south australia – china engagement...

DEPARTMENT OF STATE DEVELOPMENT P 1

SOUTH AUSTRALIA – CHINA ENGAGEMENT STRATEGYJuly 2014 www.statedevelopment.sa.gov.au

P 2 SOUTH AUSTRALIA – CHINA ENGAGEMENT STRATEGYP 2 SOUTH AUSTRALIA – CHINA ENGAGEMENT STRATEGY

SOUTH AUSTRALIA – CHINA ENGAGEMENT STRATEGY

WHERE WE ARE NOW

• South Australia and China enjoy a mutually beneficial and prosperous relationship.

• China is South Australia’s largest two-way trade partner; our exports include a range of mineral resources, bulk agricultural commodities and wine.

• South Australia is attracting Chinese investment in the resources sector, the wine industry and property, and local companies are successfully investing in China.

• South Australia has a 26-year sister-state relationship with Shandong province, the third largest provincial economy in China.

• The largest proportion of overseas students coming into South Australia is from China.

• South Australia is attracting more Chinese tourists.

• The Chinese business migrant community in South Australia is growing and flourishing, bringing investment and jobs.

WHERE WE WANT TO BE

• South Australia is aiming to strengthen its engagement with China.

• We will align resources and effort to identify high-value opportunities and targets in key markets, and to meet key challenges along the way.

• We want to encourage further co-development of mineral resources projects in our State and be recognised more widely in China as a world-class producer of quality foods and wine.

• South Australia can assist China’s development through education and research partnerships in priority sectors including clean technologies, water management and design.

HOW WE WILL GET THERE

• Our South Australia-China Engagement Strategy will form the framework for government interaction with China.

• We will align resources and effort by building a China Team to implement these strategies.

• We will collaborate with industry groups and chambers to share information and expertise and work in partnership to implement the China engagement framework.

• We will promote South Australia as a great destination to study, work, live and play .


A MESSAGE FROM JAY WEATHERILL P 4

A MESSAGE FROM MARTIN HAMILTON-SMITH P 6

A MESSAGE FROM THE AUSTRALIA CHINA BUSINESS COUNCIL, SOUTH AUSTRALIAN BRANCH P 8

EXECUTIVE SUMMARY P 10

1 WHY AN ENGAGEMENT STRATEGY FOR CHINA? P 12

2 WHAT IS THE STRATEGY? P 16

2.1 Key Action 1: Consolidate and promote South Australia’s capability as a partner in China’s social, P 16 cultural and economic development 2.2 Key Action 2: Coordinate and leverage Government activity to build a trade and investment P 18 framework for business 2.3 Key Action 3: Build and support China-ready South Australian businesses P 22 2.4 Key Action 4: Refocus Government resources to support the Strategy P 24

3 WHAT INFORMED THE STRATEGY? P 26

3.1 The consultation process P 26 3.2 Questions posed P 26 3.3 Common challenges for businesses engaging with China P 29 3.4 Key considerations when engaging with China P 29

4 IMPLEMENTING THE STRATEGY AND MEASURING RESULTS P 32

APPENDIX 1: GLOSSARY OF TERMS P 34

CONTENTS

P 4 SOUTH AUSTRALIA – CHINA ENGAGEMENT STRATEGY

The State Government has aligned the South Australia-China Engagement Strategy with the seven strategic priorities identified early in 2012. It also complements strategies for our emerging engagement with India and driving high-value manufacturing in South Australia.

The continued success of our State’s ongoing partnership with China will require close relationships between all key stakeholders – government agencies, industry groups, individual businesses and education providers.

As a new generation of leadership prepares to take the reins in Beijing, South Australia needs to ensure it is in the best possible position to benefit from China’s continued growth and prosperity.

I am confident that this Strategy will better enable us as a Government and a community to respond to the challenges and opportunities ahead.

Jay Weatherill Premier of South Australia

After 30 years of opening up and reform, China has developed into a major economic powerhouse. The prosperity generated by that economic transformation is fundamentally changing China and its engagement with the world.

South Australia needs to look at the way it is engaging with China so that we can adapt to meet the changing needs of 1.3 billion people, or risk being left behind.

Travelling to China for the first time, I witnessed the many opportunities being created as economic reforms create a new generation of discerning consumers and businesses eager to invest and expand overseas.

Chinese consumers want safe products for their families, the chance of a better education overseas and an environment that can benefit from innovative cleantech solutions.

The amazing pace of growth in the past 30 years means those consumers are now in a position to look to overseas markets to meet those demands.

South Australia has world-class products and services, many of which are required by China for its rapid urbanisation and development programs.

We need to build on our existing advantages in mining, education, agribusiness and innovative solutions to deliver high-quality products and services to China.

A MESSAGE FROM JAY WEATHERILL

South Australia has a long and successful engagement with China, not just as an exporter of commodities such as wool, grain and iron ore, but also through the cultural ties fostered by our sister-state relationship with Shandong province.


The continued success of our State’s ongoing partnership with China will require close relationships between all key stakeholders – government agencies, industry groups, individual businesses and education providers.



Trade and investment from China will continue to be critical in guiding our State’s prosperity.

Understandably many other countries are also vying for attention in China so our engagement needs to extend beyond trade in goods and services.

The multi-faceted nature of our relationship is reflected in this engagement strategy.

South Australia and China both aim to continue to build long-term partnerships that will help extend and expand our relationship.

Since its implementation in 2012, this strategy has been exceptionally well received by the local community, the Australian Government, business and our partners in China.

The key actions set out in this South Australia-China Engagement Strategy have aligned the resources and efforts of Government and the business community to build a team that can better leverage our State’s comparative advantages.

From our early beginnings in forming a close relationship with Shandong province, we have forged ahead on many fronts.

Since the strategy was launched in 2012 four key agreements have been signed:

• A Memorandum of Understanding with Shandong to drive the South Australia - Shandong Cooperation and Development Forum

• A Memorandum of Understanding between the South Australian Government and the Qingdao Bureau of Commerce

• A sister city agreement between Adelaide City Council and Qingdao Municipal Government

• The Memorandum of Understanding with the China Development Bank.

There is still much work today to cement our relationship with China and deliver the many mutual benefits that exist for both our countries.

The prospect of an effective Free Trade Agreement between Australia and China will also provide greater inroads for South Australian businesses to target this market.

I look forward to picking up the momentum established by my predecessors. They have left a strong foundation on which to build.

Martin Hamilton-Smith Minister for Investment and Trade

A MESSAGE FROM MARTIN HAMILTON-SMITH

China’s remarkable transformation as an economic powerhouse and its demand for our exports has been an integral part of South Australia’s record trade growth.

DEPARTMENT OF STATE DEVELOPMENT P 7P 7

South Australia and China both aim to continue to build long-term partnerships that will help extend and expand our relationship.

(Photo courtesy of Santos Limited)


We have high-quality, world-class offerings; significant complementarities in our economies; and strategically invaluable proximity to China that positions us well to build vital, strong, long-term relationships to underpin sustained, ongoing bilateral trade and investment.

Through the consultation process that led to the development of this Strategy, the Australia China Business Council in South Australia met a broad range of stakeholders across many sectors of the local economy. These consultations demonstrated that the need for a deeper, broader-based economic engagement with China is readily apparent to many businesses, institutions, community groups and, indeed, all tiers of government.

The resounding message is: no longer should it be the case in South Australia that we ask ‘why China?’ but rather ‘how and where do we better engage’?

The South Australia-China Engagement Strategy provides guidance and outlines key initiatives not only to broaden and deepen our State’s engagement with China but also – importantly – to significantly enhance the prospects of success from that engagement.

This comprehensive Strategy recognises the important role government plays in supporting business engagement while at the same time understanding that it is ultimately business that must deliver results.

Through the Strategy’s key initiatives, government will assist business to build South Australia’s value proposition as a destination for investment, trade and collaboration – ensuring that efforts to engage with China are informed, targeted and well prepared to enhance the prospects for success.

At the same time, business will be encouraged to leverage strategic government-to-government activity and the expatriate Chinese community in South Australia will be urged to heighten awareness of our State’s offerings in target markets in China. These activities will focus on key sectors in a strategic and staged way, taking into account the varying levels of their maturity in understanding and engaging with China.

