Asian Financial Forum 2015, Hong Kong

Interested in expanding your knowledge, understanding and connections in Asia? Looking to raise capital from China for business expansion, migration or other purposes?  Our annual Australasian Mission to the Asian Financial Forum to Hong Kong and China is the perfect start to your New Year. Please download the list of delegates in 2014 and watch the highlights of our mission via Think Global with David Thomas - February 2014.

For more details, please download the expression of interest form hereregister your interest here or via reply via email

Join us in Hong Kong from 18 - 22nd of January 2015 - we have so much to offer Asia in financial services and investment and yet I still feel we're only scratching the surface. To view a list of testimonials received from past delegates, please click here (please scroll to the bottom of this page).

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Suite 33, Level 3,
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104 Bathurst Street,
Sydney, NSW 2000

Tel: +612 9267 1488
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David Thomas is proud to be a Foundation Member of the     SME Association of Australia

Thursday
Mar132014

How to engage with Chinese Investors

As our largest trading partner and a new foreign investor, China will play a big part in the future lives of every Australian company and individual. A wave of investment from Chinese entrepreneurs, migrants and business leaders is flowing into a variety of Australian industries, from mining, food and agriculture to retail, healthcare, technology, tourism and financial services, and this has only just begun!

Having dealt with Chinese investors for over 25 years, I believe that Australian business owners and leaders need to address existing weaknesses in five critical areas to succeed in the Asian Century:

1. Language

Having people in your team who are fluent or native speakers of Mandarin and/or Cantonese will give your business a distinct advantage in every market sector. Many wealthy Chinese people cannot speak English (even if their children can) and a direct line of communication to your clients will speed up all business dealings and enable your team to develop deeper relationships which will inevitably lead to more sales, referrals and repeat business

2. Culture

An understanding of Chinese culture is crucial to all negotiations with Chinese nationals. This will include cultural issues relating to relationship building, valuations, negotiations, deals, gift-giving, choice of restaurant and even the way you look at a business card! Chinese people often say, ‘we don’t talk business until the third cup of tea’, meaning that building trusted relationships is more important than doing deals. Understanding these types of cultural insights, and the impact it has on decision making, will give your business a distinct advantage over your competitors.

3. Connections

Does your business have deep and meaningful connections into the key centres of influence within the Chinese communities in both China and Australia? Building and maintaining the right connections with relevant business networks, including migration agents, relocation agents, accountants, lawyers and other intermediaries will bring Chinese investors to your business. By developing and deepening these networks, you can establish a reputation for reliability, dependability and trust. These are essential factors in building relationships with any Chinese investor.

4. Understanding

A deep and thorough understanding of the economic, business, political and social environment in China, in particular the factors driving Chinese investment into Australia, will allow you to tailor your services and marketing messages to Chinese investors. This takes time, and requires you to invest in your China capabilities and knowledge (through business visits, networking events, conferences etc.) but will give you a strong edge over your competitors. Why not attend Australia China Business Week in 2014? See www.abforum.com.au

5. Money

Investing in the growth and development of your value proposition for Chinese investors will help you achieve both long and short term rewards. For example, Chinese clients often look for a “concierge-type” business service which offers a much more holistic approach to their investment (e.g. the availability of local shops, entertainment, transport and even sight-seeing). Take the time to understand the needs and preferences of Chinese investors and invest in your ability to over-deliver. Your reward will quickly show up on your bottom line!

With everyone trying to compete for the attention of cashed up Chinese investors, Australian companies have a significant opportunity to beef up their Chinese and Asian capabilities and credentials. This doesn’t happen overnight.

Thursday
Mar132014

Internationalising the RMB

About five years ago, a Chinese friend told me that the internationalisation of the Chinese currency was a “global mega trend”. I didn’t believe him at first but I do now! Whilst the idea that the Chinese currency (which at the time was non convertible and under tight capital controls) could one day become an internationally traded currency, and even replace the USD as the world’s international reserve currency, was almost laughable, the general consensus today is that this could even happen before the end of this current decade. He was right. It is a global mega trend and everyone is paying attention now!

