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China 'Going Green'

In 2013, China consumed half of the world’s coal. As a result, China’s population has become increasingly vocal about their anxiety surrounding the state of the country’s environment and ever-rising pollution levels. Earlier this year, a former news anchor and environmental journalist, Chai Jing, produced a documentary called ‘Under the Dome’ – a damning insight into the state of China’s air pollution and the lack of a robust regulatory system. Chai Jing started work on the documentary after falling pregnant in 2013 and began to greatly fear how China’s pollution could affect the health of her baby – a fear that resonates with much of China’s population today. The documentary, similar in approach to Al Gore’s ‘An Inconvenient Truth’, is particularly critical of the lax approach some government officials have taken towards enforcing environmental regulations and exposes how oil and coal companies are complicit in the problem. It was no surprise that the documentary was censored by Chinese government officials within only a few days. 

In response, China’s ‘growth at any cost’ model is increasingly attracting domestic and international criticism and scrutiny. As a result, China’s current 12th Five Year Plan focuses more on the ‘quality of growth’ and has set about reversing the environmental degradation of the past 30 years. The Plan has set the following key targets to be met by the end of 2015:

  • Increasing non-fossil fuel resources to 11.4% of primary energy consumption
  • Reducing energy intensity by 16%
  • Reducing carbon intensity by 17%

China is currently on track to meet all of these targets.

Coal and carbon caps

China’s commitments to capping its coal use and carbon emissions have been generally accepted as major steps forward in addressing its coal addiction.  In a joint announcement with the US, China made a first-time pledge to cap its CO2 emissions by 2030 and also pledged to expand its renewable energy sources targets from 15% by 2020 to 20% by 2030. A week after this announcement, China launched its New Energy Strategy Action Plan (2014-2020) which undertakes to cap absolute coal consumption at 4.2 billion tonnes by 2020 and reduce the share of coal in the primary energy mix from 66% to less than 62% by 2020. The share of natural gas in the primary energy mix will also be raised to above 10%. To achieve these levels, the three big coal consuming regions of Hebei, Tianjin and Shandong will have to cut their coal use by up at 27% by 2030 and Beijing alone will need to cut its use by 99%.

Renewables investment

Another high priority for China is investment into renewable energy and clean technology. In 2013, China invested $US56.3 billion in renewable energy sources such as hydro, wind solar, biomass etc. This was more than the total of Europe’s investment in renewable energy and accounted for 61% of investment from developing countries.

Whilst these figures represent the national government’s growing commitment to combat climate change, some Chinese cities have been developing their own local ambitious plans and projects. Shenzhen in China’s south is arguably leading the way in expanding the use of renewables and green technology. BYD, the world’s largest supplier of rechargeable batteries, was established in Shenzhen in 1995 and has quickly become the country’s leader of new energy motor vehicles (the picture above was taken at the BYD office in Shenzhen as part of David Thomas' 2014 Think Global mission to Hong Kong and China). Shenzhen also houses the ‘Shenzhen International Low Carbon City’ which has made a commitment to emit less than 0.32 tonnes of carbon per RMB10,000 by 2020. The city promotes sustainable innovative design by using recycled materials and existing buildings to construct the city. Shenzhen Yantian District is also the first district to apply a Gross Ecosystem Product (GEP) index, measuring the use of non-polluting and renewable energy sources. The district aims to achieve GDP growth without diminishing GEP growth. In 2014, the city recorded a GEP value of RMB107 billion which was achieved by changing Yantian Port’s energy source from oil to electricity and gas and developing a project to encourage greater bicycle use. Despite the index having inherent measurement challenges, it represents the growing focus on ecological output whilst maintaining economic and social growth.   

Shenzhen was also the first city to introduce a carbon ‘cap and trade scheme’ in 2013. Since then, China has announced plans to establish a nationwide carbon market by 2016 and has also started to develop a proposal for a new carbon tax. With funding from the National Development and Reform Commission and the Ministry of Finance, the government will launch a RMB50 billion environmental protection fund to provide low interest long-term priority loans to Chinese companies who are specifically tackling China’s air, water and land pollution challenges. 

The next Five Year Plan

China’s next Five Year Plan will be released in late 2015 and is expected to replicate and build on much of the previous plan. It is expected that national, provincial and city-level environmental provisions will strengthen as China edges closer to its 2020 and 2030 goals. China has a strong track record over the past 30 years of meeting or exceeding the targets and aspirations set out in the Five Year Plan, so their plan to cut emissions and invest in renewables should not be taken lightly. In fact, China is already leading the world in tackling climate change despite media commentary suggesting otherwise. What may not be noted, however, is the need to ease censorship surrounding environmental degradation, especially when the government and industries are implicated. Greater transparency is crucial in order to build up trust and confidence in the Government's real and actual commitment to tackling China’s crippling pollution levels and, as can be seen from the above, significant progress is being made. 




Agriculture - The next boom for Australia?










The english version can be found here.


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.


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?


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?