The China Business Education Program, and the refocusing of State Government resources to build a ‘China Team’ to work in collaboration with other China stakeholders, will ensure a rolling program of business-focused activities. These activities will raise local awareness, not only of the opportunities on offer but also of the challenges of engaging with China. At the same time, the program promotes potential solutions and strategies to overcome those challenges.

The ACBC encourages businesses to embrace the Strategy and determine the role they can play in identifying opportunities for their growth through targeted engagement with China.

Sean Keenihan President, Australia China Business Council, SA Branch

Our State is very well positioned to leverage Chinese economic growth and to broaden the benefits of trade and investment flows to ensure continued prosperity for generations to come.

A MESSAGE FROM THE AUSTRALIA CHINA BUSINESS COUNCIL, SOUTH AUSTRALIAN BRANCH

DEPARTMENT OF STATE DEVELOPMENT P 9DEPARTMENT OF STATE DEVELOPMENT P 9

We have high-quality, world-class offerings; significant complementarities in our economies; and strategically invaluable proximity to China that positions us well to build vital, strong, long-term relationships to underpin sustained, ongoing bilateral trade and investment.

(Photo courtesy of Santos Limited)


The rapid pace of change that has resulted from China’s opening up over the past three decades means it is vital to plan for the future if South Australia is to benefit from China’s continuing rise. The recent release of the Federal Government’s Australia in the Asian Century White Paper highlights the importance of a planned and focused approach to deepening our bilateral relationship with China.

To achieve this, the South Australian Government has developed the following four key actions to underpin this South Australia-China Engagement Strategy.

KEY ACTION 1

Consolidate and promote South Australia’s capability as a partner in China’s social, cultural and economic development

The Government will work with local industry, institutions, and non-government sectors to define and develop South Australia’s ‘value proposition’ for China in terms of broad-based Asia-relevant capabilities and opportunities. It will establish key trade, collaboration and cultural exchange platforms, while targeting direct investment in world-class South Australian projects, and creating pathways to share knowledge and expertise as well as enrich cross-cultural understanding.

KEY ACTION 2

Coordinate and leverage Government activity to build a trade and investment framework for business

The Government will develop a rich system of strategic relationships with China at multiple levels of Government. In building the effectiveness of South Australia’s high-level political and diplomatic engagement with China, it will raise the State’s profile and provide an important framework for trade, investment and collaboration.

KEY ACTION 3

Build and support China ready South Australian businesses

The Government will implement a range of initiatives to assist business to better engage with China. These will include the China Business Education Program.

KEY ACTION 4

Refocus Government resources to support the Strategy

The Government will align its resources and effort to build a ‘China Team’ that coordinates, monitors and evaluates all China-related initiatives proposed in South Australia’s China Engagement Strategy.

EXECUTIVE SUMMARY


We must engage now, and strengthen our partnership with China to provide future opportunities for our businesses to grow as it grows.


South Australia and China already enjoy a mutually beneficial and prosperous relationship. China is our largest two-way trading partner and has been a source of significant investment in the State’s economy.

The future prosperity of South Australia is inextricably linked to China and, as the Chinese society and economy grows and changes shape, South Australia needs to be ready to respond to new opportunities and challenges, and must do so in a coordinated, strategic manner. This Strategy not only provides the framework for this response but, by having regard to China’s vision, also clearly articulates the role of both the State Government and business in building South Australia’s future with key markets in China.

The aim of a strategy for engagement with China is to align resources and effort with identified high-value opportunities and targets, and to meet key challenges along the way. The targets and opportunities will be areas in which South Australia’s and China’s interests are complementary, and where potential for mutual benefit exists. The search is for synergies that translate into opportunities for the State to supply goods and services into China, or to attract foreign direct investment from China into South Australia.

A strategy should also help us build links in broader spheres of endeavour, such as science, education research and development, common problem solving, sport, and arts and culture.

This Strategy articulates a clear vision about the opportunities presented by our relationship with China and outlines the steps we need to take to ensure these opportunities are an integral part of our State’s future.

1.1 SOUTH AUSTRALIA’S COMPETITIVE STRENGTHS

South Australia must position itself to capitalise on Asian growth. Once, our distance from Europe and the US was considered a disadvantage. Today, we are close to the centre of world economic dynamism. Our challenge is to develop platforms for effective engagement. This requires well-defined, strategic commercial relationships that are embedded in a sophisticated understanding of historical, cultural and societal interests – both complementary and differing. This maturing of our relationship provides for understanding, respect, durability and robustness.

In coming years, South Australia has the potential to achieve strong, sustained growth, due largely to the strength of a suite of major projects led by, but not confined to, those in resources and energy and defence. The opportunity is to leverage resource projects to develop local value chains in areas such as high-value manufacturing and services, and other knowledge-intensive activities. This requires an active stance in relation to industry participation policy, and the development of local capacity and capability. If these value-chain prospects can be captured, the mining expansion and China’s growth offer South Australia some of its brightest opportunities, particularly for the manufacturing and service industries.

South Australia has been a first-mover in the deployment of renewable energy sources such as wind and geothermal power and has a strong reputation as a leader in sustainable agri-food and resource management techniques. The State’s expertise in environmental services and resource management, particularly with respect to water, could be better aligned to commercial opportunities at home and abroad.

South Australia also has a good opportunity to develop well-connected and internationally recognised commercial centres of intellectual and technical excellence, focused on problem solving within the State and the Asian region. International partners would accelerate the diffusion and application of knowledge in the local economy and help build international recognition for our capabilities and competitive strengths. Opportunities exist to deepen research collaboration with Chinese entities on common problems and challenges, leveraging existing and future South Australian research strengths.

China is already the largest co-publisher of research with The University of Adelaide’s academics following the US and UK with 794 co-publications between 2007 and 2011. This trend is rocketing upward and China is expected to pass co-publication with the UK within the next decade.

The further development of Adelaide as a university city and cultural hub, together with the State’s unique characteristics as a tourism destination, present further avenues of high-value opportunity.

1 WHY AN ENGAGEMENT STRATEGY FOR CHINA?


1.2 CHINA’S GROWTH AND THE IMPACT ON SOUTH AUSTRALIA

China is already the State’s largest two-way trading partner and there are strong links through exports such as iron ore, quality food and wine, grains, and services such as education. We also import a wide range of goods from China. Within this context, trade will play a larger role in our State’s future as China’s economy continues to grow and urbanise.

By 2030, China will have overtaken the US and become the world’s largest economy. Its influence in Australia and throughout the world is already pervasive, and further dramatic change is unstoppable. The aim of this Strategy is to help ensure that South Australia not only maximises the opportunities arising from these changes but also minimises the risks. A comprehensive Strategy helps us ensure we are on the winning – not the losing – side of these momentous shifts.

While the effects of China’s rise are yet to be fully felt, its growth model has been externally and export-focused.1 This model has exported deflation and enabled greater household consumption in ‘western’ countries, including Australia. This impact has been amplified in Australia because of China’s demand for our resources which until recently drove up our terms of trade to all-time highs and provided a further boost to our gross national income.

In Australia, China’s rise has been evident through a growing supply of low-cost imports that have put downward pressure on prices. Expensive consumer goods from the old industrial heartlands have been replaced by more competitively-priced Chinese products.

The massive shift of manufacturing to China has also created significant challenges for South Australia’s economy by accelerating structural change. This has resulted in the hollowing out and complete disappearance of some of our traditional cost-based manufacturing industries.

In return, China’s urbanisation – funded by its export dominance – has created a demand for resources, particularly minerals and energy, from countries such as Australia. This demand has driven historically high commodity process and underpinned the recent strength of the Australian dollar. As stated above, these forces have both boosted national income and accelerated structural change throughout the economy.

These inseparable effects of China’s economic transformation call for a strategic response.

