Under ChaFTA, 93% of Australian products enter China duty-free or at preferential tariff rates. This is designed to enhance Australian exporters’ competencies in China and boost export to China.
However, China is a diverse and fast-moving target. The changing economic landscape in the global market is adding complexity for Australian businesses’ engagement with this second-largest economy in the world and Australia’s number one trading partner. What are their implications for Australian businesses? What are the challenges and opportunities? How do Australian businesses tackle the complex situation and thrive in China?
Charisse Gray raised these questions at her recent interview with Sara Cheng, Head of China Practice at Australian Business Consulting Solutions. Sara is a highly respected and widely recognised China business specialist in Australia. She is actively involved in the bilateral business community, serving as Vice President of the Australia China Business Council in NSW, is Asia Literacy Ambassador, and has worked on the City of Sydney’s Chinese New Year Advisory Board.
Charisse: Given the recent bilateral relationship being strained, and the current trade war between US and China, what are your thoughts on the outlook of the economic relationship between Australia and China?
Sara: The bilateral relationship seems to be strained on the surface, especially in the space of the diplomatic and political world. In the business world, Australia’s export to China grew by 37% in 2017, the largest surge since the signing of ChaFTA. Australian wine export to China grew by 61%, the highest among its export to all markets. Business sense talks here.
In the short term, the sensitive relationship does defer some business decisions. However, from the long-term perspective, what has underpinned the two decades of economic honeymoon between the two countries still exists, and is getting stronger.
China needs our supply of agricultural products, mining resources, advanced technology and services, and will keep Australia as a key supplier due to our competitive advantage in these fields in the global market. Vice versa, we need China. Over 80% of manufactured goods imported into Australia are from China. Our people enjoy the benefit of low cost provided by China’s scale of production.
China has been our number one trade partner for twelve consecutive years and contributed one-fourth of Australia’s global two-way trade which represents around 40% of Australia’s total GDP. We are one of the few OECD countries which are on trade surplus with China. The co-dependency exists and will stay for a long time.
As to the impact of the trade war between the US and China, we have noticed some Chinese businesses start to eye Australia as a backup of supply. A few Australian businesses are looking at the option of moving partial production from China to Australia, and then exporting to the US to avoid the loss from the trade war between the US and China.
Charisse: This is promising and interesting. With this backdrop, what are the key China opportunities for Australian businesses?
Sara: In the trade space, in the short to medium term, Australian consumer goods, especially food and beverage, health supplements, cosmetics, high-tech, education, and tourism will keep enjoying the benefit brought by the growing China market. On a longer timeline of five to 10 years, services, especially personal growth service and entertainment, specialised training programs, unique and tailored consumer goods, most advanced biotechnology, high-tech and financial services will enjoy a huge, growing and diverse market in China.
In the investment space, unique resources, and the most advanced technology are always chased by Chinese investors.
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Charisse: You have worked on the frontline of bilateral trade for over 20 years. What challenges do Australian businesses face in China, and what common mistakes do Australian businesses make in dealing with China? Is there a formula for success in China?
Sara: I can share with you a tedious list of challenges such as IP protection, complex regulations, language, etc. Among the challenges we all know, consumer preference, speed to work with the market, and business practice are my top picks.
I would like to elaborate on these challenges a bit.
You need to have real in-depth knowledge of your target Chinese customers. Assumption does not work in cross-border trade. Listen to them and respond to their needs in your daily business operation: product development, marketing approach, distribution channels, and daily communications.
China is also a fast-moving target and works at its own pace. Your prospects may not contact you for six months, but once they order the goods they hope it was shipped yesterday.
Chinese businesspeople usually do not check emails at work as often as we do. Phone calls do not work well either. Instead, they may WeChat you at 11.00pm when you are just in bed or early Sunday morning when you are jogging, and expect you to get back to them within five minutes regarding a price list or a product ingredient. Also, the negotiation of a deal seems to take forever. Sometimes they just stop communicating and then come back six months later for an urgent order. It is just different. To succeed with China, you have to work in this mode or find a way to deal with the situation and not get frustrated.
Talking about common mistakes, I have seen too many Australian businesses jump onto an aeroplane just to explore the market by meeting with a contact’s contact in China. Speaking Mandarin and living in China does not guarantee a person is a client or a potential business partner. Proper research and systematic approach to building the connection is required.
Also, I suggest businesses build a strong financial position and some brand credentials in Australia before they go to China. Exploring the China market is a costly journey
Years ago, my colleagues and I co-authored a book Engage China-The Realities for Australian Businesses. The success formula identified then still applies today: do your homework before you go to China, be nimble and flexible, work on the fast-paced China clock, offer the best breed, and keep the competitive edge through a streamlined operation if you are a Small Global Enterprise.
Charisse: You mentioned intellectual property as one of the challenges in China. What proactive actions should Australian businesses take to minimise the risks of IP infringement in China?
Sara: From a legal perspective, registering your trademark in China as soon as possible because China works on a “first-filing-gets-the-trademark” system. So do it today, even if you plan to work on the China market in five years’ time.
From a commercial perspective, select reputable business partners, bundle the interest with your business partners, carefully select and market your official distribution channels, etc.
Also, please do some research and identify the most relevant class and subcategory for trademark registration. I am really proud to say my team’s success rate is 96% for our clients.
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