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Monday
Apr272015

Guangzhou - The Pearl of Southern China

Guangzhou, formerly known as Canton, is the capital of China’s wealthiest province Guangdong and has experienced extraordinary growth over the last few decades. As the first region in China to be ‘opened up’ by Deng Xiaoping, the city has experienced double digit GDP growth over the last two decades although, like China’s economy overall, has since decreased to 8% in 2015. Despite easing growth, Guangzhou is still ranked third behind Shanghai and Beijing in terms of its GDP value and is situated just north of Hong Kong in the Pearl River Delta “PRD” region. It occupies 7,435 square kilometres of land and houses a population of over 13 million. Guangdong Province is currently China’s largest provincial economy (surpassing a GDP of $1 trillion in 2013), and ranks among the world’s 15 largest economies.

A region of wealth

The PRD region on China’s south-east coast encompasses the neighbouring cities of Guangzhou, Shenzhen, Foshan, Zhuhai, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing and the Special Administrative Regions Macau and Hong Kong. The PRD is one of China’s leading economic regions and, according to Hong Kong Government data, in 2013 experienced GDP growth of 9.4% and accounted for approximately 10% of China’s overall GDP. The region’s merchandise trade reached a staggering US$1,778.2 billion in 2012, nearly US$95 billion more than that of Japan’s international trade volume. In international standings, this places the PRD region fourth in terms of trade, just behind the US, Germany and Hong Kong. A recent study conducted by the World Bank found that the PRD region is now equivalent to the world’s largest “megacity” in terms of land size and population.

The PRD region also houses the new Guangdong Free Trade Zone (FTZ) district which includes Nansha in Guangzhou, Hengqin New Area in Zhuhai and the Qianhai and Shekou areas in Shenzhen.  The Guangdong FTZ aims to boost trade and investment across advanced manufacturing, financial services, logistics, information technology and tourism. The FTZ also aims to enhance the region’s cooperation with Hong Kong and Macau, transforming this region from a manufacturing centre to a sophisticated high-end services hub. The special provisions governing the FTZ, particularly the Nansha region, aim to make it an attractive location for international financial institutions. This represents a significant opportunity for Australian companies to export their strong financial services capabilities to Guangzhou and profit from the vast amount of wealth and activity in the PRD region.

In just 15 years Guangzhou has emerged as a glittering cosmopolitan city, housing sky scrapers rivalling those of Shanghai and streets lined with luxury global brands and restaurants. With such large scale economic growth and development, it is not surprising that the per capita consumption expenditure of Guangzhou’s urban households is 183% of the national average. Also, in 2013, Guangzhou’s consumer retail sales stood at RMB688.3 billion.

Guangzhou is also home to several of China’s largest companies and wealthiest individuals including R&F Properties, owned by Zhang Li who is one of China’s richest individuals, Evergrande and China Southern Airlines. In 2013, Guangzhou reportedly had approximately 45,900 individuals with assets of RMB10 million or more. The number of private enterprises in Guangdong mushroomed to 1.53 million in 2013, up from 258,620 in 2002. According to Hong Kong government data, exports by Guangdong’s private enterprises skyrocketed from US$4.1 billion to US$213 billion from 2000 to 2013. Growing affluence in the region has fuelled demand for better education services and families and students are looking overseas to Australian education providers. Currently, students from Guangzhou represent a significant portion of the total number of Chinese international students in Australia. Anecdotal evidence suggests that parents of Chinese international students in Australia spend money on apartments, tourism and in some cases, even start investing in Australian businesses; presenting a new market segment for Australia.

Innovative growth

Originally a manufacturing hub, Guangzhou has reinvented itself to be the country’s engine of innovation and new technologies. The Municipal Government has been working hard to propel Guangzhou up the global value supply chain – promoting its aim to move away from products ‘Made in Guangzhou’ to ‘Created in Guangzhou’. The country’s National Development and Reform Commission approved Guangzhou as a national high-tech industry base which has been incorporated into the city’s 12th Five-Year Plan (2010-2015). Under the Plan, the Municipal Government has set aside one billion yuan each year to fund and support enterprises and projects that develop Guangzhou’s high-tech industry, possessing intellectual property rights of core technologies and featuring highly recognisable brands. Under the Plan, the city has identified six new emerging industries for development. These include: new-generation information technology, bio engineering technology, new materials, new energy vehicles, new energy and environmental protection and marine engineering. By 2020, Guangzhou aims to increase the output value of high-tech products to RMB2 trillion.  With increased expenditure in Guangzhou’s environmental protection policies, trade in green and new energy technology products and research represent an opportunity for strong Australian-Chinese collaboration.

