Chengdu: The Economic Engine of Western China

With two hundred Fortune 500 companies already established there, Chengdu is quickly becoming the “Western frontier” for financial services in China. With over 57 banks, 65 insurance companies and 44 securities houses based in Chengdu, a dramatic increase in private equity as well as other areas of investment, and a new Financial Outsourcing zone being established, the inner West of China will be the driving force in the nation’s growth in the coming decade.

Recent investment by Australian companies in Chengdu reflects the growing recognition of the role Western China has to play in China’s future. Examples include Cochlear, BlueScope, Rheem, Accenture and ANZ.

In January 2012, the City of Chengdu led a delegation to Sydney to attend the annual Chinese New Year Parade and participate in the Business Forum. I was fortunate to have the chance to meet most of their senior Government officials and business leaders.

Here is a summary of some presentations of the opportunities for co-operation identified between Sydney and Chengdu, presented by senior members of the Chengdu delegation involved in their financial services sector.

Chengdu Financial Work Office

Speaker:  Ren Ruihong, Division Chief, Banking and Insurance, Chengdu Financial Work Office

The following five characteristics illustrate Chengdu’s competitive advantage as the Western Chinese hub for financial services and the opportunities for growth and collaboration with Australia:

1. Very Competitive Financial Institutions - With over 57 banks, 65 insurance companies and 44 securities companies already established in Chengdu, the Inner West will be the driving force in the nation’s growth in the coming decade.
2. Specific Outsourcing Zones – ANZ has built up a presence outsourcing its Chinese language call centres to Chengdu. There is a diverse range of BPOs including data centres, fund settlements, bank card centres and Research and Development.
3. Active Capital market – Chengdu has a joint property trading centre with 47 publicly listed comoanies with total market value of RMB 50billion, a strong focus on start up enterprise and the highest level of securities trading amongst the Western cities. 
4. Rich in talent – the professional talent pool is highly concentrated in Chengdu, in Chengdu with over 42 local higher educational institutions,
5. Government Services and Support – in areas such as private equity funds, funds management, rural banks, home loans, accounting, law and asset appraisal

JinTai Property Insurance Co. Ltd

Speaker: Deng MingXiang, Chairman of JinTai Property Insurance Co. Ltd.

Opened on 28 January 2011, JinTai Property Insurance Co. Ltd is the first insurance company founded in SiChuan province and has $1.5billion registered capital. With a growth strategy to expand within China over the next 3-5years, JinTai’s growth will not stop there. With a firm international strategy in place, JinTai employs foreign employees to support their international and strategic growth plan. A government controlled entity, JinTai is the leading insurance company for major infrastructure projects in SiChuan. They offer two main types of insurance (1) property loss, liability, credit guarantee and (2) health & accident insurance. JinTai Property Insurance Co. Ltd is looking for partnerships in Australia – is this an opportunity for your business?

Bank of Chengdu

Speaker: Tian HuaMao, Deputy Secretary of the Party Committee, Bank of Chengdu Co., Ltd, President, Bank of Chengdu

The Bank of Chengdu is a leading financial institution with AUD$500million capital. It has a workforce of 4,000 people and total assets $28billion. With a total profit of AUD$4million, the Bank of Chengdu is the top commercial bank in the South West of China. A strong focus on the SME sector in the local area, including high tech and energy industries, the aims to target the rural and urban areas.

Chengdu Investment Holding Group Co. Ltd.

Speaker: QinJian, Investment Director

With JinTai Property Insurance and Bank of Chengdu as the biggest shareholders of the company and $10billion in assets, Chengdu Investment Holding Group Co. Ltd is a space for Australians to watch for opportunities for outbound investment, with investment totalling RMB10billion. As both an investment and finance platform, the Chengdu Investment Holdings Group Co. Ltd. is an institution for Australian companies to assist with management of funds.

With the support of the Chengdu delegation to Sydney, we are now in the process of planning a Financial Services Mission to Chengdu, Chongqing and Shanghai in China to explore investment opportunities, build new connections in these 2nd tier cities and learn about their plans to grow and expand their local financial services sector. More details will be circulated soon but, in the meantime, pencil in the dates (17th October - 27th October 2012) and let us know if you have an interest in coming.

