Rise and Fall of Empires

With thanks to my old friend, Tim Parry, for this contribution to our blog

Ancient and Modern History is littered with the rise, and inexorable fall, of Empires.

As the 'known' world grew, so too did the geographical spread of Empire. Egypt, Greece and Rome ruled in the Ancient World, and throughout modern history, Spain, Portugal, Holland and France sailed into the New World and Asia. Under Napoleon, France dominated Europe, The British Empire - driven by industrialisation, efficiency, technical innovation, and the search for raw materials and markets - was probably the most widespread in modern history, at its height covering approximately one-quarter of the worlds population and land area. Its fair to regard the rise of Britain as roughly coinciding with the defeat of Napolean, in 1815, and its decline to begin a century later with the opening shots of WW1.

But as unstoppable as the rise of Empire can be, so too is its decline inevitable. Lethargy, distance, and expense are key negatives in a physical occupation. And it is by occupation that history generally judges the extent of empire.

But these days, even the use of the word 'Empire' is used cautiously. Its intimations of oppression and subjugation are no longer acceptable, and the military annexation of territory frowned upon (though by no means impossible, as we saw with the Russian occupation of the Crimea in recent times). The mere existence of the United Nations serves as a deterrent to such ambitions.

But the reality is that since the end of World War One, there HAS been a dominant global power. An Empire in all but name, with all-powerful influence in military power, political ideology, manufacturing, trade and culture. 

As Britain's power faded after WW1, and fell away in exhaustion after WW2, it was America that stepped in to fill the vacuum. Russia, under the Communist theology, was fenced in, and as China took a different path in its communist strategy, America became the guardian of democracy, liberty and capitalism.

But, after a century in which America, and American interests, 'colonised' the globe ( the Coca-Colanisation, if you like) it too is facing its inevitable decline. As so often, it is economic decline, and to some degree a loss of innovation and manufacturing that has set the tone...

Handling the end of Empire is never easy.

The lessons of history tell us much...

But in modern times, this loss of 'status' is very similar to the 6 steps of grief...

Shock...

Denial...

Anger...

Bargaining...

Depression...

Acceptance...

Britons dealt with them all of these...it probably took them almost 50 years to really get to it all. Starting with India in 1946, and ending with Hong Kong in 1997...a long line of divestments, handled with varying degrees of ability and success.

America? America has only just started...

They are possibly, unwittingly, through Shock, and are somewhere between Denial and Anger.

Which might be why Donald Trump, with his 'Make America Great' call, appealed. 

But as one 'Empire' falls, and goes through its phase of lashing out, as America is now, the vacuum is created.

Next to step up is surely China...

Its influence has increased enormously in the past 2 decades. Its economic influence and asset purchases in Africa, Asia, Europe and Australia, points to it firmly capitalising (perhaps a poor choice of words for a nominally communist country?) upon its centralised Government economic planning and manufacturing capacity. The sheer size of its population and domestic demand makes it a massive market, and its increasing willingness to flex its muscles militarily, and to comment on global events politically, clearly points to a determination to be heard and to establish itself in what is increasingly sees as its rightful place at the top table of global authority.

What happens next is anyone's guess!

China in 2017 - The View at Ground Level

Today is 12th January 2017 and I have just completed a one week visit to Guangzhou in southern China to meet with our local business partners, staff, clients, prospects and many existing and new connections. My focus is on doing business in China, particularly with investors, entrepreneurs, SMEs and high net individuals, and so my views are defined by my conversations with these types of people and my observations of what they think, rather than the more macro economic perspectives that you hear on CNN and BBC. I don’t pretend to be an economic, political or social commentator. I have no axe to grind or political agenda to push. All I can tell you is what I see, hear and observe. I hope you find it to be valuable.

The last days of the Year of the Monkey

The Monkey year was predicted  to be volatile, unpredictable and full of surprises, and so it proved. Most of the world is grappling with the rise of populism, terrorism, political upheaval throughout the world, particularly in UK, Europe and the US, and a big change in global economic conditions with the US raising interest rates for the first time in over 5 years.

