Thanks very much for having me here today – it's great to be back in Hong Kong which really is at the heart of modern Asia. Just walking here today from the CNBC studios the buzz of this town just hit me again and I remembered why I love it so much here. Because Hong Kong really gives me a sense of everything still to come in the rest of Asia as it modernises and grows in sophistication. This place is really the leading edge in the region and it just gives you a taste of the opportunities that lie ahead. And there is no developed country with more interest in this region than Australia – we know our future lies in the Asian Century. So I'd like to thank the Australian Chamber of Commerce for inviting me to give this address today.
As the largest Australian Chamber outside Australia, you are really at the forefront of our country's drive deep into this region. And the reasons for our vast ambitions in this part of the world are simple. The Asian region is rapidly becoming the epicentre of global activity as the weight of economic power shifts from West to East. There is a whole range of staggering numbers that demonstrate this tectonic shift in economic weight, and it's significance for Australia.
Asia is destined to become the biggest production zone in the world. That presents huge opportunities for Australia. Of course our rich endowment of natural resources allows us to be a reliable supplier of industrial inputs to the region. Australian iron ore and coal are being transformed in furnaces around the region into steel to build roads, bridges and even entire cities. We'll have coal and liquefied natural gas providing the energy to power that industrialisation and urbanisation of many of our Asian neighbours. We've got half a trillion of planned investment in our resource sector alone, simply staggering in the context of our $1.5 trillion economy. And with around 110 million new middle class consumers being added in Asia every year, by the end of the decade it will also be the largest consumption zone too – larger than the rest of the world combined.
So there is enormous potential for our neighbours to look to Australia as an increasing supplier of the complex consumer durables and more sophisticated services that Asia's middle class will demand. Of course, this won't just be a one way opportunity for Australian businesses to plug themselves into growing Asian markets. As a developed country in an emerging region, Australia brings great strengths to the table. We offer strong, world-class institutions; a highly skilled and educated workforce; a high level of labour productivity; a flexible economy and a proud tradition of reform and enterprise. And we continue to build on all these strengths so we can not only make the most of the opportunities unfolding in our region, but so we can contribute to them.
Australia's close integration and geographical proximity to Asia means that the dramatic changes occurring in our region will have profound implications for Australia beyond just the economics. The strategic and geo-political significance of Asia's rise are enormous. Australia has, for many decades, had deep and multi-faceted bilateral, regional and global connections with the nations of Asia. On Friday I'll be in Beijing to mark the 40th anniversary of Australia's diplomatic relations with China. But just as our engagement with China spans several decades, so does our engagement with the broader region. And of course, as the gateway to Asia, our engagement with Hong Kong – at the official, business and personal level – is absolutely fundamental.
Fifteen years since its return to China, Hong Kong is arguably one of the freest economies in the world. One sign of this has been the creation of a fully deliverable offshore RMB market in Hong Kong. Growing fourfold from 2010 to 2011, RMB-denominated trade settlement totalled RMB 2.1 trillion. And over the same period, the proportion of Chinese cross-border trade settled in RMB grew from three per cent to nine. Almost all of this trade has been processed via the Hong Kong offshore market. And this increase in RMB trade settlement has produced an expanding pool of liquidity here. It's incredible to think that RMB bank deposits make up almost ten per cent of all Hong Kong deposits (that is, RMB 554 billion or US$88 billion).
Given our strong trade and investment links with China, Australia is well placed to benefit from initiatives to increase internationalisation of the RMB. I don't need to tell this audience that RMB internationalisation is of great interest to the Australian financial services sector and the Australian business community. And Australian banks are already participating in the RMB market. Customers of Australian banks here and across Asia can access RMB products and services, with all four major banks active in Hong Kong. For their part, Chinese banks have also been rapidly expanding their presence in Australia. China's biggest bank, ICBC, already has branches in Sydney and Perth, with plans to open in Melbourne later this year. And, since 2008, Bank of China has more than doubled its branches in Australia to nine.
The RMB 200 billion (AU$30 billion) three-year currency swap agreement signed between Australia and China in March this year reflects the importance of the Australia-China relationship.
