'Invest in Australia' Mission

Hong Kong & China 2016

Our 2016 'Invest in Australia' Mission is designed to source, attract and develop relationships and partnerships with Chinese investors, entrepreneurs and business leaders for investment, trade and/or migration purposes.  

Join us in Hong Kong, Macau & Zhuhai from 17th-22nd of January 2016.

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Australia China BusinessWeek 2015 China Business Mission
7-11 September, Xiamen

Thursday
Aug272015

Anhui - The link between China's East and West

Anhui's Yellow Mountain (Huangshan)

Located next to China’s wealthiest and most developed cities and provinces, Anhui has long been overshadowed by the affluence and influence of its powerful neighbours. Located in the Yangtze River hinterland, Anhui is considered part of the Yangtze River Delta Region, China’s largest and wealthiest economic zone. However, with the Government’s recent focus on the development of its second and third tier provinces, Anhui is quickly emerging as the key link between China’s rich eastern seaboard and underdeveloped western and central areas. The big cities of Shanghai, Nanjing and Wuhan lie within a 500-km radius of Hefei (Anhui’s capital) and within that radius; there are 500 million people who account for nearly 40% of the nation’s GDP.

About Anhui

Anhui province is considered part of China’s eastern region and is located across the basins of the Yangtze River and the Huai River. The province was established in the 17th century and is the birthplace of the famous Hui group of merchants, the strongest of all merchant groups in China. Anhui is regarded as a 2nd tier province, with a comparably lower GDP than others. However, similar to other 2nd the 3rd provinces, Anhui has a GDP growth rate of approximately 9% per annum.

Anhui’s geographical location boasts two significant advantages:

  • Firstly it lies on extremely fertile and mineral rich land. Over 123 different types of minerals have been discovered in Anhui and the province is considered to have some of the most abundant and rich reserves of coal, iron and copper.  It is no surprise that some of China’s well-known manufacturing corporations such as Ma Steel Group (iron and steel manufacturer) and Conch Group (plastic and cement producer) are based in Anhui.
  • Secondly, Anhui lies along the Yangtze River – China’s longest river connecting 11 provinces from the East China Sea to Sichuan. In September 2014, the Chinese Government launched the ‘Golden Waterway Yangtze River Economic Belt’, a national plan to transform the river region into an economic super zone. Port cities along the River (such as Wuhan and Chongqing) have also made transport and logistical plans to handle and take advantage of the expected increase in activity along the Yangtze. 

Major industries:

  1. Hardware and software – manufacturing and education

With its abundance of primary products and materials, a large population and its strategic location along the Yangtze, Anhui has long been considered as an important manufacturing hub for China. The province is well-known for producing modern equipment, automobiles and home appliances, and manufacturing petrochemicals and machinery. In fact, Anhui products are China’s leading automobile exports – making up 22.1% of the nation’s total. Also, the province’s production of air conditioners, televisions, refrigerators and washing machines accounts for approximately 20% of the national total. Its capital city, Hefei, is considered as China’s biggest production base for household appliances.

In recent years, the Government has made a concerted effort to push Anhui up the production value chain – developing its capabilities, skills and knowledge in the production of green and hi-tech products such as new energy materials, advanced intelligence information technology, biopharmaceuticals and hybrid cars and buses. To foster this growth, Anhui has implemented a strategic provincial plan which includes the establishment of three national technology and innovation zones and an economic district in the north which receives special benefits such as tax incentives and fee exemptions to encourage companies to experiment, innovate and nurture talent. The province is now well-known for its strengths in science and education – it houses over 2000 research institutes and universities and over 40 specialist laboratories and technology research centres, only second behind Beijing for its concentration of scientific education institutes.

  1. Transport

Anhui’s transportation infrastructure has been a popular target for investment and the province is now considered a sophisticated and diverse transportation and logistical hub. The province has six airports, providing passenger services to major Chinese destinations and some overseas cities such as Bangkok, Osaka and Singapore. Anhui also has nearly 400 berths along the Yangtze River with a carrying capacity of over 1,000-tonnes, the most in China’s central or western regions. Perhaps most significantly, Anhui is a major railway terminus, connecting China’s key north-south and east-west routes such as the Jinghu (Beijing-Shanghai) and Ningxi (Nanjing-Xian) lines. Fast trains from the capital Hefei reach Nanjing in only one hour, Wuhan in two hours, Shanghai in three hours and Beijing in less than four hours. There is currently nowhere else in China with such a dense concentration of high-speed railways either completed or under construction.