In contrast, China appears to be following a steady and somewhat predictable course. China’s GDP growth in 2016 is estimated to have been 6.7%, which sits comfortably within the expected range of 6.5% to 7%, and it appears to be “business as usual” on the ground as local business people speak with optimism and excitement about the future.

I was in China on the day of both the result of Brexit and the US election, but you wouldn’t have known it. There was almost a deadly silence, as though nobody had noticed, and the people I deal with kept their heads down, focused on their own business, and hardly acknowledged these global seismic events.

As I read through today’s edition of the China Daily, the following headlines grab my attention:

  • Sales of passenger vehicles in China increased by 15.9% in 2016, more than double the estimates and the highest annual percentage increase since 2013.
  • Over the next 5 years, the consumption demand of China’s domestic market will reach $10 trillion
  • China will overtake the US and become the world’s largest aviation market within the next 20 years, with annual passenger traffic volume projected to reaching 1.2 billion by 2034
  • Guangzhou will develop 8,000 new high tech companies and 200,000 innovative enterprises for science and technology by 2020
  • President Xi Jinping will become the first Chinese President to attend the World Economic Forum in Davos next week.

I admire the Chinese Government and people for their commitment to long term planning, predictable and orderly outcomes, “top down” management and strong execution. Whilst western media and commentators sneer at China’s problems (this week the focus has been on air pollution which has been particularly bad in the North, the high price of industrial progress), they seem to ignore or undervalue China’s successes. You have to read the China Daily (which I appreciate could also be regarded as somewhat “one eyed”) to view the other side of this two-sided coin.

What to expect in the Year of the Rooster?

SOURCE: Chinadaily.com.cn                                                                           

SOURCE: Chinadaily.com.cn                                                                           

In addition to the headlines mentioned above, today’s China Daily carries a photo on the front page of President-elect Donald Trump and China’s popular man-of-the-moment, Jack Ma, after their meeting in New York on 9th January 2017 at which Alibaba laid out their plan to create 1 million new jobs in the US by connecting American SME’s with Chinese consumers via their ecommerce platforms.

Everyone noticed this and commented on it. It was a brilliant response to the understandable fears created during the US election campaign which suggested that China would become a target for new US protectionism under Donald Trump. Many said “Trump is a businessman. He’ll know what to do when he becomes President. A good relationship with China will help him”. It seems that this particular fear was (almost) swept aside by this single masterstroke. In a country where symbols and imagery is so important, this was a perfect response!

The general view in China is that the first 100 days of the new administration will be volatile, unsettling and even dangerous while the new President announces his intentions and ideas for the next 4 years. China is ready for this. It is expected that, as the new team move from ideas and rhetoric to the implementation of actual policy measures (involving the two houses and the tedious and bureaucratic legislative process) the new Government will start to resemble a more typical Republican administration (more like Ronald Reagan’s Presidency) and will be less threatening. Only time will tell whether these hopes will be realised.

There was also lots of talk about the new measures recently introduced by the Chinese Government to make it harder for individuals and companies to move their money out of China. This includes reduced quotas for the purchase of foreign currency, greater scrutiny of overseas currency transfers by the banks and new reporting requirements for all foreign currency transactions. I spoke to the senior managers of one of the large SOE Banks and their view was that these regulations were relatively temporary measures designed to support the RMB in the short term. In the meantime, they are expanding their overseas department to assist clients with overseas transactions and overseas investment.

Everyone knew that, when the US Federal Reserve started to unwind the loose monetary policy (also known as “Quantitative Easing”) introduced to counter the GFC in 2008, there would be a period of volatility while the markets adjusted to the new paradigm. That’s why the Fed took so long, and issued so many warnings in advance, before they started acting! With two small interest rate rises, and the prospects of more to come, money is starting to flood back into US dollars and, as a consequence, this has put pressure on many other currencies including the RMB which has come under considerable pressure from currency traders and speculators. To avoid a major and disruptive devaluation in the RMB the Chinese Government has used its foreign exchange reserves to sell USD and buy RMB, and introduced new currency controls (as mentioned above) to keep funds in China.  This tactic has worked so far, despite the strong headwinds blowing in the opposite direction, and the offshore yuan has strengthened in recent days (up 2.6% this week).