This agreement will also promote trade and investment between Australia and China, particularly in local currency terms, and strengthen bilateral financial cooperation. And it builds on the announcement by China last November to allow trading of the Australian dollar against the RMB, via the US dollar, on the Chinese mainland. Building further on these steps, this morning Secretary Tsang and I announced a new permanent, high-level dialogue between senior business leaders and policymakers from Australia and Hong Kong on RMB trade and investment. This dialogue, to continue in Sydney next year, will create a vehicle for deepening this valuable market and building deeper trade links between our two economies. As I also said at the RMB Forum this morning, I'll be discussing a range of issues around internationalisation of the RMB with my counterparts in both Hong Kong and Beijing. This will include the potential for direct convertibility at some stage in the future between the Australian dollar and the RMB for transactions completed in mainland China.
Of course Australia's ties with Hong Kong go well beyond the RMB. We are strongly committed to strengthening and deepening our relationships with Hong Kong and also the broader region as we begin this journey together in the Asian Century. You may already know that the Australian Government recently commissioned a White Paper on Australia in the Asian Century. The White Paper will identify the pathways Australia can take to capture the possibilities that flow from the rise of Asia. It will focus on how we can build upon and broaden our strengths, and how we can contribute to progress and prosperity in our region. Of course, how we position ourselves to do this is no small question that can be easily or immediately answered.
Just like Australia's existing ties to the region have been cultivated over decades past, we will need to keep working hard at building these ties over decades to come. After all, we are in the Asian Century – something that is bigger than the weeks, months and even years ahead. And while there is no one policy, no one business strategy or no one government that can guarantee our future success, we need to focus now on what will be a long period of transition for our entire region. It's with this in mind that we approach the task of the White Paper, which will serve as a long term roadmap for how Australia can be a partner, not just a passenger in the Asian Century. It will not only serve as a long term guide for government policy, but also as a long term blue print for the business and community sectors.
One of the key themes coming out of the White Paper consultation process is that collaboration is a key ingredient for success. It is not about how Australia should directly compete with Asia.
It is about how Australia should work together with Hong Kong, China, Indonesia, India, Japan, South Korea, Vietnam and so many other countries to build stronger relationships and shared prosperity. And while there will be more than one formula for success, there is no doubt that it will require persistence, openness and awareness. Of course, productivity growth remains the bedrock of higher living standards and we must continue to work at this as we have been doing. But to make it in the Asian Century, we must also be genuinely interested in developing a deeper understanding of each other's countries, cultures and capabilities. Because the business models that will work in the Asian Century are unlikely to be the same as those we have seen in the century just past. And laying the groundwork for success – not just in business, but across all other partnerships – needs to involve greater collaboration at the grassroots level. By this I mean building stronger people-to-people links.
The White Paper itself will showcase some of the success stories of Australian businesses operating in Asia. Many of these businesses achieved their regional footprint by forging strong personal relationships over many years. It's these people-to-people links that will be key to developing the understanding, capabilities and trust that will unlock opportunities for broader collaboration. Strengthening the links between our people means recognising that there are vast differences in our region – not just between Australia and Asia, but within Asia itself – and we need to build relationships that reflect this. Education plays a big role in building this understanding, and will continue to be critical in equipping our workforce with the knowledge and skills they need to get ahead. The Australian Government has already made record investments in education since coming to office – from early childhood right through to university. Our decision to uncap university places from January 1 this year is an example of a critical reform we have undertaken in this space. It will mean that an additional 150,000 more students can study for a degree this year compared to 2007.
In addition, we've almost doubled school funding and we're investing in more training places and better quality training. It is these types of investments that make Australia a top-performing developed country in terms of the quality of our educational system. But we know we have to achieve even more if we are to make the most of the opportunities presented by this century, especially given some of the rapid improvements in education performance by other nations, especially those in this region. As part of the White Paper process we're also looking at ways to encourage cross-border research collaboration, particularly with Asia. Stronger research links will be important in promoting a greater shared understanding of regional issues, and will help Australia and our neighbours plug into more regional opportunities.
Forty years ago, Prime Minister Gough Whitlam touched down in China to establish diplomatic engagement with China and the region. Twenty years ago, Prime Minister Paul Keating called on Australians to lift our gaze to the region. Today, I can proudly stand here and say that Australia has worked hard to become a partner in Asia, and will work even harder in the decades to come to build prosperity in the region and beyond.
Thank you, and I look forward to taking your questions.