Managing Risks in the BRIC Countries

In December 2011, I was invited to speak at the annual Conference of Chartered Secretaries Australia (CSA) in Sydney, an opportunity to discuss corporate governance and risk mitigation, and to prepare their members for some of the challenges that lie ahead for Australian (and other) companies that seek to do business or invest in the four "BRIC countries".

In my presentation, I addressed the three common challenges associated with conducting business in emerging markets:

• Corruption
• Credit Risk
• Cross-Cultural

I believe that Company Secretaries have a vital role in preparing their boards, management and staff for the complexities and challenges involved in doing business offshore, and from those I spoke to afterwards, my presentation raised issues which require more focus and attention.

A summary of my presentation was published in the Feb 2012 issue of "Keeping Good Companies", the official publication of CSA.

To download a copy of the full article as a PDF, please click here

Hong Kong as an International Financial Centre

Last week I was in Hong Kong leading our annual Australian Mission to the Asian Financial Forum, an event that gets bigger and bigger each year with over 2,000 delegates attending from around the Asian region.

The Hong Kong Trade Development Council (HKTDC), led by Executive Director, Fred Lam (pictured with me above) does a fabulous job in hosting such a large gathering of financial services professionals, including hosting high profile plenary speakers and panel discussions, a "Deal Flow" session designed to match investors with interesting projects from around the world, and a number of networking and business matching events. It's the perfect start to the New Year.

Hong Kong's role as an international financial services centre is now undisputed. In December 2011, the World Economic Forum’s fourth annual Financial Development Report ranked Hong Kong in first place, above the US and UK. Hong Kong is the first Asian financial centre to achieve this position, bolstered by strong scores in non-banking financial services such as IPO activity and insurance. The results remained relatively stable among the rest of the top 10. Singapore’s decline to 4th place is a result of the securitisation markets drying up and a weakening banking system. Australia, Canada and the Netherlands maintained their positions at 5th, 6th and 7th place, respectively. Japan and Switzerland traded spots in the rankings to place 8th and 9th overall. Norway jumped into the top 10 because of strong IPO activity.

Here are three key observations gained from attending the Asian Financial Forum in 2012:

1. Hong Kong is fully recognised by China as their international financial centre

Whilst Shanghai will one day become an important international financial centre, many senior Chinese officials and business leaders continue to stress the importance of Hong Kong as the facilitator and intermediary for investment business between China and the rest of the world. Hong Kong's role in the internationalisation of the RMB was a particularly hot topic at the AFF following a visit to Hong Kong in November 2011 by China’s Vice Premier Li Keqiang and the announcement of new changes to the legal framework governing yuan-denominated trade and financial transactions between Hong Kong and mainland China. Mainland Chinese entities are now expected to issue even more renminbi-denominated (known as "dim sum") bonds in Hong Kong following the implementation of these new measures, which is likely to exceed the RMB 88 billion (US$13.7 billion) worth of these bonds issued in 2011. UK Chancellor Exchequer, George Osborne, trumped the Conference by announcing a co-operation agreement for London to work with Hong Kong to trade the yuan internationally, an opportunity which has apparently been offered to Australia aswell, without a response so far.

My take on all this is that Hong Kong is the largest, most important and dynamic financial services centre in the Asia Pacific region, supported by the "wall of money" moving in and out of China. The numbers speak for themselves. Australia's local financial services industry needs to quickly work out how they can participate in this, rather than continuing to promote the credentials of Sydney as a regional hub. Responding to Hong Kong's invitation to participate in RMB trading would be a good start, and there are many other opportunities for our leading players to participate in the sector. The race to be the regional hub is well and truly over.....it's time to accept this and get on board!!

2. Hong Kong has an important role to play in facilitating Indian investment into China

This was an interesting comment from Indian entrepreneur, Mr K.K. Modi, Chairman of the K.K. Modi Group, during the Panel Discussion on Global Investment Opportunities on Day 1, which was not widely picked up by the media. Mr Modi made the point that India as a country and Indian entreprenuers are keen to invest and do business in China, but for a wide range of historical, cultural, language and other differences, they find China complex and difficult to understand. Hong Kong, on the other hand, shares a similar colonial history with India, an English rule of law, an established bureaucracy, and a wide range of common values and shared experiences. In addition, there are over 20,000 Indian expats living in Hong Kong, many of whom run successful businesses and are experienced in managing cross-cultural relationships with their Chinese counterparts.

