A WORLD REPORT SPECIAL EDITION ON THE PACIFIC RIM : THE SOUTH RIM : DOWN Under : The Asia Connection Gives Positive Jolt to Exports, Tourism and Immigration in Australia and New Zealand

By CHARLES P. WALLACE

April 11, 1995 12 AM PT

TIMES STAFF WRITER

SYDNEY, Australia —

When Henry Tsang graduated from his university in the 1960s with a degree in architecture, he applied for an entry-level job with the Sydney City Council. He was turned down, he later learned, because his name is Chinese.

Tsang, who fled Communist China, can now afford to joke about this painful incident because the tables have turned. These days he is greeted with respectful nods as he strides into City Hall, the deputy lord mayor of Sydney, the second-highest elective post in Australia’s largest city.

“As my career shows, I believe Australia’s future has shifted to links with Asia,” Tsang noted in a recent interview.

Australia has indeed been remarkably transformed in a single generation. From a union-dominated society with an official “whites only” policy that lasted until 1973, the huge country--along with New Zealand, its sister country across the Tasman Sea--has broken its dependence on Mother England half a world away, torn down its protective trade barriers and now strives to emulate the success stories of the economic tigers of East Asia.

“We have long since ceased, as a nation, to feel threatened or intimidated by Asia,” Australian Foreign Minister Gareth Evans said. “Rather this is now the part of the world in which we feel very much at home.”

Prime Minister Paul Keating, who has made integration with Asia the cornerstone of his career as Australia’s leader, rarely misses an opportunity to point out that the value of Australian exports to Asia have risen from 30% of the the country’s total in 1960 to about 63% in 1993.

Deep recessions in Australia and New Zealand in the 1980s--which critics maintain were unnecessarily deepened by the economic medicine given--prompted the governments in both countries to undertake massive deregulation of financial markets. They started stripping away the fortress of tariffs that had been coddling inefficient industries for decades. Unemployment soared as the reforms were implemented.

Keating warned his countrymen starkly that their nation, once known as the “lucky country,” was in danger of becoming a banana republic.

It was then that the Australian government began beating the drum in favor of exports to Asia, a campaign that was closely echoed in New Zealand. The two countries had removed trade barriers between them in 1983 and were astounded to see trade soaring across the Tasman as a result.

“It’s been a top-down decision to do the Asian push,” said John Menadue, director at Sydney’s Research Institute for Asia and the Pacific. “The cold blast of recession forced Australian companies to get out into the region.”

Six years ago, New Zealand was the industrialized world’s most highly regulated country but today “you can’t find a more deregulated country in the world,” said Lex Henry, the Wellington government’s regional investment adviser in Singapore. The economy has grown 14% since reforms were put in place in 1991, one of the highest rates in the developed world.

“Asian culture and Asian values will, in a very short time I believe, begin to work their impact on mainstream Australian culture just as earlier waves of European culture have done,” Keating said in a speech in February.

As his remarks suggest, the integration with Asia goes far beyond the obvious turnaround in the country’s trade statistics. More than half the immigration into Australia now comes from Asian countries; the last census showed that more than 5% of the people were born in Asia or are first-generation Australians with Asian parents.

A decade ago it was rare to see an Asian tourist in Australia. Last year there were 1.2 million Asian visitors, more than half of them from Japan. New Zealand has experienced similar change.

White Australian children in elementary schools now study Vietnamese instead of French or German. There are more university students studying Japanese than any other language.

While there have been periodic spikes of anti-Asian feeling in the country, a private opinion poll conducted by the ruling Labor Party showed that more than 70% of respondents now approve of the Asian integration policy.

One clear sign of that overwhelming support came when opposition leader John Howard in January felt obliged to issue a humiliating apology for a statement he made in 1988 calling for a slowdown in Asian immigration in “the interests of social cohesion.”

The change in Australia’s orientation has its roots in World War II. Britain’s defeat in Singapore made clear to Australia that Britain would no longer be Australia’s protector; the job then fell to the United States.

But the real catalyst for change was Britain’s decision to join the European Common Market in 1973. Because Common Market countries agreed to keep agricultural products from other countries out, Britain’s share of Australia’s agricultural products dropped from 36% to less than 6% in a single year.

At the same time, Australia’s traditional reliance on farming and mining--”rocks and crops”--was beginning to have disastrous consequences for the economy because commodity prices were in free fall.

Thirty years ago, commodities such as wool and coal accounted for more than 30% of the country’s economic activity; today the figure is less than 9%.

In 1983, both Australia and New Zealand were ruled by Labor parties, which were dominated by unions and considered the parties of the left.

By a remarkable coincidence, conservative elements emerged in both Labor parties, sounding more like conservative economist Milton Friedman than Karl Marx. They began to see that trade barriers and widespread government regulation of the economy were leading to economic ruin.

A century ago, Australians were the richest people in the world, with a per capita income 40% higher than the United States. Australia has not only been overtaken by the United States and Japan, but even tiny Singapore has pulled ahead.

Still, with 18 million people in a territory about the size of the continental United States, it is easy to forget that Australia has a gross domestic product larger than those of Singapore, Malaysia and Indonesia taken together.

