How Are Australian Businesses Feeling About China, Headwinds and All?
Since Australia established formal diplomatic ties with the People's Republic of China in 1972, the country's fortunes have become increasingly linked to the Middle Kingdom. No Western country's economy has benefitted more from China's rise than Australia. Much of China's unprecedented economic growth has been built with Australian iron ore and powered by Aussie coal and liquified natural gas. In a way, Australia's resource traders blazed a trail for Australian exporters, teaching cultural lessons about doing business in China, and raising China's profile as a destination for exports.
Since Chinese consumers have started entering the middle class, Australian brands have been relatively quick to make their goods and services available to them. Over the past couple of Singles' Days, Australian products have been the third and fourth highest ranking country for product origin, even though Australia isn't even in the top-50 countries by population.
Australia's success in exporting to China always had pretty good odds. Australia's relatively close proximity to China, in both flight time and time zones, makes it easier to get up to the market to do business. And unlike other major western economies, Australia doesn't have a large domestic base or similar countries close by to send their wares, so it has always had to be a little more adventurous when prospecting for export markets. It is also the often-unthanked Chinese residents in Australia and visiting tourists who have helped promote many Australian things to their friends and family back in the Mainland. No country outside of Asia has more people of Chinese heritage per capita than Australia, on top of the 1.4 million Chinese who visited Australia last year.
In 2017-2018 Australia's exports to China were $123.3 billion, or 30.6% of total exports. This dwarfs Australia's number two destination of Japan where exports were $51.3 billion. Over the past five years, exports to China have surged 56%, whereas Japan grew by just 6%. Yet it's not all Kumbaya and shrimp and steak barbecues, Sino-Australian relations have deteriorated lately, particularly over the past-12 months.
Australia's position as one of the pioneering, best practice and reliant exporters to China - balanced with its increasingly precarious stance on geopolitics - makes it one of the most important and interesting relationships to monitor in today's globalised world. That's why China Skinny was honoured to be back again this year working with Austcham Shanghai on the second annual Westpac Australia-China Business Sentiment Survey which launched yesterday in Sydney. The survey provides a platform to really understand how Australian businesses on the ground in China are faring in light of the geopolitical tensions and slowing economic growth.
To Australian businesses' credit, we had 211 complete the survey this year - 33% more than last year. Overall, sentiment was down 6.7% from last year but remained largely optimistic - with 71.6% either optimistic or slightly optimistic about the next 12-months; 81.5% in their five-year outlook. The results also pleasingly demonstrated an increase in Australian businesses’ forecasting profitability in 2019 - a strong 78.9%, from 62.5% in 2018.
One of the promising findings from the survey was that Australian businesses appear to be maturing and realising that China is a market that requires tailored initiatives. 61.1% of businesses surveyed will offer unique products and services for the China market this year - and are 32% more profitable as a result.
Domestic consumption was again considered the most important opportunity for Australian businesses and is also being supported by 26.6% investing in market research and development - 10.7% more than last year. 74.9% have a digital strategy in place or in development, with 59.7% having one that incorporated ecommerce. For those businesses already selling online, they are selling on an average of 2.5 platforms, versus 2 last year. Almost a quarter of businesses surveyed are early adopters of New Retail, with 66.0% of these businesses experiencing a 10% rise in revenue and 55.4% benefitting from increased brand and market insights.
There's many, many more interesting insights throughout the report. The results aren't just a barometer for other Australian businesses exporting to China; they provide any company working in China with a great benchmark to understand the common challenges and opportunities. We'd recommend you download the report and see for yourself. You can get it by clicking/tapping here.
A special acknowledgement to our own Alexander Kelso and Austcham Shanghai's Stephanie Smith, who have worked tirelessly behind the scenes to bring the survey to life.
Here are this week's news and highlights for China:
Chinese Consumers
The 2019 Westpac Australia-China Business Sentiment Survey: Download the good-looking and comprehensive report here.
Almost One-Third of Chinese Cities are Shrinking, but Urban Planners Told to Keep Building: Satellite imagery that monitored the intensity of night lights in more than 3,300 Chinese cities and towns between 2013 and 2016, found the intensity of lights had dimmed in 28% of cities - 938 in total, according to Tsinghua University.
‘Strong Potential’ for Sharing Economy in China, Says Report: 91% of Chinese consumers say they have rented or bought second-hand bicycles/electric bicycles in the past year according to Mintel. 61% have done so with cars, 25% with books/audio-visual products, 25% with digital products such as mobile phones and cameras, 18% furniture and 12% home appliances such as fridges. While the clothes and accessories sharing category has been making headlines, just 9% of urban Chinese consumers have rented or bought them second-hand. 86% appreciate the convenience of sharing products, 59% cite affordability and 51% recognise it is good for the environment.
