There’s a continent of consumers coming your way, are you ready?
1st September 2017
China is expected to boast 850 million new middle-class consumers by 2030.
It’s as if a new continent was emerging in the Asia-Pacific, but is the region ready to handle the growing demand for goods and services?
Is there a downside? Are we about to lose access to our own resources?
The Honourable Bob Carr, former premier of New South Wales and Australian foreign minister, is the director of the Australia-China Relations Institute (ACRI) at the University of Technology in Sydney.
He joins hosts Mike Lynch and Kylie Kwong in the studio to talk about the opportunities and challenges that lie ahead.
Host: Mike Lynch
Guest Co-host: Kylie Kwong
Honourable Bob Carr
Accountancy Insurance Australia: https://www.accountancyinsurance.com.au/products-services/audit-shield
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Mike Lynch: Welcome to the Acuity Podcast, episode number 13. There’s a continent of consumers coming your way. Are you ready? This episode is sponsored by Accountancy Insurance, providers of Audit Shield, the preeminent tax audit insurance solution for accountants in Australia and New Zealand. I’m your host, Mike Lynch.
Kylie Kwong: And I’m your co-host, Kylie Kwong. The Chinese middle class is expected to increase by 850 [00:00:30] million new consumers by 2030. It’s been described as significant as a new continent emerging in the Asia-Pacific, but is the region ready to handle the growing demands for goods and services? Is there a downside? Are we about to lose access to our own resources? The Honourable Bob Carr, former premier of New South Wales and the federal foreign minister is the director of the Australia China Relations Institute at the University of Technology in Sydney. He joins us in the studio to talk about the opportunities and [00:01:00] challenges that lie ahead.
Mike Lynch: Mr. Carr, welcome to the Acuity podcast.
Hon. Bob Carr: Pleasure.
Mike Lynch: You’ve discussed recently in an article, the explosive growth in population of the middle class in China, upwards of 850 new consumers by 2030. What kind of impact do you think that will have in the Asia-Pacific region and beyond?
Hon. Bob Carr: Well, the most astonishing statistic I’ve come across in recent years, it’s not 850 million in the middle class of China by 2030, it’s 850 [00:01:30] million being added to the existing middle class between 2009 and 2030. Now, if you think about it, I keep using this analogy, it’s like a new continent coming out of the ocean to Australia’s North and saying, “You know what? We’re giving you 850 million new middle-class consumers. Sell us your tourism, your university and school education for our youngsters. [00:02:00] We’ve got the supermarkets, you fill them up with everything you want to [inaudible 00:02:05].
Mike Lynch: And your firms, and architecture, and law, and engineering, and environmental consultancy. We’re going to be needing that.” Now this is an extraordinary opportunity for Australia, and when we ever talk about our economic future, the prospect of doing business with India, for example, or the promise of innovation, nothing [00:02:30] stands out like this explosion in the Chinese middle class. And we’re in the middle of this explosion now, it is happening. It’s happening before our eyes.
Mike Lynch: Where are we likely to see the immediate positive impact of this growing demand?
Hon. Bob Carr: It’s great news for Australian farmers. I think tourism, the future of tourism in Australia is taken care of by this. Universities and schools seeking fee-paying students have [00:03:00] got to factor this in, and it’s all positive. And I think services, Australians are very good at services. This includes aged care and healthcare. We’re used to high standards. And where there’s going to be big opportunities in China are under the free trade agreement. We can now get in, and with Australian-owned providers, offer these services to the newly-enriched, exploding, Chinese [00:03:30] middle class.
Kylie Kwong: Are we in a good position to adequately handle the increasing demand for our products and services?
Hon. Bob Carr: That’s a good question. I think you’d have to go to the sectors. Are we expanding our hotel capacity fast enough to accommodate Chinese tourists visits going from where it is now; one and a half million per annum to … I’m guessing … I think I’ve seen these figures projected [00:04:00] … something like three or four million within a relatively short time? But every sector of the Australian economy has got to think about whether it’s moving fast enough to take advantage of these opportunities. Doing business with China can be difficult, it can be challenging. Different set of rules and laws, for example.
Kylie Kwong: That brings up a great point. Are we prepared culturally to further strengthen our economic ties with China?
