Australia and the Asian Century

From Boundless Plains to Share

Throughout the last generation, Asia has become the fastest growing region on Earth, with hundreds of millions of people entering the global middle class. With higher incomes come greater expectations. People want cars, consumer goods, better schools for their children, better quality clothing, and international travel.

They also want better food. They want to eat out, they want high status products like meat and wine, and they think of eating as a pleasure rather than a necessity. Australia, with its large agricultural surpluses and high-quality produce and products, is well placed to service this growing demand. Indeed, our efforts to meet that demand, and our success in doing so, are key themes of this book.

Australia has one of the world’s most efficient agricultural sectors, and some of the cleanest and healthiest food. Australia’s biosecurity is second to none, thanks to high internal standards and strict quarantine precautions. The sheer volume of Asian demand means Australia cannot be the food bowl of Asia, but it can certainly be a specialist and high value supplier of the finer foods in life.

Walk down any street in Asia’s cities and globalisation – which usually means westernisation – is abundantly apparent. Some deride it as ‘cocacolonisation’, but it is an unstoppable force. Billboards tout western products, people wear western clothes, radios play western music. Western culture blends with eastern, especially at the dinner table.

But when it comes to food, globalisation works both ways. Such are the delights of most Asian cuisines that they have conquered the west as thoroughly as western food has conquered the east. Australians of a certain age remember when the evening meal was meat and three veg, and when Asian food meant the Chinese restaurant at the local shops. First European, and then Asian, immigrants have vastly expanded Australia’s culinary tastes.

It has also given us a greater appreciation of what Asia wants, from paddock to plate. Boundless Plains to Share is full of examples of how Australia’s agricultural products and processed foods are exported to Asia and the world. Australia’s great challenge is to meet the growing and changing demands of Asian consumers as they quickly become aware of the importance of acquiring good food from safe sources.

FROM PLAIN RICE TO PRIME BEEF

According to the World Bank, the global population is expected to reach 8.2 billion by 2030, a significant increase from its current level of slightly more than 7 billion. Even more remarkable is the exponential growth of the global middle class, most of which will emerge from Asia.

There are currently about two billion people in the global middle class. Half of them live in Europe and North America, with only one third in Asia. But by 2030, according to Reuters, the global middle class will grow to 4.9 billion – with two-thirds living in Asia.

As the Asian middle class consumer becomes wealthier and healthier, we will see an insatiable demand for a safe and sustainable supply of high-quality food.

This large Asian middle class will be the key driver of future global consumption – of cars, food, housing, and a host of other commodities. By 2030 this group alone will account for more than half the world’s total consumer spending.

Driving the growth of the Asian middle class are the world’s fastest growing and most highly populated countries, China and India. By 2030, China’s middle class will reach one billion, nearly 70 per cent of its total projected population. And despite India’s middle class currently sitting at only 50 million (still more than twice Australia’s population), it is expected to grow to 200 million by 2020 and 475 million by 2030. At that time, India will contribute more people to the global middle class than China.

One indication of rising affluence is in the usage of technology. In 2009, the Asia Pacific region had just 86 million smartphone users. By the end of 2015, that number had exceeded one billion users – four times the total in Western Europe. With rising incomes, increasing private wealth and a higher standard of living, Asia’s middle class consumers will spend increasingly more by indulging in what they want rather than what they need.

The transformation of the Asian consumer is exemplified by China. During the Communist years, people wished to own sanshengyixiang (三转一响) ‘three rounds and sound’ – a wristwatch, bicycle, sewing machine and radio. Today, China’s middle classaspire to Prada handbags, BMW and Mercedes Benz motor vehicles and overseas holidays. One study found the number of Chinese households earning more than $40,000 (considered to be the threshold to afford overseas travel) will nearly triple to 63 million by 2023.

THE CHANGING DEMAND FOR QUALITY FOOD

As well as being wealthy, these new middle class consumers are both aspirational and health conscious. Healthcare expenditure in Asia is expected to double by 2020. And higher expenditure on health care is matched by greater investment in healthy living.

As the Asian middle class consumer becomes wealthier and healthier, we will see an insatiable demand for a safe and sustainable supply of high-quality food. The Australian Trade Commission (Austrade) predicts that by 2050, more than 60 per cent of the world’s demand for food products will come from Asia. Asian tastes are also evolving, demanding more variety in their diets and becoming increasingly aware of the importance of protein and dairy.

