An evolving relationship

An evolving relationship

After decades of supercharged economic growth, China’s economy has entered a phase of more gradual and sustainable expansion. However, even less-than-rapid growth generates business and investment opportunities.

For decades, the Australian economy has been lifted by China’s appetite for commodities. As China’s economy shifts towards consumption-led growth, creating more sophisticated needs, Australia needs to clearly articulate its value to China’s decision-makers in a changing world: effectively, why Australia and why now?

Australia’s commodities sector remains key for China. Policy initiatives such as One Belt, One Road – China’s strategy to plough billions of dollars into infrastructure along sea and overland trade routes – are likely to support demand for Australia’s commodities, particularly iron ore. HSBC data indicate Australia’s iron ore export volumes to China have been rising 8 per cent year-on-year as China cuts back on its own higher-cost domestic iron ore production.

Australia’s services sector, particularly tourism and education, is growing in importance. Annual visitor arrivals from China have increased by 135 per cent over the past five years. China is driving an increase in international student enrolments, which are currently 11 per cent higher than at the same point last year.

The lower Australian dollar has encouraged more Chinese students and tourists to come to Australia. But there are more structural factors at play, too – primarily Australia’s proximity to China, stable governance and legal framework, business-friendly environment and sophisticated education infrastructure.

The changing tastes of the Chinese consumer also create opportunities for Australian business. The Australian Bureau of Agriculture and Resource Economics and Sciences projects that China’s demand for agricultural food products will double between 2009 and 2050, with particular demand for beef, sugar and dairy.

Australia’s pending Free-Trade Agreement (FTA) with China should make it a more competitive supplier, particularly given the tariff reductions being tabled. The benefits of the FTA will extend beyond goods to high-value services and manufacturing. We believe the FTA will also help Australia demonstrate the value of its technical expertise in farming equipment, mining technology, food production, design and recruitment.

Australia is economically, politically and socially ready to expand upon its relationship with China. The next phase requires Australia to be far more proactive in articulating and demonstrating its relevance to the rapidly evolving Chinese economy. A wait-and-see approach will no longer do.

By: Tony Cripps, Chief Executive Officer, Australia, HSBC

This story was first published in Leading Agriculture magazine.