Transcript: Trade Opportunities in the Asian Century - Mining and Energy in China
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>>Michael Clifton: What I'm not going to do today is hand down tablets of stone from Mount Sinai on how you can and cannot do business in China. Nor do I come equipped with a range of contracts just waiting for your signatures, it's not that simple, alright? What I do want to do is give you enough information for you to decide whether you're sufficiently interested to engage with us further, and if you are, you can engage directly with me, you've got Janelle, you've got Cheryl, you've got lots of options to play with. But in terms of startling revelations, they may be a little harder to find.
When I talk to audiences in China, I always start with telling them what Austrade does, because in China, the words Australian Trade Commission mean absolutely nothing. Does not register. So in simple terms, we have 85 people across 11 locations in China, and we do three things: we promote Australian education; we promote Australian investment from China into Australia; and we also support Australian companies trying to do export business with China. Trade, investment, education, and today is all about the trade side of the fence.
So, China, large consumer of energy. Overly reliant on coal. Everyone is familiar with China's economic growth story - no secret. What is less widely understood is the tremendous environmental impact that that growth has had on China's environment. So for those of you who are following the press at the moment, just imagine the reaction you would have, when you woke up in the morning and the Courier Mail reported 6,000 dead pigs floating down the Brisbane River. Well that's what's happening in Shanghai today, and the reaction of the Chinese people is exactly what our reaction would be here in Australia. The Chinese people generally have had a gutful of the damage that economic growth has caused to their environment. So their appetite to receive technologies, receive support that helps address those problems, is increasing day by day, and that’s a key message to take away.
Three things are happening in China's economy that are driving the growth, and I'll just touch briefly on them. Firstly, they're trying to rebalance the economy from a growth model heavily reliant on investment in infrastructure, to one that relies or is more balanced, and consumer spending contributes a greater proportion to GDP growth.
We've talked about urbanisation. In China, last year for the first time, more people now live in Chinese cities than live in rural areas. That's a significant shift, because what it means is that when people live in cities, it stimulates the growth of the services economy, and at the moment that's the stage of growth that China's at. Services economy is growing.
Thirdly, the middle class in China. It would come as a surprise to many people who have not been to China that middle class Chinese are actually very, very - their capacity to buy things in shops surprises many of us who have not been there as often as others. So disposable incomes in China are high, so their capacity to buy things is terrific. However, it goes to aspiration. The Chinese people in my view are no different to all of us gathered in this room. As our disposable income rises, we aspire to better things for our children and for our families.
The Chinese aspire to a better quality of life in almost any area you care to mention, but the one of particular relevance today is the environment. They want to live in better quality cities, they want better community amenities, and they don't want to pay the price of the environmental damage caused by mining, coal power generation et cetera.
That's why they've now got a five year plan, the one that's currently in place, which places an emphasis on sustainability. At the moment, 70% of China's power is generated from coal. The aim is to reduce that to 66%, but even in doing that, China will still need to add over 366 gigawatts of power supply capacity. So when you read about the climate change debate and China arguing that the Americans should act before the Chinese, the Chinese are acting, but they're acting in the area of energy efficiency, not total energy usage.
China is the largest user of renewable energy sources in the world today. So significant investment in solar, significant investment in wind, and for the future, once the Fukoshima kafuffle dies down a little bit, they'll increasingly go down the nuclear path as well. And they're doing that because they do not want to continue to suffer the impacts of burning coal in the way it has been to date.
The only other item on that slide worth commenting on is the circular economy. When I first arrived in China over 12 months ago, I had never heard that term. So can I have a show of hands, who knows what the circular economy is? Good, only one. I call it recycling. Apparently the buzz word is circular economy. It's recycling waste essentially.
As I said earlier China is not an easy market, and I'm not going to stand here and pretend that it is. It requires significant time, significant resources. Indeed the glib throw away line is, that if you're seeking to do business in China, before you set foot in the place, double your estimate of the time it will take, and double your estimate of the cost of securing a foothold in that market. It's highly competitive. It's not just the local players you're competing against, it's the global market.
IP, I'm sure that will come up later. Sensitivities is code word for it's not always about the bottom line. It's not always about the commercial merits of a particular deal. Political influence in China is a significant factor, and that underlines the need to have reliable local partners who can wield influence or exercise influence in the right quarters.
Language and cultural barriers, I think that's self-explanatory. Those of you who have been to Shanghai, it's generally an international city. The staff in the hotels speak English, the staff in the supermarkets have a modicum of English, and you can live quite comfortably as an international citizen in Shanghai. But once you extend into the second and third tier cities, the hinterland provinces, the level of English falls away rapidly and if you think you can do business operating without the assistance of an interpreter, my advice would be to think again, because you simply cannot. Dabbling in Chinese at college or university, still not enough to do business in China. You need native speaking quality support when you're doing business there.