Hon. Bob Carr: I’d like to think we are. We’ve been smart to admit as many Chinese migrants. [00:04:30] They are very loyal Australians, they’ve become naturalised, the youngsters do well, law-abiding families who pay their taxes, and this has got to be a great advantage to us, given the difficulty of persuading Australian background, non-Chinese background students to study something as hard as Mandarin. But I think that’s our great advantage. I think the reason my think tank is important, is that we are not very China-literate. We’re [00:05:00] not to be blamed for that.
China’s got a different system so it is hard, and the barriers of language and culture are real. China’s got a lot of cultural confidence, it’s civilizational power that goes back millennia. We’ve got to work harder at this relationship than we had to work at our relationship with the United Kingdom or with the US, our alliance partner, or even with Japan. China’s got different political [00:05:30] values, for example, and often things get in the way; faults by us, faults by the Chinese. But it’s our future, and we got to work hard at it.
Mike Lynch: What kind of pressures will be put on the economy, housing, real estate infrastructure? Is there a downside that we need to start preparing for?
Hon. Bob Carr: Well, it’s up to us to set the rules on housing, for example. We can set up restrictions on foreign ownership of housing. [00:06:00] We might restrict foreign investors to new housing, for example, so the money goes into providing a block of apartments and not just snapping up an existing, a built house or apartment. We can set the rules. That doesn’t become a problem in the Australia-China relationship. The Chinese would expect us to set rules that suit us. That’s something for Australian government to respond to.
When it comes to Chinese investment, the Chinese know that Australia presents opportunities, but as long as we’re consistent [00:06:30] they will accept us laying down the rules. If we want to say to the Chinese, “You can’t snap up that conglomeration of rural properties, but you gotta do it with an Australian partner so your share will be under 50%,” a Chinese investor will play by the rules. That happened with the Kidman properties. Nothing would be satisfactory to everyone. The Chinese would expect us to be consistent.
No special rules for [00:07:00] the Chinese but the same treatment that others get, and also to let them know the rules in advance. So if there’s no chance we’re going to object to them buying part of the electricity grid, our power grid, then that’s fine. They can’t objects. But they ought to know that before they waste millions of dollars in preparing a bid, only to be ruled out at the very last minute.
Mike Lynch: Some have expressed concern [00:07:30] around losing control of the supply chain when dealing with any major trading partner. Is there a danger here that as our economic ties grow with China, that over time these resources will be snapped up?
Hon. Bob Carr: Well, John Howard’s very sensible about this. He says, “What we’re going through now is what we went through with Japanese investment in the 1980s.” He says, “It’s a matter of people getting used to it.” And I think there’s a lot of common sense in that. He’s old enough to know what [00:08:00] happened when the Japanese started investing in farms and mines. The good news was that if the Japanese had a share in a mine, then the Japanese were going to continue to source their purchases from Australia.
I don’t know anyone who thinks it’s a bad thing that Gina Rinehart can get cattle into Chinese [00:08:30] supermarkets, where they’re available for purchase by a middle-class. It’s increased its intake of meat in its diet, because they can afford to buy it. And if that’s facilitated by Gina Rinehart having a partner in ownership of the Kidman properties, then I don’t see that as a bad thing.
Kylie Kwong: As part of One Belt One Road, we see a lot of appetite from the professional services industry; accounting, legal, finance, and also small businesses [00:09:00] to jump on board. But there appears to be hesitation from the federal government to assist. In light of that, what can these businesses do to overcome the hurdle and break into this emerging market?
Hon. Bob Carr: Well, some of the businesses I speak to say they still need to see a pipeline of projects under One Belt One Road, and I haven’t seen that. They’re saying, “What role is there for an Australian private company? Are the airports, the 50 airports that are envisaged in [00:09:30] central Asia going to be open to private ownership? The Belt-Road initiative deals with lots of roads being built. Will any of them be available for a private public partnership proposal?
Is there a role for the private sector? Is the only role for Australian business being to offer advisory services on projects?” So I think Australian business has got a lot of questions to ask. I don’t thing a vague memorandum of understanding [00:10:00] which the Chinese side tends to like means much, so I don’t think there’s an issue with Australia saying it’s going to bide its time. But I think the fact that China is talking infrastructure as its foreign policy is a pretty good thing, a pretty positive thing.