All South Australians are feeling China’s influence. The average value of trade with China per South Australian household in 2011 was $13,470, an increase of 30 per cent on 2010.2

During the past 30 years, China’s economy has grown to US$ 7.7 trillion, expanding at an average rate of 10 per cent a year. South Australia’s economy is benefiting from the growth in value of our exports to China. This growth has been predominantly in the minerals sector as China acquires the raw materials needed for its intense program of urbanisation. Mining exports have tripled in the past decade,3 while other sectors have grown more moderately. Wine is now our second largest export to China, followed by wheat, meat and wool.4

1 The development of China’s home market and the need for expenditure of more of its savings at home has recently become an urgent issue (recognised in the 12th Five-Year Plan) and this provides opportunities for South Australia, as discussed in this Strategy .

2 Australia China Business Council, How China trade benefits Australian households, 2012.

3 ABS 2011.

4 ABS 2012.

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ChinaHong KongTaiwanOther

SOUTH AUSTRALIA’S GOODS EXPORTS TO GREATER CHINA ($BILLION, FREE-ON-BOARD VALUE)

Source: ABS Cat No 5368.0, Table 36d


5 China’s National Bureau of Statistics (NBS), 2011.

6 McKinsey Global Institue, Preparing for China’s urban billion, 2009.

7 NBS 2010 census data.

8 UN report, Department of Economic and Social Affairs, Population Division, World population in ageing 1950-2050.

9 Estimated to be approximately 100 million people, or approximately 9.4 per cent of China’s total population with annual incomes of $8,735; Li Chunling, China Academy of Social Sciences, 2012.

1.3 CHINA’S ECONOMIC FUTURE AND THE PROSPECTS FOR ENGAGEMENT

China is rapidly changing. Three decades ago its initial move to industrialisation was export-led. The 12th Five-Year Plan (FYP), which will run until 2015, has shifted that focus towards encouraging domestic consumption, addressing widening income and regional inequalities, and developing local innovation. China’s key challenges seen through the prism of the current FYP include:

• achieve ‘higher quality GDP growth’ at an annual average rate of seven per cent

• implement prudent monetary policy

• intensify anti-corruption efforts

• spend 2.2 per cent of GDP on research and development by 2015

• keep population below 1.39 billion by 2015 and increase urbanisation from 47.5 per cent to 51.5 per cent

• curb the widening gap in income distribution and the rising cost of housing

• encourage foreign investment in modern agriculture, high technology and environment protection industries

• enable emerging strategic industries to account for eight per cent of GDP

• strengthen the protection of intellectual property rights to support the development of home-grown technology and innovation

• move coastal regions from low-cost manufacturing to research and development (R&D), high-end manufacturing and services

• develop efficient and safe nuclear power

• build large-scale hydroelectric power plants in the south west

• extend the high-speed railway to reach 45,000 km

• extend the highway network to reach 83,000 km

• build 36 million affordable apartments for people on low incomes.

These objectives are driving the rise and rapid growth of China’s tier-two and tier-three cities and markets, and they will be a key focus of South Australia’s engagement.

This shift towards a greater focus on internal growth expands the potential for South Australia to supply high-end, knowledge-intensive services in areas ranging from health,

education, environmental management and water sanitation to climate technologies and urban design and development. At the same time, we can deepen our existing commercial relationships in sectors such as minerals and energy, wine, premium food and tourism. While minerals and energy will remain key, the targeted growth of additional sectors identified within the 12th Five Year Plan opens new avenues for engagement beyond our historical role as a commodity supplier.

These broader prospects become evident when considering China’s mega-trends. For example:

• Rapid urbanisation has lifted an estimated 440 million people out of poverty. China’s policy to shift its population from predominately rural to urban has created an explosion of new cities, infrastructure and development. Currently, 125 cities have populations of more than one million people.5 The McKinsey Global Institute believes this will soar to 221 cities by 2025,6 with Beijing and Shanghai achieving populations of more than 19 million and 23 million respectively.7 This population shift reflects the growing importance of China’s second-tier and third-tier cities, upon which this Strategy focuses.

• China’s one-child policy is resulting in an aging population and rising dependency ratio. Currently, 8.2 per cent of China’s population is over 65 years old; this will reach 26 per cent by 2050.8 Demand for health-related services will rise accordingly.

• Disposable incomes in China have been rising for the past three decades. China’s developing middle class9 is demanding better living conditions and improving the environment is a priority for city planners. China’s new rich are looking for quality in investment, education, leisure and food and beverage products.

At the Chinese Communist Party’s 18th Congress in November 2012, new General Party Secretary Xi Jinping reinforced the changed outlook for the country’s citizens when he said:

“Our people have an ardent love of life. They wish to have a better education, more stable jobs, more income, greater social security, better medical and health care, improved housing conditions and a better environment.”

China’s growth in the decades ahead will continue to drive fundamental structural change in South Australia’s economy. In the shorter term – the next 10 years – China’s continuing development and urbanisation presents a unique opportunity for us to lock in our own prosperity for generations to come.


While different sectors and industries in South Australia are at various stages of maturity in terms of their engagement with China, our State is very well placed to leverage China’s economic growth to ensure that we broaden the benefits of our two-way trade. We have world-class offerings, and significant elements of our economy complement those of China. We also have the strategically invaluable advantage of proximity – that positions us exceptionally well to build vital, strong, long-term relationships with China.

South Australia must position itself strategically. While excellent opportunities for developing trade and investment partnerships exist in the growth hubs of China’s tier-two and tier-three cities, businesses in all sectors must make themselves ‘China ready’. This means carefully studying each region and its needs, learning about the culture, considering the scale of different target markets and, importantly, determining supply demands.

The Geological Survey of South Australia recently signed a tripartite agreement with the Beijing Research Institute of Uranium Geology and Canada’s Saskatchewan Geological Survey to undertake a long-term study of uranium geology. Collaboration will involve workshops, training and visits to uranium deposits, as well as the exchange of scientists, staff and students between Beijing, Canada and South Australia.

CASE STUDY

South Australia has world class offerings, like tourism, and is well positioned to build

strong, long-term relationships.


The overarching objective of the South Australia-China Engagement Strategy is:

‘To strengthen South Australia’s partnership with China and enhance and deepen our long-term engagement in areas encompassing investment, trade and business, education, sport, culture, the arts, sciences, and the exchange of people, skills and ideas.’

South Australia must position itself strategically and businesses in all sectors must be ‘China ready’ if they wish to participate in the benefits of China’s growth.

The Strategy will therefore:

• Ensure a focus within and between government and industry that ensures engagement with China is targeted relative to our State’s comparative strengths and capabilities.

• Help position the State by developing a comprehensive understanding of how China is changing and respond effectively to those changes. The China of today will not be the China of tomorrow.

• Help South Australia’s businesses become ‘China ready’ and identify and secure opportunities from its growth and development.

• Strengthen government, business, social and cultural ties to underpin a diverse and mutually beneficial economic relationship that links China’s growth to South Australia’s growth.

As part of the Strategy, the State Government commits to the following key immediate actions:

2.1 KEY ACTION 1: CONSOLIDATE AND PROMOTE SOUTH AUSTRALIA’S CAPABILITY AS A PARTNER IN CHINA’S SOCIAL, CULTURAL AND ECONOMIC DEVELOPMENT

The world’s interest and attention is centred on China’s rapid growth and appetite for outbound investment, with nations and regions across the globe competing to engage commercially with China. South Australia must build its competitive strengths as an investment, trade and collaboration location to ensure China is alert to what we have to offer.

These strengths include:

• more than two decades of uninterrupted economic growth

• a reputation for having a safe, clean environment

• a highly skilled workforce

• world-class education facilities

• world-class regulatory and approval frameworks

• a case management service that provides investors with a single point of contact in the State Government to ease the process of navigating unfamiliar regulatory approvals processes.

We can grow our exports to, and investment flows from, China by deepening its understanding of our strengths in all of these sectors and the various trade, investment and collaboration opportunities the State offers. We can add value to this proposition by developing a comprehensive trade, investment and collaboration product that also promotes South Australia’s unique selling points and provides a clear understanding of what investors, collaboration partners and Chinese businesses can expect when they operate here.

It will be important to strategically target the establishment of key relationships and platforms to better leverage the State’s value proposition.