I've got to focus on water initially, because without going back to the Huangpu River in Shanghai with dead pigs in it, it is an issue of concern in China and they're doing things. So pollution control, environmental monitoring, basin control, flood prevention. Australia has got a toehold in that market, largely on the back of aid funded projects by the Australian government. So a couple of companies have won business in China - Earth Systems and O-Tech - but they have been working on aid funded projects. The challenge that lies ahead is to win commercial contracts in their own right.
Waste management recycling, again the contrast between a city like Shanghai and the hinterland provinces. When you travel through China, waste and litter - it is a very superficial view, but it tells a story. In Shanghai, it's pretty clean. There's recycling bins in the streets, there's waste disposal of a night, municipal waste management as we know it works quite well in Shanghai. But if you're travelling on trains or flights and you look down, the level of municipal waste management in other cities in China has a long way to go. So, I'm not pretending that's an opportunity here and now, but there are Australian companies looking at the potential for growth in that market, particularly as it relates to biomass and generating fuel out of municipal waste.
Here are a couple of companies that may be well know to you in the room. Rubicon is well known in Australia for irrigation. They have been in the market for three to four years, and they're only now on the cusp of a significant breakthrough. They've worked hard with partners, they've worked hard on persuading traditional irrigators in second and third tier cities to embrace modern technology, and again because of China's particularly water constrained environment, they're beginning to get the traction they had hoped for and success is looming very close on the horizon for them.
Creative Water Technology in the city of Chuandu in Szechwan province, they too have achieved success, but again not by sitting here in Brisbane lodging a quote for tender. They have been on the ground in Chuandu for several years working with local partners, inching their way towards success. It has not come overnight, but the rewards are now coming.
In the MET sector, Australia is regarded as a mining country in the same way perhaps as Brazil is regarded as a mining country. So for Australian companies operating in the mining sector, the Australian brand name brings almost automatic acceptance. You've got a degree of leverage off the brand. However again, to win the business, those 40 odd companies, Australian companies who are on the ground in China primarily around Beijing. They're winning business because they're on the ground in the market. I'm not aware that there are a large number of Australian mining service providers who are winning business in China without having a footprint on the ground, without having local partners et cetera. So I don't want to paint a picture of gloom and misery, but I've got to be realistic.
The same applies in the architectural space. Unless you're an urban planner or a designer with a presence in the market, it is very difficult in China to put in the networking, the investment in contacts required to win the business. It's a slow process.
In terms of mining safety equipment, training services. I'm going to stand here and say we believe it is an area of emerging opportunity. I'm not going to pretend that it is an area of immediate opportunity. However, demographics in China are such that the labour force - there are now looming skills shortages in China. They no longer have that pool of labour to give them the confidence that they can simply work through labour and turn it over at a rapid rate. The key to retaining their labour, the key to improving productivity in the mining sector increasingly will be investing in the training and up skilling of their staff. We believe the longer we keep pressing that message home to the Chinese mining sector, the sooner they will come to the realisation that we have expertise here that will benefit their productivity in China.
The rest of the items on that slide relate to what I've said earlier about that increasing sensitivity to environmental damage. In the past, perhaps the miners - particularly in those hinterland provinces - could act without fear of being cracked down upon by the authorities in Beijing or the provincial government authorities. They can no longer have that luxury. They are increasingly sensitive to the damage they cause, because the people will no longer tolerate it. I often refer to the Peter Finch movie Network - we've had enough, we're not going to take anymore. That is about the stage the Chinese are at. They're certainly at that stage in terms of local authorities seizing land from local peasants, and you'll have read reports recently of more uprisings, or more civil disputes in China on that issue, and the environment is another area of particular - it's a raw nerve for many Chinese.
On the mining and water front, Shaun mentioned the calendar of events that was handed out earlier. For China, in the month of June, we had two major events, both of which are intended to showcase Australian technology. One in the water space and one in the mining space. If either of those events appeal, please note the dates and then engage with us in terms of whether it's a suitable opportunity for your particular company. We're happy to engage in that conversation.
In my former life in uniform, I used the expression, we used to wave a big hand over a little map, which meant I was pretty light on for detail. So this is a very small map of Japan here with a big hand waving over it. What's happening in Japan? After Fukoshima, the closing down of the nuclear reactors, clearly Japan has been hoovering up as much LNG as it can, and it is struggling. They are very focused on renewable energy, and those of you operating in that space should not be blind to the opportunities that may emerge out of the painful process of transition, through which Japan is currently going. Anything in the energy saving space, anything in the renewable space, in Japan you will get attention.
And another very small map of South Korea. The simple take away for South Korea is that that government is particularly focused on renewable energy. It took them a long time to decide to buy Australian LNG. They are now doing that, that's terrific for the LNG suppliers. But they are also very active in the renewable space, and if you have technologies or if you have services that cater for that market, then you should also - I'd encourage you to engage with our colleagues in the Korean market, because there may well be opportunity there for you. Thank you.
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