Asian Financial Forum 2015, Hong Kong

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

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

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

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Alliance Partner China HR

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!

 

Wednesday
Apr172013

5 things to remember when pitching in China

I have just returned from Australia China Business Week in Shanghai and, having observed over 50 Australian companies pitching their capabilities to a wide range of potential Chinese investors over three days, including assisting many of them with preparation, documentation and managing their expectations, the following five golden rules should be helpful for everyone to follow in the future:

1. Use a professional translator

When visiting a company or Government department in China it is very common to be given a beautifully presented bilingual document, with details of the company, city or industry you are visiting, including colours, photos and images in an expensively produced brochure. In comparison, our own documentation is often shabby and, worst of all, in English only, with no Chinese translation. If you want some clues as to how to present your capabilities to a Chinese entrepreneur or business, take great notice into how they present their credentials to you!

Translating professional documents is not as simple as asking a bilingual member of staff or friend to do it for you. This is a very common mistake. It may get the job done quickly, painlessly and at no cost, but how would you like your business described in Chinese as striving to “succeed when the horse arrives” or your business operations and goals to be misconstrued?

Having your company profile and business cards professionally translated into Chinese will dramatically improve the quality of discussion and level of understanding in a meeting with Chinese investors, entrepreneurs and business leaders. It is a sure way to show that you are serious about your business potential and will make your company stand out as a leading and professional business. Don’t cut corners on this, use a professional translator!

2. Make friends first, do deals second

There’s a saying in China that you don’t talk business “until the third cup of tea!”. In other words, you build the relationship first and only then should you focus on the business deal. This can appear tiresome, long-winded and unnecessary, but it’s the way business is done in China and you ignore this at your peril. Make the time to get to know your potential business partners, talk about their country, teach them about your culture, extend the hand of friendship and tell them about your interests, hobbies and passions. When you’ve exhausted every possible topic of conversation, and when the timing feels right, offer to start talking business! You’ll get a better result this way.

3. Take your own interpreter

The process of facilitating and interpreting in a business meeting in a cross cultural environment with language barriers is an art as well as a science. Professional interpreters spend years perfecting their craft, a process of study, practice and observation. Not only do they need to be highly proficient in both languages, but they also need to learn the method of capturing the meaning, flavour and expression in the language, which is so much more than a simple translation of the actual words. Having your own interpreter who understands your business and objectives in depth will prevent any misunderstandings or cultural insensitivities.

Your hosts in China will often offer to provide an interpreter for a meeting which, at face value, seems generous, reasonable and practical, and will save you some money. This is a false economy. Your interpreter should be someone who knows you, who understands the meaning you are trying to convey, and is at all times representing your best interests (including providing feedback to you after the meeting on what might have been said by others). Always take your own interpreter!

4. Observe and embrace business etiquette

As an aspect of developing trusted Chinese business relationships, the importance of culture and etiquette should not be underestimated. If you have received or met with a Chinese delegation, you will most likely have received a Chinese gift. Giving gifts in Chinese business culture is a gesture of thanks and a sign of a willingness and dedication to forging a long term relationship. Consider taking a gift when you meet prospective clients or business partners – preferably something that has a strong meaning to you (from your local town, country, community or even family).

You should also embrace and even seek out opportunities to show your respect to your hosts, business partners and colleagues by observing popular Chinese business customs and etiquette.  If you have been to a Chinese banquet you will have noticed that Chinese business people love to toast. Take the initiative and toast towards the success and the future of your relationship, to the inspiring person you have met, to opportunities and to health and happiness – it gives them “face” and shows an understanding and appreciation of their culture! (An interesting side note - when toasting, always try to clink your glass with theirs at a lower level – it is a sign of respect and acknowledges their importance and position).  

5. Follow Up

When following up with key contacts and new relationships from a meeting or conference, it is important to send your follow up email in Chinese (just as when we receive emails in Chinese, they often go to our Spam folder, your English email may go to theirs!) and follow up with a phone call (preferably by a Chinese person) to ensure that it has been received safely. Don't assume that they will receive anything by email, or that a lack of response suggests they're not interested! You will need to work hard to develop a strong line of communication with them from a distance (which is why you need to plan to be on the ground in China regularly!). In addition, if you are sending a proposal, make sure this is also in Chinese, and is addressed directly to your contact (to avoid being given to an English-speaking junior in their company).

These are just five basic rules to consider when engaging with Chinese investors, entrepreneurs, business leaders and Government officials. These small investments will make a world of difference to your reputation as a company and the future of your engagement with China.

 

Sunday
Apr142013

Think Global with David Thomas - April 2013

See the latest issue of Think Global with David Thomas which was filmed during Australia China Business Week in Shanghai in April 2013

Wednesday
Mar272013

Catching the 888 wave!

The growth in Australia-Asia trade and investment over the past 10 years has been nothing short of phenomenal. Centered on the resources sector and funded mainly by Chinese State Owned Enterprises, Australia has emerged as China’s No. 1 destination for outbound investment and has attracted billions of dollars of foreign investment into our economy.