Mike Lynch: What do you businesses and governments for that matter need to start doing to prepare for this increase in demand? Are we moving fast enough?
Hon. Bob Carr: [00:10:30] I think the standard advice … When you go into China, you gotta play by the rules and you gotta get careful advice on Chinese law. You gotta make a decision about whether you do this with the Chinese partner or you go it alone. You gotta think that through. But don’t take the risk of saying, “The Chinese have got these rules, but they’re not serious about them.” [00:11:00] You can’t do that.
You can’t do that. No one’s saying that doing business in China is easy, but I think there’s a reasonable expectation that as the Chinese economy matures, and the private sector becomes even bigger than it is now and it’s 70% of the economy, things are likely to become more comparable to doing business in a Western country, but no one would say we’re close to that now.
Mike Lynch: Is the [00:11:30] hesitation to ramp up and meet demand fear of economic uncertainty? We’ve heard recently in the news concern around China’s potential credit problems. Is that causing hesitation to invest?
Hon. Bob Carr: Obviously China is subject to the same rules as other economies. There will be a rescission sometime, but America recovered from the worst recession since the Great Depression of the early 30s. [00:12:00] The American economy has recovered from the events of 2008. It’s happened, so even a hard landing in China is something that based on America’s experience, they’ll recover from. We’ve seen Europe recovering from the downturn of 2008.
The Spanish economy, for example. What is important is the over, over-arching trajectory. So when you eliminate [00:12:30] the fluctuations, even the prospect of a recession when everything’s out, growth is the story out of China. This is a country hauling its way out of undeveloped status, and one feature of that is the explosion in the size of what by international standards can be described as its middle-class.
Kylie Kwong: How would you categorise our relationship with China at this point in time? Is there some [00:13:00] fence-mending that needs to happen to ensure positive economic ties?
Hon. Bob Carr: Well a big debate, this year we seem to have tilted against China. Certainly it’s hard to identify a speech from the Prime Minister or Foreign Minister that’s been positive about China, and what China means to Australia. The danger with words is the force accumulates and take on a life of their own, [00:13:30] so I’m a bit weary about the fact that we’ve been so busy criticising China without it seems any clear objective.
So at any time we we can give a lecture on how China would be better if it were a democracy and that’s the implicit Australian position, but I’m not sure with what objective in mind we’re serving up these lectures to China. [00:14:00] In a year in which China has become, I think pretty clearly, the dominant power in Southeast Asia, I just wonder why we’ve chosen to be so critical of that fact, given that we have got no chance to alter it. The nations of Southeast Asia made the decision that they’re going to be dealing with China one-on-one over their maritime territorial disputes.
Kylie Kwong: How do we overcome the perceptions and concerns every China’s influence in the region?
Hon. Bob Carr: Well I just [00:14:30] think we’ve got to analyse what’s happening in the region to our North; the ten nations which comprise [inaudible 00:14:38], are all dealing directly with China. That’s their decision. And what are we supposed to do? Complain that Malaysia is receiving a lot of Chinese investment and cooperating with China? Regardless of a maritime dispute they’ve got with China, the Philippines have decided it wants to get along with China.[00:15:00] We should be rather satisfied that the Chinese, given the good relationships they’ve got with these nations, are forced to be restrained in their own behaviour, because they don’t want to blow, for example, their relationship with the Philippine sky-high. That’s a good thing. But frankly, it’s out of Australia’s control. If Myanmar has a leader in Aung San Suu [00:15:30] Kyi, who chooses to go to Beijing before she goes to Washington, it’s their decision to make. And if Laos wants high-speed rail, if Thailand and it’s leaders choose to buy their submarines from China, not from the US or somewhere else, then what’s Australia supposed to do?
Serve up pious lectures on how they should be careful? Those countries are capable of determining their own future, and I think you can generalise [00:16:00] and say that, yes, they want America to stay in the region, but majority public opinion in Southeast Asia is that China is closer, China is getting richer, and China’s got more to offer. Still, they want America to be there to balance China if required, but they know that Beijing is more important to their futures.
