China’s revolution is being misread

Too much China commentary focusses on the magnitude or rate of change of growth in the country (or rather the lack of it), the risks in the economy and the implications for global growth.

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Bears point to China's 'debt trap', excess manufacturing capacity, real estate troubles, reduced infrastructure and commodities demand, as well as the pressure to weaken the currency.

"Misreading China’s course risks missing important developments and major business opportunities."
Leonie Lethbridge, ANZ Regional Chief Operating Officer in Shanghai

In contrast, pandas (or bulls) focus on China as the world's second-largest economy and the materiality of present day growth rates compared with the past. GDP growth of 7 per cent produces an annual increase of more than $US800bn - a larger impact than the 10 per cent uplift in GDP seen five years ago.

But this analysis, by both bears and pandas, fails to recognise China will grow at a pace of its own choosing. It will avoid a hard landing but reduced growth rates are a consequence of design and choice, not of unmanaged or unmanageable forces.

This is nowhere clearer than in Shanghai, with the recent abolition of the bureaucratic management system that drives departmental and district bureaucrats on the quantum of growth – a powerful lever and now a generational change in growth management.

China misread

To speak of the percentage growth rate or even the quantum of growth of GDP growth is to speak at cross purposes with the conversation China's policy makers, the Chinese market and even Chinese consumers are seeking. The risk is one of two ways of thinking passing like ships in the night.

Misreading China's course risks missing important developments and major business opportunities. The real conversation is one of the nature of the growth and of reform, if not revolution, in the Chinese economy, market and society.

China is being reformed in three fundamental ways.

1. The increasingly urbanised middle class is expanding rapidly and is being encouraged to consume with increasing intensity. This is a group which will increase from the present 300 million people, a population already larger than that of either the USA or Indonesia, to 500 million over the next five years. Importantly though, China's consumers are being enabled and encouraged to consume, invest and access global markets for goods and services.

As a case in point, in the first five weeks of the year and leading up to Chinese New Year, 315 tonnes of gold (105 per cent of global mine output for the period) passed from offshore miners - typically Australian - through the Shanghai Gold Exchange into private hands.

This reflects demand has grown with the relevant regulations, infrastructure and encouragement being put in place by the Central government. From the convenience of their homes or the next-door Starbucks, individual Chinese investors can easily purchase gold online at local banks.

Not only does this reverse historic restraints on purchase of the metal, it taps a deep cultural affinity for gold both as a form of investment and wealth protection, as well as jewellery.

In 2009 China's Central Television, the main state-owned television company, conducted an advertising campaign - the dulcet tones of the voiceover highlighting the ease and benefit of purchasing gold. The effect is a more than doubling of China's share of global private sector demand for the commodity. (see ANZ Research's new gold report.)

2. China is increasingly focussed on environmental sustainability and quality of supply. Air quality, soil pollution and food safety are major social, political and health issues. Air Quality apps are installed on smartphones across China. Demands on resources, including energy and water stress are of concern for both China's government and the people.

Two of four Central Government investment priorities directly address issues of pollution and sustainability.

On the other side of the coin, for consumers, this concern means actively buying foreign food products as a proxy for safe and high quality product.

The China fresh fruit market is valued at $80 billion per year, growing at 15 per cent annum. However markets occupied by online entities such as which supply 90 per cent foreign grown produce are growing at 40 per cent per annum.

Somewhat interestingly given the recent food-poisoning controversy, when Australians are eating Chinese berries, Chinese consumers are increasingly buying Australian cherries, mangoes and apples online.

3. China's growth model is one increasing driven by mass entrepreneurship and innovation. Technological innovation is being harnessed to serve many ends, including giving access to new markets and tackling resource efficiency and pollution.

Premier Li Keqiang's Tianjin World Economic Forum speech mentions innovation no less than 33 times. This is seen as the key to a vigorous micro economy, high employment rates especially for young people, and a more equitable income distribution.

In short, the central government is vitally concerned about actions needed for China to avoid the Middle Income Trap. It is and will take broad-based and coordinated actions to achieve this.

Financial innovation and liberalisation is a theme of the Shanghai Free Trade Zone, which also aims to encourage two-way investment flows across the China border and to internationalise the RMB. Long term, sustained reform is inherent in the Chinese economy and life.

For Australia and Australian businesses, five key responses are needed to play into present and emerging opportunities.

Brand Australia

Australia and Australian businesses will best approach China with a unifying brand and coherent voice; a 'Brand Australia'. A small, fragmented voice will not be heard.

In this respect, the 100-year long Australia-China Agriculture partnership (ASA) initiated by mining magnate Andrew Forrest is a good model. In partnering with China business and government, there is context to explore mutual opportunities and market requirements.

However a key attribute of the model is the Partnership's agreement to market Australian agriculture under one brand. Australia's brand is well received across many parts of Asia. Magnifying this is essential.

Evolving Sophistication

Goods and services need to be geared to an evolving yet highly sophisticated market. Beyond educating Chinese University students in Australia, which is an important contribution to both countries, China is equally ready to educate Australian students in China.

However, China is also experiencing strong demand for ongoing professional education and certification, an area where Australia's brand and capability is highly regarded. The Certified Practising Accountants (CPA) qualification is one example.

This demand will grow with a broadening services sector and a focus on governance and the rule of law. More broadly, this evolution is equally true of individual Chinese investors in the Australian real estate, consumption of agricultural produce, health services or tourism.


There are important opportunities for Australian business to deepen and expand on infrastructure offerings in environmentally sustainable areas.

Water stress is endemic across large parts of northern and western China and sustainable water supply is needed to support urbanised populations and domestic agricultural requirements.

Australia's capability is this area is well regarded and ANZ has had an opportunity to support China water projects in recent years.


There is need to accelerate investment in the innovation capability of Australia, an outcome best achieved in a coordinated approach with business, research entities and government.

Australia has a long history and culture of creating and applying useful technology. Australia's CSIRO invented WiFi, a technology that has enabled low cost internet access, productivity and numerous other benefits across the globe.

However, maintaining relevance to a China focused on development, application of technology, entrepreneurship and creativity, as opposed to predominantly GDP growth will mean keeping pace with innovation. Reform to generate and leverage effective solutions and technologies is at the heart of China's approach. Partners will need to match this.

Act now

Acting with urgency is essential. The recent PWC report 'Passing Us By' makes the point. A mere 9 per cent of Australian business operates in Asia. More Australian capital is invested in New Zealand than in all of Asia. Yet the region contributes 40 per cent of GDP, up from 20 per cent in 1980, and on track to 50 per cent by 2020.

China is the second largest economy globally. Action and policy reform need to support this. .The reform taking place in China and the newly minted Free Trade Agreement signal renewed opportunities – concerted action on them now is the key.

Leonie Lethbridge is ANZ Regional Chief Operating Officer in Shanghai.

Photo credit: Savvapanf Photo /

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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