WHILE the recent period of engagement with China goes back 40 years in diplomatic terms, and well into the 1980s at a trade level, there are plenty of cautionary tales from those doing regular business with the world’s most populous nation.
Attendees at the WA Business News luncheon discussing trade and investment with China believe that while Australian business has grown increasingly entwined with its major customer, government was frequently left behind and often was more a hindrance than it need be.
The education sector applauded the federal government’s visa initiatives, but the changes came only after dramatic rule changes hurt the sector badly.
Concerns around China’s state-owned enterprises investing in Australia are also considered overblown, with both the federal government and its political opposition being a little too willing to play this card for domestic consumption.
There was also a broader issue around China’s currency, with the renminbi (RMB) generally considered to be undervalued to assist its exporters. As China’s economic status has changed there is not just the expectation of a significant appreciation of the RMB - it will also have a role as a denominated currency in trade deals.
These issues, particularly visa arrangements and foreign investment, may stem from a wider problem identified in the discussion - inadequate diplomatic engagement with China at the highest level.
Diplomatic relations
Fortescue Metals Group marketing program
manager and former City of Perth councillor, Sandra Liu, said the relationship between the two countries was very important to business.
Ms Liu noted the damage being done to Japanese business interests in China as a result of the recent fracas between the two nations over a small group of islands, which are disputed territory.
She recalls recently seeing stickers on cars that read: ‘My car is made in Japan but my heart is made in China’.
“When governments’ bilateral relations are falling apart, businesses suffer,” Ms Liu told the forum.
She was critical of key Australian government players, especially Prime Minister Julia Gillard, for not spending more time in China to deepen the relationship.
“I think the Australian government, especially our Prime Minister Julia Gillard, should probably spend more time there,” Ms Liu said.
“Since coming into office she has visited China only once.”
ANZ Institutional Australia managing director Cathryn Carver noted that some premiers, such as Western Australia’s leader Colin Bamett, who has made two high-profile visits to China since his election in 2008, had been more frequent travellers to this important market.
“The state premiers have actually gone up there more,” Ms Carver said.
Other diplomatic issues, such as the surprise news that US troops would be stationed in Darwin, were seen as damaging for the bilateral relationship.
KPMG corporate finance partner and Australia China Business Council WA president Duncan Calder said Australia was heavily leveraged to the US, which could create problems.
“The most critical relationship for Australia’s future is that between the US and China,” Mr Calder said.
“If that goes off the rails then Australia is going to suffer big time. I think as a nation we are very naive and unevolved in our thinking as to how we might deal with any disputes between US and Chinese interests, and our historical track record of just following the American coattails in all matters will not necessarily be in Australia’s national interest going forward.
“We need to, perhaps, have more public debate about what could be in Australia’s national interest in what could conceivably emerge.”
Mr Calder added that more people-to-people ties would also help us deal with those issues that might arise.
Travel restrictions
One area where the national governments affected people-to-people ties was through the movement of individuals.
Gindalbie Metals and Sundance Resources chairman George Jones praised the ease of travel provided by the APEC Business Travel Card, a scheme that accredited businesspeople for multiple short-term visits to other economies in the Asia Pacific Economic Cooperation zone over a three-year period.
“I remember the bad China,” Mr Jones said, in terms of previous travel restrictions.
“(With the) APEC card you can go there anywhere in and out as many times as you like.
However, Mr Jones said travelling there was one thing; investing in China was another matter altogether.
“If you are not plugged into the system there it is difficult,” he said.
“Anyone who says they are going to China to do business has to take a lot of care.
“I have been going there for 20 years and I didn’t go anywhere for the first 10.
“If they appear to embrace you and think you are fantastic at the first meeting, then you have been deluded. It takes a while to understand them and for them to understand you.”
Gn the flip side of that, Australia seems to have made it difficult for people from many nationalities, including China, to visit.
One significant industry affected is education. Recently, though, new rules around student visas for those wishing to study at university have been welcomed by the sector.
University of WA deputy vice-chancellor Bill Louden believes the change in visa arrangements for foreign students has been a significant improvement; making it easier for legitimate students to study at university and then gain appropriate employment for the medium term.
The past regime encouraged foreign students seeking to immigrate, whereas the new arrangements were about accelerating an individual’s knowledge of both their field and Australian culture before they returned to their country of origin.
“They can do a masters of engineering and work for FMG (for example) for two years,” Professor Louden said.
“That is a fantastic opportunity for China and Australia. Those people will stay and work if they can and then go back to China having lived and worked in Australia for four years.
“Compared with our competitor countries we are now acting much more wisely.”
Mount Gibson Iron senior adviser Philip Kirchlechner also wanted to see more immigration.
“I think it is important to open up immigration as well,” Mr Kirchlechner said.
“The reason the US is so successful is because of all the brains that came from all over the world; Australia has land, we need people, so open the gates.”
Foreign investment
Mr Kirchlechner held a similar opinion with regard to foreign investment, saying we should not forget the critical importance of foreign investment to Australia’s success.
“From back in the 1960s it has been fundamental to the development of mining,” Mr Kirchlechner said.
“So I don’t think there should be restrictions on investment at all.
“Particularly, I think restrictions on state-owned companies are ridiculous ... because there are also private companies that could be dodgy, so why does a state-owned company have to jump a higher hurdle than private companies?
“It should be up to the board. Boards are mature enough to decide who is a good partner.
“If there is an American company or airline, for example, that can take an investment from a foreign sovereign wealth fund and Qantas isn’t allowed to, that is against the interests of shareholders and employees.”
Ms Liu largely agreed, pointing out that China’s leaders did not want bad business deals any more than Australia’s did.
“Successful stories sell very well in China too,” Ms Liu said, pointing to Hunan Valin’s investments in FMG as an example.
“They made a lot of money because they invested in the GFC time and their chairman was a sort of celebrity in the Chinese media,” Ms Liu said.
Mr Calder said some of the frostier areas of foreign investment from the Chinese side might improve as projects that have struggled, due to construction costs, successfully moved into production.
“I think the magnetite industry is a bit of question mark in China,” he said.
“I think when that is proved successful there will be a new wave of investment projects that will start and, in particular, the flagship investments in Karara and Sino Iron will be taken to a different scale.
“We are more likely to see those projects grow than a whole heap of money put into brand new grass-roots magnetite projects.”
Currency
One of the biggest global issues with Chinese trade is the low valuation of the currency.
ANZ’s Cathryn Carver said there had been a considerable appreciation in the RMB in 2010 and 2011 but that has now slowed down.
“We certainly think that is at slower pace, not flattening out,” Ms Carver said.
Ms Carver said there had also been a growing internationalisation of the RMB, with more deals inked directly in that currency as both confidence in it and sophistication around dealing with it improved.
“We have done two RMB issues as a bank, one of which stayed in RMB,” she said.
“The other we swapped back because the derivatives market is getting healthier and healthier. (At the moment) that ability to switch back at a cost-effective price is more available to higher rating organisations than others.
“At this part of their development we see that as a huge opportunity.
“(So) while it has slowed down a bit, reflecting the fact that cunency is not appreciating at the rate that it was perhaps one or two years ago, the reality is that we are doing more trade between Australian corporates, in terms of RMB rather than US dollars, than we have ever done, and in terms of hedging than we have ever done.”