The Chinese Renminbi (RMB) was the second most traded currency in the world last year after the USD, overtaking the Euro. Following the $30 billion dollar currency swap agreement signed between the Reserve Bank of Australia and the People’s Bank of China in 2012, there have been two recent strategic steps in Australia to advance the investment and trade relationship with China which in turn reflects the tone and tenacity of the Chinese government with regards to the internationalisation of the RMB.

Recent examples of some progression on this issue from an Australian standpoint include:

1. Direct Currency Convertibility - Simplified trade and Investment between China and Australia

In April 2013, former Prime Minister, Julia Gillard signed a deal that saw the Australian dollar become the third currency (after USD and JPY) to be directly convertible to the Renminbi. In the words of Lao Tzu, “the thousand mile journey begins with one step” – we have lived through the first step towards the internationalisation of the Renminbi and Australia is now at the forefront of the journey. Direct convertibility between the Australian Dollar and the Renminbi will allow business conducted between Australia and China to be directly converted to the respective currencies, without first converting to the US dollar, thus reducing transaction costs. ANZ and Westpac are the first Australian banks licensed to make the market for the currency in China. In the long term, the removal of this barrier will significantly reduce the cost of the two nations doing business with each other. The importance of Gillard’s contribution to the Australia-China relationship should not be underestimated and it has put Australia in a competitive position in the Chinese market, including the ability to negotiate better pricing terms with our Chinese counterparts.

In the months following the deal, there were sharp spikes in RMB/AUD trading and, whilst this volatility has reduced, volumes have increased from US$300 million in March 2013 (one month prior to the deal) to approx. US$3 billion worth of currency flows today. With strong growth in global demand for Renminbi payments, settlement and financing, direct conversion is the first major step towards liberating the market and internationalising the Renminbi.

In theory, the AUD/RMB direct conversion arrangement will provide a more accurate reflection of the developments in the Sino-Australia trade relationship, irrespective of what’s happening in the United States. The move will also reduce exchange rate risks for traders and businesses, potentially leading towards a more stable RMB/AUD exchange rate in the long term, and greater confidence and certainty for entrepreneurs, businesses and even Governments.

2. Payments Platform – A trading hub for the Yuan

A more recent major milestone for the Australia-China relationship is the recent joint venture between the Australian Stock Exchange (ASX) and the Bank of China to launch a payments platform for the Renminbi in Australia, providing an opportunity for the ASX to become a trading hub for the Renminbi. The platform will be run on the ASX’s Austraclear market infrastructure, which already settles over AUD3 trillion each year, and will allow companies to make and receive payments from their Chinese trading partners in RMB.

The ASX identify three key benefits arising to Australian companies from the new service:

  • Increased accessibility – allowing Australian companies to use the Renminbi as a settlement currency in cross border transactions;
  • Growth opportunities – the growth and development of a range of Renminbi denominated derivatives, increasing the global connectivity of Australia in global financial markets; and
  • Reduced risk and costs – the elimination of transaction costs and exchange rate risks

This new strategic joint venture will benefit both China and Australia in the RMB internationalisation process as Renminbi denominated financial markets become more sophisticated and attract greater transaction volumes. Australia has the opportunity to be at the forefront of developing more diverse financial products and can also simplify the ability of Chinese companies to issue debt and public share offerings.

These are exciting times for the Australia-China relationship and the more progressive, entrepreneurial and forward thinking companies and businesses will take advantage of every opportunity to invest, trade and/or receive payments directly in RMB from their Chinese counterparts. Most of the major banks now offer multi-currency facilities and trade financing arrangements to facilitate the process, and there is increasing awareness of the benefits of the new AUD/RMB direct conversion arrangements.

This is a global mega-trend. Be the first to profit from it!

Tuesday
Feb112014

Food and Finance

Citrus Australia Mission to China - November 2013

As the Chinese population grows wealthier and their diets evolve, we will see the growth of an insatiable demand for high quality, safe and a greater variety of foods. China’s demand for food imports from select foreign destinations is expected to grow at a rate of ten per cent annually until at least the end of the decade. Chinese policymakers have identified “national food security and safety” as one of their top six priorities for 2014 at the nation’s Economic Work Conference held at the end of 2013. China’s new leaders have also emphasised that as a developing nation, the national food safety standards should be developed with a strong focus on local national conditions and environmental issues to develop their own risk assessment and safety standards, rather than adopting those of the West. As an international agribusiness player, the next five years will be a crucial step for China’s international competitiveness as the government implements its plans to upgrade its complex food safety regulations.

