Land of opportunity

By Chris Rodley

Image of mall in China
There is no denying that China will play a huge role in Australia’s future. In a short time the University’s China Studies Centre has become a prominent voice in this country’s conversations about how best to engage with the powerful nation.

It was the barbecue-stopping issue of the Keating era: does Australia’s future lie with Asia? Today, one might expect the debate to be settled. After all, Australia’s $100 billion worth of trade each year with China, our largest export partner, helped the nation sidestep a global recession.

Yet despite our economic reliance on China, we still maintain the same hesitant, even sceptical, attitude towards that country as 20 years ago, according to Chinese politics specialist David Goodman. “In some ways we have gone backwards,” he says. “There was a buzz in the early 1990s which now needs to be revived.”

Enter the University’s China Studies Centre, founded 12 months ago to take on just this role. The Centre’s permanent leadership team was recently announced: China analyst Dr Kerry Brown, currently head of the Asia program at Chatham House in the UK, will become its new executive director, while Professor Goodman, who piloted the Centre during its first year, will be the academic director.

In its short lifespan the Centre has brought together an impressive range of heavyweight researchers to work on China, from an archaeologist investigating western influences there some 4000 years ago to an anthropologist looking at opportunities for disadvantaged youth in present-day Nanjing. It is becoming a prominent voice in the public conversation on China, continuing a long tradition of agenda-setting by the University of Sydney in this field – the nation’s first Department of Oriental Studies was founded here back in 1918, not long after The Bulletin magazine was depicting Chinese immigrants as rats invading Australian homes.

Need to diversify

One of the Centre’s most high-profile achievements is the Sydney China Business Forum, launched on 29 November last year at Customs House and which will now become an annual event. The symposium brought together an Australian and Chinese business elite with political leaders such as Federal Treasurer Wayne Swan and influential commentators such as Beijing-based journalist Hu Shuli. Much of the discussion focused on one critical issue: how to diversify Australia’s business relationship with China beyond the sale of resources, especially through partnering with Chinese business.

Our nation has long been suspicious of Chinese investment, notes Professor Goodman, despite China’s stake in Australia being dwarfed by that of the US by a factor of 10 to one. He recalls trying unsuccessfully to get the Western Australian Government interested in a visit from a Chinese soft- drink company back in the early 1990s. Snubbed by Australia, that small but entrepreneurial firm – which gained its start selling ice-blocks to a local school – found another foreign partner to aid its expansion, French food giant Danone. Today, the Wahaha beverage company boasts a larger share of China’s soft drink market than PepsiCo.

To clarify exactly how we might benefit from China’s growing drive to invest overseas, researcher Hans Hendrischke from the China Studies Centre collaborated on a report with advisory firm KPMG that was released during the Forum. “Australia is the largest single-country destination for Chinese outward-bound direct investment, but that investment is still 95 per cent in energy and resources,” he explains. Since up to $2 trillion is likely be invested by China overseas in the years leading up to 2020, there is a “compelling opportunity” for Australia to become a strategic business partner in everything from publications and media to pharmaceuticals, he argues.

Infrastructure potential

Infrastructure is one obvious area where Australia may benefit from the growing tide of Chinese investment. China could provide much-needed capital to improve our roads, railways and ports, particularly those necessary for energy and resource projects, Professor Hendrischke says. Funding these vast, multi-billion-dollar infrastructure projects can only be done with syndicated finance, and China’s existing involvement in our resources sector makes it a likely potential partner.

Professor Hans Hendrischke

Professor Hans Hendrischke

Equally, Chinese investment may help to galvanise Australia’s agricultural sector, if community objections can be overcome. (“There are no easy answers: this is an important issue that needs to be argued through,” the researcher concedes.) As well as bringing injections of capital, Chinese investment could help Australian agribusinesses overcome the constraints of their small capacity and – crucially – provide access to booming Chinese markets. Australian knowhow could play a huge role in China’s domestic agricultural production, offering expertise in areas ranging from irrigation techniques to organic farming. (China’s Ministry of Agriculture estimates that the nation is home to more than 6000 organic food producers, with the market growing at around 20 per cent per year.)

Our financial sector could also enter into fruitful partnerships with Chinese investors, according to the joint report by Professor Hendrischke and KPMG. The expertise of Australian banks in areas such as wealth management may offer new revenue streams for both Australian and Chinese financial services institutions. Australia may also have a part to play in the growing role of the “redback” – China’s currency, the renminbi, whose primary unit is the yuán – in the global financial system. Sydney or Melbourne could become centres of foreign exchange trading in the currency, while Australian and Chinese banks could build joint facilities to make payments and settle in renminbi.

