'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.

For more details, please download the information flyer and register your interest here

LIMITED TIME OFFER: Book before 1 October 2015 and receive $500 of the standard registration price (excluding GST)

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


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!”


The Free Trade Experiment

The biggest step in the liberalisation of China’s financial services sector or a damp squib?

With the recent media hype about Shanghai’s New Free Trade Zone (“FTZ”), questions are being raised as to whether the FTZ opportunity will live up to expectations or if it is a damp squib. The FTZ, another Deng Xiaoping style pilot reform strategy has the potential to be expanded and/or replicated. China’s mantra, “crossing the river by feeling the stones” is particularly pertinent to describe the FTZ experiment that, if successful will be slowly disseminated nationwide as China moves to liberalise its economy and integrate with the rest of the world. 

On September29 2013, China officially opened its first ever FTZ as opposed to the ‘special economic zones’ (“SEZ”) such as Qianhai. The Shanghai FTZ covers an area of 29km2 and promises to act as an experimental ground for the heterogeneous liberalisation of 18 chosen industries (the majority of which are services based – financial, shipping, business, professional, cultural and social), liberalisation of interest rates, RMB convertibility, less stringent foreign investment criteria and much more. Furthermore, the FTZ will allow foreign banks to operate without a Chinese partner and provide  access for financial institutions and qualified foreign individuals to invest and trade in Shanghai’s securities and futures markets (access was previously restricted to buying into funds regulated and restricted with quotas through either the Qualified Foreign Institutional Investor (QFII) or Qualified Domestic Institutional Investor (QDII) programs). In addition, as the world’s largest energy consumer, officials have stated plans to create an international oil futures trading platform in the FTZ to improve the nation’s commodity markets and to hedge its risk. Foreign banks who open a branch (as opposed to a representative office) in the FTZ will be offered simpler and faster regulatory requirements, specifically when applying for RMB settlement licenses. The ultimate intention being to create an international hub for financial services, shipping, law, and architecture as China takes steps towards deregulating its financial system. Particularly attractive to foreign institutions is the proposed relaxation of the Great Firewall to provide access to popular web sites like Twitter, Facebook and YouTube which are otherwise banned in China.

Shanghai’s FTZ has attracted a lot of positive and negative media attention, but there is no doubt that, should the scheme be successful, it will pave the way for China’s integration into the modern world. Labelled by some as the “third wave of economic reform” (the first being Deng Xiaoping’s policies in the 70s and 80s and the second when China entered the WTO in 2001), the Shanghai FTZ has the potential to allow the nation to, in the words of Premier Li KeQiang, reap the “dividends of opening-up”, unleash more "reform dividends" and share greater "development dividends". Strong supporters of the new FTZ see it as a momentous step away from China’s export led growth model, to a more sustainable and liberalised consumer-led growth model. As China begins to foster domestic growth, it will be crucial for its services based industries to both develop and mature to be able to compete on the world stage. In the next five years, the Shanghai FTZ is expected to contribute between 0.1 per cent to 0.75 per cent to China’s GDP each year and, more importantly, provide a new model to attract foreign investment which can be applied to other cities and provinces.

Looking further forward, the Shanghai FTZ will also stimulate a fresh wave of investment and infrastructure spending, which will offer a wide range of opportunities. Local property prices and FTZ stocks have soared since the opening of the FTZ in September, and full convertibility of the RMB in the FTZ will allow foreign companies to raise capital through derivatives trading or private share placements – a huge step forward for the local financial services industry.

Whilst the plan seems to be an overwhelmingly positive step forward for China, there are sceptics and critics of the Shanghai FTZ, who see it as a potential ‘damp squib’. Most of the criticism and scepticism stems from the lack of detail that has emerged so far, and many wonder how the Government will prevent the major changes proposed for the FTZ from spilling over into the rest of the nation.  For example, it is not clear how banks in Shanghai’s FTZ will be allowed to set different interest rates within the zone to that of the rest of the country.