Amongst Chinese communities, high levels of public anxiety exists surrounding practices and safety in the food industry. This anxiety and uncertainty has stemmed from the growing demand for imported agricultural products from leading agricultural markets, particularly Australia, Chile and the USA. With the recent scandal of fox DNA found in Donkey meat, even global supermarket giant Wal-Mart struggles with licensing and inspection in a market with complex food safety issues. China’s food situation is an underlying issue intertwined with China’s regulatory design, industry structure, legal framework and political institutions. Wal-Mart is one of many corporations investing in improving China’s food safety, planning to invest over USD16million over the next three years which involves increasing and improving supply training and food inspection.

In January 2014, the Supreme People’s Court announced a new guideline and updated consumer protection laws which has placed more power in the hands of the consumer with the aim to prevent producers from cutting corners or sacrificing quality for costs at the expense of safety and quality. 

As Chinese consumers’ incomes rise and their market access increases, we have seen an increase in sophistication and variety within the Chinese diet, notably an increase in consumption of dairy products (such as yoghurt and ice cream), and increased demand for high quality imported fresh fruit, meat and nuts. In November 2013, I enjoyed leading a delegation of citrus growers to China (see photo above) to develop both relationships and a mutual understanding between the Australian and Chinese citrus industries. It was interesting to note that China’s demand for citrus fruit appears to be far greater than Australia’s ability to supply – and it continues to grow rapidly each year.

One of the backbones of Chinese culture is the importance of health, emphasising that Chinese consumers are willing to pay top dollar for premium products for health reasons and increasingly, as status symbols or generous gifts for friends. Premium supermarkets such as “Ole” and “Jenny Liu”, are cornering China’s premium food and grocery market with a plethora of imported goods available, at a premium price. However, with price not an issue for the premium market, an improvement in logistics particularly in the cold storage chain and a relaxation in quarantine regulations will dramatically improve Australia’s food industry access and ability to service this premium consumer.

The Australian agricultural industry has the opportunity to fill a large market demand. In a culture that remembers first-movers, the longevity of demand will depend on brand awareness and strategic product marketing and positioning. In the foreseeable future, China will not be able to meet the local demand of rising premium consumers who are increasingly demanding top quality food from overseas.

With Australia’s international reputation for clean, fresh, safe and high quality food, Australian growers, farmers, packers and exporters are ideally positioned to supply China’s growing premium market with top quality produce.

Australia can produce enough food to supply approximately sixty to eighty million mouths (depending on the food mix) and should view its role as one to service the premium Chinese consumer market, not simply as the “food bowl” to Asia. Australia’s ability to address the following two issues for our Food and Agriculture sector will determine the success of Australia as a major supplier to the Chinese market:

  1. Access to Capital: Our ability to source, access and apply capital (whether from local, Asian, Chinese or other foreign investors) to effectively increase the efficiency, intensity and scalability of farming production and supply. This will be crucial to the success of the Australian food and agri sectors in accessing the Chinese market, and requires the focus of our best minds, skills and knowledge from the financial services sector to ensure that opportunities are properly leveraged, organised efficiently and not squandered.
  2. Marketing and Branding: Australia must have a unified and consistent approach to branding, marketing, positioning and targeting our higher value food product(s) to the premium market in China, and across Asia. This will differentiate Australia from other foreign suppliers but requires a new and fresh approach to marketing from the whole food sector.

One path that could prove successful for Australian agricultural companies (which are predominantly SMEs) is to form joint ventures, co-operatives, SPVs and even managed funds to create a platform to provide scale and convenience for investors and to provide access to local expertise and knowledge. For those companies who can bridge the gap between the Australian and Chinese agricultural industries, there will be enormous opportunities to take advantage of each market’s size and competitive advantages.

Whilst over the past decade, China has earned the reputation as one of the world’s worst food safety offenders, the reputation won’t stick for long – it may be time for a fresh approach?

Thursday
Jan162014

Heaven on Earth in Hangzhou

One of my favourite trips last year was the short one day visit to Hangzhou, an up and coming industry powerhouse hub in China and often known for its beauty and charms. Located in southeast China in Zhejiang province, with a population of around 8.8million, Hangzhou is the provincial capital and as such, an important hub for economics, politics and culture.

