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WA and China: a pioneering relationship and boundless opportunities

The Australia-China relationship is fertile ground for commentators – and rightly so given its economic importance.

But a recent Chinese New Year Gala dinner hosted by the Australia China Business Council in Perth reinforced why we should, in the Year of the Pig,  celebrate the pioneering nature of the relationship between this state and China.

Military posturing in the South-China Sea will continue into the foreseeable future and attempts to exert political influence through inappropriate donations have ended political careers. China’s continual rise in economic power and political influence comes with inherent tensions, and Chinese investment in Australia is constantly viewed through a suspicious lens – even if there has been, of late, a notable public “thaw” in diplomatic relations

Regardless of those developments, with Australian businesses increasingly seek to do business with China, it is important to be able to look past the grinding noise of tension to the nature of the markets that make up our trade position. This economic relationship can ostensibly be broken down into three categories: one in which Australia is dependent on China, a second where our two economies are interdependent and a third which is of particular interest to me, the demand-driven market for WA’s sophisticated niche products.

China accounts for more than 35 per cent of Australia’s exports – a statistic that becomes even more noteworthy when you consider the corresponding figure for the US is a little more than 5 per cent and less than 10 per cent for the EU (including the UK). Some 60 per cent of these exports to China come from WA.

But in a lot of cases the dependency goes only one way. An example of this is the recent and as-yet-unresolved recycling crisis in Australia, caused by a tightening of import regulations on contaminated waste streams into China. For China, it was quite a minor and commercially-driven decision, but it has created many sleepless nights across almost every municipal council in Australia and left many questioning why successive governments did not better manage the risk.

While the mining and resources sectors are the best-known inter-dependent markets between Australia and China, there are many others that fly under the radar. There is room for Australian investment in the Chinese economy and Australia is at a distinct advantage having a large number of Mandarin speakers, and an extensive contact base that has been built up through trade in the resources sector. Investment in China offers a useful way for businesses to further learn about Chinese tastes, preferences and business culture.

Education is Australia’s third largest export, and 43 per cent of our international students are Chinese. As China’s production capabilities expand to more sophisticated goods and services, the human resources required to create a well-developed infrastructure, financial sector and a good regulatory system have become paramount to Chinese success. That’s positive news for our tertiary education sector.

As the middle class continues to rise in China, they are also looking for new potential in foreign markets. Chinese investors buying real estate and health care are filling the gaps that Australian investment cannot.

Inter-dependent relationships require constant attention from government and business but are long-term and relatively stable – even if not always entirely plain sailing (witness the blocking of a proposed sale of gas networks to Chinese-Hong Kong interests). It’s telling that PwC’s annual survey of chief executives found 21 per cent of Chinese bosses regarded Australia as their No. 1 target for investment.

One of the most intriguing and emerging aspects of the Australia-China relationship is demand-driven markets. Traditionally, this has been viewed as Australian consumers lapping up cheap IT products and manufactured goods, and that trend shows no sign of abating. However, as the Chinese economy becomes more sophisticated, so too do its consumers. A considerable opportunity exists for WA but we need to continue to adapt to the demands of the customer.

Rising wages run parallel with the status and desires of the Chinese middle-class. This translates into a market for more complex consumer goods and services. In WA, think wine and tourism. The Margaret River wine region is world famous, and mainland China is one of the world’s largest markets for imported wine. Exports of Australian wine to China smashed through the $1 billion mark last year and, while the rate of growth might slow, there remains significant scope to market one of our most sophisticated products to a group of consumers with a seemingly limitless thirst.

Meanwhile, close to 10 million wealthy Chinese look for high-end, relaxing holidays every year. Currently, 17 per cent of WA’s tourists – a number close to 50,000 – are from China and local filming of the popular Chinese dating show Viva La Romance at Cottesloe and Busselton is only likely to add to increase that figure. The aforementioned Margaret River starred in a 2015 version of another big TV hit in China, Where Are We Going Dad?

Chinese tourists come to WA for the vast expanses of uninhabited land, the cleanliness of our cities and our small population, but they have very specific requirements and needs.

One very simple way we can cater better for Chinese tourists is phone-friendly banking such as WeChat banking. Because of WeChat and Alipay, the Chinese operate in what is nearly a fully card-less society. Access to  WeChat, Alipay and UnionPay is now growing in the consumer and financial services sectors to accommodate Chinese demand.

But it needs to become universal because providing a positive tourism experience also has the potential to influence other areas of middle-class Chinese investment in Australia.

As we enter the “Asian century”, Australia is in the right place at the right time. So too is WA.

The opportunity generated by proximity will replace the tyranny of distance and our high-end exports have an almost unlimited potential market with the Chinese middle class.

Keith Jones is the Chairman of Cannings Purple and an expert on Australia-China relations – having established and led the China Services Group for Deloitte in Australia . He has nearly 40 years of experience providing expert advice and management consulting to industry leaders across Australia.

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Main photo by Andy Cat on Unsplash