In 2014, eight Guangzhou-based companies were listed among China’s top 50 most innovative companies by US business magazine ‘Fast Company’. One such company, Guangzhou Ehang Intelligent Technology, has created the first smartphone app-operated intelligent robot that can be used for geographical surveying, aerial filming, surveillance and even providing disaster relief. This showcases Guangzhou’s emerging population of entrepreneurs and innovative capabilities.

In 2014, New South Wales and Guangdong province celebrated the 35th anniversary of their Sister State relationship, the first of its kind to be established between an Australian state and Chinese province. NSW has the largest population of Chinese residents, and Mandarin and Cantonese are the most common languages spoken in NSW after English. To celebrate their anniversary, the Governor of Guangdong, His Excellency Mr Zhu Xiaodan, visited NSW and signed a Joint Statement with Premier Michael Baird to further their cooperation in the development of key industries such as agribusiness, smart technology and research and development. Sydney, Australia’s financial hub, is well placed to attract high levels of investment and services from one of China’s wealthiest cities, Guangzhou.

Friday
Mar202015

A Bull in a China Shop?

For many years, and certainly since I arrived in Sydney from Hong Kong in 1995, I have laboured under the assumption that Australia’s financial services capabilities can, should and will be exported to Asia.  I have led many study tours and delegations, organised many events and business matching activities, and worked with individual companies to explore their market entry options. I have to say that I have not been very successful! This remains an area of “unfinished business” as far as I am concerned, and still very much a ‘work in progress’.

When I talk about “exporting our capabilities”, I’m not talking about selling existing funds management products to Asian investors. Asians are not particularly interested in investing in Australian funds for a variety of tax, investment, regulatory and other reasons. Australia still represents only a small share of global GDP and, more importantly, a tiny share of MSCI, and Asian investors who don’t want to live in Australia only invest here to get exposure to hard and soft commodities, precious metals and, on occasions, a higher yield from a strong Australian dollar. And don’t get me started on tax…I’ve never understood why Australian Governments persist with a tax regime which seeks to collect tax from foreign investors (who pay very low levels of tax if they live in Asian countries) on their holdings in Australia. Try explaining that to an Asian investor!

No, when I talk about “exporting our capabilities”, I’m talking about the detailed, complex and gruelling work that goes into designing, promoting, managing and administering financial services products which have been developed for a particular purpose and/or market. In Australia’s case, financial products are not designed simply to generate a return on investment. Our unique tax, superannuation and social security regime means that we have to jump through myriad and complex layers of regulation, legislation and industry practice to offer products to somewhat reluctant and apathetic consumers. A highly sophisticated product offered by a world class industry to a reluctant consumer.

What if we could offer a sophisticated product to millions of highly engaged and investment savvy Asian consumers?? Wouldn’t this be worth a shot??

Whilst past Australian Governments have talked about the massive opportunity to export our financial services capabilities in Asia, this current one has moved the debate forward by including “financial services” as part of the negotiation for Free Trade Agreements. According to Austrade, The China-Australia Free Trade Agreement (ChAFTA) “secures a range of unprecedented financial services commitments from China. These commitments represent the most substantial market access commitments China has agreed with any FTA partner (other than in its agreements with Hong Kong and Macau) and create new commercial opportunities for Australian banks, insurers and securities firms. They will facilitate deeper participation by Australian financial institutions in China, strengthen financial services trade and investment in both directions and enable future growth in the bilateral economic relationship as a whole.”

The Agreement goes on to spell out a wide range of measures designed to provide improved access for Australian financial services companies operating in the areas of banking, finance, funds management, securities and insurance, aswell as a commitment to review bilateral tax arrangements and the introduction of double taxation agreements.

Will any of this make any difference?

