839,400 in 2014, an increase of 18.4 per cent).

The first Australia–China High-Level Dialogue (HLD) was held in Beijing in December 2014. The HLD brings together leaders from across the bilateral political, economic and cultural agenda to identify new opportunities in the relationship and speak constructively about the challenges facing both countries. Delegates discussed ways to strengthen bilateral, economic and trade relations, regional cooperation and people-to-people linkages.

Under the Australia–China development cooperation partnership, good progress was made towards advancing trilateral cooperation projects with China, such as the joint anti-malaria project in Papua New Guinea. The department also approved the continuation of a project which is strengthening the health system in the Tibetan Autonomous Region through improving human resource management and technical and clinical practice. We continued to support cooperation programs focused on human rights.

Our China posts continued to advocate Australia’s strong, stable investment environment and opportunities with key Chinese investors. Chinese investment in Australia, traditionally concentrated in the resources and energy sectors, is now diversifying into infrastructure and agriculture. Chinese inward direct investment has increased by more than eight times since 2008 (to $30 billion 2014), but it remains small relative to US, EU and Japanese direct investment. Australian direct investment in China increased by 6 per cent in 2014 and is concentrated in manufacturing and financial services. Two-way investment should continue to grow following entry into force of ChAFTA.

^(a) Goods data on a recorded trade basis, services data on a balance of payments basis.

^(b) Excludes some confidential items of trade. For more information refer to the DFAT Adjustments article.

^(c) Other comprises Democratic People’s Republic of Korea, Macau and Mongolia.

Based on DFAT STARS database, ABS catalogue 5368.0.55.004 and unpublished ABS data.

Hong Kong

Hong Kong is Australia’s leading business base in East Asia and our sixth-largest source of foreign investment. The department harnessed the support of this business community to promote Australia as an attractive investment destination, including by supporting Mr Robb’s visit to Hong Kong in March 2015 to meet prominent investors. We also facilitated a follow-up investment visit by Mr Ciobo in April 2015. In 2014, at $77.29 billion, investment into Australia from Hong Kong has risen 20.9 per cent. Exports from Australia to Hong Kong grew by 8.2 per cent, with steady growth in education and tourism services.

Hong Kong continued to be a popular New Colombo Plan (NCP) destination, particularly for scholarships. Approximately 200 Australian undergraduates are studying there under the pilot phase and 2015 round. To support this interest, the department expanded its NCP engagement with Hong Kong’s private sector, calling on businesses and members of the Australian Chamber of Commerce to further increase their uptake of NCP interns.

Taiwan

Taiwan was Australia’s 10th largest merchandise export market in 2014, worth $7.95 billion. The department engaged with industry bodies in Taiwan to promote Australia’s credentials as a reliable supplier of minerals and energy, and encouraged greater Taiwanese investor interest in Australian resource projects. Beyond traditional sectors for investment, such as electronics and resources, we also engaged with investors to promote new investments in emerging sectors, including food and beverage industries and banking. Investment in Australia from Taiwan totalled $6.47 billion.

Academic and tertiary education exchange was given priority throughout the year, with the department supporting expanded opportunities for NCP scholars to study in Taiwan. We promoted cultural relations through raising awareness of Australian Indigenous art, including through substantial support to the Yirrawa Kuju: Canning Stock Route exhibition in Taipei. The exhibit ran for seven weeks, and attracted more than 26,500 visitors.

Republic of Korea

The department led negotiations that resulted in the entry into force of the Korea–Australia Free Trade Agreement (KAFTA) on 12 December. KAFTA now underpins efforts to strengthen and diversify our important economic relationship with the Republic of Korea. The Republic of Korea is Australia’s fourth-largest trading partner, after China, Japan and the United States, and our third-largest export destination. People flows are strong with the Republic of Korea representing Australia’s fourth-largest international student source and our eighth-largest inbound tourism market.

Investment flows are low compared to Australia’s other leading trading partners. We supported Mr Robb’s visit to Seoul in October 2014 to attract investment and promote KAFTA. Our work with Korean investors helped lift the stock of ROK investment in Australia which increased by 24 per cent to $22.9 billion in 2014, year-on-year. The department’s economic diplomacy initiatives, such as the Korea–Australia Services Sector Promotion Forum in October 2014 and the Best Practice Deregulation Workshop in March 2015, enhanced Australia’s reputation as a credible and constructive partner on economic and regulatory reform.

