Our 8 Key Learnings from this year’s “Invest in Australia” Mission

Our annual “Invest in Australia” Mission ran from 17th to 22nd of January 2016. Over six days we attended the Asian Financial Forum and other events in Hong Kong and also visited Zhuhai and Macau for a day of business networking, presentations and tours. These were our key learnings from the trip:

1. China is transitioning

At the Asian Financial Forum, former Chairman of the US Federal Reserve, Dr Ben Bernanke, had much to say about the direction of the Chinese economy. The comment that stuck with me most was his explanation of China’s economic slowdown. He made the point that, over the past thirty years, China’s manufacturing and heavy industrial based economy was relatively easy to measure– the output of manufacturing, factory inventories, PMIs, volumes of exports and cargo and so on are all tangible, identifiable and measurable. However, China is now transitioning to a services and consumption based economy which has less tangible outputs to measure. Therefore, we should be careful how we react to China’s growth rate as it is inevitable that their economy is perceived to be ‘slowing’.

2. Zhuhai – not just a tourism destination

Perhaps what struck me most during the trip was the relevance of Zhuhai to Australia. Despite being a ‘small’ Chinese city (population of 2.3 million), it is beginning to play a significant role in the development of China’s southern region. This is largely due to President Xi’s concentration on further opening China’s southern cities – Zhuhai is home to the Hengqin Free Trade Zone (which we visited during our tour) and many local government business departments are actively attracting and engaging foreign companies to set up in Zhuhai. For Australians, competition in Zhuhai is less ferocious and many of its focus industries (tourism and leisure, financial services, education and advanced technology) match with some of Australia’s key strengths. To know more about our time in Zhuhai, please read our last blog post.

3. Preaching to the unconverted

During the Mission, the Austrade office in Hong Kong organised a seminar for our delegation focused on opportunities in the services sector emerging from the China-Australia Free Trade Agreement. Everyone in the room knew about and believed how important China is and was actively engaged with and excited about the opportunities it presents to their businesses and organisations. And back in Australia, there seems to be a weekly conference, seminar or presentation about China with an equally motivated audience. But are all Australians as well informed and passionate about China or are we just preaching to the converted? We have to ensure to engage all Australians, even those sitting far away on the other side of the fence, about the relevance and importance of China.

4. Hong Kong as the launch pad

Hong Kong’s history with Britain and China has resulted in a unique environment that is particularly beneficial for businesses looking to expand into China. Hong Kong is a launching pad for your China business because, over time, it has become home to many Hong Kong locals who have been actively engaged with China, many Chinese mainlanders who have set up in Hong Kong and many expatriates who have dealt closely with Hong Kong and China for many years. Their expert advice and unique insights and experiences are extremely valuable to a company looking to set up in China for the first time. As a result, Hong Kong’s role as the traditional gateway to China (and its emerging role as a platform for outbound Chinese investment) is as relevant today as it always has been.

5. Hong Kong’s role in the ‘Belt and Road’ Initiative

Something that became extremely apparent to me during the AFF was that Hong Kong has pinned its economic and relevance future on China’s ‘Belt and Road’ Initiative. Using its strategic position between China and the rest of South East Asia, Hong Kong will 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. As the ‘Belt and Road’ Initiative develops, it will be interesting to watch how Hong Kong grows and develops alongside it.

6. Australia in the Asian Century?

The AFF is one of the world’s largest economic forums, bringing together some of the most influential members of the global financial and business community to discuss developments in the dynamic Asian market. The theme of this year’s forum was: “Asia: Shaping the New Paradigm for Growth” and it was obvious that many Asian countries are seriously planning to work together to develop the Asian market. For example, the Deputy Prime Minister of Russia and Thailand’s Vice Minister of Finance both made opening keynote presentations about their own domestic policies to support the ‘Belt and Road’ Initiative and the greater economic development in Asia. However, Australia was not mentioned in any discussion, presentation or workshop. This was disappointing because Australia can play, and should play, a very important role in the markets of Asia and is already a member of the Asian Infrastructure Investment Bank which is plays a critical role in funding many of ‘Belt and Road’ initiatives.

7. Sustained interest in SIV

Due to the July 2015 changes to Australia’s SIV program, service providers in Hong Kong and China are trying to better understand the new regulations and requirements. The SIV Seminar in Hong Kong, organised by co-mission leader Stacey Martin, drew a crowd of nearly 50 participants from across the migration, fund management and banking industry. Many have argued that the changes to the SIV program will seriously damage its popularity in China and Asia and application numbers are likely to drastically decrease. This is still too early to say. However, the audience engagement at our event was a good indication that interest is still strong.

