On Thursday March 25, ACBC hosted a National Briefing with the Australian Embassy in Beijing. In addition to opening remarks from Ambassador Graham Fletcher, the Embassy’s Minister Counselor (Economic) Lachlan Crews, and Austrade’s General Manager for Greater China, Daniel Boyer, provided updates on China’s economy, the 14th Five Year Plan (FYP) and developments in Chinese digital trends. Following the presentations, there was a wide-ranging Q&A session which addressed questions previously submitted by the audience.
- The bilateral relationship remains under considerable strain. Goods exports (excluding iron ore) fell by 25 per cent in 2020 (over 2019). The full year impact will be greater as restrictions commenced gradually from May. However, although there has been disruption to many sectors and individual firms), the overall macro impact on the country is considered negligible, given the resilience and flexibility of Australia’s economy.
- Punitive measures have severely disrupted barley, coal, wine, cotton, timber and copper. Products affected to some degree include meat, seafood, horticulture and dairy.
- The Australian government will request the WTO to establish a disputes panel to examine Australia’s claim that anti-dumping and countervailing duties imposed on barley exports are contrary to WTO provisions. Interim provisional tariffs on wine remain until early April when China’s anti-dumping investigation is set to conclude with an announcement from China expected shortly thereafter.
- In December, there were 79 ships waiting off China to offload coal, that number is now down to 40. The coal has been paid for, but this case shows the extent China is willing to inflict pain on its own economy to prove a political point.
- Looking forward, education may be a future pressure point with a warning on student safety in Australia in the last month and a forthcoming review of programmes offered by Australian universities in China.
- Iron ore and fine wool are sectors that are in safer territory as Australia more or less remains the sole supplier to China. Other sectors could remain at risk of further action.
- The whole process represents a step-by-step decoupling of the gains the bilateral economic relationship has made over the preceding decades and are not in the interests of either country. The underlying complementarities of the trading relationship remain solid.
- China’s economy has largely recovered from the impact of COVID last year with 2.5 percent growth in GDP and consensus forecasts predicts that this year growth projected to in excess of 8 per cent. Early support in this recovery was led by state-led investment and exports, such as PPE.
- The household debt to GDP ratio rose to 60 per cent in the third quarter of 2020, the exact opposite of what happened to savings rates in Australia. While the macro picture looks good, many people remain in a precarious position.
- The 14th Five Year Plan differs from earlier five-year plans in that it does not contain any growth targets. However, the Government’s Work Plan does specify a figure of 6 percent for 2021, and achievement of the ‘Long Range Objectives’ indicate an annual growth rate of 4.7 per cent over the next 15 years to 2035 on average. The Plan is a directional document and a useful guide for longer-term business engagement.
- The FYP is pragmatic and flexible. It has fewer indicators than its predecessor, giving policymakers the ability to adjust to circumstances. The focus shift from quantity to quality of growth relies on wellbeing indicators, which can be more difficult to measure than GDP figures.
- The FYP reflects the influence of the “six ensures” from April 2020: employment, livelihoods, business survival, food and energy security, stable production and supply chains, and stability of public institutions.
- The FYP will be expanded to sector-specific five-year plans to be released later this year. The energy 5YP will have implications for Australia in resources exports and provide greater detail on China’s approach to climate change. Xi’s claim to make China carbon neutral by 2060 is not covered in great detail and peaking carbon emissions by 2030 is considered the ‘business as usual’ scenario.
- Much of the Plan is focused the agricultural industry and rural development – measures to modernise agriculture and rural areas in order to lay a solid foundation for food production capability. However, imported food is expected to play a considerable role to continue meet China’s food security needs (grain, cotton, oil, sugar, meat, dairy, and more. Australian wheat, dairy, summer fruits continue to perform well in China despite trade tensions.
- Wellbeing covers 7 of the 20 main indicators for economic and social development under the Plan – more indicators than in any of the other 4 categories (Economic Development, Innovation, Green Ecology and Security/Safety). Elderly care services: developments in building a system that integrates home, communities, and healthcare facilities; improving the network of community and home-based services for elderly care; and making public facilities more elderly-friendly.
- Innovation and industry are clear priorities for China – 7 per cent annual growth target in R&D spending aims to support China’s transition to a high-tech manufacturing sector. The Plan also promotes the research, development and application of agri-tech, particularly smart agriculture, which also plays to Australia’s strengths, as well as the implementation of smart and green manufacturing.
- Premier Li foreshadowed the ‘new strengths for the digital economy’ and targets an increase in the value added in the digital economy from 7.8 per cent in 2020 to 10 per cent of GDP by 2025. There is a greater impetus for Alibaba and Tencent to align with government policy. The FYP promotes industrialisation of the digital economy, cultivating emerging industries such as Artificial Intelligence, Big Data, Blockchain, Cloud Computing and more. The opportunities that come with scale and a substantially digitized population are immense in China.
- ‘Dual circulation’ features as a concept in the FYP. Essentially, it aims to reduce the risks of over-dependence and be resilient to external supply shocks. ‘Self-sufficiency’ focus is on high technology items and goods where China relies on a single source for a large share of imports. (China imports over US$300 billion in semiconductors a year, more than oil)
- Signals in the FYP on the need to increase China’s outdated retirement ages: 50 for blue-collar women, 55 for white-collar women, and 60 for men. This will be challenging politically.
- The FYP has a large focus on boosting consumption. Inequality actually rose in China during the pandemic, as salaried professionals worked from home, while insecure workers in the services industries lost weeks or months of income.
- China has almost one billion citizens online, 70 per cent of China’s population yet only 31 per cent of internet users are from rural areas indicating room for further growth. Online shopping population grew by over 72 million to reach 782 million over the last year.
- People watching e-commerce livestreams grew 123 million to 388 million in December, and approximately two thirds of livestream users have made a purchase. Growth areas: food 31 per cent, apparel and footwear 6 per cent; and non-food consumer products 16 per cent.
- Pre-pandemic China had 165 million users of digital health services. In the 3 months from Feb – Apr last year, WeDoctor alone had 140 million users.
- Consumer sentiment points to consumers able to separate their own trust in the Australian brand from the contrary messages they are no doubt hearing and reading elsewhere. Interestingly, consumers were more willing to trust relatives overseas over their own government, an advantage given the size of the diaspora in Australia.
General advice from Austrade
- Stay informed and keep in touch with your local contacts
- Stay mindful of changing circumstances; speak to Austrade and other advisers to assess risks and opportunities
- Maintain relationships – when we obtain a new equilibrium in the relationship these relationships will be more important than ever.
- Look at diversification options where it makes commercial sense to do so. Over-reliance on a single market creates additional business risks that require careful assessment. Each individual firm and industry are best placed to make their own decisions based on their own risk profiles.
The full video of the Ambassador’s Briefing is available in our member only Insights Centre at this link.