07/07/2011 - 00:00

Are we wasting the China opportunity?

07/07/2011 - 00:00


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Is Australia an easy place in which to invest and do business?

ALTHOUGH not a widespread view, a small but increasing number of Chinese companies don’t think it’s easy to do business here; ‘We are not welcome in Australia’ is a concern being raised more often by Chinese companies.

How can this be when Chinese investment is very much welcome in Australia?

In a number of ways, Australia presents itself well as being China-friendly.

Government leaders and bureaucrats often quote that all 230-plus applications from China to the Foreign Investment Review Board, have been approved, with only six having been subject to conditions. Few other countries can compete with this track record.

Similarly, public speeches by our political leaders in China and Australia have been unambiguous in delivering positive messages that Australia welcomes Chinese investment.

And yet, concerns persist that China is not welcome or able to make money in Australia. Why is this and anyway, does it really matter?

Of course it matters. China is big now and in 10 years’ time China will be twice as big as it is today.

China is increasingly supporting so many areas of our economy – resources, education, tourism and agriculture.

The significance of China’s contribution to the wellbeing of Australian families is not well understood. Independent research by the Australia China Business Council this year, which was quoted by Prime Minister Gillard in Beijing, showed that, on average, Australian households benefit by more than $10,000 each year from trade and investment flows with China. That is $200 per Australian family per week.

It is difficult to imagine an economic issue that matters more. No country has benefited more from the economic growth of China than Australia, and no state more than Western Australia.

Of course, China also benefits. Ours is a mutual dependency that creates wealth on both sides.

Recently, an article in The New York Times pointed out the irony of China having benefited from three decades of US investment, and, now that it wants to return the favour, anti-Chinese sentiment could cause the US to “lose China trillions” that it needs.

Australia is facing the same risk of missing out on Chinese investment.

One reason why Chinese companies may feel unwelcome is the portrayal of Chinese investment in our media, feeding community perceptions that China is the largest investor in Australia and that China is buying up and controlling our resources.

It is astonishing that the reality is so far from this common perception. Direct Chinese investment still represents less than 2 per cent of total overseas foreign investment in Australia.

China continues to be massively outspent by our traditional investment partners such as the US and the UK. Australia is still a long, long way from being swamped by Chinese investment.

Analysis by Perth consulting firm Iron Ore Research shows that China’s share of production of the total iron-ore tonnage destined for China has actually fallen from 12 per cent in 2000 to 6 per cent in 2009.

So it is a myth that China is controlling our resources, with China, in reality, at this stage, controlling very little of Australia’s iron-ore productive capacity.

There also appears to be little public understanding of the contribution that China makes to our lives and to our economy in sectors beyond resources.

China is the most important customer for our education sector. The number of Chinese students in Australia increased from 9,000 a decade ago to 168,000 last year. This is vital when students from India, South Korea and Europe have been abandoning Australia.

China’s growing importance to our tourism sector is also difficult to overstate. Last year, China overtook the UK to become our most valuable source of tourism revenue. No other country has grown, or is expected to grow, to match China’s increasing importance to our tourism sector.

The future is bright for us, in particular with the opening up of direct flights to be operated by China Southern Airlines between China and Perth.

The Tourism Council of WA predicts the number of Chinese tourists to WA will double in the next 12 months, presenting great opportunities. But there are growing concerns as to whether we will be ready to seize these opportunities. Where are our new hotels coming from?

The opportunities for cooperation in agriculture are also significant as China grapples with water shortages and food security challenges.

FIRB regulation of Chinese investment needs some review. The fact that a $1 investment by a Chinese state-owned enterprise needs approval is surely not the intention of the regulations.

An additional area highlighted by the ACBC as worthy of review is the time taken for regulatory approval and the competitive disadvantage at which this puts Chinese companies.

Australia needs to take steps to make Chinese companies comfortable that the playing field is a level one. The Australian government and policy makers need to explain the regulations clearly to Chinese companies, in particular mid-tier companies, as they are not well understood.

China has historically invested into developing countries. Australia differs from these countries, which presents challenges to Chinese companies.

As good partners of China, we need to be mindful of what we can do to cater for the different background of Chinese companies as they face these challenges. This will help us to secure continued investment and will promote ever-increasing participation in each other’s economies.

Official guidance from China’s Ministry of Commerce rates Australia as a safe and very low-risk country for foreign investment. But the ministry also sets out a number of challenges in investing in Australia.

At present, too few Chinese companies make money in Australia. Little wonder when you consider the challenges they face entering our economy.

• Increasing sovereign risk – eg new taxes and charges.

• Slow approval and regulatory processes.

• Different business operating environments.

• Inadequate existing infrastructure.

• Delays, costs and uncertainties affecting the development of new infrastructure export pathways.

• Our projected shortfall of more than 100,000 workers over the next few years is not able to be met by Chinese workers. English-language, market-salary requirements and union demands make that difficult, if not impossible.

All these factors mean that, right now, within some Chinese companies, confidence to pursue investment into Australia is somewhat lower than it has been

Australia needs to take action to seize the opportunities for us. Managing the relationship with China will be Australia’s greatest diplomatic challenge in the future.

We need to become more China-literate. We need to be more welcoming of Chinese investment. We need to be more prepared to seize the opportunities emerging from the increasing numbers of students and tourists from China.

Next week, Perth hosts the BOAO Forum for Asia, the regional equivalent to DAVOS. This forum is of great political and commercial significance to the region and to Australia’s engagement with the region, and presents Australia with an excellent opportunity to address Chinese concerns and to ensure future investment dollars flow to Australia rather than Africa.

Let’s make sure that Australia does not waste the historic opportunity to fully capitalise on the success story that is modern China.

• Duncan Calder is the president of the Australia China Business Council WA, a partner of KPMG and a speaker at the BOAO Forum to be held in Perth next week.



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