Bearing in mind, the importance of the China/India relationship in the future (and intra-BRIC trade for that matter), Hong Kong has an important role to play as a intermediary of two-way business and investment between these two economic super-powers. Mr Modi urged Hong Kong to focus more on working with India to facilitate trade and investment into China. I don't expect Hong Kong to be slow in meeting this challenge. Watch this space!

3. Don't forget Guangzhou and the Pearl River Delta region!

In the rush to Shanghai and Beijing, foreign investors, entrepreneurs and business leaders often forget the importance of the nine cities which make up the Pearl River Delta economic zone, and particularly the largest city in the region and the provincial capital, Guangzhou. On the third day of our mission we visited Guangzhou's new financial district which is transforming the city into a striking, attractive and modern city which is now regarded as the most liveable city in the region and a serious alternative to Hong Kong for those whose focus is on China but prefer to live in the south. Many of my Hong Kong friends, and some of the senior Chinese bankers I met during our visit, confirmed that they prefer living in Guangzhou to Hong Kong, an idea which was unthinkable only 10 years ago!

In 2010, the Pearl River Delta accounted for:

• 12.2% of the annual growth of China's GDP
• 4.2% of China’s total population
• 9.4% of China’s GDP
• 10.3% of China’s gross industrial output
• 27.4% of China’s total exports
• 9.8% of China’s total retail sales of consumer goods

Please make a note of the dates of next year's Australian mission to the Asian Financial Forum: 13th to 17th January 2013 and contact us at support@thinkglobal.com.au for more information....

In the meantime, please watch our short video podcast this month from Hong Kong and Guangzhou:

The BRIC Tourist - surf where the big waves are!

Here follows a summary of a presentation I gave earlier this month to the Australian Tourism Export Council Meeting Place 2011 in Sydney:

The BRIC Tourist

Currently spending twice the amount of the average tourist, the BRIC tourist market is set for strong growth in the coming decade as travel becomes affordable to a new emerging middle class of over two billion people.

Last year, the number of visitors from Brazil, Russia, India and China increased by 6.4%, 7.1%, 13.0% and 28.2%, respectively. Is the Australian Tourism Industry prepared for this?

Here are some thoughts on how to attract the new BRIC Tourist:

Follow the money!

In the next decade, the tourism market for Chinese visitors alone is forecasted to be worth A$6 billion to Australia, with almost 1 million Chinese visitors forecast to visit Australia in 2020. The Chinese tourist contributes twice as much value as the Japanese, with total inbound economic value (TIEV) having increased on average by 17.1% per year for the past ten years (a contribution to the Australian economy of A$7,287 per person).

Indian tourists also spend on average more each day than other nationalities. The total inbound economic value of an Indian tourist has increased by 14.9% per year for the past ten years. Indian tourists spend, on average, $73 per night and $4,607 per visit. For the next decade, the TIEV for Indian tourists is forecast to grow 6.7% year on year, moving the Indian tourist from Australia’s ninth to our fifth most valuable inbound market.

In 2010, Russians spent $26.5 billion abroad. As the BRIC country with the highest GDP per capita and the lowest levels of debt, the Russians have high purchasing ability and a relatively large luxury consumer market which is predicted to reach the size of Germany’s by the end of this decade.

Education policies requiring Brazilian students to study English are fostering outbound education tourism. Australia is a popular destination for young Brazilians due to our outdoor way of life, beaches and cultural similarities. In addition, Brazilians devote a large portion of their income to discretionary spending and choose to live for the present!

Casting a Wider Net

Unlike in the past, when the tourism industry has relied on above-the-line advertising and travel agents to attract business, the No. 1 source of information for one-third of Chinese, Indian and Russian tourists is the Internet. Even more compelling is the knowledge that, unlike western travellers who usually plan and book their travel many months in advance, Chinese tourists booked their flights within one month of their date of travel.

The importance of reaching potential BRIC customers via online promotional material and marketing campaigns will be a necessary competitive edge for all travel companies in the future.

However, traditional methods of marketing and search engine optimisation are of little significance for BRIC tourists, in particular the Chinese. As an example, the Chinese population’s most popular search engine is Baidu, the Chinese equivalent of Google.  It is therefore very important for the tourist industry to establish a presence in local popular Chinese search engines to attract the lucrative mainland Chinese market.

