Middle class rising and technologically literate

Published on 2016-12-05

In recent years, investors have been pondering exactly when China will shift from an investment and infrastructure-fuelled, export-led economy to one more driven by the domestic consumer. As much as Australian businesses are salivating over the rise of the middle class in China, investors understand it cannot turn off its citizens' deep historical savings culture overnight.

The latest economic data, however, shows frugality is giving way to consumerism faster than many may expect. Consumption contributed a hefty 71 per cent of China's GDP growth in the first three quarters of the year, compared with 66.4 per cent in 2015, and Australian companies targeting the rising middle class in China are in the thick of it.

Notwithstanding some recent regulatory reality checks, China's demand for "clean and green" products has been a fruitful trend for Australian exporters. Australia's former ambassador to China and now consultant Geoff Raby says a series of food scandals means "consumers simply don't trust the government", including because of a lack of transparency of a controlled media. Pollution and smog have also become dominant day-to-day considerations for China's inhabitants, particularly in urban areas where the World Bank has found air pollution, both indoor and outdoor, contributes to many deaths.

It's no surprise, then, that the millions of tourists who visit Australia, students attending our universities and the parents who visit them return home with stories of a land abounding in nature's gifts. Wellness products in China have boomed and sales have risen 150 per cent from 2014-15 to 2015-16, says Bob Carr, the former NSW premier and Australian foreign minister who now heads the University of Technology Sydney's Australia China Relations Institute (ACRI).

The goodwill towards Australia also burns brightly at the business level. Carr cites ACRI research showing 94 per cent of Chinese business leaders view Australia as a very favourable or favourable place to conduct business, better than the US, Britain and Singapore.

David Liao, the chief executive for HSBC Bank (China), is bullish on the sheer size of the Chinese market combined with consumers who are highly technologically literate in their search and evaluation of products. "The market will converge towards you", he says, recommending Australian companies can focus on developing high-quality products. Whether it's China's ageing demographic or its technologically engaged millennials, "they have the ways and means to find out the products they want. China is one place where we don't need to go find the market. It is absolutely there".

While "if you build it, they will come" may raise the eyebrows of businesses more accustomed to Australia's smaller, more easily saturated, competitive landscape, you will not hear such concerns about Chinese customers from Ego Pharmaceuticals managing director Alan Oppenheim. His strategy for the past six years was adamant the company was "not going to do China". "Unfortunately the consumers didn't read my strategy plan," Oppenheim says.

Ego, which makes all its products in Braeside, Melbourne, already exported to 27 countries across the Asia-Pacific, Middle East and Europe, but found themselves selling thousands of units in China "even as we were vigorously withdrawing".

Ego has since launched online stores on China's three biggest e-commerce platforms.

While there can be significant challenges in doing business with Chinese consumers, such as regulatory risk, cultural differences and bureaucracy, hunting down customers is unlikely to be an Australian company's main concern.