China's FTA -- Trojan Horse or Opportunity?

China is offering Free Trade agreement (FTA) in exchange for Australian farmland, Winemakes with their eyes on China's emerging wine market, are understandably excited, but is this really a good deal?  The Gillard government threw out China's previous attempt at an FTA, a good move in my view, as the Chinese apparently showed little interest in increasing Australian access to Chinese markets. Still, things change in the politics of all countries, and perhaps this time China is willing to put more on the table? Even so, there are questions that need to be answered.  China's upper-middle class is expected to grow from 9.5% of the population to 59.4% in 2025, and this is a potentially massive market for Australian wine, but are there any pitfalls involved?

What is the current state of play?

PM Tony Abbott, is ideologically dedicated to an FTA at all costs.  Indeed, according to The Australian the current government has vowed to get an FTA with China by the end of the year. I don't think sounding desperate is a good way to start a negotiation! The reason for this desperation? "Bicycle Theory", which states that if a trade policy isn't pedalling towards an FTA it risks falling off, and that any FTA at all is better than suffering the evils of protectionism. How sound is this theory? One has only to look into the past to see what has happened after John Howard secured the USA-Australia FTA. The trade balance in America's favour almost doubled in 2004 to 2009, from US $6.4 billion to US $ 11.6 billion. One wonders what would happen if Australia repeated the same mistake with China. It seems that the current government is desperate to get China's signature on the contract, and this could be disasterous.

What are the risks to Australia in the FTA? 

Ideally, with an FTA Australian winegrowers wouldn't  have to pay the 15% duty on products exported to China, however the real risk comes from China wanting to invest heavily in Australian business and infrastructure. This means that China could potentially end up owning the mine and the farm, the railway track, and the shipping port too. All the profits would go back to China.  China already has a 10:1 trade imbalance with Australia, and it is highly likely an FTA would  seriously threaten existing Australian manufacturers.