The Secretary visited the Republic of Korea in April 2015 to explore ways to strengthen the bilateral relationship, particularly security issues in advance of the second ‘2+2’ talks between our defence and foreign ministers, planned for Sydney in September 2015. Australia is the only other country besides the United States to hold ‘2+2’ talks with the Republic of Korea.

Ms Bishop visited Seoul in May 2015 for the fifth meeting of the foreign ministers of MIKTA— Mexico, Indonesia, Republic of Korea, Turkey and Australia—and for bilateral talks, including meetings with President Park Geun-hye, Foreign Minister Yun Byung-se and Defense Minister Han Min-koo.

Democratic People’s Republic of Korea (North Korea)

The department worked, including on the UN Security Council, to respond to North Korean threats to use nuclear weapons, provocations—such as firing over 100 rockets without providing a warning to ships and aircraft—and proliferation activities. We urged North Korea, directly and at international meetings, to abandon its nuclear weapons and missile programs and comply with its international commitments. We fully implemented UN sanctions and intensified our work with regional partners for their implementation worldwide. We also comprehensively reviewed and updated Australia’s autonomous sanctions.

We supported international efforts to address the dire human rights situation and played an important role in placing it on the UN Security Council’s agenda for the first time. As a result, the council was able to consider the ground-breaking report of the UN Commission of Inquiry, led by former Australian High Court Judge Michael Kirby, into human rights abuses in North Korea. The report raised grave concerns about the perpetration of crimes against humanity.

The department provided a further $3 million in humanitarian assistance through the World Food Programme to help address acute malnutrition in children and their mothers.

Mongolia

Australia’s announcement on 12 May 2015 of its intention to upgrade representation in Mongolia to full embassy status is a major step forward in our important bilateral commercial, investment and development relationships. Investment, including from Australia, is reducing poverty and lifting living standards in Mongolia and we have argued for a more transparent and predictable business environment. The agreement to a mine development and financing plan for the stalled second stage of the massive Oyu Tolgoi development is a welcome response to our persistent advocacy.

Australia is one of the largest grant donors to Mongolia. The department managed $16.6 million in development assistance in 2014–15, up from $15.3 million in 2013–14. There are strong people-to-people links between both countries, mainly as a result of the long-standing Australia Awards postgraduate scholarship program which has educated over 400 Mongolians since 2003. During 2014–15, 31 volunteers undertook placements and the Australia–Mongolia Extractives Program successfully commenced with a program to deliver vocational training in Dalanzadgad in Mongolia’s resource-rich South Gobi region.

Outlook

The coming year, which includes the 70th anniversary of the ending of World War II, will likely demonstrate the continuing prominence of traditional security challenges in North Asia, including historical grievances, territorial issues and proliferation concerns. The elections in Taiwan in early 2016 will draw attention to unresolved differences across the Taiwan Strait. Australia will seek to promote stronger bilateral relationships with our partners in North Asia and better management of relations between them, including through bilateral dialogue, high-level visits and semi-official forums.

We will seek to deepen our security links with North Asia, including by encouraging shared participation in defence exercises, sustained advocacy and consultations, and through disaster response activities. We expect to hold ‘2+2’ meetings of our foreign and defence ministers with Japan and Korea, as well as the second ministerial-level Foreign and Strategic Dialogue with China. We will encourage an improved political atmosphere between the major players in North Asia and better management of tensions in regard to maritime territorial disputes, particularly in the South China Sea. We will work with the region bilaterally and at multilateral forums to press North Korea to cease its weapons development and proliferation activities and comply with its international commitments.

We will promote stronger economic engagement with the region, taking into account structural changes in the Chinese economy and the passing of the resources boom. A key priority will be ensuring timely ratification and implementation of ChAFTA. It will also be important to maintain successful implementation of the FTAs with Japan and the Republic of Korea. These agreements represent an historic opportunity to boost economic engagement with North Asia, and the department will work closely with Austrade to maximise their take-up by Australian business. We will continue to promote increased investment from North Asia into Australia.

The new embassy in Ulaanbaatar will assist in expanding our bilateral relationship with Mongolia.