Hangzhou is a diverse and scenic city. By day, one can appreciate its diversity, from tourists and locals strolling and exercising around the iconic West Lake to the hustle and bustle of the economic and technology development zones. Hangzhou’s reputation and place in its country is illustrated by a very well-known Chinese saying, “上有天堂,下有苏杭” meaning “Heaven above, Suzhou and Hangzhou below” or, in other words, that Hangzhou (and the nearby city Suzhou) are described as “heaven on earth”.

Hangzhou is a one hour train ride Southwest from Shanghai and its location positions it as an important core city in the Yangtze River Delta. In fact, Hangzhou is home to the largest number of China’s top private enterprises including Alibaba Group (the e-commerce giant which owns C2C site, Taobao.com; B2B site, Alibaba.com, B2C site, Tmall.com). Hangzhou has also seen fast growth in other new industries including IT, heavy equipment, automotive, electrical appliances, electronics, chemicals, telecommunication and medicine. Interestingly, over 90% of Hangzhou’s GDP is made up of private enterprise.

China’s wealthiest man, Zong Qinghou is Chairman of the food and beverage conglomerate, Hangzhou Wahaha Group whose headquarters are also based in Hangzhou. Wahaha plans on building 100 malls around China in the next 3-5 years and is considering raising funds through an IPO. Wahaha manufactures a variety of products from bottled water to baby formula and in 2012 it generated $10.3billion in revenue. It currently has only one shopping centre, the Waow Plaza, based in Hangzhou which sells high-end products ranging from European furniture to children’s wear, to jewellery.

In 2012 Hangzhou was ranked the “second best city” in the Forbes list for “starting a business in Mainland China”, after Shanghai. In fact, over 5000 SMEs emerge on average in Hangzhou alone every year. Hangzhou has an abundant pool of private capital, a high quality labour force, competitive business costs and provides a favourable climate for business start-ups.

Hangzhou aspires to become the financial services hub of the southern wing of the Yangtze River Delta. There are four main drivers that are contributing the fast growth and success of the financial services industry in Hangzhou: strong retail demand, favourable policies, growing corporate demand and its innovative environment. In 2011, the added value of Hangzhou’s financial services industry reached RMB73.2billion (an increase of 20.9% from the previous year), which accounted for over 10% of Hangzhou’s GDP. Located in one of the wealthiest provinces, Zhejiang province, combined with the city’s strong savings culture, allows for an abundant supply of capital in the city, Hangzhou had over RMB1,839.7billion in savings accounts at the end of 2011. Also, Hangzhou is ranked third nationally for the number of HNWI with net worth over RMB10million.

The banking industry in Hangzhou saw 53 institutions achieve profits of CNY40.2billion in 2011 with a non-loan performing ratio of only 0.8%, one of the best in China. The insurance industry achieved profits of RMB21.1 billion in 2011 and is made up of 63 institutions and is the second pillar of Hangzhou’s financial services industry along with banking. The number of private equity and VC firms in Hangzhou increased by 36% to 403 in 2011 ranking it fourth nationally in terms of numbers. Hangzhou is a popular destination for foreign banks and foreign insurance companies with 9 and 11 present in the city in 2011. Global companies that have strategic investments in Hangzhou include IDG Capital, Citibank, Morgan Stanley, HSBC, Allianz and DBS Bank.

In 2005, the Commonwealth Bank of Australia entered into a strategic cooperation agreement with the Bank of Hangzhou (formerly Hangzhou City Commercial Bank (HZCCB)) which involved CBA purchasing 19.9% of the shareholding in HZCCB for approximately AUD100million, with Board representation. The partnership involves a structured capability transfer program whereby CBA will assist HZCCB in key areas in order to improve its competitiveness and profitability. HZCCB is ranked by assets in the top five city commercial banks in China.

Hangzhou Economic and Technological Development Area

In 1993, the Hangzhou Economic and Technological Development Area (aka HEDA) was established and is one of four Economic and Technological Development zones within the city. It now has a population of over 400,000, covers an area of approximately 105km2 and its industrial output value reached over RMB130billion (US$20.79bn) in 2010. The four dominant industries based in the area are IT, biomedicine, equipment manufacturing and food and beverages and the area ranks in the top ten development zones nationally. HEDA has comparatively relaxed regulations, offers investment and R&D incentives, and is a large and significant infrastructure development.

