On December 20th of 2015, the China-Australia Free Trade Act (ChAFTA) went into effect, opening exciting new opportunities for all of Australia’s international commerce and industry participants.
China Shifting From Resources to Services:
Internally, China is undergoing massive changes, as its middle class grows and demands higher quality and better services. To a great extent, China has achieved its dominance of the world’s supply chain manufacturing industry due to its worker’s willingness to accept low pay, long hours and (frequently) hazardous working conditions. However, the economic boom that that sector has created also created millions of newly-flush employees who are now seeking the same standards that their labor has produced for other consumers around the world. China is just now seeing that it has not invested in its internal services industries, and it doesn’t have the infrastructure in place to rapidly scale that sector to meet the immense demand.
ChAFTA Offers Options:
On September 15, HSBC Australia CEO Tony Cripps issued his predictions on how the ChAFTA will affect Australia’s relationship with China, even in light of the industrial and economic disasters it suffered throughout 2015. Mr. Cripps noted that China is making appropriate financial decisions in light of its growing internal economy. Its move toward stronger consumer-led growth, and away from its dependence on massive capital spending, will bring balance to its economy and stabilize it against potential volatility in individual markets.
Australia is already increasing its activities to fill in those services sectors where China is lacking. In recent years, even without the assistance of the ChAFTA, the financial transactions between the two countries have increased, with inbound, China-to-Australia investments growing significantly. Mr. Cripps noted that, in the past “year or two,” Chinese investments in Australian properties has risen to account for almost half of all Chinese investments in Australia. Before that, about 85% of inbound investments were in the energy and resources areas.
ChAFTA Secures Australian Edge in China:
China is already Australia’s second biggest trading partner, behind New Zealand. For much of their history, China has been purchasing Australian resources and manufacturing Australian-sourced goods. For Australians, now ChAFTA delivers the best-ever services opportunities going back the other way, including new or enhanced Australian access to China’s markets that has never been included in any previous agreements between the two. China is now inviting Autralian companies to set up their shops and services in China.
Additionally, the ChAFTA includes a “Most Favoured Nation” clause, which protects Australian enterprises that are engaged in specific services, if and when other international providers seek stronger access to those markets. These markets offer Australian service providers an extraordinary opportunity:
As of now, in the Shanghai Free Trade Zone, Australian law firms are welcome to set up commercial agreements with Chinese legal firms to provide Australian, Chinese and international legal services with no restrictions regarding where clients are located.
Within the year, China’s Ministry of Education will publish a list of 77 Australian, private higher-learning institutions. The listing will provide a higher profile of those Australian schools to China’s high-education students and employees, and allow them entry into China’s higher education markets.
ChAFTA opens new markets for Australia’s commercial banks, insurers and securities firms. Joint ventures with up to 49% Australian ownership are now permitted, as is access to China’s statutory third-party liability car insurance market.
Vantage Compliance and Mitigation Also Sets Up Service Companies:
The majority of my 17+ years in Asian’s manufacturing markets has been in relation to the services industries, and I’ve assisted in the establishment of several businesses in both China and Hong Kong. Like the industrial sectors, China’s services sectors are rife with social and political nuances, all of which can confound the sharpest western mind, and none of which are obvious to those who are inexperienced with the culture. I’d be happy to help you move your Australian business into the new frontier that China presents. Give me a call today.
You might also want to read some of my other blogs. A sample of recent blogs can be found here:
China’s Down and Up 2015 Economic Year
Chinese Supply Chain Risks Are Affected by Global Environmental Decisions
China’s Environmental Challenges – Part II
Environmental Disasters Cause Economic Disasters
Cited in this order: