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Doing business in China in 2016

As Australia's number one trading partner with a GDP of around 7%.1 Australian retail and service industries are set to benefit from the recent trade agreement struck between Canberra and Beijing. Discover key trends shaping trade relations.

The 13th Five Year Plan

Discussions are well underway among Chinese government officials about the plan for China's economy over the next five years. Set to be unveiled in March, the 'shísānwǔ (十三五)', the colloquial name for the 13th Five Year Plan, will chart the nation's economic course for the next five years. The Government has even released a viral Monty Python inspired promotional video for the plan. So what can we expect?

Essentially, China wants to move away from reliance on manufacturing and exports to a more consumption based economy.2 Recent export driven growth based on large scale manufacturing is set to slow, and Chinese middle class consumption is expected to take the economic reins.

The Chinese government's aim is to double per capita GDP by 2020 from 2010 levels.3 That could mean a lot more disposable income sloshing around the economy.

China's Five Year Plans are the most reliable prediction of what the government, and therefore China's state-owned enterprises, will do over the coming years. In that respect, many of the goals outlined in the 12th Five Year Plan will continue to be relevant. If you're doing business in China in 2016, you'd be well advised to read up on the details as they emerge.

Growing, but more slowly

Compared to 2016's predicted global average of 3.0%, China's growth forecasts seem enviable: the International Monetary Fund predicts Chinese GDP growth to slow to 6.3% in 2016, which would be one of the slowest years in recent decades.4

With talk in state media of a target below 7%, there is uncertainty about what the actual target will be. While a target of 6.5% or 7% may not seem like much of a difference, an alteration of just 0.5% may affect and change a broad range of industries as the government works to reach their target.5

However, the predictions in the Five Year Plans tend to be conservative. Over the past 25 years, actual growth has outpaced predicted growth over each five year timeline. As China's economy begins to transition, there's no telling whether this out-performance of targets will continue.

More (free) trade

Australia and China trade more than $150b worth of goods and services.6 With the China Australia Free Trade Agreement, known as ChAFTA, set to pass into legislation in both countries, opportunities will soon open up for more industries. Tariffs will be reduced or phased out on coal, beef, fresh seafood, pearls, cosmetics, fresh fruit, dairy and wine.

At $8.2 billion in 2014, China is also Australia's largest market for services.6 The ChAFTA will also allow service industries such as banking, health care, aged care, and professional services to grow more easily into China.

Going online

China's online retail sales grew at astonishing rate of 48.7% year-on-year in the first half of 2015, reaching approximately US$350 billion.7 The broad trend? Nearly everything that can be shipped is being sold online. While most people still buy fresh fruit and vegetables in the traditional retail setting, many consumers are buying almost everything else at online stores.

It's well known that Australian products are popular in China [link to 3.0 Insights > 55_Which Australian products do Chinese consumers want], and smart retailers are meeting this demand, even Aussie beef producers!

Growing the middle class

It's no secret that the middle class in China is growing rapidly. What does this mean for Australian producers and retailers? In short: more potential customers.

Today, there are around 361 million online shoppers in China compared with around 200 million in the US8. While US consumers may be more affluent in their purchases, Chinese consumers save more than the global average and their incomes are rising.

Despite research showing that only 5.7% of Chinese internet users currently earn over ¥8,000 per month, equivalent to around A$400 per week, that demographic represents a Chinese population of 37 million.9 That's 37 million people who have enough disposable income to spend on overseas products.

Thinking outside the box

Australian retailers are already finding success in Chinese trading. Australian online cosmetics retailer bellabox successfully launched a market-specific beauty box on Australia Post's Tmall page in 2015.

"Our research showed that Chinese consumers love Australian products," says bellabox founder and CEO Sarah Hamilton, "so our beauty boxes contain all-Aussie products.

"Understanding the user’s concern and need for product authenticity, even in overseas goods, Tmall takes a zero tolerance approach to counterfeit products. "This is one huge online market that has implemented the necessary processes so that grey market products aren't being sold," Hamilton says.

Building up the regions

As China builds its domestic consumption base, it is also building its regional infrastructure to cope with the increasing demand for consumer products. Even today, regional cities are being transformed into logistical hubs as people in smaller cities begin to enter the world of eCommerce and faster delivery times. 

As a result of more foreign investment in manufacturing in the less-developed provinces, China's regional populations are becoming more urban and more wealthy – and they are looking for products to buy.

Conclusion

Whether you're selling iron ore, education services or high-end fashion, China is an important market for Australia – and it's gaining relevance every day. As the statistics and trends show, the millions of consumers in China are becoming more engaged with eCommerce and are increasingly likely to buy Australian products online.

So, despite estimations of slower growth than previous years, 2016 is set to be an exciting time for China – particularly for the more informed Australian businesses that work hard to tap into this emerging consumer market.

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Article References

  1. http://www.economist.com/news/china/21676822-communist-party-about-set-its-goals-2020-command-performance, accessed October 2015
  2. http://www.chinausfocus.com/finance-economy/is-chinas-economy-slowing-fast-the-reliability-of-beijings-statistics/#sthash.FigD7K1I.dpuf, accessed October 2015
  3. http://money.cnn.com/2015/10/30/news/economy/china-five-year-plan/, accessed October 2015
  4. https://www.imf.org/external/country/chn/, accessed October 2015
  5. http://www.cnbc.com/2015/10/22/chinas-fifth-plenum-5-things-you-need-to-know-about-beijing-policy-meeting.html, accessed October 2015
  6. http://dfat.gov.au/trade/agreements/chafta/news/Pages/chafta-get-the-facts.aspx, accessed October 2015
  7. http://www.chinadaily.com.cn/bizchina/tech/2015-09/16/content_21892686.htm, accessed October 2015
  8. http://ar.alibabagroup.com/2015/china-context/index.html, accessed October 2015
  9. Sun & Wong, Think China, 2015 Chinese Consumer Cross Border eCommerce Market Research