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Picking the right partners a top priority

Finding the right local partner is the key challenge for Australian businesses seeking to expand to China, with banking and payment issues no longer a top concern because of stronger regulations introduced to the country’s financial system.

The finding was part of the inaugural China-Australia Chamber of Commerce Doing Business in China survey, conducted in collaboration with the University of Melbourne and KPMG.

The survey received 100 responses from members of AustCham and the Australia China Business Council Victoria, most of which were senior level executives operating in or doing business with China.

Unsurprisingly, 48 per cent of respondents ranked China as their top priority for short-term global investment plans.

Around 80 per cent of respondents to the survey said they would increase their investment in China operations in 2018, with 21 per cent committing to significant additional investment.

Despite the investment optimism, the survey showed 55 per cent of respondents considered doing business in China to be somewhat difficult, while 12 per cent found it extremely difficult.

The survey data showed that agribusiness and financial services-related businesses experienced more challenges than those in education or resources.’

“The perceived difficulty of doing business in China can reflect two distinct experiences,” the survey report said.

“Either companies have to overcome or comply with a labyrinth of administrative, regulatory and legal requirements, or operating in China exposes companies to business risks that are difficult to manage or to quantify.

“When we take a closer look at those China-specific business risks, they are most likely opposites of the very factors that made China an attractive investment option in the first place.” 

Finding a local partner was ranked as the top challenge, followed by corruption and regulatory uncertainty. 

“Closely related to the perceived difficulty of doing business in China is the challenge of finding a local business partner who can help navigate many of the administrative, regulatory and legal requirements,” the report said.

“Getting the partnership right will help avoid or overcome many of the other challenges.

“What were once considered major stumbling blocks now no longer seem to be principal challenges of doing business in China.

“Banking and payment issues have mostly been resolved by a much more regulated financial system.

“Negotiation style and language also feature low on the respondents’ list, which could suggest a ready availability of local, English-speaking management and employees in China.” 

The biggest opportunity for Australian business, according to the survey, was China’s rising middle class, and not its mammoth Belt and Road Initiative.

More than 30 per cent of respondents to the survey identified China’s middle class as the single most important opportunity, ahead of about 25 per cent, who said it was Belt and Road.

Sustained economic growth and expansion in China’s domestic market were the third and fourth-ranked opportunities.

“Supplying China’s demand for services (and food) is clearly identified by this ranked list as the key opportunities,” the survey report said.

“While this is the case, these opportunities also point to a demand in resources, which is further supported by the rank of China’s ambitious Belt and Road Initiative as second in top opportunities.

“Its continued implementation will continue to pull China’s demand for Australian resources.”

The survey identified increased economic volatility as the biggest risk to China’s economic growth, followed by over-capacities in certain industries, lower consumer demand and geopolitical instability.