8. Macau’s golden years are over

As one of the most popular gambling destinations in the world, Macau’s wealth has sky-rocketed over the past decade. From 2009 to 2014, Macau’s compound annual growth rate was 30% due to a combination of economic stimulus programs from China, plenty of funding opportunities from Chinese developers and the large numbers of wealthy Chinese travelling to Macau for gambling and recreational purposes. However, the bubble is now beginning to burst. Macau recorded a 43% fall in revenue in 2015, partly due to China’s own slowdown but also its crackdown on corruption which has stopped many Chinese government officials from going to Macau’s casinos. As Macau adjusts to this ‘new normal’, it will be interesting to see how far-reaching and long-lasting its effects are.    

Australian Mission to Zhuhai - 20th January 2016

At the Hengqin Free Trade Zone with Eric Zhang and Cimy Ma from the Hengqin FTZ Business Development Centre

Our annual “Invest in Australia” Mission was held from 17th to the 22nd January 2016 in Hong Kong and China. As well as representing Australia at the Asian Financial Forum in Hong Kong, we also led an Australian mission to Zhuhai in China’s Guangdong Province for a day of tours, business meetings and presentations. Being one of the first Australian missions to Zhuhai, our delegation represented an opportunity to lay the foundations for a platform of business, trade and investment relationships between Australia and the rapidly emerging 3rd tier city of Zhuhai.

In the morning, we visited the Hengqin Free Trade Zone, one of the three pilot free trade zones in the Pearl River Delta Region to be announced by President Xi Jinping in 2014. We were met by representatives from the Hengqin FTZ Business Development Centre who provided a brief tour and presentation of the FTZ. When fully completed, the Hengqin FTZ, with its preferential policies and financial incentives, will be a great platform to support Australian businesses entering the China market.  In addition, its focus industries (tourism and leisure, financial services, education and advanced technology) match with some of Australia’s key strengths. 

We then travelled into the Zhuhai CBD to meet with representatives of local government agencies (the Zhuhai Bureau of Commerce, the Investment Promotion Services Centre of Xiangzhou District and the Investment Promotion Centre of the Zhuhai Hi-tech Industrial Development Zone) who presented opportunities in Zhuhai for overseas investment and business collaboration in key emerging sectors such as biomedical technology, tourism & leisure and financial services. This was followed by a traditional Cantonese banquet including a discussion about the possibilities and opportunities for establishing a platform for engagement between Australia and Zhuhai.

As an emerging and fast-growing city, Zhuhai represents a unique platform for Australian small to medium sized businesses to expand into China. With a small population (2.3 million) and relatively low numbers of international companies operating in Zhuhai, competition is less ferocious and the local government associations are very welcoming of overseas companies looking to do business in Zhuhai.  Also, many of the city’s industrial zones receive preferential policies (for example tax incentives and rent-free periods), making it a relatively easy and cost-effective destination for expansion. And with the completion of the Hong Kong-Zhuhai-Macau Bridge, business and travel will become even easier, opening up Zhuhai to Hong Kong and the rest of the world.

We hope to come back to Zhuhai in 2016. 

Lunch with Carrie Lin from the Investment Promotion Centre of the Zhuhai Hi-tech Industrial Development Zone, Cheryl Zhang and Foster Xie from the Zhuhai Bureau of Commerce and Yi Wei Jiang from the Investment Promotion Service Centre of Xiangzhou District

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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China to 2020

China to 2020.jpg

The year 2016 marks the beginning of China’s 13th Five Year Plan (2016-2020) - the key national planning document.  China’s 1st Five Year Plan (FYP) was enacted in 1953 and since then has become the blueprint for China’s political, economic and social development. The 12th FYP (2011-2015) was seen as one of the most transformative planning documents in China’s history, marking a shift away from the previous ‘growth at any cost’ approach to a more sustainable and qualitative growth model. In October 2015, the Central Government released the broad policies of the 13th FYP (the full details will be released in early 2016) and as expected, it built upon the strategies, targets and regulations of the 12th FYP. After a decade of economic growth at breakneck speed, China has shifted focus to creating sustainable economic growth and playing a direct role in improving the quality of life for the entire Chinese population. The Central Government must now direct unprecedented focus into new industries, areas and interests to create a livable, healthy and harmonious China.

Economic rebalancing

Of course, at the heart of the new Plan is China’s economic rebalancing, particularly as it affects industry and business. As China’s factories and exports inevitably slow down, the Government has recognised the need for technology and innovation to bolster and drive the economy. Originally considered as the world’s ‘copy-cats’, China is committed to creating an environment for innovation and creativity, to produce products that are ‘Created in China’ not ‘Made in China’. Major agendas and plans have emerged to give more autonomy to research centres and institutions, transform the internet into an ecosystem to help industries grow, transform and create new products and services and to increase collaboration between tertiary institutions and business by opening more vocational training colleges. 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.

