Australia surfs China's wave

There's no shortage of Chinese stories in the Australian business press, particularly with the enormous resource and energy deals that have been forged between Australia and China.

But most of the attention on China focuses on the "big three" - Shanghai, Beijing and Hong Kong-Pearl River Delta (PRD) areas of coastal China. This is no surprise because these places are where all the economic growth and wealth have occurred. Much of this, of course, is by design. For example, Deng Xiaoping, the father of China's market reform, chose the sleepy fishing village of Shenzhen to be a "Special Economic Zone" in 1980. This enabled Shenzhen and the PRD region to be a test bed for Deng's market reforms.

However, during my recent visits to China, I have kept noticing something new happening. After watching the growth in wealth of the big three, western China is keen to get a slice of the action and Beijing is directing resources in their direction. Inland cities such as Chongqing, Wuhan, Changsha and Chengdu are now generating economic growth and attracting infrastructure investment in airports, freeways, factories, offices and apartments for their growing populations.

And despite being told by my Chinese friends that these places are "country towns", I was amazed to see how big they really are. The so-called "second-tier" cities are teeming with entrepreneurship, energy and people. After all, they are truly regional mega-cities not country towns. The Chongqing region is estimated to have 32 million inhabitants, Chengdu 14 million, Wuhan 9.7 million and Changsha more than 6 million.

This is why Trade Minister Craig Emerson is leading a major Australian business delegation to these cities under the banner of "China 2.0" recently launched by Foreign Minister Kevin Rudd together with his trade counterpart. Emerson has been a strong advocate for lifting Australia's profile in China with respect to investment and professional services.

The rise of the interior is also good news for Australian exporters. As in many ways, Deng's PRD vision represented the first wave of modernization with the Shanghai-Pudong region being the second wave. Now the western regions are looking to follow the coastal areas in terms of their own economic development. This will provide great opportunities for Australian companies involved in infrastructure, construction, architecture and environmental design.

For example in architecture, Australian company Hassells has won big contracts in Chongqing. Indeed, Hassells is not alone. Many architects, environmental design companies, and town planners are doing well in regional China as well as picking up the high profile Olympics-based projects in Beijing. PTW Architects, for instance, has bagged big contracts in second- and third-tier cities. This indicates that Australia's export base to China is broadening with professional services and niche manufacturers joining the resource houses and blue-chip corporates.

In fact, according to the latest data, more Australian companies are exporting to China than ever before. Austrade research shows that over 4,800 companies export goods alone to China and 13 percent of all exporting small- and medium-sized enterprises (SMEs) are focussed on the China market. Proportionately more SMEs export to China than the whole of Continental Europe.

So why is Australia so well placed?

The first reason is Sino-Australian diplomacy. Australia has been regarded as a good friend of China since Canberra's recognition of the People's Republic of China in 1972 to Australia's support for China's entry into the World Trade Organization (WTO). The bilateral relationship is strong and this makes a real difference at all levels of government in China whether it be central, provincial or local.

Second, there is strong exporter support for closer economic ties with China. According to the DHL Export Barometer, exporters have given a positive reception to free trade agreements in general, with an agreement with China consistently heading the pack.

Third, as well as having trade interests that are complementary, Australian business skills are well regarded. We are good at running large projects and have a strong professional service culture. Many Australian companies helped Beijing with the Olympics and are now levering this exposure to make strong inroads into western China. And as China needs to lift productivity to move up the value chain, Australian business skills will be at a premium given their track record of success.

Fourth, just as China-Australia trade links are forging ahead, so are the investment linkages. For example, 10 years ago, Chinese inward foreign direct investment (FDI) to Australia was just a trickle at $550 million (or 0.16 percent of total investment), now it is a substantial $12.8 billion (or 2.7 percent). Even in the past year it has grown by 41.5 percent and by 252 percent since the Beijing Olympics.

The attractiveness of Australia to the world in terms of FDI has been illustrated by recent UNCTAD data that show Australia's inward stock growing to almost 3 percent of the world's share in 2010, ranking 12th in the world and third in the East Asian region. China has played an important role in Australia's accession up the ranks along with the success of domestic Australian economic management during the global financial crisis.

Finally, there's the important role played by Chinese-Australians in facilitating trade between their countries. Around 50 percent of exporters are born overseas, and much of our imported business talent comes from China. Many China-born Australians have also returned to China and provide natural links for Australians in China too. People like Jimmy Du of Australian manufacturer Dynalite provide those natural links between Australia and China in terms of social capital.

In conclusion, the world has watched China's economic growth over the past three decades with a mix of admiration and caution. So far it's been a case of the three big coastal regions leading the pack in terms of economic growth but now the rest of the country wants its slice of the action and many Australian exporters and investors are showing that they can catch China's next wave.

The author is chief economist of the Australian Trade Commission and has the book, The Airport Economist, to his credit.

(China Daily 08/04/2011 page9)