How will the China slowdown affect small business in Australia?

15th February, 2016

China has been the big story for Australian business in the last decade or more, but how should small and medium-sized businesses (SMEs) respond in the face of headlines about volatility, crisis and risk?

Australian-China bilateral trade is worth more than AUD$100 billion a year, and more and more Australian companies are becoming involved in the China-Australia supply chain.

Australia recently signed a free trade agreement with China to spur bilateral trade, but many small business owners will be worried about risk in their China relationships, and the potential of their opportunities given the recent drop in commodity prices.

It’s not all bad

Professor Tim Harcourt – well known as the Airport Economist – has vast experience of Asia in his previous role as chief economist at Austrade, and now as the J.W. Neville fellow at the University of NSW.

His message to Australian SMEs is to “hang tough” and to understand that despite recent fluctuations, China is still a major opportunity for Australian businesses across all sectors.

“More SMEs lose money in America than they do in China,” says Harcourt.

“SMEs have historically done very well in China and there would be around 5000 or so Australian SMEs exporting to China and around another 5000 via Hong Kong, so it’s been a good market for them, unlike the results for some of the bigger Aussie corporates.”

Harcourt’s mantra to SMEs is around “proximity and time zones,” both of which he says are working in Australia’s favour.

“The Australian professionals I meet across small country towns in China are growing their businesses rapidly”, he says.

READ: The key to doing business in China

Look toward small business growth sectors and niches

According to the National Australia Bank, key areas of opportunity for Australian SMEs in China include the healthcare market, scientific equipment and specialised machinery, as well as high-quality food and wine exports.

“We need to understand the bigger picture,” advises Harcourt. “I’d tell people to calm down and look at the long term prospects and goodwill you create by staying in a market and not pulling out.”

SMEs should research the details of the Free Trade Agreement (CHAFTA), signed by the two countries last year, which, thanks to the slashing of tariffs for many Australian businesses across varied sectors is creating fresh opportunities.

To offer some examples, mango wine exporter Ti Tree is excited about boosting a business which began with the first shipment to Guangzhou in 2006. The tariff on mango wine is currently 40 percent but is being reduced to zero over the next four years.

Chinese demand is also underpinning a huge expansion of an offshore abalone farm in Western Australia, where 80,000 juvenile abalone are currently being seeded on artificial reefs.

Tuna farmers, beekeepers, oyster farmers and winemakers are all optimistic a new era of access is dawning to what will, by 2030, be the world’s largest economy, with a population which has grown to 1.5 billion.

And as the middle class of 500 million Chinese grows, their tastes will change. And demand can only increase at the same time as Australian producers become more competitive in a lower tariff regime.

All this, says Tim Harcourt, will outlast the current market volatility, and is something that Australian SMEs need to consider as they ponder entering the China market.

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