As technology evolves and societies change, we will transition to a new phase of investment with its roots in clean energy, real estate, agriculture and services. We are already seeing an increasing number of capital injections from private high net worth individuals and entrepreneurs looking to strategically diversify their wealth by investing in Australia.

The “Significant Investor Visa”, otherwise known as visa category 888, was launched on 24th November 2012. It invites wealthy foreign investors to apply for a four year residency visa in Australia (which can then be converted into citizenship) for individuals who invest over AUD 5million for a minimum of 4 years into three main categories: (1) Australian Government Debt (2) privately owned Australian companies, and (3) complying managed funds investing in Australian assets and overseen by the local regulator, ASIC. In addition, in order to be granted a permanent visa from a provisional Significant Investor Visa, each applicant must spend at least 40 days each year (or cumulatively) over four years.  There is expected to be strong demand for these visas, particularly from Asia, with at least 700 visas expected to be issued under the scheme each year – a combined annual investment of $3.5bn into Australia’s economy. 

The aim of the scheme is primarily to attract much needed capital plus entrepreneurial skills and experience into Australia. There are over 60,000 individuals in China with over AUD16 million in assets - if Australia were to issue visas to just 1% of these individuals, it would be a $30bn injection into the Australian economy, not allowing for the multiplier effect of their personal contribution to the economy, including housing, luxury goods, taxes, retail expenditure etc. With over one million millionaires in China, of which 85% send their children abroad to study, Australia’s education sector is well positioned to attract these high net worth individuals as long term investors into our economy.

Whilst there has been some controversy surrounding this new visa category (“Australia sells visas”) from an economic standpoint it must surely be viewed as a beneficial transaction for all involved. Last year, Asian nations purchased over two thirds of our exports, worth over $175 billion to the economy. As a net importer of capital, Australia will no doubt welcome these innovative and entrepreneurial individuals who are eager to invest in our economy, creating jobs, boosting local consumption and raising much needed Government revenue to pay for new infrastructure, education and healthcare services.

Of course, Australia is not the first to offer this type of visa category. The UK, Singapore, New Zealand and Canada all have similar visa categories aimed at attracting high net worth migrants. The UK, Singapore and NZ investment threshold are all below Australia’s, sitting at GBP1million, SD1million and NZD1.5million (with language requirements) respectively, so Australia needs to compete on an international and regional scale to be the destination of choice for wealthy Asian entrepreneurs and their families.

The 888 scheme will provide a huge opportunity for both the funds management and banking sectors. Applicants who are successfully granted a visa and choose to live in Australia will open bank accounts and transfer some or all of their wealth to Australia. Interestingly, Asian people generally prefer to keep their money on deposit in banks – a competitive opportunity for banks to appeal and market their retail banking and other divisions to Chinese investors. The 888 visa scheme will also see investments flow into our services sector and, in particular, the managed funds industry, with new migrants requiring investment, taxation and wealth management advice, an enormous opportunity for financial advisers who can tap into the Asian migration pool. To capitalise on these opportunities, financial advisers and bank executives must invest in developing their profile, creating new connections and tailoring their services to a bilingual, multi-cultural and relatively sophisticated group of high net worth Asian investors.

Currently, the investment limitations surrounding complying investments in managed funds are restrictive and detailed. They require managed funds to hold investments in one or more of:

  • infrastructure projects in Australia:
  • agribusiness in Australia;
  • cash held by Australia deposit taking institutions;
  • State or Territory Bonds;
  • bonds or equity issued by an Australian ASX listed company;
  • bonds or term deposits issued by Australian Financial Institutions;
  • real estate property in Australia; and
  • investment into ASIC regulated managed funds that invest in the mentioned list of assets.

The main problem is that the majority of Australian managed funds which already invest in these categories would not qualify as complying investments under the 888 scheme due to their exposure to a broader range of asset sectors or other instruments, like derivatives. As a result, assuming the requirements under the scheme are not extended, managed funds will need to be tailored to comply with the current 888 requirements.

Should the investor choose to invest directly into an Australian Private Company, it must satisfy several requirements, including that the company must not be established solely for the purpose of meeting the complying investment test. In addition, it must operate as a ‘qualifying business’, i.e. “one for which the prime motivation is to make a profit through providing goods and services and not for the purpose of speculative or passive investment” and for a minimum period of time. The investment must be an interest as a shareholder in the company that operates the business, including interests held directly through a partnership, trust or company. 

The complementary nature of the Australian economy to other Asian nations will open enormous opportunities in the agricultural, food, clean energy and services sectors. As the mining and resources industry slows and the Australian economy adjusts to a new equilibrium, the role of foreign investment will be crucial to the expansion and evolution of these fast growing industries, with the need to invest in innovation, technology and research. The Significant Investor Visa is just one mechanism to attract large foreign investments and successful entrepreneurs to our country, but it is the one that is most occupying the minds of all banking executives as we start the Year of the Snake.

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