A changing China is still the place to be

Sep 4, 2024 – 9.09am

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China is changing. But a changing China is still a $US18 trillion economy. It’s still the biggest bilateral trading partner for Australia and New Zealand, and the dominant export destination for both markets. And China’s growth, while slowing, is still happening at a rate other economies can only dream of.

As China changes, so too will its many trading relationships. No economy can grow at the rapid rate China experienced forever. But this doesn’t change the fact China is, and will continue to be, a critical part of the global economy - and a springboard to success in the rest of Asia to boot.

In July, China unveiled data that showed its economy grew 4.7 per cent in second quarter - below market expectations, but close to what ANZ believes is a sustainable sweet spot. The economy’s role in global supply chains remains strong, despite shifting trade winds worldwide.

I’ve been to China countless times over the decades and have recently returned from a trip there in July. It was clear to me the environment is picking up again.

The economy is adding services to its existing manufacturing base, although the latter still makes up 35 per cent of the global market, according to some estimates. It has an eye on modern, “smart” industries, and is investing in this area in a way that has led to policy response across the global trade community. Electric vehicles, lithium batteries and photovoltaic products are set to account for 3.8 per cent of China’s gross domestic product in 2024, according to ANZ Research.

That’s good news for markets like Australia, where resources have long been a key part of its trade with China. That market will remain strong, even if the scope of it shifts over time, toward increasing demand for commodities like gold, copper and lithium.

Consumption

China’s property sector remains contractionary, but recent economic reforms unveiled at the Third Plenum in July will help drive the economy into China’s new era.

Food security remains an issue in China, and that will continue to be a key opportunity for exporters in Australia and New Zealand. Food and beverages from these markets continue to have a reputation for ‘purity’ in China for which consumers are willing to pay a premium.

China is the one of the world’s largest importers of agriculture goods, and the geography has been open about its desire to feed its own people. Consumer tastes are becoming more localised in response and will continue to change further.

Sensing this shift, large multinationals are already moving to diversify into on-ground production in China, signalling the future opportunity for antipodean food and beverage groups may go beyond purely exports. In June, NZ dairy giant unveiled plans to open its sixth “application centre” in China, an indication of demand on Chinese soil.

ANZ is in the business of helping move goods and capital across borders, including to and from China. Investing in China can be intimidating and complex, so a strong regional cash management partner with an expertise in foreign exchange is essential. It goes without saying, access to local expertise in China is critical to mitigate risk.

Long-term view

Not everyone is taking a long view on China, with some multinationals rethinking their exposure to the market. Others, like Singapore’s GIC, stand ready to fill those gaps, the company’s Chief Investment Officer recently told the Financial Times. ANZ isn’t involved in property financing in China but renewed appetite is a promising sign.

ANZ has been in China for almost 40 years, and we’re proud of the relationships we’ve built. We were the first Australian investor as one of the first four foreign banks to enter alongside HSBC, Standard Chartered and Citibank. We are the only AA-rated and locally incorporated Australian bank with scale and boots on the ground, and we leverage our presence throughout our broader Asian network.

It’s a long game. We know if businesses want to capitalise on the China opportunity, they need to put the work in - by building deep, trusting relationships in-person with local and multinational clients, state-owned enterprises and regulators. Understanding the culture and showing respect is the only way to succeed in China. Trust takes time to build.

To maintain economic growth in the future, Australia and New Zealand need to be pragmatic in their relations with China. The trade mix has evolved, and will continue to do so, but the fundamentals of doing business in the world’s second largest economy remain the same.

Investment in new markets does not come without risk, but the sheer scale of China means there will always be opportunities there for those that wish to the find the right ones.

Simon Ireland is MD, international at ANZ institutional.