The South Australian Government will:

2.1.1 IN PARTNERSHIP WITH INDUSTRY, BUILD CHINA ENGAGEMENT STRATEGIES AND INVESTMENT PRODUCTS FOCUSED ON KEY SECTORS

In the development of South Australia’s overall value proposition, it is important for government and industry to develop sector strategies customised to meet the specific nature of each demand or opportunity, and to recognise the differing levels of maturity of local industries in their engagement with China. This requires an ongoing commitment to identifying, targeting and prioritising opportunities. It requires progressive refinement of approaches to opportunities in key sectors, including

2 WHAT IS THE STRATEGY?

The Government will work with local industry, institutions, and non-government sectors to define and develop South Australia’s ‘value proposition’ for China in terms of broad-based Asia-relevant capabilities and opportunities. It will establish key trade, collaboration and cultural exchange platforms, while targeting direct investment in world-class South Australian projects, and creating pathways to share knowledge and expertise as well as enrich cross-cultural understanding.


excellent in-market and sector analyses that provide a rolling program of research and development.

Analysis will produce investment ‘products’ targeting Chinese direct investment into our key sectors, and other special-focus opportunities (appropriate to their varying maturity levels) showcasing sectoral competitive advantages and world-class regulatory and service frameworks. Key innovations could include proponents seeking to attract inbound investment gaining ‘pre-approval’ for investor- ready projects that require State development and environmental approvals.

2.1.2 ESTABLISH TRADE, INVESTMENT AND COLLABORATION PLATFORMS WITH IDENTIFIED KEY STAKEHOLDERS IN CHINA AND AUSTRALIA

Having established a clear value proposition and identified sectoral opportunities, the South Australian Government will establish and/or participate in forums at which key, targeted Chinese decision makers will be presented with investment, trade and collaboration products and opportunities. These collaboration platforms will include:

• the inaugural South Australia Shandong Development and Cooperation Forum, to be held alternately in Shandong and South Australia, targeted at Shandong Government officials as well as state-owned enterprises and private enterprises

• the Invest in South Australia Forum, held in Adelaide, to target expatriate Chinese investors and business people resident in South Australia

• the annual Consultation Forum between the South Australian Government and the Chinese Embassy, held alternately in Adelaide and Canberra and involving senior Chinese and South Australian Government officials, state-owned enterprises and private enterprises with a focus on direct investment into Australia.

2.1.3 STRATEGIC TARGETING OF DIRECT INVESTMENT INTO WORLD-CLASS SOUTH AUSTRALIAN BUSINESSES, PROJECTS AND COLLABORATION INITIATIVES

Invest in South Australia is currently identifying opportunities suitable for Chinese investment, defining the relevant investor profile for each opportunity, engaging with those investors, and facilitating the investment.

The identification of opportunities has been completed for agriculture, copper, iron ore, uranium, petroleum and renewable energies. Information has been consolidated for each sector – defining South Australia in the global context; outlining the various commercial, geological and regulatory factors that influence investment decisions as they relate to South Australia; and summarising each opportunity to create a central information source for inbound investors based on public information.

The next stage will be the identification of the possible investor universe, ascertaining the appetite of the particular players and providing information tailored for an investor or company. The information will be distributed through direct contact, public relations (including journal articles) financial intermediaries and conferences.

Invest in South Australia has begun building relationships with the Chinese Central Government’s key economic agencies, including the National Development and Reform Commission (NDRC), the State-Owned Asset Supervision Administration Commission (SASAC), the Ministry of Commerce (MOFCOM) and the People’s Bank of China. The key messages being conveyed relate to stability, open investment policy and a transparent regulatory system.

Sector information documents will be translated into Chinese characters and provided to key government agencies for distribution to relevant state-owned enterprises. South Australia has proposed that MOFCOM and SASAC bring delegations from state-owned enterprises to South Australia to further investigate opportunities.

Working in parallel, Invest in South Australia is leveraging its network of financial intermediaries active in China to search for investment opportunities for state-owned enterprises and private clients. Sector information documents will be presented to investment banks and advisory houses, and technical support will be provided by State Government experts who will educate the wider investment community about opportunities for investment in South Australia. Invest in South Australia will identify other financial intermediaries and opinion leaders who can promote South Australian opportunities to the broader Chinese market.

All of this is expected to lead to a significant response from the Chinese investment community and result in requests for information about specific projects, visits by delegations, company introductions, site tours and other due diligence

International Research Grants available through the Premier’s Research and Industry Fund provide assistance worth up to $100,000 a year for three years to encourage research collaborations between South Australia and countries such as China. Investment in research and innovation is internationally recognised as one of the most beneficial methods available to improve economic performance.

CASE STUDY


exercises. Invest in South Australia will operate as a point of introduction to experts within various government agencies – including the Department of State Development – who can provide case and account management, assistance with regulations, and sector-specific information.

The South Australian Government is building a relationship with the Bank of China International (BOCI), the investment arm of one of China’s largest state-owned banks. BOCI has an impressive list of large-scale SOE clients who are beginning to explore overseas opportunities in the minerals and resources sector. The aim of building this relationship is to present South Australia’s value proposition to BOCI clients who have a charter to invest in the global market in sectors of relevance to our State.

CASE STUDY

2.2 KEY ACTION 2: COORDINATE AND LEVERAGE GOVERNMENT ACTIVITY TO BUILD A TRADE AND INVESTMENT FRAMEWORK FOR BUSINESS

The State Government will develop a rich network of strategic relationships with China at multiple levels of government and, in building the effectiveness of South Australia’s high-level political and diplomatic engagement with China, raise the State’s profile to create an important framework for trade, investment and collaboration.

Effective and immediate implementation of this action is essential for South Australia’s successful engagement with China. Consultations during the development of the Strategy underscored the fact that many businesses appreciate the significance of government relationships in China and value the role that state and local governments can play in facilitating introductions to key Chinese decision makers.

The South Australian Government will:

2.2.1 TARGET MINISTERIAL LEVEL ENGAGEMENT WITH CHINESE CENTRAL GOVERNMENT DEPARTMENTS, STATE-OWNED ENTERPRISES AND THE CHINESE EMBASSY IN AUSTRALIA TO PROMOTE SOUTH AUSTRALIA’S WORLD-CLASS OFFERINGS

The Chinese Central Government determines the policy for the Five-Year Plans, which are then implemented at the local level. Central level state-owned enterprises are the most likely to invest in international major projects due to the scale

of investment and the internal approvals required by China’s risk-averse regulators. These central level entities are driving the country’s ‘go global strategy’. South Australia must form strong, trusted relationships at this level if it hopes not only to attract investors into large-scale major projects but also succeed in having investment approved by regulators.

To support the implementation of initiatives in this Strategy and leverage the work of Invest in South Australia, the State Government will:

• develop a coordinated program of targeted missions for the Premier and State Government Ministers. This will help build relations with the Chinese Central Government ministries involved in international trade and investment decisions and reinforce the State’s preparedness to welcome Chinese investment

• ensure official representation at key events in China (such as the annual China Mining conference) where there are opportunities to develop and build key ministerial relationships

• support and leverage the consultative platform established with the Chinese Embassy in Australia.

2.2.2 STRENGTHEN RELATIONSHIPS WITH COMMONWEALTH GOVERNMENT STAFF RESPONSIBLE FOR KEY STRATEGIC INDUSTRY SECTORS LOCATED IN IDENTIFIED CHINESE MARKETS

The Commonwealth Department for Foreign Affairs and Trade (DFAT), Austrade and embassy and consular staff in China routinely engage with Chinese Central Government departments, state-owned enterprises and private firms in relation to investment and trade issues and opportunities in Australia.

South Australia will maximise opportunities for collaboration and resource sharing with Commonwealth officials, in particular DFAT, embassy and consulate officials, and Austrade’s network of trade commissioners.

Austrade has recently restructured to pursue a more focused approach to growth markets and investment attraction activities. Its direction is more broadly aligned to South Australia’s goals, and we will seek to complement its value proposition and avoid duplication where possible.

2.2.3 STRENGTHEN AND FOCUS MINISTERIAL AND SENIOR DEPARTMENTAL ENGAGEMENT WITH SHANDONG AND OTHER PROVINCIAL GOVERNMENTS TO BUILD ON EXISTING RELATIONSHIPS

Strong forces reflected in the objectives of China’s 12th Five-Year Plan are driving the growth of second and third-tier markets and cities. Shandong Province, with which South Australia has a 26-year sister-state agreement, is home to several of these dynamic growth centres. South Australia will work to leverage this important government-to-government relationship to help foster commercial opportunities. This


Shandong-focused activity will also provide experience and lessons for broader engagement with other second and third-tier growth markets.

In April 2013, the Premier of South Australia will travel to Shandong to meet the provincial government leadership to exchange, assess and review investment ‘products’. It is expected that agreement will be reached on areas of bilateral trade and economic cooperation and that investment opportunities that could be pursued between the jurisdictions will be identified.

The South Australian Government will distribute information about the results of this mission to the local business community to test market interest in pursuing opportunities within Shandong.

At the South Australian Shandong Development and Cooperation Forum, planned to be held in Adelaide in 2013, the final agreed targeted areas of economic cooperation will be presented. The forum will provide an opportunity for the South Australian business community to meet key Chinese decision-makers. Both governments will provide appropriate guidance to facilitate connections and discussions.

Shandong is a widely recognised and respected cultural centre in China. In recognition of this, Adelaide’s 2014 OzAsia Festival will be dedicated to Shandong – the aim being to

promote and deepen cultural exchange and awareness between South Australia and its sister province. It will be the first time a province of China has been honoured by being the central focus of an Australian cultural festival.

South Australia will explore further bilateral relationships with other provincial governments in second and third-tier markets, possibly with the assistance of the Shandong Government.

Held annually, the OzAsia Festival is the only large national event devoted exclusively to exploring links between Australia and the diverse cultures of our Asian neighbours. Since the Festival’s establishment in 2007, over 23 artists from China have been featured in its programs. Through this, Adelaide is cementing its reputation as a national hub for Asian-Australian cultural initiatives.

CASE STUDY


(Photo courtesy of University of South Australia)

P 20 SOUTH AUSTRALIA – CHINA ENGAGEMENT STRATEGYP 20 SOUTH AUSTRALIA – CHINA ENGAGEMENT STRATEGY

10 Australia in the Asian Century White Paper, Commonwealth Government of Australia October 2012.

2.2.4 COLLABORATE WITH LOCAL GOVERNMENT TO ESTABLISH AND NURTURE GOVERNMENT-TO-GOVERNMENT AND CITY-TO-CITY RELATIONSHIPS IN SECOND AND THIRD-TIER MARKETS

Local government has a vital role to play in establishing and nurturing government-to-government relationships in second and third-tier Chinese cities and providing an important business engagement framework for South Australia’s small and medium enterprises (SMEs).

These links are critical to broadening the State’s engagement with China where the scale and scope of demand is better matched by the capacity and capabilities of our local and regional economies.

Local government and second and third-tier Chinese city relationships can complement state-to-province relationships. Together, they can significantly and strategically deepen business engagement for South Australian SMEs.

The State Government will collaborate with local government to nurture these strategic city relationships.

In July 2012, the Playford City Council and the Confucius Institute of the University of Adelaide signed a memorandum of understanding (MoU) to jointly promote the learning and better understanding of China and its culture within Playford. The Confucius Institute is providing cultural training seminars to help local organisations better understand how to do business in China. The City of Playford is promoting the teaching of Mandarin in local schools, and is involved in developing community cultural events.

CASE STUDY

2.2.5 ENGAGE EXPATRIATE SOUTH AUSTRALIANS AND SOUTH AUSTRALIAN UNIVERSITY ALUMNI IN CHINA

The Premier of South Australia will bring together South Australians living and working overseas to network and help promote our State in China.

The expatriate South Australian community, although still quite small in China, will act as a sounding board for new initiatives to expand South Australia’s interests. The new China Markets Advisory Group will be based on the International Markets Advisory Board in the UK which generates ideas and helps promote South Australia’s many opportunities for investment, education, tourism and migration.

South Australia highly values its Chinese alumni and the contribution they have made to our community. They add to our cultural diversity, generate significant export earnings, their friends and families help boost visitor numbers, and their presence enhances Adelaide’s status as a sophisticated and modern city.

Many of the State’s Chinese alumni have built highly successful careers either here in Adelaide, in other countries, or back in China. They are well placed to be ambassadors for the city and the State. We will enhance our alumni networks and maintain those personal connections to foster stronger economic, social and cultural links.

2.2.6 WORK WITH INDUSTRY, CULTURAL AND COMMUNITY GROUPS TO STRATEGICALLY DEEPEN CULTURAL TIES AND IMPROVE PEOPLE-TO-PEOPLE LINKS

Strengthening cultural ties enables us to strengthen our economic engagement. The Commonwealth Government’s recently released Australia in the Asian Century White Paper10 states that Australia’s links with China ‘…are social and cultural as much as they are political and economic. Improving people-to-people links can unlock large economic and social gains.’


The South Australian Government supports strategic industry, cultural and community group initiatives that complement and deepen South Australia’s overall engagement with target markets in China.

Examples of that support include:

• the development of relationships between South Australian universities and schools and their Chinese counterparts in target markets. Research and education links, where there are established state and local government relationships, provide an excellent platform to highlight South Australia’s value proposition and further penetrate a target market

• cultural initiatives, activities and events, such as the 2014 OzAsia Festival, dedicated to Shandong

• established business and community relationships in target markets.

The South Australian Chinese community is one of our largest ethnic communities and represents significant potential for the development of critical relationships. Chinese languages are spoken in the home by more than 25,000 South Australians (according to the 2011 Census) and China continues to be a major source of skilled migrants and students.

CASE STUDY

2.2.7 COORDINATION WITHIN AND ACROSS GOVERNMENT TO ENSURE A FOCUSED AND CONSISTENT MESSAGE ABOUT THE STATE’S ENGAGEMENT PRIORITIES, AND TO FACILITATE CROSS-SECTOR INITIATIVES THAT BUILD ON SOUTH AUSTRALIA’S VALUE PROPOSITION

There are, and will continue to be, significant opportunities for different sectors to collaborate and cross-leverage activities to develop relationships and/or enrich the value proposition being put to the target Chinese markets.

For example, the education and tourism sectors could leverage an increase in the number of direct flights to Adelaide from targeted regions in China by jointly developing strategies to increase the number of students and tourists.

Projecting a consistent message about the State’s strengths and offerings will aid our efforts to break into new markets.

Leadership and cross-sector coordination through a central agency will be vital to the implementation of many of the initiatives in this Strategy.


South Australia values its Chinese alumni and the contribution

they make to the community.


2.3 KEY ACTION 3: BUILD AND SUPPORT CHINA-READY SOUTH AUSTRALIAN BUSINESSES

The State Government will implement a range of initiatives to assist business to better engage with China.

In collaboration with key industry and community bodies – as well as other entities with Chinese expertise – the South Australian Government will support initiatives to facilitate knowledge sharing and skills development so that businesses can engage successfully with China to attract trade and investment.

The State Government will:

2.3.1 DEVELOP AND DELIVER IN COLLABORATION WITH INDUSTRY PARTNERS A CHINA BUSINESS EDUCATION PROGRAM AND ASSOCIATED ACTIVITIES AND SERVICES

Government will work through representative industry bodies and existing China specialist trainers to identity programs that support business engagement. It will do this by:

• facilitating the development of a better understanding of Chinese business culture

• targeting the development of specific sectoral and business opportunities

• supporting analysis of specific second and third-tier markets where government has established a business-to-business framework

• working closely with organisations that conduct outbound trade missions with local businesses.