Rice has been a staple in Asian diets for centuries. Currently, 90 per cent of the world’s rice is produced and consumed in Asia. But recent studies confirm as income levels rise in Asian countries, the consumption of rice per capita declines at a similar pace. Asian middle class consumers are now eating more foods derived from livestock, wheat, imported fresh fruits and vegetables, and other foods that are higher in protein and energy than rice. For example, Chinese beef-meat consumption is expected to increase from 5.13 million tonnes in 2000 to 7.96 million tonnes by 2020.

Changes in diet patterns can be attributed to a variety of factors. One fundamental aspect of Asian culture is the importance of health. Food safety and best practices in production are becoming more transparent in Asia, particularly in China, and many consumers are becoming increasingly interested in the cleanliness and quality of their food.

The burgeoning Asian middle class is more willing than ever to pay top dollar for premium products for a combination of health, safety and lifestyle reasons. In addition, the status attached to eating imported foreign foods (particularly dining out) is a huge motivator for Asian middle class consumers to display their growing affluence and influence. According to a recent study, people in Thailand and China spend more on average when eating out than Australians.

By 2030, Australia will have nearly 4 billion people in our international neighbourhood, with more money to spend on better quality healthcare services, housing, education and, most importantly, food. Estimates suggest by 2050 Australia will be poised to capture more than $1 trillion in food exports, which suggests that, if managed properly, the agricultural sector represents the next boom for Australia’s economy.

However, as will be discussed throughout Boundless Plains to Share, Australia faces enormous challenges in mobilising, energising and expanding an agricultural sector which has been neglected in recent times and which suffers from fragmentation, parochialism and a lack of investment. Australia currently produces enough food for about 40 million people. Our position as a major player in the Asian Century will be defined by our ability to increase this number by many times.

FIVE DRIVERS OF ASIAN GROWTH

1. Urbanisation

One of the most significant drivers of economic growth and expansion in Asia is urbanisation. Urban growth alone produces an increase of 20 per cent of gross domestic product (GDP) per capita. It increases rural productivity, boosts demands for resources, commodities and energy, and drives consumption – urban dwellers spend 3.6 times more than rural residents.

Indonesia is experiencing the fastest pace of urbanisation of any country in the world. It is estimated the ratio of Indonesia’s urban-rural migrants will leap to 71 per cent from its current level of 53 per cent. With rapid urbanisation and growth sweeping a nation of 250 million people, analysts are forecasting that Indonesia will rise to become the world’s seventh largest economy by 2030, overtaking the UK and Germany, and will become the third largest middle class among emerging markets by 2050, behind India and China.

China is also undergoing urbanisation at an unprecedented rate. In the past thirty years, its urban population has risen from 200 million to a staggering 700 million. By 2025, a further 350 million urban residents will be added. Growth at this scale has meant China now has 15 megacities with a population of more than 10 million people, who will contribute more than $7 trillion to its GDP by 2025. Even today, China has more than 100 cities with populations of over one million.

2. Innovation

Asian countries are already leading the world in many areas of scientific development, including the biosciences, information technology, and in the development of new forms of sustainable energy.

This leadership is best seen in Guangdong, one of China’s original manufacturing hubs and the birthplace of most products ‘Made in China’. The capital of Guangdong province is the massive port city of Guangzhou (once known as Canton), which has a population approaching 10 million.

The Guangzhou Municipal Government has been promoting its aim to move away from products ‘Made in Guangzhou’ to ‘Created in Guangzhou’, propelling the city up the global value supply chain. By 2020, Guangzhou aims to increase the output value of high-tech products to RMB 2 trillion ($430 billion).

The growth of China’s innovation industry is also evident in the renewable energy sector, where China leads the world in investment into renewables – more than $56 billion in 2014. China should not be disregarded in this respect. Its ability to innovate at speed and scale already places it as a major world player in research and development as well as in manufacturing, and challenges the established innovation powerhouses of the US and Germany. Its telecommunications products company Huawei is already the world’s largest.

