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The impact of China’s continuing growth on the Eyre Peninsula. Sean Keenihan, Chairman of Partners 24 February 2014. Presentation Overview. Discussion 3 years ago about how EP’s future prosperity linked to China
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The impact of China’s continuing growth on the Eyre Peninsula Sean Keenihan, Chairman of Partners 24 February 2014
Presentation Overview • Discussion 3 years ago about how EP’s future prosperity linked to China • Since then we have seen a lot of change – globally and more specifically in China and Australia • Were we on the right track 3 years ago? • Does LG have a role supporting engagement with China
EPLGA Conference - 2011 At the EPLGA Conference in 2011 we talked about – • Compelling story in China that entitles big thinking about Eyre Peninsula’s future • Australia’s economic prosperity is linked to China’s economic growth and transformation • China’s and Australia’s economies are highly complementary – Australia has what China needs to fuel and sustain its continuing growth • EP is one of SA’s most productive regions – highly export oriented and has what China wants to sustain its growth and economic transformation
EPLGA Conference – 2011 (cont) • EP would benefit from China’s demand for resources, agribusiness products and tourism • Despite tough times ahead Australia’s and SA’s trade with China would continue to surge • More Chinese companies would be seeking investment beyond resources into agribusiness and other industries • EP needed to think big and boldly about engagement with China to secure markets and investment dollars that support key EP industries
Change in the landscape – China perspective In China: • Change in China’s senior leadership – once in a decade event • China has embarked on a new growth model – consumption driven growth and an increased focus on private sector participation in the economy • Restructuring of China’s state owned enterprises • Analysis of outbound investment thinking and strategies • Overhaul of China’s financial system • Bilateral relationship with Australia upgraded
Change in the landscape – Australia and SA In Australia and SA: • Challenges in traditional manufacturing sector • Sustained high AUD$ and associated challenges for agri sector • Less favourable global mineral/commodity prices impacted resources sector’s growth • More and different industries increasingly looking to understand how China might be an opportunity for them – export, import, investment • More business groups and industry sectors and all tiers of government openly engaged around China increasingly strengthening that engagement • SA has a strategy for engagement with China
Where we are at now • Despite economic headwinds SA goods exports to China up 30% in 2013 • China is SA’s largest 2-way trading partner by considerable margin - 24% of SA’s exports go to China • Chinese tourist numbers up 47% in 2013 – outspent all other tourists – outspent US tourists 2:1 and Europeans 3:1 • Over 40% of SA’s overseas students are Chinese • More and broader Chinese interest in investment in SA – private sector investment and business migrant investment
SA China Engagement Strategy • One year into SA’s China Engagement Strategy • Big opportunity that demands a planned approach. • By strengthening our partnership with China now, we will provide future opportunities for our businesses to grow as China grows. • The essence of the Strategy can be summarised as follows: • Developing the SA value proposition • Building platforms for engagement • Getting business ready to engage • Resourcing government to better coordinate and support this engagement
Shandong – SA’s sister state • #3 China Provincial GDP • 90x larger than SA GDP • 2013 GDP US$890 billion • Similar size to Indonesian economy • Growth rate 9.8% in 2012
Rise of China’s middle class • China’s growth a key driver of Asia’s burgeoning middle class • It will be lumpy but we will see a transformation into a voracious middle class consumer market right on our doorstep • Sustained growth driven by continued urbanisation and substantial capacity for improved productivity and efficiency • Continued outbound foreign investment • Not without significant challenges and risk but consensus is China’s rise will continue and this middle class will emerge
Rise of China’s middle class (cont) Source: Peter Drysdale
What this means for the EP • Continuing demand for resources to fuel China’s growth • Continuing demand for agribusiness commodities to feed China • Increasing demand for premium, clean food and wine demanded by middle classes • Emerging and growing market for premium seafood • Growing tourist demographic from China seeking food, wine and nature experience • Growing interest by Chinese companies in trading and/or investing directly with EP businesses in these growth industries
The Agribusiness Landscape in China • China’s rising middle class is driving demand for agribusiness products • China is now the world’s largest food importer • Middle class diet is replacing plant protein with animal protein • China’s food industry plagued by scandal and poor reputation • Australia’s reputation for food safety and quality assurance a big plus. • Competition is fierce – our stocks of supply are limited – South Australia must compete on value – not price
Competition is stiff • This won’t just fall in our lap – the whole world wants the Chinese market • How do we differentiate our product and selling proposition? • Strategically promote and place our product – position for sustainable long term markets Challenged by : • High Australian dollar and tariff barriers • Scale • Two-way knowledge and capability gap
Common stumblingblocks - broadly • Language – effective communication • Different business culture - interpersonal and government interface • Lack of understanding of local issues that dictate value and impact production costs and outcomes • Unfamiliar with the business and regulatory environment in which product and projects are developed and delivered in SA • Relatively high cost of doing business relative to our competitors • We must compete on value – not price – and leverage relationships and platforms that underpin our value proposition
The role of LG • Challenge of scale for SA businesses engaging with China • Growth opportunity for SA businesses likely to be in second and third tier cities • Interlinked nature of government and business in China • Fundamental role of Government in establishing frameworks for business engagement with China
The role of LG (cont) • Small business needs assistance dealing in a new business environment • LG sector the right tier of government to support entry to 2nd and 3rd tier markets • Legitimate role – refer the SA China Strategy • Councils have a crucial role to play in supporting business engagement with China
Specifically… • Capitalising on Federal and State platforms to establish B2B engagement frameworks in 2nd and 3rd tier markets • Show support for business in its engagement with Chinese counterparts • Facilitate China literacy and business education for local business • Nurture a supporting environment for greater cultural and people to people links
What we will see inthe short term in SA • More Chinese students and parents, skilled, business and family reunion migrants, tourists in SA • Chinese FDI will continue – resources, agribusiness and property • Greater trade volumes with China as its economy grows and middle class consumers change buying patterns • More activity from SA Government and SA industry bodies who have an important leadership role in China engagement • Councils more active and hands on in supporting business engagement with China • Increased prosperity for SA businesses through grasping the China opportunity
3 years later….. • Give the nature of China’s growth, China’s impact on EP could be profound • Opportunity is growing each year - real and present • As China’s second and third tier cities and markets grow, can LG assist business to grow with those markets • ‘How’, ‘where’ and ‘what are the challenges’ – a separate discussion • SA has a strategy – and it’s working – good starting point