Australian Embassy
China

20150831HOMspeechatTelstra

Her Excellency Ms Frances Adamson

Australian Ambassador

to the

People’s Republic of China

 


Speech

at the

Telstra International Leadership Meeting

at

Ritz Carlton Pudong

Shanghai

“Succeeding in China”

Monday 31 August, 2015

 

 

 


Good morning and thank you for inviting me to address your International Leadership Summit. I am pleased you’ve decided to meet here in Shanghai.

China is, as we know, always in the news.

You could be forgiven for thinking in recent days that the sky was falling in, after more evident signs of slowing growth, equity market volatility and, it has to be said, policy confusion.

Not long ago, many were complacent about China's "new normal" of slower economic growth, assuming China's leaders had a formula that would enable a major economic transition without the costs of adjustment.

But reform is complex and often painful and rarely proceeds smoothly.

China's reform economic agenda is both ambitious and complex.

And it is a long-term process.

For Australia, for which China looms large both in economic and strategic terms, we need to understand the here and now but not lose sight of the bigger picture and the longer term.

Of course, the embassy reports on the stock market and we discuss it with Chinese officials and with business.

But we also need to understand issues that will have a profound impact on China's ability to realise its aim of economic transformation.

They are not much in the news, but fiscal reforms (i.e. sorting out who taxes what and who pays for what), land reform (a still missing building block for a true market economy), regulatory reform (on issues from work safety to food safety) and a host of other issues will be crucial to China's transition.

These processes are often interlinked and not easy to understand.

There are contradictions evident in the reform agenda, which aims both for a better functioning market economy and a stronger political control exercised by a more disciplined and less corrupt communist party.

At the same time, but in different areas, China's leaders want both more control and less control.

They appear to want less risk but more innovation.

I make these contrasts not because I doubt the reform agenda will succeed.

On the contrary. But in my view it will be a lengthy, perhaps messy, process of change.

If we are deflected by short-term volatility, we will ignore long-term potential.

China still has immense strengths, not least more than a billion hard-working, often entrepreneurial people.

They want a brighter future for their children, and they want more economic opportunities.

No process of change is linear; perhaps, now, China's transformation will stutter.

But we don't see signs of a reversal or a decline or stagnation.

And we ignore signs of economic vitality at our peril, such as in China's dynamic services sector which is notoriously difficult to measure.

My advice to business is to be hard-headed about China.

But, for Australia, of all the risks that I see, perhaps the greatest one is not being prepared to seize longer-term opportunities in this market.

As a country, given that our economy and strategic environment will be profoundly shaped by China, I can assure you that there is no more important work for the Department of Foreign Affairs and Trade that seeking to understand China's reform process and its wider impact.

As you will be aware, China is Australia’s leading export market.

It is a growing source of investment, migrants and tourists, as well as our top source of overseas students.

Australia is positioning itself to build on this, and is aiming for deeper economic integration with China.

The China-Australia Free Trade Agreement (ChAFTA), signed on 17 June this year, is essential to this process.

It will unlock new benefits for years to come.

Under the FTA, 99.9 per cent of Australia’s resources, energy and manufacturing exports will enter China tariff-free within four years.

Australian agricultural exports, including beef, dairy, lamb, wine, and seafood, will see elimination of tariffs on full implementation of the agreement.

This will benefit both Australia’s exporters and Chinese consumers – and both groups are very well aware of this.

The agreement contains China’s best-ever commitments on services, including telecommunications services, which I will return to shortly.

In the face of the tensions, contradictions, and challenges, China’s middle-class consumers continue to grow in number and sophistication.

While heavy industry struggles, services grow.

Let us consider the information technology and communications industries.

The Chinese are eager consumers of mobile technology.

By 2012, China’s total number of mobile phone subscriptions had already surpassed one billion.

Today, the figure is closer to 1.3 billion – roughly equal to the entire population.

In the first six months of this year, China’s mobile networks handled more than 360 billion SMS messages.

This, if you can believe it, is a decrease of five percent when compared to the same period last year.

