Two-thirds of Australian businesses operating in China plan to increase their investments in China, despite the increasing difficulty of doing business, according to the latest Doing Business in China Report produced by the University of Melbourne in collaboration with AustCham China, the Australia China Business Council (ACBC), and KPMG Australia.
The research, which polled executives from 165 Australian companies operating in or doing business with China, shows a delicate balance between risk and reward for Australian enterprise when it comes to the world’s second largest economy.
One year on from the inaugural Doing Business in China survey, two‑way trade between Australia and China is at record levels and, in dollar value, China is now two and a half times as large an export destination for Australia as the next largest, Japan. While exports of minerals remain a significant cornerstone of Australia’s export earnings, Australian service exports to China have grown at 15% per annum.
The report shows that, in the minds of Australian businesses, the risks associated with doing business in China have changed since 2017. Low consumer demand has risen to be the highest risk, followed by new asset bubbles and insufficient government policy support having much higher priorities. Increased economic volatility is no longer viewed as the highest risk by Australian companies operating abroad.
Two-thirds of surveyed businesses were positive about profitability potential for domestic market growth in China. Key opportunities remain the rise of middle class and sustained economic growth. Also notable was that half of respondents saw the Belt & Road Initiative as either the first or second greatest business opportunity.
The Dean of the Faculty of Business and Economics, Professor Paul Kofman, said: “China’s real GDP growth may have tapered from 7.8 per cent in 2013 to an anticipated 6.6 per cent in 2018, but the slowdown is quite moderate and seems carefully managed to control domestic economic policy variables — in particular inflation and unemployment. That evolution of the economy suits China’s trading partners, by avoiding speculative bubbles and trade flow volatility.”
Snapshot
- As well as two‑thirds of companies continuing to increase their investments in China, 60% are expecting to increase their headcount in the near term
- Profitability remains strong as does the outlook for the next two years with less than 20% of respondents having a negative outlook
- Key growth opportunities identified were the rise of the middle class, sustained economic growth and the Belt and Road Initiative.
- Just under half of respondents have seen an increase in attention or engagement by Chinese authorities, as China remains a challenging place for 72% of respondents to conduct their business
- 83% of respondents flagged human resources a top cost concern when doing business in or with China
- Tensions in Sino-Australian relations emerged as the largest risk going forward, with 75% believing media reporting had an adverse effect on relations and over 50% indicating their business had been negatively affected. 28% said that the US/China trade sanctions have negatively impacted their business with only 12% saying it has had a positive impact.
- 66% of businesses believe that the China Australia Free Trade Agreement (ChAFTA) has had a positive impact on Australian businesses in China.
Banner image: Helen Sawczak National CEO Australian China Business Council, Nick Coyle Executive Director and CEO AustCham Beijing, John Brumby AO President ACBC, Doug Ferguson Partner in Charge Asia and Pacific Markets and Deal Advisory Partner KPMG Australia, Senator the Hon Simon Birmingham, Minister for Trade Investment and Tourism, Jan Adams AO PSM Ambassador to China, and Vaughn Barber Chair of AustCham Beijing.