  1. Tourism

Anhui is a major tourist destination in China and its tourism industry accounts for a major proportion of its services sector’s revenue. Anhui boasts some of China’s most famous scenic areas, including the Yellow Mountain (Huangshan黃山) and Tianzhu Mountain (天柱山). Over the three-day May Day Holiday in 2014, over 20 million tourists travelled to Anhui. The Yellow Mountain alone attracted around 70,000 tourists. The tourism bureau also observed that more tourists were visiting natural and rural sites, rather than urban areas. However, much like China’s tourism industry as a whole, Anhui lacks the quality services it needs to cope with the sheer volume of tourists. The Yellow Mountain, in particular, has been identified as a site needing more sophisticated, streamlined and modern services as more and more tourists visit each year.

The opportunities

In China’s 12th Five-Year Plan, tourism and technology have been identified as target sectors requiring significant development and improvement and China is looking outside of its borders to source foreign talent, knowledge and investment to bolster their own capabilities. Perhaps what is most exciting about Anhui is its geographical location. Everyone knows the unprecedented pace at which China’s eastern seaboard was developed and how the central and western regions were largely neglected and overlooked. However, as part of the government’s “Go West” policy, there has been an enormous push to build up China’s underdeveloped western and central regions, encourage foreign companies to do business in these areas and transform many of these areas into important and specialised industry clusters. As these areas grow and develop, Anhui is poised to be the link between China’s east and west and will undoubtedly benefit from the increasing levels of trade, business and activity.  

Friday
Jul242015

China Export Forum 2015 - Key Takeaways

On 15 July 2015, I was MC for the China Export Forum, hosted by the Australia China Business Council and Export Council of Australia. The Forum was designed to explore the opportunities and challenges of exporting to China from the perspective of leading Australian and global exporters. Through case studies and interactive panel sessions, the audience had the opportunity to not only learn from success stories, but also the unique challenges when exporting to China. The Forum’s first two sessions explored how successful companies entered into the China market utilising traditional export channels and e-commerce platforms. The last session explored some of the challenges exporters typically face and some strategies to overcome them.

Here are some of my key takeaways from the day:

Session I: Traditional Distribution Channels

  1. Exporting to China takes longer than you think and also costs more – you will need to “double your budget, and halve your expectations”.
  2. The “Three Cups of Tea” of relationship building: from stranger to friend to family. In all business dealings, build the trust and relationship first. If dealings start to go wrong, go back to the first step to relationship and trust building.
  3. All the stars are aligned for Australian exporters in China:
  • We now have ChAFTA
  • There is an increasing demand for our products due to China’s changing diet and tastes, the growth of the middle class consumer and more consumers coming from 2nd, 3rd and 4th tier cities
  • Food safety is a major issue and concern in China
  • Australian products are highly regarded as clean, green and safe

Session II: E-commerce for Australian exporters

  1. E-commerce is a whole new language and alphabet soup for us of names, brands, online and offline stores, search engines and social media.
  2. With 640 million internet users and 332 million online consumers, e-commerce is a fast growing opportunity and everyone has to be involved.
  3. E-commerce is complex. Building your brand in the China market is not straightforward so leverage Alibaba and Auspost who are already promoting Australia in China.
  4. 2nd, 3rd and 4th tier Chinese cities do not have the same opportunities and access to products that 1st tier cities do. They are therefore hungrier for imported products and rely on e-commerce to get their hands on these products.

Session III: Challenges for exporters

  1. China is not one market, it is many. Exporters not only need knowledge about China, but specific knowledge about its regions, cities and provinces.
  2. Small and nimble service providers can fulfil a niche market in China.
  3. Being “flexible, flat, fast and fun” are key success factors to doing business in China.
  4. Don’t cut corners – get your brand and trademark registered and protected early, organise and translate contracts and do your due diligence.
  5. The Chinese are not that much different to us – we laugh at the same things, value our families and friends and don’t take ourselves too seriously.
Friday
Jul242015

From Mining to Dining

According to the World Bank, the global population is expected to reach 8.2 billion by 2030, a significant increase from its current level of 7 billion. Even more remarkable is the exponential growth in the global middle class, most of which will emerge from Asia.   

There are currently around 2 billion people in the global middle class, half of which live in Europe and North America, and only one-third in Asia. But by 2030, according to Reuters, the global middle class will grow to 4.9 billion – with two thirds living in Asia.

There is no doubt that the Asian middle class will be the key driver of future global consumption, for a host of products like cars, food and housing, and services like education, healthcare and tourism.  It is predicted that by 2030, Asia will account for 54% of the world’s total consumer spending.

Driving this growth is the world’s fastest growing and most highly populated country – China. By 2030, China’s middle class will reach one billion, nearly 70% of its projected population. Increasing wealth will also match this exponential growth of the middle class – it is predicted that by 2020, the disposable income level of China’s urban consumers will nearly reach that of South Korea’s level.