At the time of writing, 25 companies and 11 financial institutions have received approval to start operating in the FTZ from a variety of sectors. Whilst it is not easy to tell, the success of the FTZ will be a long term process as reforms in China typically start slowly out of the gate. However, local government officials have confirmed their commitment to maintaining the integrity of the FTZ by erecting a “rigid and impermeable wall” around the FTZ so as to ensure nobody ‘games the system’. However, much of the details of the benefits and principles to be applied within the FTZ have yet to be confirmed.

Described as the boldest reform in decades and with the opportunity to spur investment and innovation, particularly in China’s services industry, the success of the new Shanghai Free Trade Zone is uncertain. But one thing is certain, the symbolism, reflecting a new vision of China’s leadership and a step towards a more liberal and sustainable long term growth model, is promising. For now, we can only watch and wait.


David Thomas in China Daily

David Thomas was recent interviewed by the China Daily Asia, and the article entitled "Opportunity Knocks" talks about his background, career history and passion to connect investors, entrepreneurs and business leaders in the Asia Pacific region. 

"....It is late afternoon and Sydney’s central business district is virtually empty. A steady stream of workers makes a beeline to bus stops, car parks and the underground railway. By 5pm, coffee shops have closed as the iron shutters come down on another day. In his third floor office David Thomas is on the phone with Citrus Australia, the major industry body representing Australia’s commercial citrus growers...."




China's Premium Market

The wealth management opportunity of the century!

Being a nation that values egalitarianism, Australia offers scant recognition for the premium consumer, a market that will provide the next wave of opportunity and demand from emerging nations, such as China. The premium class of consumers are part of a new market of ultra high net worth individuals (UHNWI) who make up a market that is truly out of reach for the majority. To be clear, this opportunity is different from the “mass affluent” market. Mass affluent refers to exclusive goods and services that can be accessed by the masses (e.g. Chanel bags, Louboutin shoes, first class airfares etc.) if they put their mind to it.  On the other hand, the “premium market” is unattainable to 99.9% of the population, invitation only experiences and events that offer exclusive personal experiences that are both hard to imitate and discrete. If Australia is to remain competitive as an international destination of choice for the world’s elite, it must, in both business and tourism, redesign the delivery and experience of the products and services it provides. Australian businesses and marketers must move quickly to keep pace with the rapidly changing taste and demand of China’s wealthiest consumers.

China’s new wealth has the potential to accelerate growth in the private banking and wealth management sectors for those who can provide tailored services and fully understand the needs of the premium market. According to official numbers (which may understate the actual position) China has over one million millionaires and 122 billionaires (second only to the USA) and it will have the world’s fourth largest concentration of wealthy people in the next two years. Currently, China is the largest market for luxury goods in the world and by 2015 will account for one third of all luxury good purchases. China’s top 500 wealthiest have a combined wealth of almost US$600billion and an average net worth of US$1.2billion. With such fast growing wealth, there is enormous potential for those in the private banking and wealth management sectors to tailor their services and capabilities to cater for the wide range of needs of wealthy Chinese individuals.

China’s premium consumers have a diverse range of needs to be met as they look to diversify, invest and restructure their investments, both domestically and overseas. This growing number of individuals will need exclusive advice, support and services to manage their wealth and assets offshore. The Australian “Significant Investment Visa Program” (subclass 888 visa) is one mechanism for wealth managers to facilitate this investment opportunity, specifically targeting those with plans to emigrate, and therefore with long term interests in Australia. It would be amiss for wealth managers to fail to fully embrace this premium market so as to start developing and investing in relationships with China’s wealthy. Building access and a healthy reputation amongst the network of China’s wealthiest will give access to a rapidly deepening pool of wealth at a rate of growth we won’t see in the West in the near future. 

With most premium consumers relatively new to the consumer market and wealth, their consumer behaviour is very different from their international and middle class counterparts. In fact, more than half of China’s wealthy today were not wealthy five years ago and more than half of those who will be wealthy in the next five years are not wealthy today. China has many “rags-to-riches” stories, and perhaps most famously, Mr Zong, the 67 year old CEO who was born into a poor rural family, and prior to starting his own business selling soda and iceblocks at 42, he worked on a farm, as a factory worker and salesman. Mr Zong’s company, Hangzhou Wahaha Group is now the largest beverage company in China, worth US$4.88billion, it employs over 30,000 employees and Mr Zong’s estimated wealth is around US$11billion. Most Chinese billionaires have emerged from total poverty, where there was not enough to eat, as opposed to those who have risen from the relative poverty of a typical middle class family in the West. Furthermore, most of China’s wealthiest were born in the 1970s and were involved in finance, trade or manufacturing.

Australia must welcome and engage with China’s elite to compete with the USA, Canada and Europe and remain a top emigration, business and investment destination for China’s wealthy.  Interestingly, over 70 per cent of China’s wealthiest have emigrated or are in the process of emigrating. This presents a huge opportunity for Australia to attract the brightest, wealthiest and most entrepreneurial minds to our shores.

The three main drivers behind this trend are:

(i) Asset Protection

Many of China’s high net worth individuals are seeking a legitimate means to move their assets offshore for the purposes of asset protection, particularly in terms of cross-border structuring, tax mitigation and long term investment planning.

(ii) Retirement and succession planning

Many of the children of high net worth individuals choose to study and live abroad and require advice and assistance with retirement, succession planning and the long term growth and protection of their family’s wealth.

(iii) Diversification

Wealthy entrepreneurs and high net worth individuals are looking to diversify their assets across a variety of markets, currencies, industries and sectors that they cannot access in China. Australia has a wide array of safe and viable opportunities that, with the right advice, service and support, provide access to attractive investment opportunities overseas.

There is an overwhelming opportunity for Australian financial services (and other) businesses to provide elite and exclusive experiences for those who can easily afford it. There are already a large group of wealthy families and ‘second generation’ sons and daughters living in Australia whose demands and needs are simply not being met as they seek to accumulate their wealth out of the spotlight. Wealth Management and Private Banking businesses which can seize this opportunity will be handsomely rewarded. Money is not the issue here - experience, service and discretion is paramount. Whilst Australians by no means undervalue the importance and achievement of success, it remains to be seen whether a nation plagued with the “tall poppy” syndrome has the will to respect, serve and value the time, expectations and demands of the world’s elite. 



Innovation in China

Traditionally, China’s reputation for copying has overshadowed any of its talents in innovation. After a low-key decade of progressing innovation through commercialisation (trial and error enhancements of Western innovations) Chinese companies have become innovators in their own right, taking on their Western counterparts with the financial support and backing of the Chinese government.  

China is no longer the low-cost manufacturing base that it once was, a revolution of change and innovation has begun and it is estimated that China will surpass the US and Europe and become the world’s largest investor in R&D in a decade (the US is currently investing nearly double that of China). In 2012, China spent just under 2 per cent of GDP on R&D, around US$160billion, around three quarters of which was made by businesses. Huawei, the global telecommunications equipment and service provider, invested US$4.8billlion into R&D in 2012 alone. Somewhat less well known, China’s biomedical sector is also investing billions of dollars into innovation as it strives to transform itself from a manufacturing base to a nexus of innovation.

Historically, China’s path of development and innovation has been largely determined by the ‘Shanzhai’ evolution. However, this school of thought is not only outdated, but is being overshadowed by the story of China’s own unique paradigm for innovation. The term ‘Shan Zhai’ refers to businesses based on fake or pirated products. Shanzhai companies are now themselves becoming leaders in innovation aided by their fast, flexible, innovative and risk taking corporate culture. As the Chinese market has matured, so has the Shanzhai phenomenon, which is no longer about low-cost imitation products but rather about a certain cluster of Chinese companies achieving success through an unconventional path. Many companies of ‘Shanzhai’ origins are now developing a competitive advantage through innovation to emerge as leaders in their field, with their own IP portfolios.