3. Demographics

A young, dynamic and ambitious population can propel economic and social growth over long sustained periods. It has been predicted India will surpass China during this decade as the world’s fastest growing economy, due to its low average age of 25 and the massive growth of its working-age population. India will soon have an incredible 20 per cent of the world’s working-age population (people between the ages of 15 and 64).

Throughout the next decade, India’s working-age population will rise by 125 million, and by another 103 million in the following decade. Not only is the population growing, it is becoming increasingly educated. By 2020, India’s higher-education graduates will account for 12 per cent of the world’s total, more than that of the US.

A massive, educated workforce has created an enormous opportunity for India to become a leading global economy. But as a developing country, the risk of unemployment remains significant. It is vital the Indian government delivers on its promise to supply more jobs, skills training and infrastructure investment to ensure opportunities for its young and growing workforce.

4. Globalisation

Despite a great deal of talk, buzzwords and catchy titles, the process of globalisation is still in its infancy and will continue to propel companies into the increasingly competitive international market, where the potential for economic gains are immense.

Riding the waves of globalisation, Japanese companies such as Canon and South Korean companies like Samsung and Hyundai have achieved great successes in overseas markets (Canon has become the largest camera firm in the US). After the initial waves of globalisation, Asian firms are emerging in an increasingly competitive international market where they are internationalising their brands, workforce and operations. For example, Hyundai Motors has invested $2 billion across 15 years in its Indian factory in Chennai, which now has the capability to build a car every 68 seconds, making it the country’s second- largest car firm behind Suzuki.

In many respects real globalisation has not even started yet. In spite of significant advances in technology, and despite high speed broadband and interconnectivity, there remain many new opportunities to connect and collaborate with other global business leaders and entrepreneurs in China and India, or to outsource low level tasks to the Philippines, Indonesia or Vietnam.

5. Aspiration

Apart from an abundance of land, people and capital, Asia benefits from a dynamism and entrepreneurial spirit derived from a combination of ambition, energy and aspiration. In many countries, and especially India and Indonesia, this aspiration comes with a young demographic profile that will propel economic growth well into the next century.

Only 30 years ago most Asian countries were suffering extreme poverty, for a wide range of largely unrelated reasons. Since opening up and attracting foreign investment, they have now acquired a taste for success and wealth, a desire that has energised the whole region.

This is best seen in China, which has emerged as Asia’s leading economy. It held this position a millennium ago and now, after more than a century of massive political unrest and significant disruption of its society and economy, China has regained what most Chinese regard as its rightful place in the world.

The policies, introduced in the 1980s, that led to China opening up to the world and returning to a market economy not only energised the county’s economy but also sparked great patriotism amongst the population as China re-entered the global landscape. China has been extremely driven to put the economic and social damage and chaos of the Great Leap Forward and Cultural Revolution in the 1960s and 1970s far behind it. Since 1981, China has lifted a staggering 700 million people out of poverty and, as a result, is now the major engine of growth in Asia.

OPPORTUNITY FOR AUSTRALIA

Boundless Plains to Share is full of examples of how Australia’s agricultural products and processed foods are being exported to Asia and the world. Australia’s great challenge is to meet the growing and changing demands of Asian consumers quickly becoming aware of the importance of good food from safe sources.

Australian agriculture faces significant challenges and opportunities to increase its influence in Asia and the world. This is particularly the case with China – our largest trading partner – and a fast growing Indonesia – our closest neighbour – which has access to people and capital but not enough land.

There are many factors working in Australia’s favour: the cleanliness and safety of our food (biosecurity), proximity to and growing links with Asia, and the fact that we have the very products that Asian consumers are increasingly demanding.

All that remains is the ability to capitalise on these advantages. Australia has an opportunity to become a major food and agricultural player in its own right but, more importantly, it has the ability to export its knowledge, capabilities, innovation, experience and technology to Asia.

This will be the defining challenge for Australia (the “lucky country”?) as it transitions “from mining to dining” and lives up to the words so nicely crafted in the second verse of our national anthem:

Beneath our radiant Southern Cross
We'll toil with hearts and hands
To make this Commonwealth of ours
Renowned of all the lands
For those who've come across the seas
We've boundless plains to share
With courage let us all combine
To Advance Australia Fair.

 

This article was written for and published by Boundless Plains to Share. To read the full article, with links to others, please click here.