Where it has fallen behind is in the realm of exports, with a developing country such as Malaysia selling more overseas than Australia.

Despite recent efforts, the problem still haunts the country: In January the government was embarrassed to report that the trade deficit was still running nearly $20 billion a year.

Economist Ross Garnaut, who wrote the blueprint for Australia’s re-orientation toward Asia, said in an interview that Asia was targeted because of proximity and the fact that Asian markets were still relatively open in the 1980s.

“In areas where we had competitive advantage, Europe and America were already closed,” he said.

The reforms also breathed life into the country’s manufacturing industries, which had been largely noncompetitive in the world market because of tariff protections.

Australian Trade Minister Bob McMullan recently reported that one-third of Australian exports now consist of manufactured goods, up from one-fifth a decade ago. New Zealand now sends 37% of its exports to Asia.

The car industry is a good example of how life has changed in Australia.

In 1984, Australia had five major car companies unprofitably producing 13 models, according to John Button, who served as industry minister at the height of the reforms. The industry was in an economic crisis and had virtually no exports.

By removing most import protections, Button said, the industry was transformed into an “outward-looking manufacturing sector.”

Two companies pulled up stakes after the reforms, leaving six models to be produced by the three remaining firms. Combined with the plant closures and advances in technology, the labor force dropped from 100,000 to about 60,000.

But now Australia is making cars and components competitive on the world market and earns about $1.1 billion a year in auto exports, up from virtually nothing five years ago. Component manufacturers sell parts to car companies in Malaysia and South Korea. Toyota has just opened a huge car factory designed to export cars back to Japan.

“They were hard decisions to make,” Button recalled in an interview. “This big island has to be a big trading nation involved in international industry or it will fail miserably.”

Another company exporting from Australia now is IBM, which makes its Personal Systems/2 desktop PCs at an old typewriter plant in Wangaratta. Last year it shipped 130,000 PCs to Southeast Asia.

“About 60% to 70% of what we make is exported,” said Shayne Bricken, IBM’s export manager for Australia. “Australia is a relatively cheap place to do things. We have lower wages here than in Singapore.”

According to a survey conducted by the accounting firm of Coopers & Lybrand, nearly a third of Australia’s middle-sized companies reported that half of their revenue comes from exports to Asia, and they expect that figure to rise sharply in the next two years.

“What this survey shows is that middle-market companies are much more heavily involved in developing trade links with the Asian region--and deriving revenue from those links--than many observers anticipated,” said John Fisher, Coopers’ Asia services partner.

The survey found that middle-market trade was led by Indonesia, Singapore and Malaysia, China, Thailand and Hong Kong.

Economist Garnaut said companies that seemed to be making the most progress tended to be in newer cities such as Brisbane, away from areas where industries had been historically controlled by organized labor.

Another area in which both Australia and New Zealand are reaching out to Asia is in the provision of services.

Last year, Australia earned $1.2 billion by providing education to 63,000 students from overseas, most of them Asians looking for quality English-language education. In New Zealand, tourism earned $2 billion last year, the country’s biggest earner of foreign exchange.

Despite the emphasis on export services and manufactured goods, Australia still depends on its old standbys of rocks and crops as its main exports.

Coal alone accounted for 11% of exports in 1993, followed closely by gold, beef and wool. Dairy exports to Asia are so crucial to Australia that a U.S. decision to subsidize some exports to Asian markets, virtually unnoticed in the United States, became front page news in Australia, where politicians assailed Washington’s threat to Australian markets.

Australia became so keen to unite with Asia that Keating’s predecessor, Bob Hawke, proposed that nations of the Asian Pacific region join together in a forum to promote regional trade.

Keating has seized on the idea and made the resulting organization, known as the Asia Pacific Economic Cooperation forum, something akin to a personal crusade. It is now made up of 18 nations stretching from China to Chile, and they have agreed to a vague promise to proceed toward a free-trade area in the year 2010. But many of the member countries planned to do so unilaterally anyway.

Although most Australians now support the Asianization drive, Keating is not without his critics, and not just from economic nationalists.

Helen Hughes, a former World Bank economist, said exports as a percentage of gross domestic product actually fell from 1980 to 1991.

She said Australia still suffers from union rules that make it unprofitable to work around the clock because of overtime payments. She also cited the high cost of infrastructure such as air fares, electricity and telecommunications.

“Most Australian companies use their capital 20% of the time, and we’re not competitive,” Hughes said.

She said that rather than focusing on Asia, companies should be looking for small niche markets from the United States to Europe.

Hughes and a number of other economists said they worry that Australia will be misled by the integration drive with Asia and slow down the liberalization of its own economy, which has fallen considerably behind that of New Zealand.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Comparing the Wealth

Although their economies are much smaller, Australia’s and New Zealand’s living standards are close to those of Japan and the United States 1993 figures:

* Gross domestic product:

Australia, $339.7 billion

United States, $6.379 trillion

Japan, $2.549 trillion

New Zealand, $53 billion

* Gross domestic product per capita

Australia: $19,100

United States: $24,700

Japan: $20,400

New Zealand: $18,700

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

The Trading Game 1993 figures: