Markets, Ministers and Monkeys

 

This article was published in the December 2015 issue of Higher View Business Magazine for China Eastern Airline

The end of the year is not only a good time for reflection, but also the time to make New Year predictions. Looking back, 2014 and 2015 were the Chinese zodiac years of the Horse and Sheep respectively – hard-working, conscientious yet measured zodiac signs. And arguably, the Australia-China relationship has progressed similarly over these last two years. After slow yet concerted activity, Australia has finally laid down the foundations for its engagement with China, bringing to a close the first phase of the relationship. But 2016 is the year of the Monkey which is characterised by an energetic, creative and dynamic spirit. With that in mind, here follows our five predictions for 2016 which we believe will take the Australia-China relationship to new and exciting heights.

1. Turnbull in the driving seat

The appointment of Malcolm Turnbull as Australia’s new Prime Minister is a potential game-changer for Australian-Chinese economic and diplomatic relations. With the China-Australia Free Trade Agreement ready to go in 2016, Turnbull will finally be in the driving seat of Australia’s relationship with China.

Before his appointment as PM, Turnbull delivered the keynote address at the Australia China Business Week Sydney Forum in August 2015 which we both attended. Speaking to a crowd of well over 200 people, he did not just list the growing figures in cross-border trade between Australia and China or the opportunities that ChAFTA will open up to Australian business. He also stressed the need for Australian businesses to be open to the inevitable changes, challenges and opportunities when dealing with China. Here is what he said:

“Australia is well placed to capitalise on this new wave of innovation and disruption emerging from China. However, we all have a role fostering a culture of innovation which must be driven by the private sector, educational institutions and government… In the age of rapid technological change, disruption and volatility we must learn to make volatility our friend, not our foe. We must be agile to exploit the opportunities, rather than waiting behind the walls frightened of the new challenge.”

Along with Turnbull’s personal, business and family connections to China (he set up the first Sino-Western mining joint venture in 1994 and his son is married to the daughter of a former Chinese academic) and his recent appointment of former Australian Ambassador to China, Frances Adamson, as his key foreign policy advisor, Turnbull seems to appreciate the complexities, nuances and challenges of the Australia-China relationship and is committed to embrace these to take the relationship to the next level. We expect to see Turnbull announce some major initiatives in 2016.

2. Opportunities at home

Whilst there has been some progress and focus on opening up China to Australian exporters, China’s inbound activity into Australia is expected to provide even more opportunities in the short-term for Australian businesses. By the end of 2014, there were 859,500 visitors to Australia from China, generating A$5.7 billion in revenue. In just 5 months, this number shot up to 921,800 visitors, generating a total spend of A$6.4 billion. It was originally projected that Australia will have one million Chinese tourists by the end of the decade, however, with the current trajectory we may reach that number by the end of 2016!

The Chinese community already in Australia has also grown exponentially. The number of Chinese-born Australians has doubled over the past 10 years to reach 450,000 and is still growing. And last year, our Australian universities recorded over 150,000 enrolled Chinese international students. 

Despite the developments of ChAFTA and the wider network of support, services and training for Australian businesses to participate in the China market, there still remain significant challenges and obstacles, putting off many businesses, particularly those in the small and micro category. We predict that the Chinese community in Australia will eventually become the bridge for Australian businesses wanting to enter the Chinese market. However, we have not yet realised its full potential. Few Australian companies have moved Chinese staff into senior positions and very few Chinese international students are employed by Australian companies after graduating. The Chinese community also provides an effective testing ground for Australian products before exporting to China. These exporters may not then actually need to export their products as research has shown tourists and international students are sending more and more Australian products back home to friends and family. Luxury retailers, high-end food and beverage providers and hotels can also expect a boom in business since Australia overtook France as the number 1 international luxury destination in 2015. And even small family-run businesses can develop tailor-made services and products for the increasing numbers of wealthy Chinese coming to Australia.

3. China to 2020

The year 2016 marks the beginning of China’s 13th Five Year Plan (2016-2020) - the key national planning document. The 12th Five Year Plan (2011-2015) was seen as the most transformative planning document in China’s history, marking a shift away from the previous ‘growth at any cost’ approach to a more sustainable and qualitative growth model.

Of course, at the heart of the Plan is China’s economic rebalancing, particularly as it affects industry and business. As China’s factories and exports slow down, the Government has recognised the need for technology and innovation to prop up and drive the economy. Two major agendas- the ‘Internet+’ Strategy and ‘Made in China 2025’ are expected to be features of the next Five Year Plan. The ‘Internet+’ Strategy will transform the internet into an ecosystem to help industries grow, transform and create new products and services. Tired of being labelled as the world’s ‘copy-cats’, manufacturers will be offered major incentives under the ‘Made in China 2025’ initiative to move into the tech space. To supplement this, major funding has been committed to bring China’s schools, universities and vocational colleges up to world standards and encourage more students to study locally rather than abroad.

Responding to the growth of China’s middle class, the 13th Five Year Plan will also be dedicated to building a ‘healthy China’. Unprecedented reforms and investment into China’s healthcare system are expected, with a major overhaul of its public hospital system and the establishment of more private specialised hospitals (particularly in aged-care services). Environmental protection policies will also be extended by setting more ambitious emission reduction targets and goals to grow China’s clean-energy industry.  All of these initiatives represent opportunities for Australia to be a part of China’s transformation.

With technology and entrepreneurship at the core of China’s 13th Five Year Plan, 2016 is expected to kick-start a period of transformation and innovation.

4. Economic collapse or rebalancing?

Is China’s economy slowing? If so, does this actually matter? The year 2015 was marked with an obsession for China’s slowing GDP growth rate and concerns over the recent collapse of the Chinese stock market. In October 2015, the Chinese government announced that the country’s GDP growth for the third quarter was 6.9%, obviously short of its official 7.4% goal by the end of 2015. Western economists and commentators have been worried about the international flow-on effects of China’s slowing economy…but should they be?

News from on the ground shows little signs of a catastrophic economic collapse. Consumers are still purchasing expensive products such as high-quality imported food and leisure and entertainment activities like going to the cinema and eating out. Outbound tourism numbers also tell a different story – over 100 million Chinese people travelled overseas in the past 12 months and spent US$165 billion.

In a country as large and diverse as China, there is a danger in concentrating too much on national economic averages. China’s ‘Go West’ policy which took hold in the 12th Five Year Plan saw the economies of many inner-western second and third tier cities grow at double digits – for example, Chongqing grew at 10.9% and Wuhan at 9.7% in 2014. As China diversifies its economic activity away from the eastern seaboard to these fast-growing 2nd and 3rd tier cities, they will become the future growth engines of the economy. With a market as large as China’s, Australian businesses should be focusing their efforts on targeting these cities and not the nation as a whole and pay attention to China’s micro, not macro, economic development. 

5. Monkeying around

Anyone who deals closely with China understands the importance of the Chinese zodiac cycle for everyday life, long-term planning and business relationships. The year 2016 will be the year of the Monkey, a considerable change from year of the Sheep (2015) and the Horse (2014). Those born in the Sheep and Horse years are more measured, considerate and quiet hard-workers whilst Monkeys are adventurous, ambitious and boisterous. Australia’s relationship with China has been marked by years of steady progress and small steps, typical Horse and Goat characteristics, to set up a launching pad for Australian businesses. In 2016 we hope and expect that Australian businesses will jump into China with courage, creativity and conviction, to take the relationship to new and unprecedented heights.   

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