For the past 18 months, the federal government has inundated Australian businesses with the apparent benefits of the Australia-China Free Trade Agreement, such has been the laser-like focus on these bilateral deals.
China, the marketing spiel goes, is a treasure trove of opportunities. ChAFTA will open up to Australian businesses across all sectors, and that includes in many innovation sectors including technology broadly, green building services, FinTech and HealthTech.
Both financial services and healthcare sectors have been heavily promoted as good opportunities for Australian innovators.
But as always with China, there is a catch, as one of Australia’s richest men James Packer found out in late October to his chagrin when the public company he controls, Crown Resorts, suddenly found all of its China-based staff, as well as the fly-in fly-out boss of its VIP business and at least 10 other people from partner companies – a total of at least 28 – thrown into harsh detention centres in Shanghai and three other cities.
Six weeks later, all but one were officially arrested and will languish in the cramped detention centres that Australian businessman Matthew Ng, who spent several years incarcerated in China, has said are designed to “break” people, for up to six more months.
So how did a profitable apparently well-run and certainly well-oiled machine like Crown end up in such a predicament? The situation is doubtless hitting its Australian high roller business, which hinges on rich Chinese punters very hard right now.
The answer is two fold. The first is that Crown decided upon precisely the wrong type of business innovation. It decided to move from the indirect sales model that foreign casinos have used to attract wealthy Chinese high rollers to a direct model.
Such sales are technically illegal and this cut out middle men, many doubtless with ties to the ruling Communist Party, breaking a golden rule in China – which is don’t get between a Chinese business person and their cut of the action.
This is something that has landed quite a few Chinese-Australian business people in Chinese prisons and appears to have contributed to Crown’s predicament.
The second, which is germane to all foreign businesses operating in China is that Crown, like most businesses in China, operates in a grey area and has been for some years, susceptible to a swoop by government authorities.
It is straight illegal to sell offshore gambling services (in this case Crown’s) to Chinese people in China. And it is very much in the grey area whether companies like Crown can sell its other ‘resort’ services – hotel rooms, entertainment and dining – to Chinese customers.
But this grey area is typical of most areas of China’s business with its welter of rules that are left wide open to interpretation by regulators, police, courts and – of course – the secretive party committees that make the big decisions in the country.
Crown’s employees are just the latest in a growing phalanx of Australian – and other foreign business people – who have been caught up in these grey areas, annoyed the wrong people usually financially.
Others we know about are Mr Ng, and Charlotte Chou – in fact there are now well upwards of 100 Australians in prison or detention, more than double the number five years ago.
The increase understood to be due to an increase in business “disputes,” as well as drug cases. But it is hard to put precise figures on this because of Australia’s own, increasingly secretive and non-transparent government.
The realisation that appears to have even been something of a wake-up call to Australia’s Trade and Investment Minister Steve Ciobo, who has been especially gung-ho about China as only a Gold Coast boy can be.
Now even he is hedging his bets a little.
“I think that the business community understands that irrespective of which jurisdiction they’re operating in, they need to comply with the local laws, adding the government had been quite hands off in the situation,” Mr Ciobo told 2GB recently.
“There’s nothing unique about China in that respect. They have an expectation that businesses operating in China will comply with Chinese law, and of course, Australia has an expectation that businesses operating in Australia will comply with Australian law.”
Still, this is not to say there are not opportunities in China for Australian technology groups.
One of InnovationAus.com’s favorite success stories in China is SmartTrans but its chief executive Bryan Carr has long admitted that the company has had to twist and turn to fit in with current thinking in China. It takes experience and skills to sniff where safe business opportunities exist without treading on the wrong toes.
The company’s latest push is e-commerce payments.
“We are looking to match Australian business with Chinese consumers where is significant benefits for Chinese consumers looking for quality Australian produce and products, developing emerging middle class access,” Mr Carr told InnovationAus.com.
“The Chinese want products from outside China, seeing them as safe and the model is built around our payment systems.”
Indeed, there has been much innovation – in the very true sense of the word – by Australian businesses who have succeeded, at least in this short term, in ramping up their business in China.
To take health supplements group Blackmore’s as an example, happy to do a lot of its China business, until recently, via the so-called suitcase trade of Chinese ‘tourists’ buying up product in Australia.
That’s moving too now, and the company has vowed to move with it.
As Australia’s former Ambassador to China Geoff Raby, now a serial board member and consultant on business in China – and indeed former chairman of SmartTrans – has noted, we will likely never know why Crown was targeted.
And there is the rub: In China one never really knows.
So while, as Mr Carr – and many others including Dr Raby – have noted, there is great opportunity in China – tread very, very carefully.
Do you know more? Contact James Riley via Email.