In the meantime, financial commentators have raised concerns about China’s dwindling foreign reserves (which have fell by RMB41 billion but still remain above RMB3 trillion, a number which is still regarded as being well in excess of the nation’s requirements to cope with external shocks) and the Government’s ability to continue to support the RMB and, with the much repeated statement that “China growth is slowing” there is widespread speculation in the western media about the prospects for China’s future!

All I can say that these fears don’t appear to be felt, or discussed, on the ground in China. Quite the opposite in fact. Most people regard these events as highly predictable and of little consequence. Most believe that the volatility will be relatively short term and, once the currency speculators lose money from betting against the Chinese Government’s ability to support the RMB, the currency will return to its more long term trading pattern. 

We live in interesting and uncertain times. The first half of 2017 will undoubtedly be challenging and volatile as we all grapple with a new and untested US President and the possibility of new populist Governments emerging from general elections in Germany, France and Italy.

The imagery in China, as illustrated by this caricature of President Xi Jingping rolling his sleeves up ready to work hard in 2017, is of a country taking its place in the world as a responsible, pragmatic and determined nation which is looking to fill the gap that exists in international leadership, global trade and long term planning. The entrepreneurs I meet in China take a similar approach to their businesses. They control the things they can control, work hard and focus on planning and execution. They avoid frivolous distractions and the western media. Perhaps we should all do the same?

 

Hong Kong – China’s International Financial Services Centre?

Many years ago, prior to the handover from Britain to China in 1997, I lived in Hong Kong and worked in the financial services sector. A common topic of conversation involved speculation about Hong Kong’s role in the future. Would Hong Kong continue in its traditional long term role as the gateway of business and investment into mainland China? Would China respect and preserve Hong Kong’s freedoms, laws and practices? Would Hong Kong continue to prosper and grow?

Or would Hong Kong become irrelevant once China was able to build its own mechanisms and markets to attract international capital and, more importantly, to provide confidence to foreign investors and businesses?

Twenty years later, this question continues to be asked, and with the added concern about Hong Kong’s political, economic and social stability which is severely tested every time the locals accuse China of meddling in their local affairs. The “One Country Two Systems” concept, enshrined in the Basic Law of Hong Kong (which continues to follow the English Rule of Law) was guaranteed by China to apply for at least 50 years after 1997, and so any sign of influence by Chinese politicians and bureaucrats in the Hong Kong political process is greeted with outrage and large scale protests.

So, what does this all mean for the future of Hong Kong and can it continue to be “China’s International Financial Services Centre”?

On the plus side….

Hong Kong continues to be regarded by foreign companies and investors as the gateway for investment in the mainland, and as a world class financial centre in its own right. A low-tax haven, modern metropolis and fusion of east and west, Hong Kong has flourished as a financial services centre and banking hub for international corporations and wealthy individuals. Hong Kong now has one of the highest concentrations of banking institutions in the world, with 71 of the world’s largest banks managing their Greater China operations from Hong Kong, and is a gateway to over 3 million high net worth individuals in the Asia Pacific, with wealth totalling approximately US$10 trillion dollars, significantly more than their equivalent European counterparts.

Hong Kong has been officially anointed by the Chinese Government as “China’s international financial services centre” and plays an important role in managing the internationalisation of the RMB, one of the world’s most significant “mega-trends”. To prove the point, Hong Kong hosts the largest pool of RMB liquidity outside the mainland, with offshore RMB deposits of over RMB 1 trillion, and has become the global hub for RMB trade settlement, financing and asset management, offering a wide range of RMB products and services to meet the needs of businesses, financial institutions, and investors.

