Behind the headlines: Why Australian companies are still doing business with China
December 07 2021
The political relationship between Canberra and Beijing started going off the rails in 2016. The first casualty was a diplomatic freeze. In 2020, political tensions spilled over to disrupt around a dozen Australian goods exports. The Australian government responded by loudly urging businesses to diversify as geopolitical risks jumped.
Yet despite the apparent odds, this report documents that Australian executives are still keen on doing business with China and fully intend to continue to do so. This chimes with data from the Australian Bureau of Statistics showing that more Australian businesses are engaging with China than ever before and the annual value of total two-way trade continues to bounce off record highs, $267 billion at latest count.
‘When the tariffs [on Australian wine] happened, everyone said you have to take China off your game plan. But I was like, ‘No, it stays on there’. We remain committed to China, we are just going to work out a different way to achieve it...We continue to have strong engagement across the board with China.’
Tim Ford, Chief Executive Officer, Treasury Wine Estates
We hear directly from business leaders themselves about why their interest and commitment to the China market remains. These are the people who have interacted with China on a daily basis for many years – an experience which is often much longer than the ministerial careers of the politicians of the day. These are also the people with most to lose if things go wrong. Trade strikes have certainly been a wake-up call and business leaders recognise that geopolitical risks have increased. They see benefits from market diversification. The old days – described by one executive as a ‘gold rush’ – are over. But this is only part of the picture.
1. The opportunities in China haven’t disappeared. From natural resources like iron ore and liquefied natural gas (LNG), to quality food products and cutting-edge healthcare, the basic economic complementarities between Australia and China kept shining through. No other market is building more infrastructure or adding more people to its middle-class each year.
‘The growth of Fortescue is intrinsically linked to meeting the iron ore supply gap in China. Today our Chinese customers remain our key market, accounting for almost 90 percent of our FY21 revenue.’
Elizabeth Gaines, Chief Executive Officer, Fortescue Metals Group
2. China is not just a market. It’s a key supplier and collaborator on innovation too. An exposure to China as a market raised awareness around opportunities more generally. Many Australian business leaders no longer see their relationship with China solely through the prism of sales. Rather, it’s viewed as a vital full-spectrum partner.
‘We see China as an enduring partner for our LNG business and also for future development of clean energy and other low-carbon offerings, such as hydrogen.’
Kristine Leo, China Country Manager and Chief Representative, Woodside Petroleum
3. Engaging with China helps with diversifying to new markets. The Chinese consumer and the e-commerce platforms they make purchases on were identified as the most sophisticated in the world. The speed of change in the China market is unparalleled and hard for many in Australia to fully appreciate. This meant lessons gained from the China market could be deployed elsewhere to raise the chances of success.
‘In Blackmores we talk about ‘the China speed’. Things in China can happen very fast. You can lay out the best processes and systems as a company, but you have to make sure you are in touch with the consumer and their changing demands.’
Alastair Symington, Chief Executive Officer, Blackmores
4. Recognising and managing risk is part of what businesses do naturally. Geopolitics is one risk amongst many. Sudden regulatory changes or supply chain disruptions driven by the COVID-19 pandemic often ranked higher on the priority list of risks needing attention. Agricultural exporters have long had to deal with floods and droughts and their goods being unexpectedly stopped and sometimes rejected at borders. And not only in China. Dealing with uncertainty goes with the territory and breeds resilience.
‘The [Chinese] market is much more competitive [today] than it was five years ago or even three years ago...Political and bilateral relationship risks are often relatively minor in the risk matrix (of companies doing business with China). In reality, factors such as supply chain, foreign exchange and customer acquisition are much more ‘mission critical’ to many Australian companies engaged with China.’
Peter Osborne, Taiwan-based business consultant and former Managing Director Asia for Blackmores
5. Market diversification is a priority but not the only risk mitigation strategy. Most interviewees assessed that the amount of exposure they had to China was ‘about right’. Also emphasised was the value of relationships with Chinese business partners and customers that had been built over many years. Having a steady eye on a long-term time horizon further served to put current risks of all sorts into perspective. Others were deliberate with the amount and manner that capital was deployed, conscious that one day a sudden adjustment might be necessary. For some, the logic of diversification applied not only to markets but the product range being sold too.
‘One thing we have been very conscious of China from the start. We didn’t go out… and make it 80 percent of our business. That’s not even about China. We don’t think it is smart to be overly dependent on any country anywhere in the world.’
Sean Hallahan, Chief Executive Officer, Costa Group
These insights from well-placed executives point to Australian business engagement with China being far more durable and resilient than is commonly appreciated. As some observers in this report have said, the strength of the business ties between Australia and China may be the key to its future.
‘There is a lot in common between the Chinese people and Australians. I would like to see the relationship improve. There are opportunities from a business perspective but also opportunities from an engagement perspective as well. It is naïve to think that others will give up that opportunity. The US is not giving up that opportunity.’
Sue Kench, Global Chief Executive, King & Wood Mallesons
Glenda Korporaal OAM is Adjunct Industry Fellow at the Australia-China Relations Institute at the University of Technology Sydney and columnist for The Australian.
To read the full paper please download the PDF