These kinds of business partnerships, and other commercial opportunities for Australian firms in China, must be strongly encouraged, says Professor Hendrischke. Indeed, fostering links between Australia and Chinese partners was one of the goals of the Sydney China Business Forum. “The discussions that took place out of the public eye were just as important as the ones that took place on camera,” says Professor Goodman.

However, it is governments of all levels that must play the starring role in promoting Australian interests in China, both researchers agree. And they must do more than simply send trade missions to Beijing. “A tendency is to go there because everything is run from the top, but we need a much stronger focus on talking to partners and promoting our industries at the provincial level,” says Professor Hendrischke.

Grass roots contact

While high-level ties are important, both scholars say it is equally vital to cultivate Australian engagement with China at the grass-roots level. That means better language education in our schools, as well as more scholarships at university level to promote cultural exchange.

China must also become a known and trusted partner rather than an exotic destination for business, says Professor Hendrischke. To achieve that, we must nurture a generation of well-connected business leaders with social and corporate networks that reach into China, and the formal and informal knowledge required to do business there (a new bilingual teaching program at the China Studies Centre, which brings Australian and Chinese students together in the one class, aims to help in this goal).

It pays for Australians to be cautious, though, when relying on informal channels to do business in China. In December, Australian businessman Matthew Ng was sentenced to 14 and a half years in jail for embezzlement and bribery after a dispute with a Chinese state-owned travel company. It follows the 10-year jail term meted out to former Rio Tinto executive Stern Hu for bribery and corporate espionage in 2010.

We need a much stronger focus on talking to partners and promoting out industries at the provincial level

Professor Hendrischke believes those examples do not mean that Australian businesspeople in China are in any special danger simply by virtue of their nationality. “China has formal rules on one side, and a wide array of informal procedures on the other, and if people prefer to work through informal means they face the same risks every Chinese person faces,” he says. The two episodes do suggest, he adds, that Australians must be prudent when operating in an unfamiliar business environment.

The rise of China has captivated Hans Hendrischke ever since the late 1970s, when he was posted there as a young translator for the West German embassy. He still remembers the day he saw two cigarette sellers at Guangzhou railway station daring to sell their wares in public and not being arrested. It was first sign of the seismic impact that would be made by Deng Xiaoping’s pro-market reforms, which fuelled the nation’s economic miracle.

Today, China’s GDP per capita is more than 26 times higher than back then. But more important than how fast the Chinese economy is growing is how its society is changing, Professor Hendrischke says. Its shift to becoming a fully fledged consumer society is creating new demand for goods and services, throwing up many more exciting commercial opportunities for Australia. “And that transition, from a country that takes orders to one that makes orders, is only just beginning,” he says.

A close encounter with China

“There is plenty you can read about China but to really understand it you have to be there,” says economics law student James Kwong, who has just come back from a study exchange to Peking University’s Guanghua School of Management.

Image of James Kwong

James says his experiences, inside and outside the classroom, have given him a much deeper insight into China’s development and how it is perceived. He cites as an example the suburb of Wudaokou, home to Peking University, where dilapidated shacks and hastily constructed lean-tos (including his favourite dumpling shop) are nestled between the luxury apartments and technology parks of China’s digerati.

“Many people did not seem to find it strange or resent the fact that glittering stores such as Louis Vuitton are right next to their houses,” he says. “There’s an overwhelming sense of hope about the direction they’re going in.”

The 20-year-old was one of the recipients of last year’s $5000 Larry Kwok and Gough Whitlam Australia-China Scholarship, created by a gift from Larry Kwok (BEc ’79 LLB ’81 LLM ’86), one of Hong Kong’s best-known corporate attorneys. The award sends undergraduates to Peking University for one semester as a way of promoting better understanding between Australia and China.

A similar theme arose in discussions on campus at Peking University, which was a cradle of the Tiananmen Square protests. Unlike the class of 1989, the students James met seemed sanguine about the future of their country and their government’s ability to lead it. “China has been growing for only 30 years; 30 years before that there was incredible turmoil, and 30 years before that they were in constant war with themselves, Japan or imperial powers,” he says. “This is the first period of constant growth and stability and that’s not something people are willing to jeopardise yet.”