Whilst Shanghai outstrips Hangzhou by miles in terms of attracting foreign investment, it may in future draw the limelight as a place for foreign companies to do businesses and establish their China base. Currently over 33 multinational corporations among the Fortune 500 have invested in enterprises in HEDA. In addition, many iconic transnationals have also established production lines in Hangzhou, including Siemens, LG, Panasonic, Mitsubishi and Toshiba.

With the support of the state government, Hangzhou has developed a strong reputation as an international manufacturing base and ecological centre and has led the way in advanced technological development and global research & development in emerging modern industries such as energy, medicine, materials, logistics, IT and financial services.

As a fast growing second tier city in the Yangtze River Delta region, and only a short one hour train ride from Shanghai, Hangzhou is becoming an important strategic location for foreign companies looking to establish operations in eastern China. This is only highlighted by the extraordinary growth of two of China’s best known success stories, Alibaba and Wahaha, and ensures a steady growth of business visitors and tourists.

Australian business leaders, entrepreneurs and financial services professionals should add a visit to Hangzhou on their next trip to Shanghai.

Sunday
Nov172013

Innovation at Speed

In previous articles on the changing face of Innovation in China, we have highlighted China’s rapid transition from a culture of ‘copying and low cost manufacturing’, to one of ‘innovation and commercialisation’, a transformation which has surprised China’s doubters and detractors. As if this wasn’t amazing enough, we now believe that its time to point out the rapid pace at which this is happening.

China’s Government has vowed to become an “innovation-driven society by 2020”. The nation has successfully combined its manufacturing capacity and capabilities with a policy targeted at creating a “nurturing ecosystem for innovation” which will see China become the world’s leading innovator. Since 2005, China has doubled its global percentage of patents and the number of Chinese companies in Booz and Co’s “Top 1000 Global Innovators List” has grown from 23 in 2010 to 47 in 2012. PetroChina was the first Chinese company to make it to the top 100 in 2012.

Developing China’s innovation prowess is crucial to the global competitiveness of Chinese companies and will be the key domestic differentiator to measure the top performing companies. In sharp comparison to the longstanding bottlenecks and lack of capital investment into infrastructure development and start-ups in the western world, China is investing heavily in its technology and infrastructure. Innovation is therefore shifting to China for three main reasons; (i) market opportunities; (ii) abundant capital resources and (iii) Government incentives. What is different about China’s model of innovation is the speed at which products are developed, tested and launched - in a fraction of the time that it would take for a similar product to reach developed markets. In addition, whilst China’s Government actively promotes, initiates and provides finance to support innovation, their western counterparts tend to rely on an entrepreneurial culture and new start-ups to lead the way.

The Chinese model for innovation is primarily driven by the increasing speed of consumer demand and sophistication. Whilst some argue that China’s innovation potential is no match for Apple, P&G and the Microsofts of the world, China’s new model for innovation, arguably decades behind the USA, will rival the world’s leading multi-nationals in years to come. Waves of Indian executives are visiting China to observe their methods and process of innovation – the most common observation being their incredulity at how rapidly ideas or changes within an organisation are identified and executed. Whilst the West certainly has the availability of human capital and talent, which is as good and, in some instances, better than China’s on a like-for-like basis, it doesn’t have an ecosystem that unifies and delivers innovation at pace.

As a relative latecomer, China is able to leapfrog many stages of development, infrastructure and investment through which other countries have laboured for decades. In the future, three qualities will be required to differentiate successful innovators from the rest. These are:

  • an ability to break into a market and establish a strong position…..at speed
  • a culture which encourages continuous improvement, development and enhancement
  • a desire to move up the value chain, invest in the future and search for new opportunities.

China’s innovation engine is underpinned by its historic approach of “test-and-fail”. This has resulted in an industrial innovation cycle that is consumer centric and an ecosystem that is able to rapidly allocate financial and human capital. Western companies must become more aware of the indigenous innovators and ‘Shanzhai’ companies in China, and should not underestimate their low-cost Chinese competitors. As Ted Greenwald of Technology Review put it “Chinese companies iterate, build things and grow faster than their US counterparts…..Beijing compressed thirty years of start ups into five!”