Hong Kong’s economic and trade relationship with China has become even closer as it has pinned its faith in China’s ‘One Belt One Road’ Initiative. Using its strategic position between China and the rest of South East Asia, Hong Kong plans to become the facilitator of capital, services and people traveling along the Belt and Road. Utilising its strengths in financial and professional services, Hong Kong has promoted itself as the foreign service provider to countries looking to tap into the opportunities and direct investment in and out of China.

Hong Kong’s competitive advantage continues to stand out in five key areas: its people, business environment, market access, infrastructure and cost competitiveness. The foundations of such a business environment are established in its freedom, English common law system, robust regulatory regime, a simple and transparent taxation system and a time zone that links American and European markets with the Asia Pacific region.

I still have many friends working in and out of Hong Kong, in the financial services sector and also in other industries as well, both expatriates and locals. Most are upbeat about Hong Kong’s future and some even some expatriates plan to retire there (an idea that would have been laughed at when I lived there!). Property prices, always a barometer of local confidence, are stable and at historically high levels, and the business community prospers from strong economic growth in mainland China which keeps them all busy and fully occupied. The feeling on the ground within the business community is buoyant and prosperous, as it always has been!

On the minus side….

From a social and political point of view, Hong Kong is at a crossroads, a position that surely can’t be tolerated or sustained for another 30 years when, in theory, the time for “one country two systems” runs out and China can fully take over.

When the Joint Declaration for Hong Kong was negotiated and signed in 1983, a ground-breaking diplomatic achievement by all involved, including Deng Xiaoping and Margaret Thatcher (and my father and step-mother who worked on many of the details and facilitated some of the relationships) China was a poor, rural and divided country which was only just emerging from the cultural revolution following the death of Chairman Mao in 1976. Hong Kong was a ‘beacon of gold’ in a ‘land of grey’, a place where many had fled from communist rule in the 1940s and 1950s with no intention of returning, and there was a genuine fear of “the red army across the border” and the prospects of communist rule in Hong Kong. The masterstroke by Deng Xiaoping and his advisers to propose the “one country two systems” concept, and placate all fears by guaranteeing the preservation of Hong Kong’s rights and freedoms for at least 50 years after 1997, settled the markets and allowed everyone to get on doing what they do best ie to make money and keep their heads down! At the time (before the internet, CNN and the 24 hour news cycle) 50 years seemed like an eternity!

Everything went well until June 1989, and the “Tiananmen Square incident” in Beijing, which hit Hong Kong like a thunderbolt and jolted everyone from their slumber, sparked the democratic movement (1 million people took to the streets of Hong Kong the next day in an unprecedented show of emotion, anger and fear) and brought into sharp focus, played out on their TV screens with the graphic scenes from Beijing, the potential reality of Chinese rule in Hong Kong. I lived through the ‘week of mourning’ in Hong Kong that followed these events, a time when the stockmarket was closed and everyone walked around in a trance, not wanting to believe what had actually happened, and it was obvious to all that any ‘rose-tinted’ hopes and optimism about Hong Kong were well and truly dashed on that sad day, 4th June 1989.

The 8 year period that followed (1989 – 1997) was a frenetic and uncomfortable time for Hong Kong. The new UK Prime Minister, John Major, who succeeded Margaret Thatcher in 1990 appointed his friend and Conservative Party Chairman, Chris Patten (who lost his seat in Bath at the otherwise successful election of 1992) to become the last Governor of Hong Kong with a mandate to introduce a “Westminster style of Democracy” for Hong Kong in the last 5 years of British Rule.

Chris Patten, a highly intelligent man, skilful politician and Oxford scholar of modern history was faced with an unprecedented dilemma as the last Governor of Hong Kong. Rather than preparing a British colony for ‘independence’, as had been done many times before, he was effectively responsible for handing it over to a communist country and authoritarian state from which most of its population had actively fled. With the help of close advisers in Hong Kong, and balancing the demands of politicians in London and British diplomats in the Foreign Office in Beijing, he attempted to engineer a solution which would allow the British to leave a legacy of democracy and self-determination for the people of Hong Kong. Bearing in mind that Hong Kong had been in British hands for nearly 99 years, it’s a shame in hindsight that this hadn’t been attempted earlier!