2.3.2 ASSISTANCE FOR SOUTH AUSTRALIAN SMES EXPORTING TO CHINA

The South Australian Government will support local small and medium enterprises (SMEs) exporting to China. It will:

• continue to partner with the Commonwealth in the TradeStart program, funding advisers in metropolitan and regional areas of the State

• deepen relationships with relevant China-focused chambers of commerce and business associations to:

- help facilitate alternative market-entry strategies, such as the use of existing licence holders, Hong Kong-based agents or online sales

- build a network of local business champions and Chinese business migrants with successful track records in exporting to China, and then link this network with SMEs looking to engage with China

- build a network of South Australian companies experienced in working with Chinese investors or partners to accelerate learning for other companies looking to follow

‘Core sample’ at Carrapateena, South Australia


• work collaboratively with Austrade and its senior trade commissioners in China

• build and make available a database of South Australian-based service providers with specialist knowledge about, and connections with, the Chinese market. The aim is to help SMEs embarking on business in China to more efficiently find options for legal, financial, accounting and other relevant professional assistance

• compile a list of service providers who conduct cultural training and short courses on ‘China literacy’ and make it available on the the Department of State Development website

• contribute to the development of the Commonwealth’s Free Trade Agreement negotiations with China, monitoring progress and communicating in a timely manner the opening of new trade opportunities that result from these bilateral agreements.

2.3.3 GROWING, ENGAGING AND LEVERAGING SOUTH AUSTRALIA’S LOCAL AND EXPATRIATE CHINESE COMMUNITY

Many South Australian businesses, organisations and individuals have strong networks and considerable experience and expertise in engaging with China. There is a significant opportunity to harness the value of this expertise to support a broader engagement by South Australian businesses. To help facilitate this, the South Australian Government will:

• work to bring together South Australia’s community of Chinese business migrants with the broader business community to share experiences and networks

• work with China-focused business chambers and other organisations that support networking and mentoring activity within and between the South Australian Chinese business community and the broader business community

• encourage local businesses to consider employing ‘China literate’ talent – drawing on the vast pool of South Australian-qualified Chinese students seeking a long-term

future in the State, as well as the growing pool of China-literate South Australian students

• deepen the pool of quality Chinese business migrants by continuing to promote South Australia as a desired destination for migration. This will be done through Immigration SA

• increase the number of post-graduate Chinese students engaging with South Australia businesses. Encourage links between students and industry to enrich the students’ educational experience and provide companies with exposure to Chinese culture.

2.3.4 WORKING WITH EXISTING CHINA-FOCUSED BUSINESS, EDUCATION AND CULTURAL ORGANISATIONS THAT ALIGN THEIR ACTIVITY WITH IDENTIFIED STATE PRIORITIES AND INITIATIVES

A vital component of the delivery of the China Business Education Program will be State Government links with key industry and community organisations and entities with China expertise.

The Government will make available a list of these organisations so that businesses considering engaging with China can explore the benefits of membership. It will also support the activities of bodies and entities that can collaborate with and assist government and industry to build and support China-ready South Australian businesses.

In partnership with the wine sector, the South Australian Government will trial a pilot program for inward buyers. TradeStart and the South Australia Wine Industry Association have developed a Wine Trail designed to introduce a group of substantial Chinese wine importers and distributers to South Australia’s wine industry. This will include an educational wine industry seminar, visits to South Australian wineries and business matching. South Australian businesses will be given support to help them pursue any resulting business opportunities.

CASE STUDY

The Confucius Institute offers a program of tailored Chinese cross-cultural training to help South Australian businesses become more China literate. It also hosts regular China briefings, bringing in leading experts to provide up-to-date knowledge of the most recent developments in China’s political, economic and cultural spheres.

CASE STUDY

2.3.5 COLLABORATING WITH THE COMMONWEALTH GOVERNMENT AND LEVERAGING ITS INITIATIVES AROUND THE AUSTRALIA IN THE ASIAN CENTURY WHITE PAPER

The development of the Commonwealth Government’s White Paper Australia in the Asian Century recognises the importance of future planning to actively position Australia for future engagement with Asia. Initiatives that support effective engagement with China feature significantly throughout the document.

The South Australian Government will support Commonwealth Government initiatives in the White Paper, where its objectives complement this Strategy. Specifically, it will seek to leverage opportunities for alignment where they augment South Australian resources and effort .


2.4 KEY ACTION 4: REFOCUS GOVERNMENT RESOURCES TO SUPPORT THE STRATEGY

Reflecting the importance of China to South Australia, the State Government will build a ‘China Team’ to coordinate, monitor and evaluate all China-related initiatives proposed in the South Australia-China Engagement Strategy.

To successfully implement the key actions that will strengthen our engagement with China, the State Government will refocus its resources in the following ways.

2.4.1 THE APPOINTMENT OF A STRATEGIC ADVISER

An expert Strategic Adviser on China will be appointed to provide support, advice and input into the implementation, assessment, review and evolution of this Strategy. This person will be an important conduit between government and industry, providing leadership and facilitating cross-sector coordination and leveraging of initiatives.

The Strategic Adviser will provide assistance with planning and supporting significant inbound and outbound government and industry missions, and help to facilitate connections between Chinese investors and South Australian opportunities. The person appointed will have a successful track record in building business links with China, and an understanding of Chinese decision-making frameworks and of all levels of government.

2.4.2 BUILDING A SPECIALIST TEAM WITHIN THE DEPARTMENT OF STATE DEVELOPMENT

Establish a ‘China Team’ to implement, review, assess and evolve this Strategy. The team will consist of:

• the Strategic Adviser on China

• the Director – China, a dedicated expert based in South Australia

• expert China-based resources, with a strong commercial investment focus.

This means that dedicated resources and expertise within the Department of State Development will be working alongside the State’s commercial representation in China to:

• enhance the delivery of high-quality economic outcomes

• maximise strategic alignment to focus on the major opportunities identified through the implementation of this Strategy’s key actions

• strengthen the connections between key players in China and South Australian businesses, industry associations and government

• better leverage our local and in-China expertise

• ensure there is flexibility to respond to tactical opportunities as they arise.

The Department of State Development will have operational responsibility for this Strategy. The Director – China will be responsible for optimising connections for South Australian businesses (SMEs and larger corporates) in target sectors. At the same time, South Australia’s commercial representation in China will focus on aligning target Chinese companies with direct investment opportunities in South Australia.

The China Team will be fully networked with Invest in South Australia, the Department of Premier and Cabinet’s Office of International Coordination and other Government agencies. The Team will establish an annual internal review process to test and report on the progress and effectiveness of this Strategy.

The Government will also pursue opportunities flowing from the Federal Roadmap to Navigate the Asian Century. This includes initiatives that focus on skills development, Chinese language development and cultural understanding, funding for innovation, new collaborative relationships and business models to connect SMEs with the China market, and planning for South Australia’s long-term infrastructure needs.

The Government will also seek to maximise uptake of the Australia Awards (Asian Century) scholarships to encourage people-to-people links with China.


Starfish Hill Wind Farm, Fleurieu Peninsula Moving ore, Prominent Hill



In 2011, the Economic Development Board recommended that South Australia develop a strategy to better align our engagement with China.

The former Department for Manufacturing, Innovation, Trade, Resources and Energy (DMITRE), now the Department of State Development, led the development of this Strategy, in collaboration with the South Australian Chapter of the ACBC. A Directions Paper, South Australia – China Partnership: A Shared Future was published in April 2012 to stimulate discussion within the business community and generate ideas.

In launching the Directions Paper and kick-starting the Strategy’s development process, the Minister for Manufacturing, Innovation and Trade, Tom Koutsantonis, said: “I am keen to ensure this Government’s support is coordinated and aligned to assist the key business sectors to build stronger partnerships with China and grow this opportunity”.

The guiding principle for both the Strategy’s development and its prospects for success has been to enshrine a long-term partnership between government and business.

3.1 THE CONSULTATION PROCESS

The launch and subsequent broad distribution of the Directions Paper was designed to stimulate thinking and elicit feedback. It was translated into Chinese so it could be distributed to and discussed with a range of Chinese stakeholders.

The Paper and the development process were promoted at a range of presentations by DMITRE and ACBC at various industry roundtables, events and forums. Workshops were held with key business and industry stakeholders in the sectors11 identified as having the best opportunities for the expansion of trade and investment.

DMITRE and the ACBC consulted with local governments that have, or are exploring, relationships with China. Of particular value were those where relationships have led to the creation of vibrant local communities, new trade partnerships for local businesses and, in some cases, the attraction of direct investment.

Input was also sought from:

• Chinese-based experts and stakeholders in the Australia-China bilateral relationship

• across government, including senior Australian Embassy, Consulate and Austrade officers in China.

