Report highlights crucial role of China in Australia’s future

by Ray Clancy on October 13, 2011

in Money, Business and Finance

Opportunities in Chinese private sector investment

The relationship between people working and running businesses in Australia with their counterparts in China is set to increase, according to a report from analysts KPMG and the University of Sydney.

They foresee a significant increase in Chinese private sector investment, a heightened appetite by China to develop and finance Australian resources and infrastructure projects, and Chinese banks choosing Australia as a platform for global expansion.

‘In the future it will be difficult, if not impossible to have a strong global or domestic business without a strong China business relationship. The cost to Australia of a failure to develop an effective China strategy could include a loss of new capital inflows, new markets and new technology, but most importantly, traditionally captive business,’ says Jason Chang, head of KPMG’s Australia-China Practice.

‘China’s economic development plans are progressing at a remarkable pace, driving the country on a global quest for acquiring resources and expertise well outside the historical focus on raw materials and commodities. This creates exceptional opportunities for greater engagement between Australia and China and underscores the importance of having a comprehensive strategy for managing Australia’s economic relationship with China,’ he added.

The report, Australia & China: Future Partnerships is the first result of a strategic cooperation between KPMG Australia and the University of Sydney China Studies Centre to create unique business intelligence reports for doing business with China.

It says that regulatory restrictions on overseas investments by Chinese companies are likely to be relaxed in the future. This will be a dramatic game changer. One potential change is that government approval will no longer be required for resource related investments of less than or equal to A$300 million and for non-resource related investments of less than or equal to A$100 million.

Given that more than 80 percent of announced Chinese deals in Australia are within the A$300 million limit, this change alone would shift the landscape.

China is beginning to place more emphasis on Chinese private corporate investment in Australia. With this comes an increased emphasis on market mechanisms and risk diversification. This is already transforming the engagement between Australia and China.

There is potential for China, Japan and Australia to fully develop the respective advantages of their resources industries and agree on the structure of collaboration. This could lead to the three countries creating an Eastern Resources Commodities Trading Centre in their time zone with links to the key global trading hubs of London and New York, to form a new 24 hour resources commodities trading centre. There are already initiatives forming in this regard.

Australia is currently a target country for Chinese banks’ drive to head abroad. Chinese banks see Australia as a platform for helping them expand globally, including acquisition of experience, skills and capabilities.

To achieve a clear China strategy, Australian businesses must assess what China will look like over the next five to 10 years and what its impact will be on Australian domestic markets, the report says.

It also points out that Australia will continue to evolve as a haven for investment and a service-based retreat for China’s growing middle class and demand for Chinese retail banking products and services will grow as Chinese immigration to Australia rises.

Significant opportunities are also emerging for Australia in the clean energy sector as China embarks on a long term policy commitment to increase the use of clean energy, including nuclear, and reduce pollution.

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