Revamping the Product

With such alluring growth figures, it is going to become even more important for all tourism companies to develop products that have direct appeal to the BRIC tourist. The BRIC tourist differs quite significantly from their stressed out Western counterparts in that they want to cover as much of Australia in as short a time as possible! A typical day may include a photo stop at Bondi Beach in the morning, followed by a bus trip to the Blue Mountains in the afternoon and then an evening at the casino. This contrasts with Western tourists who typically enjoy sunbathing and relaxing on the beach. With over one fifth of outbound Chinese tourists being labelled as ‘Self Challengers’, Australia is a popular destination for those attracted to adventurous pursuits, being pushed outside their comfort zone and those who are attracted to some of Australia's more remote areas.

Recruitment

There are approximately 150,000 Chinese students studying at universities in Australia, almost 70,000 Indian students, 18,000 Brazilian students and 1,500 Russians, but very few of them successfully find work in Australian companies after they graduate. These students not only have valuable cross cultural and language skills, but also Australian knowledge, experience and qualifications and possibly even high level connections in their home country. With the limited time available until their visa expires, many students are forced to return home if they cannot find suitable employment in the short period available, and this results in a loss of talent and valuable skill setswhich could otherwise be retained in Australia – particularly in the tourism sector.

A good place for Australian tourist companies to start in developing a strategy to attract new BRIC tourists is to review their recruitment policies to attract international students who, after a short period of training and on the job experience, will significantly enhance their ability to tackle the BRIC market.

Business Tourism

The market for business tourism is largely untapped, but with 87% of business travellers staying longer than the ordinary tourist, both before and/or after their business engagements, the business tourism market presents numerous opportunities for the tourist sector. In 2010, business travel from Brazil increased by 59% due to the rapid growth of Australia's energy and resources sector and the desire amongst Brazilian companies to learn from Australia's success.

Why not tailor a tourism package that incorporates business meetings, site visits or even networking events for the more entrepreneurial and business-minded BRIC tourist? With numerous delegations coming to Australia from Mainland China every week, is this a niche opportunity for local tourist companies to start tapping into?

Seasonal Differences

Whilst a seemingly obvious point, it is important not to underestimate the power of seasonal differences, particularly to attract Chinese and Russian tourists. The peak months for Chinese tourist arrivals to Australia are in January and February which, amongst other things, is caused by their desire to avoid the harsh winter climate and travel over the Chinese New Year Season. For Russian tourists, December and January are the peak months for tourist arrivals as they seek to escape the harsh Russian winter.

Tourism companies should focus their marketing and promotional activities to attract Chinese and Russian visitors during our warm summer months.

Cultural Differences

Whilst there are distinct cultural differences between Australia and the BRIC countries, Australia is uniquely placed and well positioned to take advantage of our exclusive position as the only western country within the BRIC region.

With over 1 million Chinese Australians (either born in China or of Chinese ancestry), large numbers of business migrants arriving each year from all of the BRICs, our growing number of international students and our strong cultural and historical ties throughout the region, Australia is a truly multi-national, multi-lingual and multi-cultural society which has so much to offer the BRIC Tourist.

“Speak with one Voice”

In the words of Geoff Dixon, Chairman of Tourism Australia, Australia's tourism industry needs to “speak with one voice” when marketing overseas. Unlike other sectors, The tourist industry is highly fragmented in Australia which means that collaboration, rather than competition, to attract the BRIC tourist will result in everyone having the chance to share in a much bigger pie.

As an example of this, in 2010, Italy, France and Spain signed an agreement to work jointly to attract BRIC tourists, a partnership which would have been unthinkable a decade ago.

Also, in Pattaya, Thailand, high end luxury resorts have been collaborating to attract the Russian Tourist, a innovative strategy which has met with almost immediate success. By introducing Russian street signs, Russian restaurants and developing training courses for hotel staff and waiters to learn Russian language and cultural differences, Pattaya is now attracting large numbers of big spending Russians.

The BRIC tourist presents an unprecedented growth opportunity for the Tourism Industry....what is your BRIC strategy?

China becoming a leader in High-Tech Industries

In preparation for our 4 day Australian mission to the Asian Financial Forum in Hong Kong (15 - 19 Jan 2012) I was recently interviewed by the Hong Kong Trade Development Council in which I was asked to review China's progress in developing world class capabilities in high-tech industries. Watch the interview here: