'Invest in Australia' Mission

Hong Kong & China 2015

Our 2015 '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 and Guangzhou from 18 - 23rd of January 2015.

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

LIMITED TIME OFFER: Book before 30 September 2014 and receive $500 of the standard registration price (excluding GST)

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Alliance Partner China HR

Monday
Jun172013

Tianjin – A key destination for  investment

Most Australians haven’t heard of the port city of Tianjin, but tucked away 137km southeast of Beijing is a flourishing metropolis which has been growing at an annual rate of 16.5% since 2007, and is home to over 13million people.  Prior to the founding of the People’s Republic of China, Tianjin (meaning, ‘a port for the emperor’) was the economic and financial centre of Northern China. Currently, Tianjin’s architecture is a culmination of its history as a colonial city mixed with its modern Chinese culture, a plethora of colonial buildings, modern skyscrapers and stylish suspension bridges. Now, an ultra-modern bullet train connects the city to Beijing, a journey taking less than half an hour, and plans for the next Beijing International Airport development show that it will be conveniently located halfway between the two cities.

Tianjin is the sister city of Melbourne and is one of the four municipalities that has “provincial status” level and therefore reports directly to the Central Government in Beijing. It is the sixth largest city in China in terms of urban population and the fifth largest by urban land area. Manufacturing represents approximately 60% of Tianjin’s economy and the Binhai New Area development zone has attracted many global giant to its ports, for example, Airbus and Caterpillar. Tianjin is also an important industrial base in China, with its major industries including petrochemical, metalworking, car manufacturing and textiles. Furthermore, the Chinese government has identified the Binhai New Area in Tianjin as the future hub for ‘vocational training’ in China, which is a fast growing industry in China as companies further understand the value of  vocational training for the long term development of their organisation.

Tianjin is one of the country’s leading destinations for Foreign Direct Investment. In the first quarter of 2013, the city approved 141 FDI programs which attracted USD5.1billion into Tianjin’s economy and was an 18% increase from the previous year. These figures are even more impressive when compared with the whole of China, which attracted USD29.9billion in the first quarter, only a 1.44% increase on that of the previous year.

Tianjin, the fourth largest port in China, has attracted 110 of the world’s top 500 companies. The Tianjin Economic-Technological Development Area (TEDA) which is located within the Binhai New Area, is located 40km from Tianjin’s city centre and is consistently ranked as China’s best performing free trade zone and has become one of the preferred manufacturing bases for foreign multinationals. TEDA focuses on four key industries: (1) electronics and communications; (2) biomedicine and biotechnology; (3) advanced manufacturing; and (4) food processing. In fact, Scandinavian pharmaceutical company, Novo Nordisk, has selected Tianjin to build the largest insulin production plant in the world, with investments totalling USD400million. In addition, Motorola’s Tianjin manufacturing facility is one of the biggest in the world and Samsung’s current Joint Venture with Central Tianjin Electronics Corp has seen the establishment of the biggest mobile manufacturing and R&D base outside of Korea.

Tianjin’s geographic location and economic significance has seen it become a major communications hub for Northern China. With the largest man-made port in the world, the largest air-freight facility in the region and railways linked in all directions (and into Europe), it is no wonder that the significance and importance of the development of Tianjin is reflected in the nation’s five year plan. Often described as living in the shadow of Beijing, Tianjin workers are actually slightly better off than their Beijing counterparts with a minimum wage that is 4% higher than that of Beijing and a lower cost of living.

An approach that was pioneered in the 1980s, saw Chinese authorities choose Tianjin as a “proving ground” for policy experiments including those surrounding financial services. If successful in Tianjin, the policies may be carried out nationwide. As an example, in late 2006, the Chinese government established the country’s first equity fund heavily reliant on bank lending, the Bohai Industrial Investment Fund, with an initial investment of RMB6billion, which was expected to reach RMB20billion within 15 years. As a result of this experiment, the growth of the funds industry has exceeded many expectations and is forecast to become one of the largest in the region.  

With respect to the banking sector, the total credit issued in Tianjin has grown faster since 2009 than anywhere else in China mainly as a result of the post GFC economic stimulus package. In addition, ANZ currently holds a 20% ownership in the Bank of Tianjin and is the second biggest shareholder. The Bank of Tianjin is valued at $2.3billion.

Yujiapu Financial District

The Yujiapu Financial District, which has been described as the “future Manhattan of China” is currently under construction in Tianjin and is set to be the world’s largest financial district (9.5million square metres). The financial district represents a RMB200billion dollar investment by the Tianjin government and will be built in four stages. The city will comprise of 47 skyscrapers that will be constructed on the salt flats in Tianjin. The first dozen buildings constructed in the new financial district will have four times the combined floor space of the Empire State building! The Government has strategically created incentives for businesses to transfer their legal residency and offices to Tianjin. In particular, tax incentives to private equity funds has seen over 50% of the country’s private equity funds relocate their office space to Tianjin. This strategic move has also attracted many of China’s “princelings”, the sons and daughters of current and former senior Chinese officials, who are highly involved in the private equity industry in China.

The Tianjin government provides a great variety of investment incentives to attract companies and their capital to Tianjin. Incentives cover a range of industries including: financial institutions, Agricultural technology companies, Science and Technology R&D and to a variety of incorporation structures including Sino-Foreign Joint Ventures and establishment of Headquarters/Regional Headquarters.

The Tianjin story is a very important one in the past, present and future of China. As a key destination for foreign and domestic investment, as a city with world-class infrastructure that has attracted some of the brightest minds in the country to its opportunities for strong growth and development – it’s time for businesses looked beyond Beijing to the role that Tianjin can play in connecting China with the rest of the world. 

 

Sunday
Jun162013

Interview on Business Events TV

I was pleased to be involved in co-hosting a senior delegation from Yiwu in China with Caroline Hong and the SME Association of Australia and was interviewed on Business Events TV discussing opportunities for Australian SMEs in China

Saturday
May252013

Meetings & Events Industry in the BRICs

I was delighted to appear as a keynote speaker at the recent MEA Conference in Darwin. In my presentation, I provided some insights and observations into the growth of the Meetings, Events and Conference industry in each of the BRIC countries. For a summary, please click here

Saturday
May182013

Russia to look East rather than West?

I leave Moscow today after a week with my friends at East Capital attending their annual Summit with a small group of investors from around the world, mainly from Europe and Scandinavia. Over four busy and packed days, we met, mixed and listened to local analysts, economists, fund managers and the senior Directors and executives of some of Russia’s most iconic and well known companies, including Aeroflot, Lukoil, Sollers, Sberbank, M.Video and Yandex.

I am left with the challenge of trying to make sense of all the views, data, charts, forecasts and opinions expressed to form my own coherent view of Russia’s current and future direction. It is indeed a puzzle, but here’s a summary of my views as I fly out from Domodedovo airport tonight:

Russia is on the move

On the bus sitting next to my friend, Karine Hirn, she gave me fascinating insights into her time living in Moscow in 1991 when she lived and worked here as a young student. In those days, Moscow was a very grim, grey, dark and gloomy city, with drab and nondescript buildings, no cars and only three places to go out to eat and have fun. Everyone travelled by bus or tram, nobody had any money and Russia was only just emerging from the ravages of the cold war.

Contrast this with today, over 20 years later. Now everyone has a new car of the latest model, brand and description, the buildings are clean, colourful and shiny, the night sky lights up with neon lights displaying well known western brands, and there are new restaurants and night clubs everywhere. 67% of Russians are defined as “middle class”, household consumption has grown by over 10% p.a. for the last 10 years, and unemployment is at its lowest level ever (5.3%). 

Yet, despite the above, the Russian consumption story still has a long way to go. By western standards, Russia seriously lags in key sectors like air travel, retail banking, logistics, pharmaceuticals, cars, media and online advertising which is 50% or less than the European average penetration. Long term investors, entrepreneurs and business leaders have the opportunity to participate in this long term growth story at a historically low entry price. They will be handsomely rewarded over the next decade or two if they get in now.

Russia has many problems to overcome

There are many short term challenges, and we constantly hear about them. The need to deregulate certain industries, accelerate privatisation, improve corporate governance, boost competition, smash corruption and increase investment in infrastructure were recurring themes over the past 4 days. Economic growth has slowed to 1.1% p.a., inflation is too high (over 7%) mainly due to an increase in food prices caused by a poor harvest in 2012 (food represents one third of consumer spending) and, while the consensus view was for GDP growth in 2013 to improve to 2% to 3% p.a., there is even talk of a possible recession. Russia’s GDP per capita of $16,000 is reaching the point at which fast growing emerging countries typically hit the “middle income trap”, a sure sign that economic growth will slow to lower levels in a band of between 2% to 4% p.a. max.

In my view, the fact that these problems are so widely acknowledged, discussed and aired is a sure sign that they can and will be addressed. Over 800 corrupt Government officials are languishing in Russian jails (a fact which was highlighted by President Putin in his recent National Address) and there are early signs of improving Corporate Governance, increasing dividend payments and the protection of the interests of minority shareholders. There is of course more to do but the trend is in the right direction and, as we were told, Russia usually “surprises on the upside”.

Putin is popular

Boosting growth rates is a hot topic of conversation within Government circles. Despite reports to the contrary in the western media, Putin is genuinely popular amongst Russians due to his commitment to economic reform and the widely held view that he is the first Russian politician to actually deliver on the dream of a real consumer boom.

The average Russian is more affluent, secure and content than in living memory. Much of this is credited to the political stability, increased affluence and greater certainty delivered by Putin over 18 years (in two 6 year terms as President and one as Prime Minister). The search for a successor is now on with many locals predicting that his current term as President (expiring in 2018) will be his last.  The recent return of former Finance Minister Kudrin, the architect of many of Russia’s recent economic reforms, was highlighted as a particularly good sign.

Russia has to look East rather than West

From my perspective, many of the more gloomy forecasts were over pessimistic. Russia’s growth to date has been largely due to its relationship with the western European consumer (representing 60% of current exports) which is clearly unsustainable. Europe’s economic and fiscal problems are well known and are unlikely to be resolved in the near term. The future depends, to a large extent, on Russia’s ability to engage with its Asian neighbours for trade, investment and the opening up of new markets, pipelines and channels for its vast supplies of oil and gas. Yet, these opportunities were barely mentioned during our visit.

Russia needs to seriously engage with China (and India) to overcome its short term growth problems. The decision by new Chinese President, Xi Jinping to choose Russia as the destination for his first official overseas visit is a move in the right direction and I expect to see more bilateral engagement in the next few years.  Russia is a “BRIC country” for a reason (an abundance of land, people and capital to name three!) and its future lies to its East rather than its West. A more proactive and committed engagement with China would be a good first step.

Please watch the latest issue of "Think Global with David Thomas" which covers my visit to Moscow:

 

 

Friday
Apr262013

Why the 12th Five Year Plan is a Game-Changer

China’s “Going Out” strategy and the new priorities outlined in the current 12th Five year Plan, create unprecedented interest in Australia amongst Chinese SOEs, business leaders, entrepreneurs and high net worth investors. After 30 years of achieving “growth at any cost” (driven by low cost labour, exports and infrastructure development) China is now attempting to transform itself into a modern, innovative and clean economy which is largely propelled by domestic consumption. The current Five Year plan sets a clear direction for China’s growth in the future which, as we are often reminded, is “modernising” rather than “westernising”.

The 12th Five Year plan identifies three key priorities for China – “Going Out”, “Going West” and “Going Green”, all of which create opportunities for Australia. China’s outbound foreign direct investment exceeded foreign inbound investment for the first time in 2012, growing from US$60.1bn in 2011 to US$77.2bn in 2012. However, despite political and media concerns in Australia, China actually represents less than 5% of our total foreign direct investment, trailing far behind our largest foreign investors, the US, Europe and New Zealand, and most of this investment has been in one sector: mining, commodities and resources. Nevertheless, many large companies and entrepreneurs in China have an explicit and well-documented ‘Going Out’ strategy and their focus is targeted at new sectors. So what are the drivers for this investment, which sectors and industries are being targeted and how can Australian businesses position themselves for these new opportunities?