From bicycles to BMWs

With rising incomes, increasing private wealth and a higher standard of living, the Chinese middle class consumer will spend increasingly more by indulging in what they want rather than what they need. During the Communist years, people wished to own sanshengyixiang (三转一响) ‘three rounds and sound’- a wristwatch, bicycle, sewing machine and a radio. Today, China’s middle class aspire to own a Prada handbag, a BMW and a holiday overseas. To illustrate this, a study found that the number of Chinese households earning more than US$35,000 (considered to be the threshold to afford overseas travel) will nearly treble to 63 million by 2023.

As well as being wealthy, they are both aspirational and health conscious. Their tastes are evolving, demanding more variety in their diets and becoming increasingly aware of the importance of protein.

Everyone knows that rice has been a staple in Asian diets for centuries. Currently, 90% of the world’s rice is produced and consumed in Asia. However, recent studies confirm that as income levels rise in Asian countries, the consumption of rice (on a per capita basis) declines at a similar pace. Trends have shown that Chinese middle class consumers are now eating more foods derived from livestock and wheat, imported fresh fruits and vegetables and others which are higher in protein and energy. For example, Chinese beef-meat consumption is expected to increase from 5.13 million tonnes in 2000 to 7.96 million tonnes by 2020.

Changes in diet patterns can be attributed to a variety of factors. One of the fundamental backbones of Chinese culture is the importance of health. Food safety and best practices in production are becoming more transparent in China with many high profile food safety cases attracting damning media coverage. Chinese consumers are now becoming more and more anxious about the cleanliness and quality of their food and are looking overseas to purchase ‘safer’ food products.

The burgeoning Asian middle class is more willing than ever to pay top dollar for premium products for a combination of health, safety and lifestyle reasons. In addition, the status attached to eating imported foreign foods (particularly dining out) is a huge motivator to display their growing wealth and influence. According to a recent study, people in China spent more on average when eating out than Australians.

The changing face of Chinese consumers

The Chinese middle class is also defined by the emergence of two powerful groups of consumers - Generation 2 (G2) consumers and those from 2nd and 3rd tier cities. G2 consumers are typically born after the mid-80s, after Deng Xiaoping’s ‘opening up’ policies and are a product of China’s one-child policy. Their parents, having lived through economic austerity and years of shortage during the Cultural Revolution, have become dedicated to raise their children in relative abundance.  As a result, McKinsey research has found that G2 consumers are spending more than their predecessors and consider expensive products as better quality. Many of those who have spent time studying overseas have developed a taste for western-cuisines and products. Like previous generations, they still define success in terms of money, power and social status.

McKinsey also predicts that middle-class growth rates in tier 2 and 3 cities will be far greater than in tier 1 cities. By 2022, the share of the middle class population living in 2nd and 3rd tier cities is expected to double by 2022. Growth in tier 3 cities is set to be the most surprising, reaching a 30% share of the upper-middle-class population. These consumers are hungrier for imported products than their counterparts in Beijing and Shanghai because they do not have the same opportunities and avenues of access. Austrade research has found that online consumer spending in these cities is growing rapidly and in some cases, faster than in tier 1 cities.

By 2030, Australia will have nearly 4 billion people in our regional neighbourhood, with more money to pay for better quality healthcare services, tourism, housing, education and most importantly, food. Estimates suggest that, by 2050, Australia is poised to capture over A$1 trillion in food exports which, if managed properly, suggests that the agricultural sector represents the next boom for Australia’s economy. However, Australia faces enormous challenges in mobilising, energising and expanding an agricultural sector which has been neglected in recent times and which suffers from fragmentation, parochialism and a lack of investment. Also, simply relying on our ‘clean, green and safe’ reputation is not enough. Australia is increasingly transitioning from the ‘food bowl of Asia’ to the provider of premium products to China’s middle class. Understanding the new Chinese consumer and their changing diets and lifestyle is crucial if Australia wants to maintain their position as the ‘delicatessen of Asia’.

Tuesday
Jun232015

China's "One Belt, One Road" Initiative

With a decade of unprecedented economic growth, China is now entering a new era of economic, social and political development, impacted by its new position as the world’s second largest economy, with a booming middle class population but crippling environmental concerns. China is now focusing more on the quality of their growth rather than growth ‘at any cost’. Out of the plethora of new Plans, Strategies and Visions created by Chinese government agencies, the “Vision and Actions on Jointly Building the Silk Road Economic Belt and the 21st Century Maritime Silk Road” or more simply known as the “One Belt, One Road Initiative” epitomises China’s new approach to foreign policy. The Initiative is an extension of China’s ‘go out’ and ‘go west’ policies and represents a move by the Government to be more targeted, strategic and focused in its future development.