Two factors that have driven the success of ShanZhai businesses is their no-complacency attitude and their ability to disrupt the status quo by consistently inventing fresh and local market specific strategies. Examples of this are:

  1. Tianyu, a ‘Shanzhai’ company which produces imitation phone handsets targeting the trendy but value conscious consumer. Tianyu has now overtaken domestic giant Lenovo and, owing to strong brand development and a high investment in R&D, Tianyu is virtually unrecognisable from its ‘Shanzhai’ beginnings. In fact, it now produces over 100 tailored handset models per year…. Look out Nokia, Samsung and Motorola!
  2. Similarly, BYD is a local Chinese battery and automotive manufacturer which produces ‘knock-off’ Toyotas for half the price. It is now a world renown producer of car battery technology and dual mode drive train systems.
  3. Even better known, is the instant messaging platform, QQ, which is a copy of ICQ and is now the largest and most successful platform in China with over 400million active users.

The ‘Shanzhai’ story has characteristically followed a trend where companies initially focus on the domestic market targeting mass consumers. Product development works on a very short time cycle, which gives ‘Shanzhai’ companies a clear time advantage over their competitors. Arguably the most differentiating factor from their competitors is their understanding and ability to adapt products quickly to the requirements and needs of local consumers. Western companies can learn from their ‘Shanzhai’ counterparts, particularly from their local market knowledge and strategies for success. Whilst it may be argued that the ‘Shanzhai’ culture impaired creativity and competitiveness, it has been a key factor driving the grassroot level innovation locally throughout China by offering more choice at lower price points to targeted consumer markets.

The global reach of Shanzhai businesses will create pressure as these Chinese companies, now funded heavily by government initiatives, impose their ‘pace advantage’ on its slow and bureaucratic Western counterparts. Western companies will not only have to increase and deepen their understanding of local market dynamics, but create systems to push through rapid change in order to respond quickly to evolving markets and fast-changing consumer preferences

China’s government is encouraging local innovation throughout China by allocating and directing resources to innovation hubs, as illustrated in the 12th Five Year Plan. Innovation is occurring at a business-to-business and business-to-consumer level in China. Generally, breakthroughs in China go unrecognised by the global community and most of the product innovation in China stays there. However, China is leading innovation in sectors such as communications equipment and alternative energy. According to McKinsey, China has created the seeds of 22 Silicon-valley-like innovation hubs within the biotech and life-science industry. At present, domestic companies have limited incentive to adapt and innovate products for sales abroad because of the size and depth of the Chinese domestic market. However, as Chinese companies look to expand their capabilities globally, they cannot continue to base their business model solely around their local resource advantage, which is why it is of fundamental importance for Chinese companies to integrate innovation into their business culture. Opportunities for Australian companies lie in helping Chinese innovators understand what drives customers and how to foster a company-wide risk taking and collaborative corporate culture within their organisation. 

China is a global leader in innovation in three main industries: communications, pharmaceuticals and alternative energy. Specifically:

  1. China has become a globally recognised innovator in the communications equipment industry, where China now services European corporate clients including France Telecom and Vodafone.
  2. China is also recognised as a key player in the Pharmaceuticals industry, particularly chemical discovery, where currently over 20 chemical compounds discovered in China are now being clinically tested.
  3. China is on its way to become the largest market for renewable energy technology in the world, particularly in solar and wind power industries where it is one of the largest manufacturers of components. As identified in the five year plan, the Chinese government plans to become the global leader in hybrid/electric vehicles, launching 5 million on the road by 2020. These industries are supported through sizeable tax incentives and subsidies.

China’s natural advantage in these industries comes not only from scale/size advantages but also its advanced manufacturing techniques and experience which improves efficiency.

The Chinese government is cultivating an environment for innovation by creating policies and directing resources so as to favour Chinese innovators and Chinese made goods and services over their multinational equivalents. In addition to this, the government has targeted specific sectors. For example, the Chinese government has changed the face of the High Speed Rail industry by implementing targeted policy to (i) encourage technology transfer from multinationals in return for access to the Chinese market and (ii) coordinate research and development investment into the domestic industry. 

So, for Australian companies that think there is safety at the higher ends of the value chain… now is not the time to be complacent, Chinese companies are hot on your heels!

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