Relationships are Key

There is a story about a traveller who found that, in order to be welcomed into an eastern family, he would be asked to take three cups of tea. The first cup was taken as a stranger, the second cup as a friend and, if he was offered a third cup, he would then become part of their family. A place where trust was given freely and unconditionally, and from which he would forever be looked after.

I often use the “three cups of tea” metaphor to describe the journey that foreigners have to take to be truly accepted in China.  Unfortunately, many westerners who are used to relying on legal contracts to do business with strangers (or even friends) often don't have the time, patience and emotional intelligence to invest in building the deep, trusted and binding relationships that are necessary to succeed in China.

It must be remembered that, only 30 years ago, China didn’t have a legal system (the oldest law firm in China, King & Wood, is only 23 years old!) and I often ask my clients to imagine a business environment where you are unable to rely on the rule of law and the courts to resolve disputes between different parties. China managed for hundreds of years without a legal system largely because of the focus on trusted relationships and networks (often referred to in Chinese as “guanxi”) which allowed old friends, families, villages and tribes to do business together knowing that maintaining relationships, “face” and trust was more important and valuable than doing a deal.

As a foreigner doing business in China you are a stranger, no matter how much they appear to like you, trust you and respect you. The Chinese are gracious, generous and flattering hosts and often give the appearance of welcoming you as friends and business partners (usually accompanied by lovely wine, sumptuous food and big talk!) but you will never gain their real trust until you have invested deeply in the relationship. This requires patience, endless meals, going out of your way to support and understand them, and occasionally making a “leap of faith” to help them with something that they highly value (eg acquiring a foreign passport, opening a door for their child to attend a foreign university or welcoming them into your family) which takes the relationship to a deeper level where you might one day be regarded as part of their family (ie the third cup of tea)

Unfortunately, westerners don’t often appreciate the time and investment required to achieve this, and baulk at the suggestion that they might go out of their way to pick their Chinese visitors up from the airport or buy them a dinner. The western world has become so litigious, transactional and time poor that even some of the most simple common courtesies have been abandoned in chasing the dollar! It wasn’t always this way but the reality now is that you don’t even have to like someone to negotiate a business deal, as long as you’re supported by a watertight contract prepared by a hotshot lawyer who can take the other side to court if they default or mess you around.

From my experience, you will be lucky if you are ever able to achieve one trusted and binding relationship in China, no matter more than one. The time, effort and commitment required to make this work can be all consuming and even then you can find that you come across complexities and situations that are hard to understand and resolve.

There are no hard and fast rules about how to do this, except to say that you will require lots of patience, emotional intelligence and a deep and genuine respect of Chinese culture to get anywhere near that elusive third cup of tea.

 

What happens when the luck runs out?

Australia has always been thought of as the “lucky” country and it’s not difficult see why. As one of the very few western countries to weather the global financial crisis in 2008, our economic growth has been strong, stable and uninterrupted over the last 23 years. Being naturally rich in resources, foreign interest into our mining sector has always been strong, particularly from China, and we have not needed to work too hard to attract Chinese investment into mining, commodities and resources – of the $65 billion invested in Australia from China, around 95% has been into these areas. After the end of the mining boom, China shifted its focus into Australian real estate, property development and infrastructure projects, injecting much-needed foreign capital and sparking a boom in new developments and property prices.

However, just like the mining boom, will this be sustainable? It’s important to mention that no country has ever generated substantial or sustainable wealth as a mining and resources country (Brazil and Russia are examples of countries now struggling due to the fall in oil and iron ore prices). So we now need to ask, what will we do when the luck eventually runs out?

Are we truly ‘Asia-engaged’?

The Government’s Asian Century White Paper of 2012 was heralded as one of the most important documents for Australia’s future. It famously said that a “whole-of-Australia” effort is needed to deal with the social and economic transformations in Asia that will affect “almost all our economy and society”. However, it’s reasonable to say that Australian businesses and institutions haven’t entirely answered the Paper’s call to embrace the opportunities of the Asian Century.