China has over one million millionaires and close to 200 billionaires, and being a high savings economy with a rising middle class, more and more high net worth individuals or capital rich companies are now looking to international markets for new investment opportunities. Whilst Australia is well positioned to capitalise on this “Going Out” strategy, the extent to which Australian companies will be seen as a destination for Chinese investors depends largely on our ability to engage with and tailor opportunities for the China market. Australia is currently the number one destination for Chinese outbound investment based on transactions conducted over the past decade (over A$65 billion invested into our resources sector) and is now well placed to attract investment into our food and agricultural sector, as Chinese investors tackle their next strategic imperative (after energy security) which is to ensure safe, sustainable and secure supplies of nutritious and high quality food for their large population.

Whilst no overarching generalisation can be made with regards to the nature and reasons for investing overseas, there are three main drivers of outbound Chinese investment:

1. Diversification

China’s “Going Out” strategy is driven by two main objectives: to reduce their exposure to the US dollar by investing in real corporate assets in other countries, and to make strategic investments into new modern industries.

China has USD$3.31trillion in foreign reserves, approximately 54% of which are in US dollar holdings, notably US Treasury Bonds. China has been steadily reducing its US dollar holdings from 74% in 2006, to 65% in 2010 to the current holding of 54%. Despite this reduction in US dollar holdings, the Chinese Government is still encouraging both state-owned and private companies to diversify their assets and operations overseas and to thereby reduce the country’s exposure to the US dollar.

At the same time, the Chinese Government has directed these companies to make strategic investments overseas, and to invest in industries that enhance and develop China’s own capabilities. Industries which have been identified in the current Five Year Plan as being of particular significance to China include Education, Healthcare, Technology, Clean Energy, Tourism and Financial Services. Australia has proven expertise, innovation and capabilities in all of these areas and this represents significant opportunities for companies who position themselves for this wave of new investment potential.

2. Migration

Many wealthy Chinese entrepreneurs and high net worth individuals are becoming increasingly interested in migrating to Australia to satisfy a number of long term objectives for themselves and their families – retirement, succession and long term quality of life. At the same time, the Australian Government is encouraging high net worth individuals to apply for permanent residence under the new “Significant Investor Visa” category which is designed to attract investment into Government Bonds, Complying Managed Funds and Australian Private Companies.

With over 150,000 Chinese students now being educated in Australian Universities, and wealthy Chinese entrepreneurs looking to diversify their business interests and developing a succession plan for their children and future generations, Australia is well placed to attract private investment from those looking to adopt a “one foot in, one foot out” policy between China and Australia.

3. Growth

Many Chinese companies have achieved extraordinary growth in their domestic markets over the past decade but are reaching the point where future double-digit growth can only come from expanding overseas. By investing in or acquiring international businesses, Chinese companies are able to gain access to a global customer base, tap into new sources of product development, innovation and knowledge, and generate new revenue and profits from overseas.

Whilst the longer term plan for Chinese entrepreneurs and companies may be to acquire US firms and list on Wall Street, Australia is an important stepping stone in their journey to building a truly global business. Australia offers access to mature and sophisticated markets, a regulatory regime which demands high standards of corporate governance and transparency, and an opportunity to manage their brand, people and products in a relatively friendly and open environment. Good examples of Chinese companies already operating successfully in Australia include Huawei, Haier, China Southern, Kingold, HNA Group and the major big 4 banks.

The Australia-China investment story is only just beginning. Australia’s reputation for quality, consistency and reliability, together with our high quality of life and multi-cultural population, underpins the attractiveness of Australia as a target for outbound Chinese investment. The Chinese are already investing in Australia and plan to do more. This is a potential game-changer for Australian entrepreneurs, business leaders and politicians!

 

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