The Initiative aims to consolidate and upgrade existing infrastructure and build new transport routes to improve cross-border trade. It also includes efforts to promote a greater financial integration of the Renminbi with foreign countries and create a “Digital Silk Road” of international communication and information distribution.  The “Silk Road Economic Belt” connects China via land with Central Asia, Russia, Europe and Southeast Asia. The “21st Century Maritime Silk Road” makes a link from the Indian Ocean, through the South China Sea to the South Pacific Ocean (see map). Geographically positioned in the middle of both the Belt and the Road, China has emerged as the facilitator in developing a connection between Europe and Asia.

All roads lead to China

Similar to the Roman Empire’s network of roads, rail and ports, The Initiative has given major priority to infrastructure. Plans are already in place to build railway networks, port facilities, airports, highways and electronic communication networks to guarantee smoother and more efficient transportation of goods and people, from Southeast Asia to Western Europe. The Asian Development Bank, managed by Japan and independent of The Initiative, has estimated that in order to support the expected volume of international trade produced from The Initiative, Asian countries must invest US$8 trillion to bring their facilities up to world standards.  China has already conducted feasibility studies on four international high-speed railways – the Europe-Asia, Central Asia, Pan-Asia and China-Russia-America-Canada high-speed rail lines. Poland also recently signed an MOU with China which includes railway projects linking China’s city of Chengdu with the Polish city of Lodz, as well as linking Suzhou, in Jiangsu Province, with Warsaw. Supporting these infrastructure developments, China has opened up discussions to open new ‘free trade zones’ and ‘trade co-operation zones’. Currently, there are 77 economic and trade co-operation zones in 23 countries along the Belt and Road including within Russia, Hungary, Romania, Laos, Thailand and Indonesia.

Financial support

To support these major plans, China has been actively promoting the establishment of the Asian Infrastructure Investment Bank (AIIB), The BRICS New Development Bank and the Silk Road Fund. The US$100 billion AIIB attracted global controversy in early 2015 when the US publically criticised the Bank and typical allies like the UK and Australia who ‘broke ranks’ and joined the Bank. The creation of the AIIB represents one of the first steps of The Initiative. 57 nations, including Australia, Brazil, Germany and Russia have signed up. Still in its development phase, it is maybe too early to assess whether or not the Bank will operate effectively. What has been noted is that it represents a shift in Chinese diplomacy from typically acting independently and unilaterally to being more collaborative and regionally-focused.

Domestic investment

Besides forming the basis of China’s new foreign policy, Xi Jinping has also made The Initiative a key domestic economic strategy. Under the plan, China plans to develop various key regions in China – the inland regions, north-western and north-eastern regions, south-western region and coastal regions. In the north-western region, the Initiative has appointed Xinjiang province as a key area on the Belt as it shares its borders with Mongolia, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan and Pakistan. Rail links are also expected to improve transportation between Heilongjiang province and neighbouring Russia.  In the south-west, Guangxi and Yunnan provinces will play key roles in opening up the Greater Mekong sub-region. Ports in China’s coastal cities such as Ningbo-Zhoushan, Fuzhou, Xiamen and Shenzhen will be further developed to facilitate increasing volumes of maritime trade.

Most importantly, the Initiative has made specific plans to establish Chongqing as the key to opening up and growing China’s western region (‘go west’ policy). This will be supported by developing Chengdu, Xian and Zhengzhou to open up the inland areas and act as a key region for railway transportation to Europe. The cities themselves are also making their own plans for the Initiative – more than two-thirds of the 28 mainland provinces have already done so. For example, Chongqing has published their own plans to implement The Initiative and has pledged to invest RMB1.2 trillion in infrastructure before 2020.These policies reflect China’s seriousness in continuing and further enhancing its ‘go west’ policy, a cornerstone of the 12th Five Year Plan. By improving connectivity between China’s poorer western regions with the wealthy eastern coast, The Initiative hopes to spur more regionally focused growth, contributing to China’s overall aim of sustainable and balanced economic growth. 

International diplomacy or domestic interests?

Despite Beijing’s attempts to stress the ‘win-win’ potential of The Initiative, many countries are deeply concerned about its geopolitical impacts. Key regional players such as Japan, Russia and India are particularly anxious about the increasing levels of Chinese influence in their respective regions. In addition, The Initiative runs the risk of being too ‘China-centric’ with the other participating nations only reaping marginal benefits. It is therefore imperative that China recognises these concerns, remains transparent in their plans and communicates regularly with all parties.

Motivations aside, The Initiative and the development of its supplementary Asian Infrastructure Investment Bank demonstrate an enormous potential to enhance economic growth and sustainable development not only throughout Asia but within China itself. Another major indication of China’s influence, both regionally and globally, as we advance deeper into the Asian Century.

 

Wednesday
May202015

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.