The impact of China’s continuing growth on the Eyre Peninsula
Sean Keenihan, Chairman of Partners
24 February 2014
Presentation Overview
• Discussion 3 years ago about how EP’s future prosperity linked to China
• Since then we have seen a lot of change – globally and more specifically in China and Australia
• Were we on the right track 3 years ago?
• Does LG have a role supporting engagement with China
EPLGA Conference - 2011
At the EPLGA Conference in 2011 we talked about –
• Compelling story in China that entitles big thinking about Eyre Peninsula’s future
• Australia’s economic prosperity is linked to China’s economic growth and transformation
• China’s and Australia’s economies are highly complementary – Australia has what China needs to fuel and sustain its continuing growth
• EP is one of SA’s most productive regions – highly export oriented and has what China wants to sustain its growth and economic transformation
EPLGA Conference – 2011 (cont)
• EP would benefit from China’s demand for resources, agribusiness products and tourism
• Despite tough times ahead Australia’s and SA’s trade with China would continue to surge
• More Chinese companies would be seeking investment beyond resources into agribusiness and other industries
• EP needed to think big and boldly about engagement with China to secure markets and investment dollars that support key EP industries
So what has happened in the last 3 years?
Change in the landscape – China perspective
In China:
• Change in China’s senior leadership – once in a decade event
• China has embarked on a new growth model – consumption driven growth and an increased focus on private sector participation in the economy
• Restructuring of China’s state owned enterprises
• Analysis of outbound investment thinking and strategies
• Overhaul of China’s financial system
• Bilateral relationship with Australia upgraded
Change in the landscape – Australia and SA
In Australia and SA:
• Challenges in traditional manufacturing sector
• Sustained high AUD$ and associated challenges for agri sector
• Less favourable global mineral/commodity prices impacted resources sector’s growth
• More and different industries increasingly looking to understand how China might be an opportunity for them – export, import, investment
• More business groups and industry sectors and all tiers of government openly engaged around China increasingly strengthening that engagement
• SA has a strategy for engagement with China
Where do we stand in 2014
Where we are at now
• Despite economic headwinds SA goods exports to China up 30% in 2013
• China is SA’s largest 2-way trading partner by considerable margin - 24% of SA’s exports go to China
• Chinese tourist numbers up 47% in 2013 – outspent all other tourists – outspent US tourists 2:1 and Europeans 3:1
• Over 40% of SA’s overseas students are Chinese
• More and broader Chinese interest in investment in SA – private sector investment and business migrant investment
China slowdown?
Year $GDP % GDP Growth Real GDP Growth ($)
2008 $4.5 trillion 10% $450 bn
2013 $8.2 trillion 7.7% $630 bn
SA China Engagement Strategy
• One year into SA’s China Engagement Strategy
• Big opportunity that demands a planned approach.
• By strengthening our partnership with China now, we will provide future opportunities for our businesses to grow as China grows.
• The essence of the Strategy can be summarised as follows:
• Developing the SA value proposition
• Building platforms for engagement
• Getting business ready to engage
• Resourcing government to better coordinate and support this engagement
Shandong – SA’s sister state
• #3 China Provincial GDP
• 90x larger than SA GDP
• 2013 GDP US$890 billion
• Similar size to Indonesian economy
• Growth rate 9.8% in 2012
Rise of China’s middle class
• China’s growth a key driver of Asia’s burgeoning middle class
• It will be lumpy but we will see a transformation into a voracious middle class consumer market right on our doorstep
• Sustained growth driven by continued urbanisation and substantial capacity for improved productivity and efficiency
• Continued outbound foreign investment
• Not without significant challenges and risk but consensus is China’s rise will continue and this middle class will emerge
Rise of China’s middle class (cont)
Source: Peter Drysdale
What this means for the EP
• Continuing demand for resources to fuel China’s growth
• Continuing demand for agribusiness commodities to feed China
• Increasing demand for premium, clean food and wine demanded by middle classes
• Emerging and growing market for premium seafood
• Growing tourist demographic from China seeking food, wine and nature experience
• Growing interest by Chinese companies in trading and/or investing directly with EP businesses in these growth industries
The Agribusiness Landscape in China
• China’s rising middle class is driving demand for agribusiness products
• China is now the world’s largest food importer
• Middle class diet is replacing plant protein with animal protein
• China’s food industry plagued by scandal and poor reputation
• Australia’s reputation for food safety and quality assurance a big plus.
• Competition is fierce – our stocks of supply are limited – South Australia must compete on value – not price
Competition is stiff
• This won’t just fall in our lap – the whole world wants the Chinese market
• How do we differentiate our product and selling proposition?
• Strategically promote and place our product – position for sustainable long term markets
Challenged by :
• High Australian dollar and tariff barriers• Scale • Two-way knowledge and capability gap
Common stumbling blocks - broadly
• Language – effective communication
• Different business culture - interpersonal and government interface
• Lack of understanding of local issues that dictate value and impact production costs and outcomes
• Unfamiliar with the business and regulatory environment in which product and projects are developed and delivered in SA
• Relatively high cost of doing business relative to our competitors
• We must compete on value – not price – and leverage relationships and platforms that underpin our value proposition
The role of LG
• Challenge of scale for SA businesses engaging with China
• Growth opportunity for SA businesses likely to be in second and third tier cities
• Interlinked nature of government and business in China
• Fundamental role of Government in establishing frameworks for business engagement with China
The role of LG (cont)
• Small business needs assistance dealing in a new business environment
• LG sector the right tier of government to support entry to 2nd and 3rd tier markets
• Legitimate role – refer the SA China Strategy
• Councils have a crucial role to play in supporting business engagement with China
Specifically…
• Capitalising on Federal and State platforms to establish B2B engagement frameworks in 2nd and 3rd tier markets
• Show support for business in its engagement with Chinese counterparts
• Facilitate China literacy and business education for local business
• Nurture a supporting environment for greater cultural and people to people links
What we will see in the short term in SA
• More Chinese students and parents, skilled, business and family reunion migrants, tourists in SA
• Chinese FDI will continue – resources, agribusiness and property
• Greater trade volumes with China as its economy grows and middle class consumers change buying patterns
• More activity from SA Government and SA industry bodies who have an important leadership role in China engagement
• Councils more active and hands on in supporting business engagement with China
• Increased prosperity for SA businesses through grasping the China opportunity
When opportunity knocks, grab it
3 years later…..
• Give the nature of China’s growth, China’s impact on EP could be profound
• Opportunity is growing each year - real and present
• As China’s second and third tier cities and markets grow, can LG assist business to grow with those markets
• ‘How’, ‘where’ and ‘what are the challenges’ – a separate discussion
• SA has a strategy – and it’s working – good starting point