Public and individual submissions were captured through DMITRE’s website.

Strategies already in place, or currently being developed, helped inform discussion and analysis. They came from sectors including education, agri-food, wine and tourism.

3.2 QUESTIONS POSED

Key questions posed to business in the Directions Paper – and addressed through workshops – included:

3

11 Directions Paper, Section 5 (mineral resources and energy, clean technology, water and environmental management, agriculture, forestry, seafood and wine, manufacturing, education, tourism, services).

WHAT INFORMED THE STRATEGY?

1. Where does your business or industry see the greatest opportunities in China – by industry sector or niche, or by specific location?

2. What challenges has your business faced in China? Are there restrictions (such as tariffs, technical or regulatory barriers) in particular market sectors that you would like to see addressed?

3. Are supply constraints in South Australia holding your business back from capitalising on opportunities in China? How could these be addressed?

4. What form of business model has your business adopted in relation to China (for example, dealing with trading companies, distributors, direct investment, joint venture) and what has been successful in developing these relationships?

5. Have you used the services of one of the South Australian Government’s commercial representatives in China?

6. Has South Australia engaged with China in a cultural sense? What more can be done to promote greater China literacy in South Australia, including through education and by industry?

7. How could South Australian business make better use of the Chinese community in South Australia – or Chinese students who have studied in South Australia and returned to China – to develop business opportunities in China?

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These workshops revealed that South Australia’s priority sectors are at very different stages of development in their engagement with China.

One of the key objectives of the consultation process was to find links and synergies between South Australia’s

supply-side strengths and Chinese demand, and South Australia’s development objectives and the direct investment aspirations of Chinese companies.

The key sector-based opportunities for engagement with China identified in the course of these workshops are:

MINERALS AND ENERGY

• Ideally positioned to supply the Chinese need for mineral and energy resources (including copper, gold, iron ore, uranium, zinc and mineral sands)

• Opportunities to attract direct investment to all parts of the value chain

• Increasing opportunities to co-develop resources with China partners

• Opportunity to distinguish South Australia from other mining jurisdictions through simplified case management and statutory approvals processes

TOURISM

• Investment in tourism infrastructure linked to demands of the fast and growing Chinese market

• Increase number of direct flights

• Investment in designing tourism experiences aimed at Chinese high-end tourists

• Promote South Australia as a desirable holiday destination through joint food and wine initiatives

EDUCATION

• Promote South Australia as an attractive destination for Chinese students looking for a safe, affordable learning environment

• Opportunities to ‘train the trainers’ in China as a path to developing strong links with Chinese education institutes

• Promote courses with strong South Australian expertise (sustainable development, food health, resources industry training) to potential Chinese student audiences

• Co-funding/joint research and development projects, often facilitated through growing links with alumni

WINE

• Potential for the export of premium South Australian wine due to increased appetite for imported quality wine and increasing Chinese recognition of the quality of the South Australian brand

• Wine producers explore further opportunities to partner with China’s established distribution chains

• Niche wine labels explore opportunities to be sole suppliers to Chinese state-owned enterprises and private businesses adopt quality wines as their private label and distribute to staff and guests during festivals

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(Photo courtesy of Santos Limited)Minerals and energy will help position South Australia to supply China’s needs.


AGRIBUSINESS

• Ideally positioned to meet a growing Chinese demand for high quality seafood, grain, meat and wool; China is increasingly aware of the high quality of South Australian produce

• New export channels open in target markets (including Fujian province) leveraging South Australia’s reputation for food integrity and sustainable production

• Service opportunities to assist China to develop expertise in the production and regulation of clean and safe food

• Opportunities to attract direct investment into increased production and associated cold-chain storage and food processing facilities in South Australia

CLEANTECH

• Strengths and expertise in services and know-how associated with dry-land/ smart irrigation, water policy, waste management, renewable energy/off-grid power

• Industry associations are exploring opportunities for services and are in a position to form clusters of relevant SMEs to deliver according to the scale required

• Opportunities exist in areas where China cannot develop its own solution quickly and it makes commercial sense to ‘buy in’ a solution

SERVICES

• Opportunities to promote South Australia as a world-class centre for simulation related services and other knowledge intensive services

• Adelaide-based offices in financial, legal, banking and other services cooperate with their China-based counterparts to facilitate client introductions to key investment products in South Australia

ADVANCED MANUFACTURING

• Opportunities to export value-added services, including design, systems integration and specialised engineering consulting services, as well as innovative components

• New business and service delivery models required to develop high-value propositions

• South Australia will innovate in areas where it already has advantages


South Australia will innovate in areas where it already has advantages.


3.3 COMMON CHALLENGES FOR BUSINESSES ENGAGING WITH CHINA

The consultation process identified common themes and challenges facing South Australian businesses in their engagement with China.

These include:

3.3.1 QUALIFYING AND QUANTIFYING THE OPPORTUNITY

Identifying and qualifying the precise opportunity China offers as an export market or a source of investment requires experience and ‘China literacy’ (business and cultural understanding). South Australian businesses recognise that industry groups play an important role in understanding the sector and are valuable sources of knowledge in this regard. However, they are unsure where, when or how to approach these groups. Many businesses want the opportunity to cluster or work with other established ‘China hands’ on their entry to the market but are unsure how best to make these connections.

3.3.2 THE CHALLENGE OF SCALE

Where a demand in China is identified, understanding the scale of supply is the key to delivering a successful outcome.

Many SMEs that adopt a first-tier market entry point to China find they simply do not have the scale of production to meet the expectations of Chinese customers. While there is clear interest in the quality of the South Australian product, the SME lacks the scale of production to deliver on first-tier market expectations.

Businesses need to find the appropriate market for the product or service they wish to provide and understand whether supply can meet demand. Second-tier and third-tier markets, where scale is more likely to be met, may represent a better opportunity for market entry. These markets are a key focus of this Strategy.

In some instances, the challenge of scale can be met through Chinese direct investment itself, as this can help build the economies of scale required in a number of industry sectors, including resources, agribusiness, wine, clean technologies, and research.

3.3.3 MARKET ENTRY COMPLEXITY

‘Where do I start?’ or even ‘how do I know if I am in looking in the best place for my product?’ were common refrains – not only from businesses just beginning to engage with Chinese markets but also from those with some experience.

At the roundtables, in particular, different businesses and sectors related a variety of experiences of dealing in and with China – often related to their choice of market- entry strategies.

China is not one market. Beijing, Shanghai and Guangzhou are all well developed markets with large populations and high incomes, and correspondingly high costs. Second and third-tier markets with different characteristics are developing throughout China as urbanisation spreads beyond the major cities. As a result of planned industrialisation, these markets tend to build industry clusters – for example, agriculture and foodstuffs in Shandong; minerals and energy in Inner Mongolia. Understanding these clusters can help to guide South Australian business to identify opportunities.

3.3.4 THE IMPORTANCE OF ‘CHINA LITERACY’

While many businesses have operated for generations and therefore have developed skills and strategies for dealing in traditional markets, due to its recent, rapid rise there is a dearth of experience in engaging with China.

Many businesses recognise the need to develop China literacy within their businesses but are not sure how or where to begin that process.

Increased exchanges between China and South Australia are improving our mutual cultural understanding. China literacy does not mean simply understanding the spoken language, but also the cultural differences in a business setting.

3.3.5 SEEING BEYOND THE HORIZON

Businesses dealing with China reflected that keeping on top of an ever-changing market is challenging. China’s regulatory environment is under constant revision and it is crucial to be aware of the Central Government’s policies and plans. Long-term planning has been one of the keys to China’s success, but the pace of economic transformation makes it important for businesses to look to the future and be aware of the drivers of change.

South Australian businesses sense the need to stay abreast of these drivers but are not sure where to seek such information.

Similarly changes to migration and foreign investment regulations influence Chinese investment.

3.4 KEY CONSIDERATIONS WHEN ENGAGING WITH CHINA

Consultation workshops demonstrated that businesses are broadly aware of a range of business, political and cultural considerations that must be understood if South Australia is to engage effectively with China. Key considerations include:

3.4.1 RELATIONSHIPS MATTER

In China, personal relationships are important in business. Long-term friendship is the foundation of successful business partnerships. Mutual trust and respect create the perfect environment to conduct business.


