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Australian small business is bullish in the China Shop

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For years, Australian entrepreneurs dreamed of riding the Chinese dragon. Now, at last, Aussie SMEs are too busy wheeling and dealing in China to waste time dreaming.

China’s sudden rise in global economic hierarchy is on everyone’s lips. With double-digit economic growth levels for almost two decades, China’s global influence is a major chapter in the 21st century’s global economic story.

In fact, the loosening of China’s economic chains has been so dramatic, the World Bank recently ranked China as the second largest economy on the planet, based on purchasing power.

Australia is no exception when it comes to feeling the impact of China’s influence, particularly in this Olympic year. China now wins the gold medal as Australia’s number one trading partner in goods and services, the silver as our number two export destination (after Japan) and gold again as our number one source of imports. Services exports between China and Australia are also becoming important, particularly in financial services, professional services (such as architecture, law and engineering), education and tourism.

While the story at the top end of town is well-known, the evidence shows that many small and medium enterprises (SMEs) are ‘hugging the panda’ as well.

Austrade’s new research on China bears this out. In terms of companies exporting to China, Australia didn’t even make the top ten in 1989. Today, over 4,250 Australian businesses export to China (on a goods basis alone) putting China in sixth place and ahead of major economies like Japan and Germany. In addition, over 3,000 Australian companies have bases in China. In terms of SMEs, according to Austrade-Sensis research, China ranks with New Zealand, the USA and the UK as a major export destination.

So why is Australia doing so well in China?
First of all, there’s a strong historical relationship. Gough Whitlam’s 1972 visit to what was then Peking – before US President Richard Nixon – kicked things off. Since then, Australia has strongly supported China’s quest to engage more fully with the global economy. Australia’s recent support of China joining the World Trade Organisation (WTO), despite some international opposition, is the most recent evidence of such support. And now with Australia’s new Prime Minister Kevin Rudd being a fluent Mandarin speaker and keen scholar of Chinese history and culture, the Australia-China relationship will surely grow stronger.

Secondly, there’s strong support from Australian business for engagement with China. According to the DHL Export Barometer, in terms of the 12 month outlook, the majority of exporters believe that China will be their number one market for growth, with similar expected results looking five and ten years ahead. Exporters also want more overseas trade representation in China and see the Beijing Olympics as a major opportunity to make high level contacts and learn more about the expanding Chinese economic regions.

Thirdly, the Australian-China trade relationship is growing, but also broadening and diversifying.

In the high-profile resources areas, China’s insatiable appetite for coal, iron ore, alumina and liquefied natural gas has created another resources boom in Australia. The demand for resources in China is also creating a boom in related areas providing services, equipment and technology to mining companies.

China has also created opportunities for Australian manufacturing exporters. Many companies are exporting to China because of the limited size of the domestic market. Mackay-based Longwall Associates is one example. A manufacturer of face conveyors for long wall mines in Central Queensland, Longwall’s 28-mine market in Australia is dwarfed by China’s 1,300 long wall mines.

Aviation equipment is another China market opportunity. Aviation Compliance Solutions (ACS), which was formed by a group of Ansett employees who lost their jobs as a result of the airline’s demise – conducts aviation operational safety and security audits for airlines. It has now conducted audits for 65 percent of China’s airlines – including Air China. It’s a business opportunity that could never be realised in Australia alone.

Professional services are also on the up and up. Australian architects (like PTW, who designed the famous ‘Water Cube’, the aquatic facility for the Beijing Olympics Woodheads and Hassells) are doing very well in China – particularly in the ‘second-tier cities’ for which Beijing is investing much needed infrastructure.

So what of the future? First things first, let’s bring on the Beijing Olympics! Just as it did in Sydney 2000 and at the Commonwealth Games in Melbourne, Austrade’s Business Club Australia (BCA) will host major networking events in Beijing to ensure Australian businesses – large and small – take advantage of the Olympics to meet high level Chinese and international government and business figures. BCA has generated over $1.7 billion in trade and investment deals from previous major events so it is likely that a strong Australian presence in Beijing will significantly add to that tally.

Part of the Aussie contingent will include Telstra, who has joined with Austrade to give 12 Australian SMEs the chance to fly to Beijing during the Olympics and tap into China’s booming economy. It’s a unique partnership that recognises the fact that it’s hard to do business in China without proper advice and good business contacts.

Tim Harcourt is Chief Economist of the Australian Trade Commission and the author of THE AIRPORT ECONOMIST. Read more articles like this on his blog, Economist’s Corner.

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