Positivity, profits and prudence: What Brisbane businesses can learn from the Westpac Australia-China Business Sentiment Survey
Words by Jack Brady, CEO and Executive Director of AustCham Shanghai.
Now in its second year, the results from the 2019 Westpac Australia-China Business Sentiment Survey paint a positive, albeit mixed view for people doing business in the fertile grounds of China.
AustCham Shanghai is the peak body for Australian businesses in East China. We represent about 350 predominantly Australian businesses in this part of the world.
For a long time there wasn't a measure of how Australian businesses were tracking in China. But we think it’s vital to understand the $200 billion trade relationship from the very granular grass-roots level.
This year we surveyed about 230 Australian businesses on how they were finding the market. In terms of topline numbers, 71.6% were optimistic about their business outlook over the next 12 months. While that was down about 7% on last year's figures, we see that as a really good result.
When we did the first Survey last year we were actually more optimistic than the British, the Europeans, and the Americans. This year we've dropped back down to about 70%, which we see as a pretty solid and buoyant figure. Over the five-year outlook 81.5% of those surveyed said they were optimistic for their business in China, and that's only down slightly 1.5% on last year's figure.
So that tells us there might be some short-term concerns - like the US-China trade war and the growth of China's economy - but over the five-year outlook Australian firms are still very much optimistic about their business in China.
One of the biggest findings this year was organisations said that doing business in China was stabilising. It wasn't necessarily becoming more difficult or becoming easier, it was about the same as last year. So more respondents are reporting that the ease of doing business is stabilising in China.
Businesses find no major burdens to transacting
China is not the easiest market to set up your structure, navigate regulations, hire staff or pay tax, but more Australian companies are finding their way and saying it's not a major burden to transacting.
Interestingly, more than half of respondents - 56.5% - said the regulatory environment was not transparent but only 25% of respondents said that impacted business outcomes. So there's a recognition that the market is obviously more complex than Australia, but in terms of how that's hampering those that we surveyed, only a quarter said it was slowing them down in terms of doing business.
Off the back of that, we found for 2019 that 78.9% of firms were forecasting profitability. That's up on 62.5% forecasting profitability last year. So that's a good result and while some might be slightly less optimistic, they're more profitable or forecasting to be more profitable.
The trends in Aussie businesses cutting through
As part of the report we featured case studies about Cochlear, Hamilton Island and Tamburlaine Organic Wines, among others, really delving into the why behind their business in China.
The trends in their product offerings and categories is positive, and what we have seen is growth over the last couple of years, particularly in agricultural products and food and beverage products using e-commerce.
But from the Chinese perspective, the true strength of the relationship in terms of the sheer trade numbers are, and continue to be, the mining and resources assets that Australia sells to China to help it power its economy.
However more and more we're seeing both smaller and larger Australian companies, such as Blackmores for example, having success on e-commerce platforms in the Chinese consumer market. That really is the major trend over the past three to five years - the changing face of Australian business in China on the ground.
And while scale obviously helps, Australia does cut a good path in China and has some fantastic products. Especially any industry that can tell a good story. Our food and beverage offering obviously allows Australian firms to leverage being organic, being produced in our clean environment and our provenance story for the Chinese consumer.
The beauty of what we've seen in the past couple of years is that Australian firms can tap into the Chinese market via e-commerce, and then open an office in China at the right time, meaning major scale or major investment is not necessarily required. That really helps Australian businesses get started.
There's no doubt China is a competitive market - we believe it’s the most competitive market in the world. Australian firms are under no illusion that they are competing with the major Chinese organisations, and of course international firms from around the world.
The risks for Australian businesses
I think one of the big challenges picked up in the Survey this year was the slowing Chinese economy. Particularly of note is this is the first year China has actually set a range of growth as the target - between 6% and 6.5% Previously, China has set a number that they want to hit as an economic growth rate. So the sentiment behind that could be seen as a key challenge.
And the Survey backs that up - 48% of respondents identified economic slowdown this year as among their top three issues going forward.
Another interesting side note on that is obviously the uncertainty in global markets, so the US-China trade war and how that's going to play out for both American firms in China, but also supply chain for companies exporting to America and obviously into Asia and China, is providing a little bit of distraction.
Australian firms are, like everybody, waiting to see how that will wash out.
So while this year’s Survey does point out that China is not the easiest place to do business, sentiment is strong, results are strong and China is going to continue to grow. China as a market for Australia’s - and indeed Brisbane companies’ - products and services is going to become more important over the next 10 to 20 years' time.