We believe that one of the underlying reasons for this is the very low level of Asian-engagement within Australian companies particularly in their leadership teams. In 2014, the Diversity Council of Australia found that whilst the Australian labour force is 9.3% Asian born, only 4.9% make it to senior executive level. In ASX 200 companies, only 1.9% of executives have Asian heritage. These percentages would be even smaller if we just looked at those with Chinese heritage. And in a recent Australian Financial Review Article, PricewaterhouseCoopers’ CEO Luke Sayers spoke out about the “club” mentality of boardrooms in Australia that has locked out those with Asian and Chinese heritage, leaving them to languish in middle management positions. Sayers pointed that this has been seriously detrimental to our willingness and ability to engage with Asia at a corporate level.

Changing the system, however, requires much more than just diversity “quotas”. What is required are systemic changes to the way companies recruit, retain and promote staff with Asian heritage and the recognition of their relevant skills, knowledge and experiences. This undoubtedly involves greater recognition of the cultural nuances which affect approaches to leadership and management. If Australian companies want to engage with Asia, they need to lead with their Asian employees first.

It’s only the end of the beginning

One area where Australia could do much better relates to the China-Australia Free Trade Agreement (ChAFTA). After decades of negotiations, ChAFTA was seen as a “watershed moment” in the Australia China relationship. It has been considered Australia’s strongest FTA, not only because it reduces some export tariffs to 0%, but also because it delivers “best ever commitments” for market entry opportunities. One example is that Australian service providers will be able to establish wholly Australian-owned hospitals and aged care facilities in China.

There is no doubt that ChAFTA has created unprecedented opportunities for Australian businesses and Government agencies to establish positive diplomatic and high-level relationships which businesses can tap into. As much as the opportunities are there and ready to be taken, actually securing and delivering on these lucrative export and business deals requires ongoing support and guidance. There is a real danger that the excitement, support, and hype around ChAFTA will dissipate as the Government moves onto the next FTA and, from some accounts, this has already started happening. There is also a danger that other countries will begin negotiating their own FTAs to rival Australia’s and to replicate some of the concessions and provisions which Australia has been able to secure under ChAFTA. Without high-level commitment, support and encouragement at all levels, Australian businesses could miss this once in a generation opportunity.

Better use of Government time and resources

In April 2016 Prime Minister Malcolm Turnbull led the largest ever business Mission to China. Nearly 1000 delegates from 750 businesses attended the 4 day Mission, showing the high-level commitment of both Government and the corporate sector to the Australia-China relationship. 

However, one record-breaking business and trade mission to China is not sufficient to move the relationship forward. Whilst the Mission was officially deemed a success, it was a huge drain on Government staff and resources and placed a very heavy burden on their budget. And the number of deals signed (albeit important deals) were not reflective of the 1000-delegate strong Mission. Also it would seem much of the momentum has been lost as any talk about the Mission or China has seemingly disappeared from the public debate. 

A country doing a good job of leveraging trade missions and high-level government engagement is Germany. Chancellor Angela Merkel has visited China more times than any other foreign head of state and, according to reports, takes a delegation of businesses with her to China at least twice a year. It is clear Germany isn’t resting on its laurels – they’ve recognised that not only high-level but ongoing commitment at all levels is essential to being “front of mind” in China.

Creating our own luck

Luckily for us, there is very little guesswork involved about where China will be investing next – they have already told us in the 13th Five Year Plan (healthcare, education, tourism, food and environmental protection). And luckily, these represent all of our great strengths. Australians are now left with a choice. We can either sit back and wait for the next mining boom (which is unlikely) or we can proactively welcome and seek out the vast opportunities China presents to our economy, society and culture. No prizes for guessing what I think!  

Think Global, Act Local

Walking around outside my office in the southern end of Sydney’s CBD, it’s hard not to notice the growing numbers of Chinese tourists, migrants and students. Australia’s relationship with China is one of our oldest, with the earliest recorded Chinese migrants arriving in Australia during the Gold Rush of the mid-1800s when around 40,000 Chinese migrants flocked to the gold fields, representing 3.3% of the Australian population at the time – the most it has ever represented!  Whilst the ‘White Australia’ Policy halted Chinese immigration for a number of years, Chinese arrivals in Australia have been growing exponentially over the past two decades and represent an important and vibrant part of the Australian community. 

Whilst there has been much progress and focus on the opening up of China to Australian exporters, the wave of inbound students, tourists, migrants, entrepreneurs and investors is expected to provide an immense opportunity for Australian businesses, organisations and institutions. 

However, we believe there is still a long way to go for Australian businesses to fully embrace this opportunity.

