The relationship between China and Australia continues to blossom, with a Free Trade Act (“China Australian Free Trade Act” – ChAFTA) finally signed on 17 June 2015, and increasing investments flowing in both directions.
In 2013, the two countries agreed to establish a formal prime-minister level conversation, which makes Australia one of only a few countries to have such a relationship with the world’s largest economy. The ChAFTA discussions also indicate a strong intention to work together; it lays a historic foundation for their next phase.
With the intentions signed in 2014, both countries are now in the process of conducting legal reviews of the concluded text, and they will prepare implementation now that the agreement has been signed.
The year 2013 also marked the commencement of direct trading between the Australian dollar and the Chinese renminbi. The Australian dollar is the third major currency directly traded with the Yuan on the Chinese mainland, which demonstrates the confidence China has in its developing relationship with its southern continental neighbour. The agreement also opened up Chinese financial markets to Australian financial companies, another step towards a promising future between the two. The long-term benefits will include reduced currency conversion rates and improved financial cooperation.
China’s Free Trade and financial discussions appear to underscore the county’s commitment to its ambitiouseconomic reform agenda, which was also announced in 2013. In it, China issued a framework for addressing challenges to international development in the country, which included improving government focus on macroeconomic issues (market regulations, public services delivery and environmental protection), and decreasing regulations that create unfair competition against foreign investors.
That year, China also launched the China (Shanghai) Pilot Free Trade Zone (SHFTZ), a 29 square kilometer zone just outside Shanghai. The Free trade zone proved a success in its forst 2 years of operation and it was expanded further in April 2015.
In this experimental zone, China will develop administrative innovations for the purpose of stimulating investment and trade. The innovations are directed to simplifying business registration processes, streamlining regulations for imports and exports, clarifying taxation processes and doing it all with improved administrative transparency. The Chinese national government has already encouraged other key cities to plan for future FTZ’s in their regions.
For Australian investors and business folk seeking to improve their economic fortunes, the industrial interactions between the two countries mean increased opportunity for growth, higher profits and reduced costs.
China continues to offer substantial benefits to Australian corporations seeking to lower production costs by accessing less expensive labor and materials. Economic analysts have described the relationship between the two countries as one of “comparative advantage”: Australia, with its wealth of natural resources, has a limited number of both workers and capital. On the other hand, China has an abundance of labor and materials and a relatively low operational cost. Connecting the two means both resource sets are engaged, leading to higher profits and fewer costs at both ends.
Even with the economic evolution between the two countries, establishing or accessing a Chinese factory for the production of Australian goods is still a somewhat daunting prospect. Strategic-minded corporations will seek assistance with the complex engagement and procurement process by connecting with a Chinese market agency already familiar with the Chinese industrial landscape. These agents have the capacity to validate and verify business details, qualifications and standards of the chosen Chinese factory, thereby saving costs not just in the establishment of the deal, but also over the long-term. A Chinese factory verification will ensure that the Australian producer will get the service and product they are expecting.
2015 is shaping up to be a big one for the Chinese-Australian relationship and sets a foundation for a bright, industrially-cooperative future. It is clear that China intends to maintain its progress toward attaining internationally-accepted industrial standards. Australian enterprises interested in jumping into the emerging sector are uniquely poised to reap significant benefits.
If you would like to know more, you can download a free report “8 Problems Businesses face when sourcing from China here.
This blog was written by Carsten Primdal, an independent consultant who helps businesses that have manufacturing done overseas – especially in China – to minimise supply chain risk. Drawing on years of on-the-ground experience and a strong understanding of the cultural and commercial context, Carsten is passionate about helping his clients to gain greater control over the risks most companies face knowingly or unknowingly.
Questions? Concerns? If you are considering buying from Chinese factories and would like more information, please feel free to contact us see what Vantage Compliance can do for you. I can be reached at firstname.lastname@example.org or on (+61) 413 089 020