4G uptake is high.

China’s 4G user base now exceeds 220 million, supported by a network of over one million 4G base stations.

The vast customer base drives a cycle of competition and innovation in China’s telecommunications ecosystem.

Here is one of China’s most vibrant and promising industry sectors.

China is also a world-leading manufacturer and exporter of telecommunications equipment.

Australia, for example, imported $5.6 billion worth in 2014, making it our top import item from China.

As you know, the leading companies in this sector are prominent globally, including in Australia.

Huawei and ZTE equipment is standard in offerings from Australia’s major telcos, including Telstra.

For most Australians, the first time they came across the name ‘ZTE’ or ‘Huawei’ was likely on a Telstra or Optus mobile internet dongle circa 2010.

Back then, it was difficult for the average consumer to imagine these companies could surpass the likes of Ericsson and Nokia.

Now, they are at the forefront of the global telecommunications industry, and to visit Huawei’s headquarters, as I have done, is to glimpse the future.

China’s mobile service providers and software developers exhibit great dynamism.

E-commerce is a particular bright spot.

Online retail sales in China last year reached 2.8 trillion RMB, accounting for ten per cent of all retail.

In the first-tier cities of Beijing, Shanghai, Guangzhou and Shenzhen, this percentage is more like 20 to 30 per cent.

The sector is larger than its US equivalent, and is growing three times as fast.

In software, Tencent’s WeChat app has amassed over one billion registered users, and more than 10 million ‘official accounts’ in just four years.

I am pleased to say that one of these accounts is mine.

You can follow me by searching for ‘australianambassador’ (all one word), though my posts, including one about speaking to you today, are all in Chinese.

Perhaps another indicator of the direction taken by China’s economy is the composition of the Forbes China Rich List for 2014.

According to Forbes, five of the top ten richest individuals in China, including the top three, derived their fortunes from technology.

They are the founders of Alibaba, Baidu, Tencent, Xiaomi, and JD.com.

Like China's development more broadly, this is a success story.

But even here, we cannot ignore challenges.

Despite its dynamism, China’s ICT industry is subject to the constraints of China's political system.

As Telstra knows only too well, for strategic and political reasons, China restricts involvement by foreign entities in its telecommunications sector.

Internet controls and censorship are major Chinese government priorities, undercutting a truly vibrant online culture, which supports a robust ICT sector.

Innovation is a government priority, but often departure from the mainstream appears to pose an intolerable risk to the system.

We can't predict a settling point on these questions.

But we need to have an integrated view of the risks as well as the opportunities.

It is this basic framework that underpins the advice I often provide to Australian companies.

And the principles are similar when applied to governments.

China is hard to get to grips with.

And competition for its time and attention, at the level of government or business broadly defined, is intense.

But there are a few basic principles we can observe.

The first principle is TIME.

It takes time to be successful in China.

Australia recognised the People’s Republic of China in 1972, and in 2012 we celebrated the 40th anniversary of our formal diplomatic relationship.

Over this period, Australian and Chinese leaders in politics and business have forged strong links but we have only recently established annual leaders' meetings.

We are still building our political relationship, and we need to keep working at it, because though economically close we have clear differences on political and strategic issues.

A close relationship does not grow overnight.

Succeeding in China requires patience.

Just ask our FTA negotiators.

Although we have struck an excellent deal, it was ten years in the making.

Telstra has had a presence in China since 1989.

You have a long-term China strategy.

Telstra’s well-established relationships with suppliers, such as ZTE, and regulators, such as the Ministry of Industry and Information Technology cannot be manufactured overnight.

As you know, there are no quick wins.

The second principle is PLACE. Time and Place.

To succeed in China, you must be in China.

This is not just a question of opening representative offices and hiring local staff.

This is about demonstrating commitment to the market by regularly sending home office staff – of many levels – to China.

This is an imperative both for corporate Australia and government.

You need to link your local teams with an informed head office.

Rapport and trust have to be built in person.

Although I am aware Telstra offers premium services in this area, teleconferences are no substitute for regular, physical presence.

In 2013, Australia opened a new Consulate General in Chengdu, in addition to our four other Greater China posts – in Beijing, Shanghai, Guangzhou, Hong Kong and our representative office in Taipei.

We have 500 Australian posted staff and locally-engaged employees in mainland China alone. The number of staff posted from Australia to the Embassy in Beijing has increased by 25 per cent over the past four years to close to 60.

Since the election of the Abbott Government in 2013 there have been 75 high-level visitors to China.

The depth and breadth of Australia’s physical presence in China is fundamental to our current success, and key to unlocking future potential.

By this metric, Telstra is also tracking well.

I’m pleased to see such strong representation here today.

I expect many of you are already seasoned visitors to, or even residents of China.

For some, this may be your first time in the market.

I hope it will not be your last. China repays return visits again and again and again.

At the executive level, Telstra leads by example.

David Thodey has been a regular visitor.

We met in June last year, when David, Tim [Chen], and Ruey-bin [Kao] joined me at my residence in Beijing for dinner.

And David was in Shanghai earlier this year to deliver a keynote address at the Mobile World Conference.

The third principle is KNOWLEDGE. Time, place and knowledge.

Some call this ‘China literacy’.

Understanding something of Chinese society and etiquette assists immeasurably in making the right choices.

Those who are ignorant of China, its history and traditions, and its special market characteristics, will stumble.

For the Australian Government, as we seek to measure the impact of China's slowdown on budget revenue, as we seek to understand China's long-term trajectory, we need expertise, and a sophisticated, integrated view of this country.

In other words, we need to dive deep, and any company that is serious about China needs to do the same.

Some of Australia's big miners are good models here. They invest serious resources in understanding China.

I can see Telstra recognises the importance of building China-awareness in the next generation.

I was delighted to see the Telstra-backed start-up incubator, Muru D, bring its latest round of recruits to China this year, including Shenzhen.

For young Australian tech entrepreneurs, Shenzhen represents an exciting, but less understood alternative to the traditional North American and European technology hubs.

I hope to see more young Australians in the technology sector develop an awareness of Shenzhen.

Even with these basic principles – time, place, and knowledge – in mind, success is not guaranteed, of course.

While the rewards are potentially immense, China is no easy place to do business.

Especially in an industry as competitive and politically sensitive as telecommunications.

The Government - our Government - can lend a helping hand, including through the provision of advice and, in consultation with companies, in seeking to overcome regulatory obstacles.

As I mentioned earlier, the China-Australia FTA includes commitments on telecommunications services.

I cannot pretend China’s telecommunications sector is now open to Australian service providers.

But we have managed to secure some meaningful commitments from China.

These include:

Guaranteed market access for Australian companies investing in value-added telecommunications services in the Shanghai Free Trade Zone.

Improved foreign equity limits, now allowing wholly Australian-owned enterprises to supply Chinese domestic multi-party communication services, application store services, store and forward services, and call centre services.

Addressing behind-the-border issues – such as licensing and transparency – affecting telecommunications providers.

The FTA establishes a Trade in Services Committee.

The Committee provides an avenue for Australian telecommunications companies to have any concerns voiced in the future.

This opportunity for regular bilateral dialogue at the government level is a valuable outcome for telecommunications providers.

And we have most favoured nation provisions on investment, positioning Australia to benefit from any US-China bilateral investment treaty, which will potentially set a new template for foreign investment in China.

Of course, the success of a company in any market is down to its own efforts and its own people.

Telstra has already achieved success.

I am confident that with the right strategy you will achieve more as China incrementally opens access for foreign investors, and implements new policy initiatives with links to the sector, including ‘Smart Cities’, ‘Made in China 2025’, and ‘Internet Plus’, as well as a broader focus on innovation.

Telstra is well positioned to take advantage of these, and other emerging opportunities in China. Your time together in Shanghai this week will put you in an even stronger position in terms of time, place and knowledge.