Business confidence in China robust despite macro geopolitical pressures

26 March 2019

Australian businesses operating in China continue to benefit from China’s ongoing economic development, particularly rising household wealth and discretionary consumption. Despite current economic and financial uncertainties, respondents remain optimistic on the outlook.

Insights from 211 Australian businesses are revealed in the second Westpac Australia-China Business Sentiment Survey, conducted in partnership with the Australian Chamber of Commerce in Shanghai (AustCham Shanghai).

The 2019 Survey findings demonstrate the opportunities, challenges and risks facing China-based operations, and provides an insight into the current health of the Australia-China trade relationship. It features case studies from leading Australian brands in the China market: Cochlear, Hamilton Island, Simplot Australia, Tamburlaine Organic Wines, and Wattle Health Australia.

Key findings from the 2019 Australia-China Business Sentiment Survey

Sentiment, Profitability and Investment

71.6% reported a positive sentiment for their China operations over the next 12 months (6.7% reduction from 2018 Survey result)
81.5% reported a positive sentiment for their China operations over the next 5 years (1.5% reduction from 2018 Survey result)
78.9% forecast profitability for 2019, compared to 62.5% in 2018
59.7% forecast an increase in their China investment for 2019, compared to 50.9% in 2018

Digital Environment

59.7% have a China eCommerce strategy in place or are actively developing a strategy
66% of New Retail active businesses reported a 10%+ rise in revenues, with 55.4% benefitting from increased brand and market insights
26.5% YOY growth in the average number of eCommerce platforms used by Australian businesses

Regulatory Environment

56.5% regard China’s regulatory environment as not transparent, and 25.1% reported that this lack of transparency hinders business
58.3% have benefitted in some form from the China-Australia Free Trade Agreement (3.6% rise from 2018 Survey result)
39.3% report China’s Belt and Road Initiative to be a positive driver for their China strategy (3.5% reduction from 2018 Survey result)

Sentiment remains strong despite headwinds

71.6% of businesses are optimistic about their China operations for 2019. The share of positive responses increases to 81.5% when the coming five years is considered. These results highlight the considerable long-term opportunity open to Australian businesses operating in China.

While US/China trade tensions and the deceleration in China’s aggregate growth rate are on respondents’ minds, these are largely seen as temporary concerns. Whereas the one-year economic view is down 6.7% from 2018, the five-year view is only 1.5% lower.

Central to the opportunity before Australian business is the rise of China’s middle class, whose job prospects and wealth are being supported by Chinese authorities’ focus on the development of higher-profit, technologically advanced industry and export opportunities.

An important point to note about China’s development is that it is increasingly occurring outside of tier one cities like Shanghai and Beijing. Over the coming decade, rapid growth will be seen in tier two and tier three cities, offering strong opportunities to Australian firms who are consumer-centric. Understanding regional differences for marketing and sales will prove key as the Chinese market place is complex and diverse.

Profit expectations and investment up

Results also pleasingly demonstrate an increase in Australian firms forecasted profitability for 2019 (78.9%, up from 62.5% in 2018). Along with the stabilisation in ‘business ease’, the improvement in profitability points to the maturing of current business operations. Following this success, 59.7% of respondents forecast an increase in their China investment for 2019, up from 50.9% in 2018. Detail on revenue highlights however that both established and new firms will have to remain cognisant of rising costs and increasing competition.

In terms of investment priorities, an eCommerce strategy was seen as pivotal. 59.7% of Australian businesses surveyed have a China eCommerce strategy in place or in development. However, businesses who have taken the next step and sought to integrate digital and physical shopping experiences (early adopters of China’s New Retail business model) arguably have seen the best returns. 66% of these businesses are experiencing a 10%+ rise in revenue, while 55.4% are also benefitting from increased brand and market insights.

The other key finding with regards to investment and competition from the Survey is that strong equity remains in “Brand Australia”, given 70.8% noted the quality of product/service and 52.6% see brand reputation as key competitive advantages. The implementation of the China-Australia Free Trade Agreement also continues to benefit more Australian businesses year-on-year, a 3.6% increase in favourable responses in 2019 taking the share of respondents benefitting up to 58.3%.

Evident in China’s recent policy initiatives such as Made in China 2025 is a strong desire by the Government to establish China as a global technological leader. This is paving the way for Australian businesses to partner with up-and-coming Chinese firms. As China’s Belt and Road Initiative is rolled out over the long-term, the set of possibilities can only grow, particularly as foreign investment restrictions and other impediments to business are further reduced by authorities.

Westpac General Manager, Asia Pacific, Michael Correa said: “Central to the opportunity before Australian business is the rise of China’s middle class, whose job prospects and wealth are being supported by Chinese authorities’ focus on the development of higher-profit, technologically advanced industry and export opportunities.”

Chairman of the AustCham Shanghai Board, Craig Aldous said: “Despite macro geopolitical concerns, it is very encouraging to learn that the Australian business community remains largely optimistic about their China operations. Our members are getting on with doing business in this fast-paced, dynamic market and many are achieving great success. It is particularly pleasing to see year-on-year increased profitability and investment forecasts for 2019”.

The Survey will be launched at an event in Sydney later today, followed by events over the next two weeks in Brisbane, Melbourne, Perth and Shanghai.

Media releases