Australia’s financial services industry is relatively stable, profitable and comfortable. The mandatory superannuation system ensures a steady stream of new funds into the industry each year, and Australia’s “four pillars” framework ensures that our major banks are, to some extent, protected from competitive pressures from foreign banks.

As Australia’s largest industry, the financial services and insurance sector accounts for over 10% of GDP, grows on average by 6% per annum and employs over 400,000 people. Is there any need or incentive to risk our domestic business by attempting to compete in Asia? Wouldn’t we better to protect our existing business and make it even harder for foreign players to compete in Australia? And build “Fortress Australia”?!

It probably won’t surprise you to hear that I would have to leave the country if this were to happen!! We owe it to the world, if not to future generations of Australians, to internationalise our financial services sector to truly compete on the global stage. If we believe our financial system is ‘world class’, as many of us do, let’s tear down all the barriers, allow all players (local and foreign, including the banks) to compete on equal terms and challenge ourselves to be the best we can be? Wouldn’t it be more satisfying to compete on the international stage? To win the world cup for financial services?

I have often been called “A Bull in a China Shop” when it comes to my views on Australia’s potential as a global financial services player, with China as our launching pad.

Am I really that crazy to think this could be possible?

Monday
Feb092015

A Golden Phase?

I have just returned from our annual delegation to Hong Kong and China, our 6th Australian mission to the Asian Financial Forum, and the first under the banner of "Invest in Australia" which captured the attention and imagination of Chinese investors, entrepreneurs, business leaders and potential migrants. For more information on this year's delegation, and to view the individual profiles of each of our delegates, please download the delegate booklet via this link.

During our visit to Hong Kong and China, I met with many local business leaders and entrepreneurs who described the Australia-China relationship as about to enter a "Golden Phase" with the signing of the China-Australia Free Trade Agreement, the recent visit to Australia by President Xi Jinping, and increasing awareness of Australia's agricultural resources and services capabilities, particularly in the following sectors:

  • Food
  • Healthcare
  • Education
  • Tourism
  • Property
  • Technology
  • Financial Services
  • Other professional services (legal, accounting etc.)

China's "Going Out" Strategy is in full swing, with large and small companies looking to diversify, grow and learn by investing in well developed and established markets in western countries. Australia often gets overlooked due to its small population and other factors and misperceptions, but this is changing. With Canada shutting its door to new migrants from China, Australia is now becoming increasingly seen as a safe, stable and attractive country for migration, investment and business purposes.

This represents opportunities across the board for Australian companies and industries who can position themselves for Chinese investment and are ready to engage with investors, migrants and entrepreneurs. The signficant wave of investment into Australian property is just the beginning. Are you ready?

Thursday
Nov202014

Historical FTA signed in Canberra!

I was honoured to be invited to Canberra on Monday 17th November for the unique occasion of a joint sitting of parliament, the address by President Xi Jinping of China and the signing of the historic China Australia Free Trade Agreement. After the joint sitting of parliament, I attended the dinner in honour of President Xi and his wife, Peng Liyuan, which included large numbers of MPs and members of the Australia China business community. It was a warm and happy occasion and a wonderful moment for Australia in bilateral trade and diplomatic relations. The signing of the Free Trade Agreement with China is a big leap forward in the Australia China relationship, and just the start of a deepening relationship with our biggest trading partner and neighbour. So, what practical implications will the free trade agreement have across the economy?

After ten years of negotiation, Monday was a landmark date in our 40 year relationship as Australia and China finally signed a Declaration of Intent that will result in a Free Trade Agreement between our nations which is expected to see trade more than double from the current level of $150bn over the next decade (New Zealand’s two-way trade with China more than doubled since its signing in 2008).

In fact, this FTA will mean that, over the next four years, 95% of Australian exports entering the Chinese market will do so free of all local tariffs. The biggest winners on the Australian side include the dairy, horticulture, mining and services sectors. On the China side, an opening up of access to the Australian labour market and a loosening of regulation surrounding direct investment are the key takeaways. The Chinese investment threshold requiring FIRB review was raised to $1.087 billion in line with other FTA countries (such as Japan, USA and South Korea) and this is expected to generate plenty of new interest amongst Chinese entrepreneurs, business leaders, investors and new migrants looking to invest in Australia (particularly in real estate, agriculture, healthcare, tourism, education and professional services).