The numbers

The explosion in the number of Chinese tourists has gained much media attention over the past two years. In the year ending November 2015, Australia received just over 1 million tourists, a milestone that Tourism Australia predicted to be reached in 2020. It is now anticipated that by 2020, Australia will receive 3 million tourists each year; that’s around the equivalent of the populations of Perth and Adelaide combined. 

Chinese tourists are also spending more than ever before. By May 2015, Chinese tourists generated AUD$6.4 billion in revenue, up from AUD$5.7 billion at the end of 2014. And it’s predicted that by 2020 they will generate more than double this to $13 billion. Chinese international students have also flocked to Australia in large numbers – in 2015 around 150,000 Chinese international students were enrolled at Australian universities.  

The Chinese community in Australia has also experienced similar growth. According to the Australian Bureau of Statistics, the number of Chinese-born Australians has doubled over the past 10 years to reach 480,000 and represents around 2% of Australia’s population with 650,000 Australians speaking Chinese as their first language. 

Despite the end of the mining boom, which brought in a record USD$16 billion in 2008 alone, Chinese investment and business has been propped up by a growing interest in our property development, healthcare and education industries and as widely reported, purchases of off-the-plan units in apartment blocks. In 2015, the University of Sydney and KPMG recorded that Australia received USD$11.1 billion in investment, up 30% over the previous 12 months, which mostly consisted of transactions in real estate, healthcare and renewable energy. Investment isn’t expected to slow either – China’s Ministry of Finance and Commerce (MOFCOM) has announced that their global foreign direct investment will grow by 10% each year.  

The opportunities

With this kind of growth, Australian businesses are in a unique position to engage in the ‘China opportunity’ without actually leaving Australia. As an example, luxury hotels, retailers and high-end food and beverage providers can expect a boom in business since Australia overtook France as the number 1 international luxury destination for Chinese tourists at the end of 2014. The Chinese community also provides an effective testing ground for Australian products before exporting to China. And businesses may not actually need to export their products as the ‘daigou’ phenomenon has seen hundreds of Chinese nationals and international students opening their own ‘export businesses’ by purchasing and shipping Australian products back to China. In the services space, small and micro businesses can develop tailor-made services targeting the wealthy Chinese in Australia. I recently met with the owner of a small family-run beautician in Sydney which was providing specific skin treatments to the wealthy Chinese living in their local area. Similarly, I also came across a small restaurant in Sydney which had developed a website hosted in China to advertise their business after they saw a rise in interest from Chinese tourists.

There is still some way to go…

Despite the opportunities in exporting and selling Australian products and services, the local Chinese community are still not fully engaged by Australian businesses. In 2014 the Diversity Council of Australia released a report which found that whilst the Australian labour force is 9.3% Asian born, only 4.9% make it to senior executive level. In ASX 200 companies, only 1.9% of executives have Asian heritage. These percentages would be even smaller if we just looked at those with Chinese heritage. If Australian companies continue this pattern, they are in danger of creating a precedence which locks Chinese people out of senior management positions, disincentivising staff to pursue leadership opportunities or even migration opportunities. Australian companies are also very reluctant to hire Chinese international students as interns and to recruit and sponsor them after graduating.
 
We predict that the Chinese community in Australia will eventually become the “bridge” for Australian businesses wanting to engage fully with the Chinese market. However, businesses need to realise that China’s inbound activities in Australia do not only present an opportunity for selling and exporting products and services. Chinese migrants, entrepreneurs, students and tourists come with connections through family, friends and colleagues to open the door to invaluable business and investment opportunities in China, without needing to book a plane ticket! 

From Silicon Valley to Silicon Dragon

David Thomas at Alibaba HQ in Hangzhou, China

David Thomas at Alibaba HQ in Hangzhou, China

In previous articles, I have written about China’s rapid transition from a culture of ‘copying and low cost manufacturing’, to one of ‘innovation and commercialisation’. Recent developments in high-tech, fintech and e-commerce have positioned China at the forefront of innovation in Asia and is starting to rival and disrupt the traditional centres of technology and innovation around the world. However, throughout this year’s Federal election campaign and the bipartisan support for an “ideas boom”, there was a deafening silence around China’s potential role in Australia’s efforts to build a national plan for innovation. Instead, we are looking towards the usual sites like Silicon Valley and start-up hubs around London as a source of inspiration, support and investment. China is not only closer to Australia than Europe and America, but has more capital and a bigger incentive to invest overseas, particularly in Australia which has seen substantial investment flows, particularly into mining, property and infrastructure. 

