Why you can’t ignore China!

I have just returned from my first visit to China since the Global Financial Crisis (referred to in China as the "American Financial Crisis"!) and the signs of confidence, growth and national pride are everywhere. Here follows a summary of my key learnings and observations:

1. China's economy is booming

The evidence is everywhere - in construction, infrastructure, property, retail and large scale manufacturing. China's economy seems certain to maintain its average growth rate of 8.5% p.a since 1978, despite the dire predictions of late last year, and 2009 will surely be remembered as the year in which China "de-coupled" from the US. To use a well worn analogy: the train has most certainly left the station - either get on it or get out of the way!

2. The Chinese Government is making all the right moves to ensure confidence, stability and national pride in the country's achievements

The timing, size and impact of last year's US$586 billion stimulus package has delivered an immediate return to the economy but the greatest benefits have been delivered in so many other ways, including:

·         the upgrade in infrastructure in the first tier cities, notably Shanghai and Beijing, which are now as impressive as any city in the world

·         the investment in the second tier cities is large, significant and impressive and will ensure that the wealth, opportunities and infrastructure are also available to the residents of hitherto unknown cities like Chongqing in the west (population 30m), Dalian, Hangzhou, Tianjin, Ningbo and many others.

·         The English language is widely spoken at all levels of society, particularly amongst the younger generations. This was particularly evident in Beijing, in the wake of last year's Olympic Games, which appears to have become a truly international city compared with only 5 years ago.

·         the quality of service in shops, hotels, restaurants and even in the markets is now at an international level. Many regular travellers to China (myself included) used to complain that, whilst the "hardware" (ie hotels, airplanes, shops, roads) was often world class, the "software" (ie service, language, skills, training, attitude) was often lacking. This is now changing very rapidly.

3. Domestic Consumption is rising rapidly

This is the great test for China. With the collapse of its exports to the developed world, can it consume enough internally to maintain its momentum? The signs are encouraging on the streets of Shanghai and Beijing, with the shops busy and every sign of western-style consumerism, plus the data is positive in terms of household income and expenditure, consumer sentiment, confidence and other leading indicators (eg use of credit cards).

4. China is leading the world in renewable energy sources

China is now producing more solar energy than the rest of the world put together (by some distance!) and this was certainly noticeable in Beijing with many of the street and highway lights powered by solar panels evident along the side of the road. China plans to build seven large wind-power bases over the next decade and, whilst China's energy needs are expected to double by 2030, it expects to meet at least half of those needs from wind and solar power sources.

5. The Private Sector is growing rapidly

China is now shaking off its image as a country dominated by a small, lumbering collection of large state owned companies, with all of the associated risks, challenges and restrictions for foreign investment, trade and business, and an increasing number of opportunities now exist in the private sector. Private companies in the US$5m to US$50m turnover range were identified as representing the most interesting investment opportunities at the moment, and there is significant interest from many foreign companies and investors now looking to gain a foothold in the private sector.

6. China is going global

I was the guest speaker at an investment forum held at Innovation Valley in Ningbo at which over 70 companies attended to learn how to take their businesses offshore, with a particular focus on Australia as a business and investment destination. I gather similar forums are being held throughout China as the country seeks to implement its new "Going Out" strategy to diversify its foreign reserves and increase its share of global exports.

7. China is moving up the value chain

China is looking to upgrade the quality of its exports by moving into higher value manufacturing capabilities. As a result, the development of technology-led sectors and high-value capabilities has become a key policy focus. In this respect, the collapse of low value exports to the developed world is a blessing to China as it has forced the whole country to accelerate its move down this path.

8. Australia is not taking China seriously enough

In conversation with many Australian Chinese and Expatriates living in China, I was surprised and dismayed to hear the view that Australia is losing out to the US, Japan, Korea and European countries by not taking China seriously enough. It seems that, whilst many Australians are coming to China to "take a look", very few ever come back again to do something serious. Australia's exports to China are dominated by our resources sector (which represents only 6% of our GDP) which means that there is significant potential to export the other sectors of our economy, especially those in which we offer innovative processes, technology and world-class products and services.