From Alibaba to Gucci, How Jack Ma’s ‘New Retail’ Model Puts China Ahead of the Game: Powered by analytics, new supply chain strategies and technological innovation, the New Retail concept has transformed the shopping world.
Digital China
Amazon Live Is Alibaba's Live-Streaming Without The Good Bits: The recently-launched Amazon Live is another example of America's big tech firms getting good ideas from Chinese tech innovations. Last year, 84 Taobao stores made over $7.4 million each in sales through Taobao live-stream broadcasts, with 23 stores having achieved $15 million or more. Taobao predicts that over the next three years, live-streaming on Taobao will generate over 500 billion sales transactions. 1,200 livestream influencers on Taobao have more than a million fans. Over 100,000 live streamers promoted farm products on Taobao and 60% of sales among top-selling jewellery stores came from live-streaming.
Alibaba Revs Up Services as Smaller Cities See Growth: One of Alibaba's major goals for 2019 is to help consumers in tier-4 and tier-5 cities and rural areas buy more products - 80% of the Taobao's new users between July and September last year were from these areas.
Huawei Defies Global Troubles With Accelerating Sales Growth: Even with all the bad press in the West, Huawei's revenue for first two months of 2019 surged 36% from a year earlier says its founder.
Food & Beverage
Forget Avocado Toast: This Vegetable is the Taste of Financial ‘Freedom’ in China: The first spring leaves of the Chinese mahogany tree are being talked about as a gauge of financial health among the middle class – or China’s avocado toast. Popular in the north, it tastes a bit like onion and costs $12-$30 for 500g.
What Does 2019 Hold for China's Pork Import Market?: After seeing a 2% decrease in pork import volumes last year, pork imports to China are expected to double this year, with alternative meats such as chicken and beef also expected to grow strongly. China's top 7 pork producers accounted for less than 7% of the market in 2018, highlighting the fragmented nature of the market and providing yet more challenges in dealing with the African swine fever.
Kids
China’s Baby-Care Market Sees Rapid Growth: Between 2013-2018, China's baby care market grew 19% annually on average. Baby skincare is the largest segment of the market, accounting for 60%, with the baby-bath and soap segment at 31%, followed by the baby-hair products at around 10%. Insect repellents for babies was the fastest-growing sector last year, with as many as 47% of Chinese consumers aged 20-39 with children aged up to three years old claiming to have used them. 34% of parents say their biggest concern when choosing products is not knowing if it is suitable for their babies, while 32% say they are afraid to try products they have not used before. 29% say they do not know the ingredients used in the products, and lack understanding of the advantages of one brand versus another.
Chinese Tourists
China’s Wealthy Families are Turning to Long Holidays Abroad as Efforts to Emigrate Halted: Foreign lifestyle experiences are becoming more popular as citizens seek to escape pollution, food and medicine safety worries and authoritarian government controls. The availability of multiple-entry tourist visas and the sharp drop in air ticket prices have made it convenient and practical to stay abroad for from a few weeks to up to three months each year.
Entertainment
A Hit TV Series in China Skewers Cranky Old Parents: Provincial TV show “All is Well” starring Yao Chen had been a top-10 trending hashtag on Weibo for 20 days and counting. It has been streamed more than 390m times, 278 million times more than the next most popular television series. The series breaks the usual mould of Chinese TV series, questioning the blind attachment to traditional values, particularly highlighting the favouritism sons receive over daughters.
Fashion
Suits to Dominate Chinese Women’s Fashion in 2019, Report Says: Both male and female shoppers are making bolder, more gender-bending clothing choices according to Taobao which has seen a 317% increase in women buying suits in the first quarter of this year. The popularity of women wearing suits may be partially attributable to Yao Chen wearing suits in "All is Well". Meanwhile, Chinese men have embraced clothing and accessories previously considered effeminate, as a growing number are now purchasing items with a “lacy style and see-through design”.
Beauty
Beauty is the New Buzzword in China's Tech World: From virtual makeovers, to a magic mirror with an AI-powered smart speaker that offers beauty tips, monitors UV levels and can even help order cosmetic products on Tmall, to 3D nail polish printers which allow users to upload a design via a mobile app and print the customized nail polish on the spot; Chinese consumers are spoilt with clever new tech accessories for beauty.
Luxury
Half of Chinese Luxury Spending to be Domestic by 2025: Bain & Co: China’s luxury market grew 20% year-on-year in 2018 for the second straight year thanks in part to millennials and women. Four key takeaways from 2018 are: 1) Import duty reductions, stricter control over grey markets, and price harmonisation are expected to see the domestic share of Chinese spending increase from 27% in 2018 to around half in 2025; 2) The gap between winners and losers will continue to grow; 3) Cosmetics was a big winner in the segment last year; and 4) Brands are increasing their spend on digital platforms, particularly WeChat.
That’s the Skinny for the week! See previous newsletters here. Contact China Skinny for marketing strategy, research and digital advice and implementation.