So how will the average Aussie notice the effect of the FTA? Firstly, Australian consumers can expect to see cheaper clothing, electronics and household goods as local tariffs are removed from Chinese imports. Not only SMEs but also the big corporates will benefit from the deal, with Australian banks and financial institutions being given unprecedented access to the China market. Insurance companies will have access to China’s third party insurance market and superfund managers will be given special access to Chinese investments.

There is no doubt that this FTA has come as a sigh of relief to many industries, in particular the dairy industry which has been lobbying the government for a ‘New Zealand Plus’ package. Now, with an agreement similar to that of New Zealand’s, the FTA could save the Dairy Industry $190million in tariffs over a ten year period which could be directed into servicing debt and reinvesting in ageing infrastructure. Australian SMEs are expected to also be big winners from the deal, with unprecedented access to the China market across hospitality, education, agriculture, law and pharmaceuticals. Australian law firms will be the first in China to be allowed to operate freely and provide services to clients from a special zone in Shanghai. The agreement also highlights areas which have currently been placed in the “too hard basket” for review in three years’ time. Until then, this is just the 'end of the beginning' and the FTA will hopefully provide a much needed boost for the Australian economy as it tries to rebalance and shift focus from mining/resources to agriculture and services.

If you're not there already, this is the time to go to China to see the amazing transformation taking place and to meet Chinese investors, business leaders and entrepreneurs with an interest in Australia, particularly in light of the new opportunities presented by this FTA. Please join our ‘Invest in Australia’ Mission to Hong Kong and Guangzhou from 18th to 23rd January 2015 and fly the flag for Australia. Click here for more details.

Thursday
Sep112014

Alibaba: History in the making

As Jack Ma, the founder of the largest e-commerce company in the world – Alibaba – travels around the US, Europe and Asia on an Investment Roadshow prior to the listing of Alibaba on the New York Stock Exchange, investors all around the world are taking a step back to look at Alibaba’s growth journey. Alibaba is now bigger than Amazon and eBay combined and growth is set to snowball. In fact, the Alibaba ecosystem isn’t just Amazon, under its umbrella sits China’s equivalent of Dropbox, PayPal, Hulu, ING Direct, Uber and much more… Just 15 years ago, when Alibaba was in its infancy, Jack Ma travelled to the Silicon Valley to raise US$2 million from Venture Capitalists, only to walk away empty handed.

Now, Alibaba is pitching to the world’s most savvy investors to raise up to US$21.2 billion dollars, the largest technology or internet related offering in history, which would value the company at over US$160 billion. To give you an indication of size, the largest IPO ever was that of the Agricultural Bank of China which raised US$22.1 billion in July 2010. The price range for Alibaba stock, set by the company, is $60-$66. Analysts have commented that the lack of fluidity in the governance structure (Ma still controls the board) will be priced in as a discount, but nevertheless, the growth opportunity remains enormous in the short term.  Other analysts argue that with Alibaba maintaining control of the board and its appointments will protect the long-term investors from the speculators and short-term investors.

Alibaba holds an 80 per cent market share of China’s e-commerce market and has its eyes set on the global stage. A core part of its business is e-shopping platform, Taobao, which accounts for over 90% of online consumer transactions in China. Some see Alibaba becoming the world’s second Amazon, yet Alibaba distinctly sees itself as a platform for small businesses to do business around the world with China as its primary market. Alibaba’s model is that of a marketplace – connecting buyers and sellers, whereas Amazon’s is a merchant model – owning the stock – the questions arises as to whether as the Chinese market matures, whether the marketplace model will give way to the merchant model which has been so successful in the US.

There is no doubt that the e-commerce and consumer spending story in China will be a fruitful one and Alibaba will provide a well-regulated gateway for foreign investors to tap into the Chinese market. China has over 600 million internet users, over half of which shop online  - as both these numbers grow to equivalent Western ratios – we will see unprecedented growth fuelled by the sheer size of the Chinese market and the rise of the wealth amongst Chinese consumers.

With lots of debate surrounding the IPO, the question still remains – is the Alibaba investment opportunity too good to be true? With its strong track record and ability to innovate on scale at speed, Alibaba will keep sending ripples through the world’s market.