Why China?

China’s innovation story is not so unlike that of the Silicon Valley’s – the increasing speed of consumer demand, sophistication and education coupled with the crucial imperative to be globally competitive and move up the supply value chain, has created the impetus for more focus on innovation. However, what is different about China’s model of innovation is the level of Government support. Whilst China’s Government actively promotes, initiates and provides finance to support innovation, their western counterparts tend to rely on an entrepreneurial culture, new start-ups and private capital to lead the way. China’s huge market (a population of over 1 billion), combined with government support and abundant capital resources means that products are developed, tested and launched in a fraction of the time that it takes for a similar product to reach developed markets.

‘Innovation-driven development’ has become the key theme of the Chinese Government’s 13th Five Year Plan (2016-2020). The ambitious targets and strategies documented in the Plan highlight their seriousness, and past experience suggests that they can be relied on to implement their plans! The Government has claimed that their R&D budget will account for 2.5% of their GDP by 2020 and, whilst this number may seem small compared to say manufacturing (which accounts for 40%of GDP), they have made some big announcements of intended investments (eg RMB 6-10 trillion into environmental initiatives) and infrastructure projects (the expansion of their high-speed railway to cover more than 80% of major cities). Another initiative worth following is the “Made in China 2025” plan which is intended to completely transform their manufacturing industry and has identified ten priority sectors for investment including new-energy vehicles and equipment, IT, agricultural equipment and advanced medical products.

The opportunities

With the focus on entrepreneurialism, innovation and technology in Australia, we should be including China as our strategic partner.  China’s 13th Five Year Plan also includes an extension of their ‘Going Out’ Policy to identify and invest into companies, technologies and projects in target industries. Australia’s agricultural science, healthcare (particularly aged care) and cleantech sectors have seen increasing levels of interest from Chinese investors (both state-owned enterprises, private companies and entrepreneurs). Whilst Australia’s National Innovation and Science Agenda (NISA) has drawn attention to the above sectors, it has remained silent on China’s role in helping to bolster innovation, design and the production capabilities of relevant start up companies.

However, there is a misconception that only large Australian companies or institutions are attractive to Chinese investors which often deter SMEs from engaging with China.  From my work with Australian SMEs over the past decade, I know that businesses with innovative products and services are just as appealing and we are currently working on a number of China-Australia projects involving small, flexible and ambitious companies in the food, healthcare, engineering and cleantech sectors.

Another avenue for Australian businesses to consider is Alibaba. In early 2016, it was announced that they would establish their first Australian office by the end of the year. The office will work with Australian partners and merchants to provide better support and more opportunities for local companies to sell their products to the 407 million active Alibaba users. However, we should expect that their innovations in fintech, specifically mobile payments and e-commerce, could enter and potentially disrupt the Australian market. 

For Australian companies looking to enter the Chinese market, the cities of Hangzhou and Shenzhen cannot be overlooked. Hangzhou, the birthplace of Alibaba, has consistently been ranked as one of China’s top cities for start up businesses with an abundant pool of private capital, a highly educated labour force and competitive business costs (an average of new 5,000 SMEs emerge each year).

And in Shenzhen, its old industrial and manufacturing factories have been replaced by flashy tech companies, start-up hubs and incubators, churning out some of the country’s most innovative and advanced technologies and products. According to its Mayor, in 2015, emerging industries such as information technology, biotech, green energy and new materials accounted for approximately 40% of the city’s economic output. As China’s first city to be ‘opened up’ it has a well-developed international-based economy that welcomes foreign talent, ideas and capital.

As China rapidly moves up the value chain, Australia needs to pivot our innovation-centred policies away from America and Europe and towards China. As Ted Greenwald of Technology Review puts it “Chinese companies iterate, build things and grow faster than their US counterparts… Beijing compressed thirty years of start ups into five!” As Australia enters a new phase of innovation, ideas and inventions, who better to learn from (and partner with) than our largest trading partner and emerging economic super-power on our doorstep?