Most of the new democratic measures, introduced in haste during those last 5 years of British rule in Hong Kong, were immediately overturned after the British flag went down on 30th June 1997. What remains is a diluted form of democracy which falls between the two stools of a ‘benevolent dictatorship’ (as Hong Kong was under British rule) and what we know in the west as ‘full democracy’, and nobody seems totally happy with it!

Only the most optimistic “Sinophile” could have predicted how China would transform itself over the next 20 years. Much of this is documented in past blogs and need not be repeated here. Suffice to say that despite its continuing progress, strength and prosperity, Hong Kong is no longer the “beacon of gold” it was in 1983, and other Chinese cities (notably Shanghai, Beijing and Guangzhou but also many others) are now just as alluring and attractive to foreign investors, business leaders and entrepreneurs.  At the same time, local Governments in China are encouraging, if not furiously competing with each other to attract, foreign companies and investors to go direct, rather than pass through the traditional gateway of Hong Kong, by offering financial rewards, free trade zones, and other incentives to pave the way. Despite assurances from Beijing that Hong Kong remains as “China’s International Financial Centre” many wonder whether this is an empty promise bearing in mind the many efforts being made to bypass it.

As if this wasn’t enough of a problem, Hong Kong’s democratic movement gets louder in its criticism of China for meddling in its internal affairs and attempts to influence the political process, and there are more protests (including the well publicised “umbrella movement” in October 2014 which brought Hong Kong to a standstill for over a week) and media calls for Hong Kong to retain “a high degree of autonomy” as was promised under the Joint Declaration of 1983.

As I write this blog in December 2016, it is hard to imagine that the democratic rumblings in Hong Kong can continue unabated for another 30 years! The stakes are far too high. On the one hand, Hong Kong depends on mainland Chinese business, investment, tourism and collaboration to continue to prosper economically and this will no doubt motivate the business community (which has some influence in the local political process) to maintain a pro China stance and muffle, as best they can, some of the activists, mainly students, politicians and some academics, whose activities cause embarrassment and disruption. On the other hand, China must be careful to ensure that any meddling in Hong Kong (eg their insistence that Beijing should review and approve candidates for the position of Chief Executive of the territory) does not contravene the spirit, if not the wording, of the Joint Declaration which was registered by the PRC and UK governments at the United Nations on 12 June 1985 and would raise major concerns and outrage, in the media and amongst foreign Governments, if China was seen to be reneging on its international commitments.

In conclusion….

It is very hard to predict how all this will play out. At the time of writing, and having recently visited Hong Kong during a spate of democratic protests following the recent local elections, I find myself hoping for the best and fearing the worst!

In my personal opinion, Hong Kong needs to find a way to operate peacefully alongside China so as to preserve its economy and way of life. This requires a strong and respected local Government to lead the way, a level of tolerance and diplomacy amongst all Hong Kong people, particularly the politicians, to accept and acknowledge that China is the sovereign power, and a willingness to make concessions that are not strictly necessary under the terms of the Joint Declaration. Most of these requirements appear to be totally absent at the moment.

At the same time, as China becomes more confident in its emerging role as a global power, and its own political model evolves, as it may one day, towards a more liberal, open and possibly even democratic system, it may be possible for Hong Kong to become a testing ground for Beijing to “cross the river by feeling the stones” and explore one or more democratic models which could one day be adopted on the mainland. I appreciate that this might seem a somewhat distant thought at the moment!

Meanwhile Hong Kong can’t afford to become an unruly, subversive and insurgent enclave operating under its own rules on the southern tip of China. Nobody will win if this happens. Hong Kong has always, and will continue to, prosper if it works with China to promote its traditional role as a gateway to China, an international financial services centre, a place where ‘east meets west’, and a great place to live.  I sincerely hope it will find a way of doing this.

 

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.