Let's Talk: China in Transition

The face of global economy is fast changing; change in China is causing a ripple effect across the oceans.

The Melbourne Business School Student Association sniffed an enigmatic wind from China and put China’s transition from export to consumption driven economy firmly on the agenda at their flagship event, Let’s Talk.

A panel of industry experts - the Hon. John Brumby (National President of the Australia China Business Council), David Olsson (China Practice Consultant, King & Wood Mallesons) and Chris Leptos (Deputy Chairman Flagstaff Partners; Non-Executive Director for IDP Education Ltd, PPB Advisory, Arete Capital) - led a dynamic discussion on China’s impact on trade, globalisation and environmental sustainability engaging current students, alumni and other guests in the debate.

Let's talk was hosted in the Prest Theatre. Image: Johnson Xu

“Previously, commentators have always underestimated the dynamism of China’s growth. Today, the most common mistake is to overestimate the extent of China’s slowdown,” said John Brumby.

With the Chinese economy moving towards urbanisation, the world has seen an increase in disposable income across Chinese households with heightened demand for services. With a growth rate of almost 7 per cent and USD 350bn contribution towards world GDP, the base of the Chinese economy, with respect to the world economy, substantiates to be massive. David Olsson called the scale and order of China’s transition “unprecedented” where people talk of it as if it has almost been completed. In essence however, the transition in the Chinese economy has only just begun.

The discussion zoned in on Government policy and the adaptive systems and reforms that will be necessary to truly facilitate this shift, such as opening of the capital markets, introducing robust pension schemes and changing the structure of the urban economy. “China has a history of under promising and over delivering,” said Brumby recognising the need for fast-paced, forward looking Chinese policy adjustments.

China has been known as a ‘land of savers’ in the past; average Chinese households save around 30 per cent of disposable income, whereas an average household in the US saves only 5 - 6 per cent. The panel agreed that China must move towards becoming a thrift spender by increasing its consumption through robust financial reforms.

Traditional shopping area Yuanyuan Garden in Shanghai. Image: Shutterstock

The current financial system in China is suited to its long tradition of closed economy. But, with more open Chinese markets, Olsson argued that the financial system needs to reform in tandem to ease the economic shift. Chris Leptos highlighted the web of financial and systemic issues that engulf China’s fast paced transition – “China is no longer imaged as a low cost provider but, in fact, a quality focused economy”. However, the rest of the world is yet to recognise this phenomenal transformation and what it means for the global economy.

In terms of environmental sustainability, China has invested heavily in Research and Development (R&D) and is expected to pass the US for R&D expenditures by 2020. China has embarked on clean energy and green energy, as well as biomedical research. The country has also seen an enormous rise in entrepreneurship which has been  a significant economic driving force. Olsson identified what he calls an  “I can do it” attitude across diverse spaces within China that has spurred engagement, ownership and collaboration across the economy. In the solar power market for example, China delivered prices thought impossible, advancing the global knowledge base on opportunities for environmental and financial sustainability.

So, what does this Chinese transition mean for the global economy? What impact can we expect in Australia? Leptos probes these questions from the perspective of the unique characteristics that position China well to deliver capital flows into a country like Australia.

“In general, Australians are indifferent to where foreign investments come from and China holds large slabs of capital that can be put to work in other countries,” said Leptos.

Referencing the recent influence seen in the education, tourism and construction sectors in Australia, Brumby reaffirmed the need for FDI from China to economies worldwide. However, like most realist situations, it is indeed a two way street. China holds great opportunity for directing FDI within its economy to optimise production market efficiency and exports.

There have been extensive activities to bring more clarity in sailing capital from China across, but there is still a lag that needs to be bridged. The One Belt One Road initiative, a policy based on President Xi’s statement, “It is impossible for China to develop with its doors closed”, is one such bridge to merge two streams into a river of economic development for China and its neighbouring countries. According to our panelists, Australia is yet to grasp the initiative’s true potential and tread the path to more collaborative business opportunities.

With a land replete in history, culture, linguistic heritage and the fairly recent shift in the economy’s openness, investment within China is perceived cumbersome. However, our experts were in firm agreement that the emerging market of China is on the cusp of something extraordinary providing the world with immense opportunities across international trade, innovation and environmental sustainability.

The MBSSA team behind the event - Brigid Brown, Vice President, Anthony Secoulidis, Event Manager, and Divyani Nag, President. Image: Johnson Xu

The MBS Student Association (MBSSA) is a student-run, not-for-profit, official student representative body for graduate students of Melbourne Business School. It has an active member base of 2000+ students and alumni. MBSSA gives members an opportunity to enrich their degree through provision of professional development with fellow students, alumni, faculty and corporate stakeholders.

Let's Talk is just one of the events hosted by MBSSA.

Banner Image: Johnson Xu, MBSSA Promotions Coordinator