Asialink Chairman Sid Myer explores the challenges for Australia in its relationship with China over the next decade.

The Australia-China dynamic will be informed by a globally more influential China – a China that is emerging with economic, financial, political, cultural and military strength to match the US, and a China whose relationships with Japan and the US will have profound influences on Australia in the years to come. But we need to ask “which China” and “which dynamic”.

It is easy to forget that China is a huge, complex, multi-regional country. It is home to five mega cities with over 10 million people, and more than 160 cities with over one million people.

McKinsey & Company estimates that, based on the current rates of urbanisation, by 2025 China will have eight mega cities and 221 cities of over one million residents. State Owned Enterprises (SOEs) will become a less important part of the economy, and this trend is well under way.

According to brokerage and investment group CLSA, data from the National Bureau of Statistics shows that the SOEs’ share of total industrial profits has declined from 45 percent in 2004 to 28 percent in the first seven months of this year, while private firms’ share has risen from 10 percent to 31 percent over the same period.

Which China do we mean – the SOEs or private enterprise? We hear of the “property bubble” in China. But according to China Realty Research, the compound annual growth rate (CAGR) in home prices in the 40 monitored cities monitored since late 2006 is 7.6 percent per annum. The CAGR for Shanghai and Beijing over the same period was 14 percent. Growth in Beijing and Shanghai has been so explosive it has coloured our view about the rest of China. So which China do we see – Beijing and Shanghai or other cities?

In viewing the Australia-China dynamic we should also reflect on last year’s Asialink report by Professor Tony Milner which encouraged us to consider that, in order to get our relationships with China and the rest of North Asia right, we must first get our relationships with ASEAN right. One of Australia’s biggest challenges – and also our biggest opportunity – over the next decade is to get our engagement settings right.

Australia can send mixed messages to the Chinese, like the flip-flopping on foreign ownership on residential real estate. Australia’s often xenophobic responses, and the media’s treatment of this issue, can be unhelpful and often ill-informed. Despite strong growth, China still represents less than 3 percent of total Australian stock of investment, and less than 2.6 percent of Chinese investment in 2012 went into agriculture and land.

The Chinese have choices for its foreign capital; they do not have to invest in Australia. There are challenges in China, too. Some have noted, and been criticised for doing so, that foreign investors in China face a challenging FDI regime with what seems like confusing decision-making and review processes, arbitrary demands on foreign entities, and widening restrictions on where foreign investment is allowed. Another big challenge – and also opportunity – involves the embedding of cultural intelligence, understanding and other skills in the way Australia approaches China.

Asialink is particularly focused on this challenge, leading us to develop the Australian Centre for Asia Capability. The Centre aims to equip Australian businesses with the capabilities to fully seize the economic opportunities of the Asian Century. This will include providing a mixture of short courses, in-country programs and knowledge packs targeted at all levels of the workforce, from CEOs to front-line staff.

Our third challenge is ensuring that Australia and Australians have the “tools of trade” to compete in China. Competition in China, from within and from outside, is fierce, sophisticated and well-funded. Cultural diplomacy, soft power and highly strategic use of aid are the new fronts for competition in the region and, in the absence of commitment to these strategies, Australia risks missing out.

Australia needs to finalise its Free Trade Agreement with China. It also needs to invest in its diplomatic effort in the region. In the Asian Century, diplomacy will matter greatly to Australia and we will need to be expert at it. This might include navigating future tensions in North Asia, collaborating where needed with other nations and ASEAN to influence and engage with China, Japan, India and the US, and working in partnership with others to position Australia appropriately in the changing regional architecture. 

Australia needs to take an intergenerational approach to the way it engages with the passage of students to and from China. Here, the government’s New Colombo Plan is to be applauded. Finally, we need to ensure there is no room for a complacent Australia in the Asian Century. In the last few generations Australia enjoyed being one of the most developed nations in the region. That is less so now. It is not that Australia has stopped growing or done badly – it is just that Asia, and of course China, has grown much faster.

So the final opportunity for Australia is to ensure that the Asian Century can also be the Australian Century.

*Sid Myer AM is the Chairman of Asialink, a position he has held since 2005. This article is based on Mr Myer’s speech to the Australia China Youth Dialogue in Melbourne on September 27, 2013.