One day, we will stop talking about Australia's engagement with Asia. We will simply accept that Australia is part of the Asian region. We're not there yet, but I've seen substantial progress in the more than 20 years that I've been a banker in Asia.
In the past 10 years our growing connection with Asia has been clearly evident in three key areas: trade, people links, and the shift in the geopolitical landscape.
Trade flows strengthen Australia's links with Asia
Trade has been a crucial driver of the Asia-Australian relationship. The volume of trade between Australia and Asia has more than doubled in the past decade, and trade flows increased by 25.8% in 2008 alone.
Asean (the association of Southeast Asian nations) as a trading block has become Australia's largest trading partner, with two-way trade worth more than $70 billion. Australia's biggest single country trading partners are Japan and China.
Last year, China became Australia's largest merchandise trading partner with total exports valued at A$39.3 billion ($32 billion), an increase of 46% on the previous financial year. China also became Australia's second biggest services export market, up 15.7% to A$5.1 billion in 2008-09.
The re-emergence of Asia as the primary economic zone in the world has influenced trade flows and reinforces that the strength of Australia's economy is now intrinsically linked to Asia.
There are several factors that have helped Asia outperform other parts of the developed world following the global financial crisis, including a strong banking and finance system; high savings ratios; solid domestic demand; and substantial foreign currency reserves.
China's economy alone is 16 times bigger than it was 30 years ago, and it is now the third largest economy in the world based on purchasing power after the United States and Japan.
Since the end of 2008, the capital markets of Asia have grown and deepened, bringing significant benefits to Australia and Australian businesses. Equity markets in emerging Asia have also gained more than 30% since 2008, reflecting stronger GDP growth.
Many Asian economies have expanded beyond manufacturing. For example, Hong Kong is now the financial centre of the East, Shanghai is the New York of China -- a predominantly domestic financial centre -- and Singapore has established itself as a private banking and technical services centre.
More than a million Australians are of Asian ethnicity
Australia has many natural linkages with Asia, including our geographic proximity and strong people links realised through migration, tourism and the increasing number of Asian students studying in Australia. These linkages create significant opportunities for Australian businesses looking to expand into Asia.
More than a million Australians, or approximately one in 20, are of Asian ethnicity, and migrants from Asia now outnumber those from the United Kingdom, with 20% coming from the Indian subcontinent and 20% from North Asia. Less than 18% of migrants come from the UK.
Australia now has the highest level of foreign student intake in the world, with 20% of enrolments filled by international students, predominantly from Asia and from China and India in particular. In 2008-09, export earnings from education services increased by 23.2%, making the sector Australia's biggest services export and our fourth highest export earner.
Asia will increasingly influence international outcomes
The recent global financial crisis has produced a significant inflection point in engagement with Asia, not just for Australia but for the rest of the world. As a consequence, the geopolitical landscape is changing.
For example, the expansion of the G8 into the G20 group of wealthy nations is bringing new opportunities for Asia-Australia relations. For the first time, Australia, China, India, South Korea and Indonesia join Japan as part of this preeminent council of wealthy nations, providing a new forum for engagement and the opportunity to shape and influence international outcomes for the benefit of the region.
Opportunities for further investment remain
Some areas of engagement do require further attention. In particular, Australian investment in Asia, which currently represents less than 20% of total outflow, even though two-thirds of Australian exports end up in the region.
While Asian-Australian investments are trending upwards and have been steadily growing for the past two decades, there are still opportunities for greater Australian investment in the region. Removing barriers to investment across Asia would help. Some Asian nations still have restrictions in place that may contribute to lower foreign investment levels. The experience elsewhere has demonstrated that removing these barriers increases cross-border capital flows, directing resources to the areas of most need and return, leading to increased wealth.
In the past 20 years, Australian and Asian engagement has quadrupled while Australia's engagement with the rest of the world has tripled. The trends are clear. The strength of Australia's economy is intrinsically linked to Asia. Australia should continue to build its knowledge base and not just in terms of Asian languages, but also with regard to broader education, experience and understanding.
Alex Thursby is CEO for Asia-Pacific, Europe and America at ANZ.