3.4.2 PRIVATE LABELS

Private labels are highly valued in China. Packaging and branding a product being exported to China can benefit from the use of a design more recognisable within that market, and local knowledge and partner feedback can help exporters to refine their approach.

3.4.3 GOVERNMENT MATTERS

Successful businesses recognise the importance of the role of government in doing business with China.

Although China has a thriving private sector, Government’s role in the Chinese economy is pervasive, with state-owned enterprises accounting for 50 per cent of GDP and some 70 per cent of all China’s listed companies. Multiple layers of government and government-organised industry associations also play key roles in influencing decision-making. Government involvement in business is expected and government information is trusted and highly valued. This makes the effective leveraging of official and government-to-government relationships essential for South Australia’s effective engagement.

While the State Government can provide the framework for engagement with China, the effectiveness of the actions outlined in this Strategy depend on the trade and investment intentions of local businesses and institutions, and their willingness to explore and enter the market.

A central role of governments in economic development is the provision and leveraging of strategic information, and building common and cooperative action plans to position their economies to be on the winning side of change. This approach enables accelerated learning, together with better facilitation and coordination of effort. Directing effort and resources to high-value propositions is of key importance.

3.4.4 SOUTH AUSTRALIA’S RELATIONSHIP WITH SHANDONG HAS SCOPE FOR GREATER RETURNS

South Australia and Shandong Province began a sister-state relationship in 1986. It is a partnership that has encouraged a rich academic and cultural exchange.

Shandong has grown significantly during three decades of ‘opening up’ and reform and is now China’s third largest provincial economy. As a result of our longstanding relationship, Shandong province is already familiar with South Australia’s strengths across a broad range of sectors.

Building on the strong foundations established through a quarter of a century of cultural exchange, South Australia and Shandong have agreed to pursue a more fruitful economic and commercial relationship through a more structured engagement.

Our two governments have agreed to work more closely to identify how best to strengthen their economic relationship. They have initiated a strategy to more thoroughly explore each other’s economic capabilities and opportunities, with the aim of achieving mutually beneficial flows of trade and investment.

The South Australian Government will develop specific investment ‘products’ to help target Chinese direct investment into our key sectors, at the appropriate phase of development. Complementing this will be a comprehensive package of advice about the State’s unique selling points – competitive advantages and trade opportunities in each key sector; world-class regulatory and service frameworks; and effective services to facilitate investment – all of which demonstrate South Australia’s welcoming attitude to Chinese investment and trade.

The Shandong Government will similarly prepare a comprehensive package of trade and investment opportunities for South Australia’s consideration.

Understanding the scale of supply required is the key to meeting China’s demands. (Open cast pit, Fushun, China)


3.4.5 THE EMERGENCE OF SECOND AND THIRD-TIER MARKETS

A 2009 McKinsey and Company12 study divides China into 22 clusters or groups of cities that are developing around one or two large hub cities (see map). These clusters are different in demographic profile, language and consumer preference. Each cluster is defined by income, location, industry

structure, economic linkages and trade flows between cities, government policy, and common consumer attitudes and preferences. The study suggests that businesses could position themselves more competitively in the China market by focusing on one cluster group and not spreading themselves too thinly across such a vast country.

Hohhot

Taiyuan

XianZhengzhou

Mid lowerYangtze River

ChongqingChangsha Nanchang

HefeiChengdu

Kunming Guangzhou

Nanning

Shenzhen

Xiamen-Fuzhou

Hangzhou

Shanghai

Nanjing

Shandong

Dalian-Shenyang

Changchun-Harbin

Beijing-Tianjin-HebeiCHINA

12 2009 Annual Chinese Consumer Study, Part II One Country, Many Markets – Targeting the Chinese Consumer with McKinsey Cluster Map.

Cluster name (# of cities)

MEGA CLUSTERSBeijing-Tianjin-Hebei (37)Shanghai (19)Shandong (67)Hangzhou (38)Guangzhou (24)Nanjing (27)Shenzhen (2)

LARGE CLUSTERSDalian-Shenyang (30)Xiamen-Fuzhou (42)Mid lower Yangtze River (42)Zhengzhou (40)Changchun-Harbin (36)Chengdu (29)Hefei (29)Changsha (28)Xian (15)Chongqing (6)

SMALL CLUSTERSNanning (28)Nanchang (22)Taiyuan (19)Hohhot (10)Kunming (16)

China cluster map


The consultation workshops provided not only valuable information but also the foundation for the development of this South Australia-China Engagement Strategy.

The Department of State Development and the China Team will have operational responsibility for its implementation, and work closely with key non-government partners, including businesses and the education sector, as well as with Invest in South Australia, the Office of International Coordination, and other government agencies.

To maximise the impact of the Strategy, dedicated resources with Chinese expertise within the Department of State Development will align with the State’s commercial representation in China. This delivery framework brings together a single team designed to provide the greatest likelihood of delivering:

• high-quality economic outcomes

• enhanced strategic alignment to focus on the major opportunities identified in the Strategy

• maximum connectivity of South Australian businesses, industry associations and government to key players in China

• leveraging of expertise

• flexibility to respond to tactical opportunities as they arise.

The Department of State Development’s Director – China will be responsible for optimising connections for South Australian businesses in target sectors. At the same time, South Australia’s commercial representation in China will focus on aligning target Chinese companies with direct investment opportunities in South Australia.

It is vital that this Strategy be assessed against ambitious but realistic targets and key performance indicators. These must also be measurable, meaningful and attributable (that is, targets must be attributable to specific actions undertaken as part of the Strategy). Targets should be relevant to the specific sectors, rather than being measured by a generic dollar value of investment attracted to the State, or exports shipped to China.

Evaluation must also be appropriate to the stage of implementation of the Strategy and the varying levels of maturity of different businesses and sectors. Early targets should focus on ensuring that transactions and engagement are supported through high-quality activities, rather than on specific sectoral or commercial outcomes with longer lead times.

It is also important that the early stages of the Strategy establish clear baselines against which the measurement of results can be undertaken.

The Department of State Development will provide results annually against announced baselines. The China Team will also conduct an annual internal review to gauge progress and effectiveness.

4 IMPLEMENTING THE STRATEGY AND MEASURING RESULTS


It is important that the early stages of the Strategy establish clear baselines against which the measurement of results can be undertaken.


ACBC The Australian China Business Council

CASS China Academy of Social Sciences

DFAT Department of Foreign Affairs and Trade, Commonwealth Government

DSD Department of State Development

FTA Free Trade Agreement

FYP Five-Year Plan

GDP Gross Domestic Product

KPI Key Performance Indicator

MOFCOM Ministry of Commerce

MoU Memorandum of Understanding

NBS National Bureau of Statistics

NDRC National Development and Reform Commission

PBOC People’s Bank of China

PIRSA Primary Industries and Regions SA, Government of South Australia

SASAC State-Owned Asset Supervision Administration Commission

SMEs Small and Medium sized Enterprises

SOE State-Owned Enterprise

APPENDIX 1: GLOSSARY OF TERMS


South Australia has world-class products and services, many of which are required by China for its rapid urbanisation and development programs. Jay Weatherill, Premier of South Australia


DEPARTMENT OF STATE DEVELOPMENT

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GPO Box 1264Adelaide, South Australia 5001DX 452

T. +61 8 8303 2400F. +61 8 8303 2410E. [email protected]

DIVISIONS AND LOCATIONS:

Office of the Chief ExecutiveInvestment, Trade and Strategic ProjectsManufacturing and InnovationStrategy, People and Culture

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Energy Markets and ProgramsOffice of the Technical Regulator

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T. +61 8 8303 2204F. +61 8 8303 2964

www.statedevelopment.sa.gov.au

Published July 2014.

No responsibility for any loss or damage caused by reliance on any of the information or advice provided by or on behalf of the state of South Australia, or for any loss or damage arising from acts or omissions made, is accepted by the state of South Australia, their officers, servants or agents. Produced by the South Australian Department of State Development © July 2014. Content correct at time of printing.

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