The strategic opportunity in China that Australia must not waste

It is more than a month since the US consulate was ordered to close in Chengdu, the city in China’s south-west where I help represent Australian businesses.

It was a sad day for the city. The consulate was something of a local landmark. Surrounded by leafy boulevards, European bakeries, cafes and beer halls. It added to the cosmopolitan charm of the city.

Chinese police officers guard the former United States consulate in Chengdu, formally closed in July.
Chinese police officers guard the former United States consulate in Chengdu, formally closed in July.CREDIT:AP

The consulate also brought with it American talent, American investment and the American Chamber of Commerce. Its closure is a loss for the United States and China.

The US has lost its diplomatic and trade hub in a region of 240 million people with a $US2 trillion ($2.7 trillion) economy, roughly the size of Italy’s.

The Americans made large investments in West China. Intel, Cisco, Dupont and others delivered thousands of jobs and helped internationalise the region. These investments were supported by Chinese government policy that modernised infrastructure such as roads, underground and high-speed rail.

Australia also has a consulate in Chengdu that is a vital anchor for our engagement in the region. A handful of staff co-ordinate our trade office, promote tourism and manage relations with international students. While it is regretful that the Americans have pulled out, there is now a strategic opportunity for Australia to deepen its diplomatic and trade engagement.

Unfortunately, we are seeing a breakdown of connections, partly due to the impacts of coronavirus, but also because of ongoing trade and diplomatic tensions that have escalated in recent weeks. In a survey by the Australian Chamber of Commerce, where I work, more than 70 per cent of companies said they were concerned about the deteriorating relationship with China.

Australia is in a recession with a quarter of the country still in lockdown. Exports to China contributed $169 billion to our economy in 2019 and will be critical to our recovery after coronavirus.

West China has demonstrated its resilience throughout the pandemic with only limited economic impacts and unemployment at half the national average. There is still strong demand for food products, cosmetics and other high-quality goods that Australian companies could provide. The Chinese central government believes it will be the engine of economic growth after coronavirus.

Beijing is pushing an aggressive “Go West” stimulus campaign that includes a suite of incentives and tax policies to drive further investment in the region. This is partly to mitigate geopolitical risk over the US trade war and the economic fallout of the pandemic, but also to stimulate the economy in a region with greater capacity for development.

Faced with an increasingly hostile international environment, China can no longer rely mostly on exports as its growth driver. Domestic consumption makes up only 38 per cent of GDP in China, compared with 68 per cent in the United States. In its drive to stimulate consumption Beijing is targeting western China.

Already in per capita terms people in Chengdu and Chongqing spend more of their income on consumer purchases. The Go West campaign will further boost incomes and consumption with substantial infrastructure spending on rail, irrigation and industrial projects.

Chengdu is one of the fastest growing cities in China with 14 million people. Neighbouring Chongqing with 30 million people is the largest urban centre in the world. It is known for heavy manufacturing, steel and aluminium. Both cities are vitally important to Australia. Especially now.

Despite significant trade and diplomatic tensions with Australia, Australian iron ore will continue to be needed to fuel the infrastructure boom in China and much of it will be heading to Chongqing. We can already see the rise in iron ore exports.

It’s not just about infrastructure, there remain significant opportunities for Australian food exporters despite trade limitations on wine, barley and meat. China must import more food as unprecedented floods have wiped out 6 million hectares of farmland.

New opportunities are also emerging in services. Chinese government policy over the next two years includes a dramatic expansion of vocational training, with about $20 billion worth of funding for 35 million placements, many in West China. China will need international partners to design and deliver vocational education and training. Australia’s VET sector is highly developed and Australian colleges are well regarded in China. There are opportunities to deliver courses in-country or as a pathway to study in Australia.

With no diplomatic or trade representation, the US will have a hard time participating in this growth. As the middle class rapidly emerges in West China it is starting to define its preferences. It is a crucial time for brands to build recognition before the market matures. The Europeans have been quick to act, facilitated by the China-Europe railway that now stretches from Germany to Chongqing. Australian companies can provide solid competition provided they are not discouraged by the current political climate.

China is the only major economy forecast to grow in 2020 and West China will be a major part of this growth. Too closely tying ourselves to American policy will make it more difficult to establish the commercial and trade relations that are in Australia’s interests. The Australian government must nuance its language and approach. In West China, Australia has a competitive advantage with the Australian consulate, Austrade, Austcham and state government trade offices located in Chengdu. Let’s not waste this strategic opportunity.

By : Kyri Theos – WA TODAY

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