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Into the Middle Kingdom

Living in a country where many people check the air pollution before the weather, the Chinese are used to grey skies. Outside a 17th-floor Shanghai boardroom, the afternoon sun hangs in the sky looking more like the moon, its glare obscured by smog.

Hardly anyone has sunglasses in China’s big cities, it seems because they have their own “industrial filter”. An Australian airline official based in China recalls escorting a group of Chinese travel agents to WA’s North West and the first thing he had to do was take them to buy sunglasses.

It was a picture-perfect day in Broome and the visitors could not tell where the water ended and the sky stopped.

They were not accustomed to bright blue skies and crystal clear salt water, but that’s the sort of experience Chinese visitors want to have.

Michael Clifton, senior trade commissioner at Austrade in Beijing, says the numbers of Chinese tourists visiting Australia are going “gangbusters”.

Pollution is a major issue in many Chinese cities but the country’s Government has set targets to confront it, including a planned reduction in the number of polluting steel mills.

The environmental challenge, along with a perceived property bubble and the slowdown and readjustment of the Chinese economy, are at the heart of concerns that demand for Australian iron ore will be cut and the steel-making commodity’s glory days are well and truly over.

But as the heat comes out of WA’s resources industry, local businesses from other sectors are looking to take a slice of the Middle Kingdom’s enormous 1.4 billion-customer pie.

Finding out exactly how they can do that was the focus of a mission to Shanghai and Beijing last week organised by the Australian Institute of Management WA and AustCham Shanghai, a China-based peak body for Australian businesses.

Eleven WA businesspeople, all from non-resources industries such as education, agriculture and branding, took part in AIM WA’s six-day Global Leaders Program, which introduced them to Australians and others already trading in China.

Among the delegation, which was hosted by AIM WA chief executive Gary Martin, was former West Coast Eagles coach John Worsfold and three representatives of WA’s biggest private school, St Stephen’s.

The most bullish of the participants, St Stephen’s School principal Tony George, believes WA is ideally positioned to provide high-quality education to China.

Mr George says both the Federal and State governments in Australia have retreated from the funding of education, meaning fees have been increased disproportionately in many non-government schools.

He says providing education resources to China, which has a rapidly growing middle class, will provide an alternative source of funding.

Australian institutions are already educating expats living in China, but he believes the opportunity exists to provide vocational education and training services to the Chinese, who value a quality education for their children.

“If there’s no more pie to divvy up, the only way you can solve the problem is by increasing the size of the pie, ” Mr George says.

“And we can’t increase the size of the pie in Australia because the education market is completely saturated, so our only real opportunity is to look globally.

“Australia has the best education in the region. We’ve just got to figure out how to get it to them.”

St Stephens Caramar principal Tony George and Mark Fielding after their recent trip to China looking at providing secondary education resources to schools. Picture: Bill Hatto/The West Australian.

There are two main schools of thought on how the Chinese economic growth story will unfold over the next decade and how much opportunity is left for foreign businesses as growth slows.

Michael Clifton puts it down to the bulls and the bears argument.

“On one hand China’s doomed; and in the other view everything’s fine. I sit squarely in the middle, ” Mr Clifton says.

“China is about a $10 trillion economy.

“If it grows at 7 per cent, they add around $1 trillion worth of goods and services value. That is more than the size of the Indonesian economy total.

“That perspective is important.”

Mr Clifton says he is not blind to the challenges such as government debt, over-capacity in steel and cement and the rebalancing of China’s economy.

But China’s growing consumer class with its serious buying power presents “significant opportunities” for Australian businesses, so he remains “relatively upbeat”.

“Let’s not worry too much about how middle class is determined, ” Mr Clifton says.

“The fact is there are upwards of around 10 to 15 million Chinese a year entering an income bracket where they have disposable income to afford the things that we all take for granted.

“We are pouring millions and millions of Chinese into an income bracket where they are starting to buy Australian beef, Australian wine, they are sending their son or daughter down to a school in Australia, they are having an overseas holiday.

“All of those things are increasingly in reach of more Chinese.”

As the high-speed train hurtles from Shanghai to Beijing at 300km/h, it shoots past some of China’s more than 160 cities with a population of more than one million people.

While some appear only as distant imposing skylines, hundreds of half-built apartment towers sit in clusters in close view of the railway line and surrounded by empty streets as telling displays of Chinese ambition in a country marching towards urbanisation.

But questions are being raised about how over-inflated the property market in China is and whether the country’s empty apartments will ever be filled.

Though construction is evidently still under way on a grand scale, Bluescope China president Bernie Landy recognises the market has been tough.

The company, which specialises in premium metal coated and painted steel building products, has gone through a dramatic restructuring and cost-cutting over the past year, cutting its workforce in China from 2000 to 1600.

He says the business remains profitable in China but it is not performing as well as it did during the construction boom of 2009 to 2011. He believes future opportunities lie in providing green products.

“We have had a very successful upbringing here in China, ” Mr Landy says. “We are a trustworthy company and that does work very well in China.

“But it has been a bit of a tough market.

“We have shed a number of expats and other high-cost local staff. That just shows what you have to do in today’s environment.”

Mr Clifton says the $159 billion value of two-way trade between China and Australia will be lower when the new data is crunched.

He says the volumes of iron ore being exported are still very strong.

But much of the opportunity for Australian businesses lies in services in areas such as food and agriculture, education and aged care as China’s population grows older.

In a country where people are fundamentally concerned about food safety, Elders China general manager Craig Aldous says the company has found a niche in providing quality meat to international-brand hotels and high-end restaurants.

“We are still a small business here in China … it’s a very complex market, ” Mr Aldous says.

“But in terms of the future for us, there is a lot of optimism within our company and Australia for the export of food and agriculture products to China and I think there’s a lot of basis for that.

“The Free Trade Agreement is not going to produce an immediate impact … but I hope it means China and Australia will continue to talk about getting rid of barriers to business.”

Professor Martin, who hosted the tour, says cultural, social, political and economic factors that impact on leadership for businesses in China were all explored during the program.

“What is very clear is that there are enormous opportunities in China for Australian businesses,” Professor Martin says.

“But careful due diligence, reliable locally based partners and an on-the-ground network of localised support are essential ingredients for success.”

Phoebe Wearne travelled to China as a guest of AIM WA.