Social changes

China’s years of economic hyper-growth have had an enormous impact on China’s society and social structure. As disposable income levels rise across the country, people in China are now deeply concerned about the role the government plays in their quality of life. The strategies, targets and milestones set out in China’s 13th FYP have been a direct response to some of the anxieties, demands and needs of the Chinese people for a ‘better’ quality of life, particularly those in the growing middle class. The biggest reform under the 13th FYP is the nation-wide scrapping of the one-child policy to combat China’s rapidly ageing population. China’s urbanisation rate is one of the fastest rates in the world and now over half of China’s population lives in urban areas. There is strong consideration of the rural-urban and rich-poor divide in the new Plan, including the introduction of better legal rights for farmers and reforms in China’s social security system.

A healthy China

The new Plan will be dedicated to building a ‘healthy China’. Whilst the details of the new Plan have not been released, 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 burgeoning clean-energy industry. 

A continuation of the 12th FYP

Under the new Plan, the ‘One Belt, One Road’ Initiative will form the cornerstone of China’s ‘Going Out’ Policy that was introduced in the 12th FYP. The Initiative aims to consolidate and upgrade existing infrastructure and build new transport routes stretching all the way from Southeast Asia, through Russia, Central Europe and Africa to Western Europe. The ‘Belt and Road’ will transport resources, people and capital around the world with China in the middle facilitating the flows. Besides forming the basis of China’s new foreign policy, President Xi has also made the Initiative a key domestic economic strategy for continuing the ‘Go West’ policy of the 12th FYP. The Initiative has made specific plans to establish Chongqing as the heart of opening up and growing China’s western region. This will be supported by developing Chengdu, Xian and Zhengzhou to open up the inland areas and form the country’s logistics hub.  

Big picture visions or incremental changes?

With these major and ambitious plans, targets and goals, it has been asked by some whether there are the necessary institutional structures in place to support these big visions. In short, there is still some way to go before these structures can be fully implemented. Businesses, institutions and organisations, particularly those outside of China, should still be cautious about some of the goals and targets outlined in the 13th FYP.

However, China does have a strong track record over the past 30 years of meeting or exceeding the targets and aspirations set out in their FYPs and it has proven dangerous for foreign commentators to underestimate their capabilities for undertaking major reform programs. A good example was their goal to lift 600 million people out of poverty which was a major undertaking and exceeded all expectations. Even if, in the unlikely case, China does not reach their targets, the process of achieving these major reforms will involve significant changes and adjustments to many regulations and practices; for example structuring the flow of inbound and outbound capital, streamlining their decision-making processes and navigating the geo-political consequences of their policies. On the surface, the 13th FYP is a potential game-changer for China. However, the changing structures underneath the surface are just as transformative.

The ‘China Opportunity’ in Australia

Walking around Sydney’s CBD, it is hard not to notice the ever-growing Chinese population. Whether they are students, tourists or migrants, the numbers of Chinese arrivals in Australia have been growing exponentially over the past decade. Whilst there has been some progress and focus on opening up China to Australian exporters through the various tariff reductions introduced by the China-Australia Free Trade Agreement, China’s inbound activity into Australia is expected to provide even more opportunities in the short-term for Australian businesses of all sizes. However, we believe there is still a long way to go for Australian businesses to fully realise this opportunity.

The numbers

At the end of 2014, there were 859,500 visitors to Australia from China, but in just 5 months, this number shot up to 921,800 visitors. Three years ago, it was predicted that there would be 1 million Chinese visitors to Australia by 2020, however, with the current trajectory; we may actually reach that number by the end of 2016! Chinese tourists are also spending more than before. By May 2015, Chinese tourists generated A$6.4 billion in revenue, up from A$5.7 billion at the end of 2014.

The Chinese community in Australia has also experienced similar growth. 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. 

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 provide an effective testing ground for Australian products before exporting to China. And businesses may not need actually need to export their products as tourists and international students are sending more and more Australian products back home to friends and family. As you may have read in the news, many local Chinese people are purchasing infant formula from Australian supermarkets and bringing it into China with them to give to their family and friends. 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 the 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 Chinese customers.

There is still some way to go…

Despite the opportunities in exporting and selling Australian products and services, the local Chinese community are not fully engaged by Australian businesses. In 2014 the Diversity Council of Australia released a report in 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. 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. By hiring a Chinese intern or full-time employee, the worst thing that can happen is that you will have a hard-working, diligent and talented person working for you in your office. The best thing that can happen, however, is that they could use their connections through family, friends and colleagues to open the door to invaluable business opportunities with China.