east asia and then to china over the past two decades. concluding comments my main message - the importance of asia to australia ’ s economic future - is not a new one, but it is one that people lost sight of for a while. but it will be different in the future in that china will assume an increasingly important role, just as japan did in the 1960s and 1970s. in this sense, china is currently the big story, just as india will probably be the next. at the moment, there is great apprehension in the rest of asia about china ’ s rising dominance. countries that compete with china as exporters of manufactures, and recipients of direct foreign investment, feel that they will be overwhelmed. i think most people in australia have welcomed the growing importance of china. this is in part because we do not see china as a competitor because we do not compete with them in low - tech highvolume manufacturing. we tend to see them as a complementary economy. i do not think we would be able to take the same comfort if we had maintained the old heavily - protected manufacturing sector we had in the first half of the post - war period. this complementarity does not mean that australia has to see itself as only a provider of resourcebased products from our mines and farms. manufactured exports to china, while they are small, are growing strongly. there is still plenty of scope for the further expansion of our high - value - added manufacturing and service exports. it is remarkable how much of the growth in international trade is intra - industry trade - that is two countries both exporting to each other within the same type of product. this is particularly true of manufacturing. i will conclude my talk tonight with two small but concrete examples of how intra - industry trade between australia and china is developing. these examples are drawn from the reserve bank ’ s small business panel, a meeting we have with small businesses originally designed to hear their views about finance, but now covering a wider range of topics. the two examples i will conclude with tonight are as follows : • one member of the panel, who runs a company producing petrol and diesel driven electricity generators, said he was experiencing a lot of competition for small generators from chinese imports. however, he was doing better in the export market and had just won a tender for an important export order. when questioned, he revealed that it was for the chinese army! as an aside, the engines on his generators are imported from japan and italy. this is

more towards bank bills, rather than government securities, to enhance confidence in the liquidity of highly - rated instruments in the bill market. graph 9 the proportion of the bank ’ s operations undertaken in bank bills has risen to around 80 per cent, well above the usual 30 per cent share. this has lifted the bank ’ s domestic bill repo book from a little over $ 18 billion at the start of august to around $ 40 billion today ( graph 10 ). the term of repos has also been lengthened appreciably, from the usual average of around 20 days to over 100 days, to provide greater certainty of funding ( graph 11 ). graph 10 graph 11 these operations have held the cash rate at the target, and helped to stabilise market conditions more generally. nonetheless, some pressures remain. yields in the bill market remain somewhat higher than usual relative to the cash rate, and yields on asset - backed commercial paper even more so. the volume of securities issued has fallen, and the maturities have shortened. banks have switched some of the funding of their conduits from the asset - backed commercial paper to on - balance - sheet, where it is supported by the banks ’ capital. this seems appropriate. in recent days, there have been some encouraging signs of improvement in markets, both here in australia and overseas. the bank will continue to monitor the situation carefully. if market developments warrant, the bank has scope to further expand the provision of liquidity. these matters are being kept under review.