The message we have been hearing from the Coalition government for almost three years is about the unbridled opportunities available in China. The apotheosis of this was the signing and implementation of the China-Australia ‘free trade’ agreement.
But the warning clouds are continuing to gather over both China’s economy and the environment for foreign businesses there.
On June 6, the European Chamber of Commerce in China issued its annual Business Confidence Survey and it confirmed the trend of recent years. European businesses are becoming less confident in the general environment in China and their ability to turn a Renminbi there.
“After years of speaking of a level playing field, many of us don’t see any change and think it’s still rhetoric,” European Chamber president Joerg Wuttke told media.
Fifty-six percent of European firms polled by the Chamber said they are finding it more difficult to do business in the country, that is up 5 percent from the 2015 survey.
This week has also seen the annual US-China Strategic Dialogue. China mouthed its usual platitudes about economic reform via Vice Premier Wang Yang, the former Communist Party chief of the country’s largest province Guangdong and it manufacturing/technology powerhouse Guangzhou, and a leading contender for the elite Politburo Standing Committee when new members are named next October/November.
“We are comprehensively deepening reform, expanding, opening up, and our economy is expected to maintain long term medium-high growth rates,” Mr Wang said.
“We hope the entrepreneurs can step (up) and play a bigger role. We need to seize the opportunities. China actively pursues innovative, coordinated, green, open, and shared development,” he said.
Yet the EU report said that it “often seems that Beijing is moving in the opposite direction of reforms.”
US Treasury Secretary Jacob Lew was far more circumspect. While a civil relationship between the world’s two largest economies is in the interest of everyone on the planet, China is simply not delivering on its promises of reform.
The Party is trapped stuck in a vortex of internecine vested interests it shows few signs of being either able or willing from which to extricate itself.
“While efforts over the past several days cannot resolve our concerns, they do represent real progress,” Mr Lew said, in diplomatic comments, at a joint announcement ceremony with Chinese officials.
In a string of articles following the summit, US companies voiced similar concerns to their European rivals.
Then there is China’s slowing economy and looming debt crisis that is now almost certain to lead the nation into a recession at the very least, and possibly a lost decade or two.
All of which means, perhaps, that the China-Australia Free Trade Agreement may have come too little, too late. The Europeans and Americans have been all over China in a way that Australia should have been but never was.
The sheer number of Scandinavian firms and business people in Beijing, a region with a collective population smaller than Australia, for instance always astounded me when I was reporting from there from 2009-2013.
And the ChAFTA is, of course no such thing. While Chinese firms, like other foreign companies, are at liberty to enter any market sector in Australia, most industry sectors in China – bar retail and logistics – have extremely high barriers to entry.
Some are completely closed to foreign companies for ‘strategic’ reasons; telecommunications is a good example.
For decades after Deng Xiaoping’s reform and opening up of China, it was seen as something of a nirvana for business, a market of now almost 1.4 billion people getting wealthier and wanting more and better stuff.
Foreign companies charged into China, wallets open, expecting a bonanza.
For sure, there are opportunities in China but Australian companies need to be even more careful than ever in an environment where the phrase foreigner or, in Mandarin “lao wai” – literally old outsider – is very much the order of the day.
For every Blackmore’s – the health supplements company whose revenues and market value have soared on the back of Chinese demand – there is a Fosters, the beer company which was destroyed by its foray into China the in 1990s.
ANZ Bank used to be the standard bearer for non-mining corporate Australian in China, but no more more. Under its more conservative new chief Shayne Elliot, the bank is pulling back from its Asian strategy.
Sources in the savvy Hong Kong banking scene say the group went on a loan writing frenzy to give it‘s expansion plans in China a leg up.
This free for all has come back to bite it on the balance sheet, as bad debt in China’s struggling economy continues to rise. It’s doubtless small relative to ANZ’s Australian business to disclose, but these things get around.
And the herd mentality of Australia corporates who seem to say that this means much for the future of any Australian financial services companies in China, one would think. It seems almost impossible to compete against the locals and the burgeoning digital players in any case.
This is not to deny that there have been some success stories in China for Australian businesses. There are niches in agriproducts and health supplements, clearly.
Education, forced by government funding cuts begun by John Howard, to become a business, is one sector that that been wildly successful in China.
But Education offers the Chinese something they want but cannot get at home: a good degree in English, with the significant added bonus of a place to move money offshore by way of property investment and a possible escape route from their own country.
Yet there are growing concerns over poor levels of English, exam cheating and dubious sources of funds for concomitant apartment purchases
Central to the Chinese government’s narrative is that China is exceptional and that the country, now that it has all the intellectual property is thinks it needs, has little need of foreigners.
For instance, in recent years China has moved to systematically swap out US technology for locally made – and largely copied technology – shrinking the China businesses of European companies like Ericsson and Nokia Alcatel.
This is happening in other sectors as well. The message from the European Chamber and US Treasury this week to foreign businesses wanting to do business in China is simple: Proceed with caution.