Yet the data tell a different story. China is now the world’s wealthiest economy per head of population. Its appetite for foreign products – exemplified in the astronomic 'Singles Day' online sales – seems insatiable.
" We didn't see business but we kept it going until one day we came back and we had a sale." - Xiaoguang Huang, ANZ CEO China
According to ANZ’s latest Opportunity Asia report, the region to the north west of Australia and New Zealand continues to be not just an enormous opportunity but increasingly an avenue of growth and, yes, profit.
Some key findings are:
- if Australian businesses act on their intention to expand into Asia they could gain an additional $A278 billion in revenue – $A148 billion more than was forecast just a year earlier.
- Australian businesses hired around 670,000 staff to support their Asian export demand in the past three years but to grasp the opportunity another million needs to be added.
- Around 56 per cent of Australian businesses operating in Asia believe profit margins derived from Asian operations are higher than Australian-based operations.
There is no doubt though seizing the opportunity is not straightforward. I was at the launch of this year’s report in Shanghai and there was a fascinating panel who, together with a very engaged audience, debated some of those challenges.
There is now, to match those headline-grabbing catastrophes, a vast catalogue of success stories, particularly in the small- to medium-sized enterprise sector.
Take wine: As Mark Hand, ANZ’s head of corporate and commercial banking, told the launch the China/Australia free-trade deal has "created easier market access and unlocked unprecedented growth in Australian wine exports to China".
“For the first time ever, China has overtaken he United States as Australia’s key destination for wine exports, with sales of $A607 million in 2017,” he said.
Perhaps the fundamental messages from the report and on the night were not a surprise: throughout Asia and particularly in China, engaged and trusted local partners are invaluable; customer education – whether it is around wine, pharmaceuticals or aged care – is essential; persistence and direct engagement on the ground are non-negotiable.
But it is the detail of the experience which was of most interest to the Australian trade delegation present and the Chinese businesspeople.
For example, Gerry Yin, from Aunew Group Holdings which has established a one stop export system to China for more than 100 Australian and New Zealand companies, talked through two key questions.
There is anxiety rules and regulation can be capricious or at least opaque. That can be the case but Yin made the point it is more often a lack of understanding of detail.
“It can be actually something quite minor, an issue with the label for example, but then because you don’t understand the issue, it becomes a big problem,” he said. “It can sometimes be just a registration issue, that it wasn’t registered properly.”
The role for trusted intermediaries then is to 'translate' the on-the-ground regulation, policy and protocols so the producer – who may be quite small – can concentrate on the product. Of course, policy can change, sometimes unexpectedly, which is again where a partner or a strong physical presence is invaluable.
This enormous and ad hoc trade route has taken off in recent years and, while estimates vary enormously, is figured to be worth $US20 billion to $US40 billion annually. Essentially, individuals (and increasingly, organised groups) buy foreign products and ship them independently to China. The system dovetails with huge Chinese e-commerce platforms.
Despite the growing profile of this channel, and the plethora of intermediaries popping up to organise the ad hoc nature, Yin brought a practical perspective.
“They are very active,” he noted, but “actually, by and large, these (people buying the products) are actually young students studying in Australia and New Zealand. They use their spare time and they rush into the chemist shop or warehouse, they grab everything from the shelf and courier it to China.”
“But think about it: what is the quality control? How does that manage regulation, registration? We actually prefer the conventional way of trading. We specialise in health food and complementary medicines.
"Blackmores is one of our customers. These products have to be registered here through food and drug administration.”
Yin believes the daigou channel will be a relatively temporary phenomenon before issues like product guarantees and economies of scale come into play.
“These issues like registration are real and they are predictable – if you follow the right channels. Chinese customers will pay a premium – but if they know the product,” he says.
“So I would prefer the conventional way of doing this because you know your products, you know you can fill four containers at a certain price rather than have hundreds or thousands of students, so you save on costs.”
ANZ’s China chief executive and head of greater China Xiaoguang Huang, a veteran of international banking in the region, believes the SME sector is one of the great opportunities – but he too stressed the need for local knowledge, attention to detail and tailoring the product.
“I really agree about education – I remember when I entered banking in China, selling derivatives. We visited every Chinese bank to have a seminar” he said. "And to introduce what derivatives products are about and why. And we did many, many sessions."
“We didn't see business but we kept it going until one day we came back and we had a sale.”
One of Huang’s favourite examples is Penfolds wine – although in this case, the story was fortuitous.
“I was working for a bank in Sydney and we were at a celebration at the famous Golden Century and I saw they were serving Penfolds Bin 389 (a famous Australian red wine),” he remembered. “I knew it was going to be a success in China because the numbers – 3,8.9 – were very fortuitous and the name ‘Penfolds’ translates as ‘going forward to prosperity’, so straight away I knew.”
Huang believes the emerging middle class in China is where the opportunity for SMEs lies because these are the people searching out new and higher quality products and experiences.