Mike Lynch: Are we going to get caught in a conflict of ideologies here? China, our trading partner on one side, and the security [00:16:30] of the region, the US, on the other.
Hon. Bob Carr: Well, diplomacy was invented for us to be able to straddle these sorts of differences. And the history of diplomacy is that countries can bridge these sorts of divides. I’d like to think we’re a [inaudible 00:16:46] country, although sometimes recently I’m driven to doubt it. But if we are smart, we can manage these relationships. I don’t think we look too smart when we choose to lecture China [00:17:00] on how it should order its internal affairs, even though we’re right. I think there are more creative ways of sending messages, but with diplomacy we can have a security relationship with the US. And America, by the way, let me assure you, America would expect us to be maximising our advantages of China, and would be unsurprised when we do.
Kylie Kwong: So what should we be pushing in terms of the diplomacy [00:17:30] agenda, to ensure that we are better positioned?
Hon. Bob Carr: I think we should be talking to China about the Trump presidency, what it means to have a populist American [firster 00:17:38] in the White House. We gotta be talking to China about Korea. We’ve got to be talking to China about its relationship with South Korea and with Japan, given the vulnerabilities in Northeast Asia. We’re entitled to say to China we want them to play by the rules in Southeast [00:18:00] Asia, and to say to China … What I’d be doing as Foreign Minister, “We haven’t run provocative patrols in the 12 nautical mile radius around your artificial structures in the South China Sea. But the American admirals have asked us to do it from time to time, and we’re not going to be inclined to do it as long as your behaviour cleaves to international law.”
Mike Lynch: So you don’t think the US will put us in a position that will force us to choose a side?
Hon. Bob Carr: Well, we’re pretty dumb [00:18:30] if we put ourselves in that position. The US knows that Germany, and Canada, and New Zealand, and the UK will see advantages in trade and investment with China, and will want to have beyond the economic ones, other things to do and say with China. And the US would be in my view, entirely unsurprised if an Australian Prime Minister says, [00:19:00] “Our links with China are very important to us, and we’re not going to be enlisted for some policy of attempting to contain the rise of this country, because it can’t be contained.” China is going to seek in Asia what it’s actually achieving, and that is increased influence and status, given its economic rise.
Mike Lynch: So the ties to China, and the dramatic rise of their middle class, will only be a good thing for the region?
Hon. Bob Carr: Oh yes, I think the nations of Southeast [00:19:30] Asia want Chinese capital. Otherwise they wouldn’t permit it. Myanmar wants port development and a pipeline link to China. They’re a poor nation, they benefit from it, but they know that they’re entitled to say in respect of an unpopular Chinese investment in a dam that has environmental consequences, “No, we don’t want that.” It’s a matter for sovereign states. And China’s got no alternative but to accept that, and the Chinese are smart enough [00:20:00] to know that that doesn’t become an irritant in a bilateral relationship with Myanmar.
China’s got a new status and a new credibility, but they know if they become a bullying presence in Southeast Asia, they will lose that. If China is pushy, then they’ll force nations to think about how they cooperate to limit China’s rise as a regional power. [00:20:30] So this give-and-take is balance, and if China, again, were to go too far, those nations would simply become closer to Washington. And in the Ministry of Foreign Affairs in Beijing I’m sure they’re smart enough to know that bullying, where they resort to it, comes at a cost.
Mike Lynch: Mr. Carr, thank you so much for your time.
Hon. Bob Carr: My pleasure, thank you.
Kylie Kwong: The Honourable Bob Carr was the Foreign Minister for Australia between 2012 and 2013, [00:21:00] and the New South Wales Premier from 1995 to 2005. Professor Carr is now the director of Australia-China Relations Institute at the University of Technology in Sydney.
Mike Lynch: And that concludes episode 13 of the Acuity Magazine podcast. We encourage you to subscribe to the podcast at acuitypodcast.com or on iTunes. acuitypodcast.com is also the place where you can keep up-to-date with the latest interviews or view the show notes for each episode. You can also email us directly; [00:21:30] [email protected] There’s lots more ahead on The Acuity Podcast. Until next time, bye for now.
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