Many Chinese have made good money over the last 10-15 years as the Chinese economy boomed. Many of them have saved substantial amounts of money and have been spooked by the anti-corruption drive into shifting money offshore. One businessman I chatted to said he worked hard to make all his money, but he was worried about links to various levels of Government so he was shifting his wealth into other countries “just in case”. I believe
a lot of the strength in Sydney property prices can be attributed to this – much like London is to Russian oligarchs and Middle Eastern oil sheikhs, Sydney is to Chinese looking to park their wealth in a country that has a strong rule of law, is close enough to get to but far enough away for China to leave alone. If the corruption drive continues, so will Chinese appetite for Sydney property.
In their economy, my overwhelming feeling was the Chinese well understood the many challenges they face and they have a plan. First and foremost there is a desire to align incentives with behaviour by engineering a shift to market power. Policies to achieve this include access to finance to strengthen innovation, simplified company registration, other (undefined) incentives to private companies, the new driving force for the country (their words), signing Free Trade Agreements with other countries, opening more Free Trade Zones (new ones coming in Tianjin and Guangzhou), and a BIG focus on services industries. China currently is 43-45% service industry and wants to be at “developed nation status of 70%” within 20 years.
One of the really, really interesting comments from an Australian perspective was the desire to change Chinese trade patterns. In commodities trade, China is no. 1, but in services trade they are much lower; “Despite being the biggest buyer, China has no price right. We are going to increase our pricing right”. China is sick of driving up prices and is seeking to buy better, which is fair enough. In addition, they want to grow their services industries to lead domestic consumption and so rely less on external factors beyond their control or influence. China wants more of the value chain – of $100 profit on every iPhone the USA makes $48, Japan $34, South Korea $13, and China $5. Makes sense.
Food supply and quality was a big theme. Policy makers know hungry people that can’t get access to decent food are likely to cause dissent. Improving quality seemed to be a bigger issue than quantity – as Chinese diets improve so does demand for quality produce – and it appears Chinese supply chain issues lead to many more quality problems than I had understood.
In Australia, our past growth has been driven by China’s need for raw commodities of just about every kind. China is changing and Australian businesses and entrepreneurs need to change with it.
Food supply and quality will be huge opportunities for our country, as will be participating in their next phase of economic revolution – transitioning to a services economy. Australia will need to focus more on what the Chinese are doing to change their economy and the opportunities that present, rather than fret about every move in the iron ore price.
We expect China to continue to grow at a pace that is more than sufficient for Australia’s needs but the problem is it will be growth in areas we haven’t yet scaled or found a way to exploit as well as the mining boom.
We can still prosper from China’s growth but it will be more broad-based than what we witnessed in the mining sector – Chinese buying our property, Chinese investment into property they develop themselves, Chinese investment into food, Chinese investment into services firms they can launch domestically and use our IP, increasing Chinese tourism, more Chinese youth studying in Australia, etc. It’s the same game but with different rules.