Australia must urgently diversify its trade partners or risk a “messy divorce” with China, former treasurer Wayne Swan has said.
Noting that Australia’s relationship with China is markedly different to the relationship during his 2007 - 2013 tenure, Swan said Australia has two things it needs to do.
“We have to do everything we possibly can diplomatically to deal with the current situation,” he told Yahoo Finance journalist Jessica Yun at the Yahoo Finance Summit Live.
“We [also] do need to radically diversify our relationships in the region. We sell too few products to too few countries, so there’s got to be an enormous amount of new thinking about the future.”
He said non-China Asia is now almost as big as China, so there are clear opportunities to develop trade relationships and to sell different products.
He also said this will be an important safety net if the Australian-China relationship does “prove to be difficult over time”.
And if Australia fails to adequately expand its trade partners, Australia’s tertiary, tourism and agriculture sectors will be “hit hard”.
“I don’t think they’re going to be wiped out by what China has done, but perhaps it’s given us the warning that we do need to diversify our markets in those areas that will be hit hard,” he said.
“It’s been tragic to see that our tertiary sector has not received the backing it needed at this time because of the impact of China’s decisions, but we continue to need to do more in that area - whether it’s education, tourism, sophisticated services, environmental services.
“It’s all the same for all of Asia - we’re just going to have to target other markets if China is going to continue in that direction they’ve been going.”
Vietnam and India are both rapidly growing countries that Australia would do well to enhance its relationship with, he added.
China’s third consumption wave an enormous investment opportunity
As China grows, it is following a similar economic path to South Korea and Taiwan, Antipodes Partners portfolio manager Sunny Bangia noted, pointing to its focus on technology and innovation.
“We do not think China will get stuck in a middle income trap, so the China of 2030 will look like the South Korea of today,” he said, speaking on the same panel.
“That means China is about to embark on a third consumption wave - that is 25 million Chinese households… is going to grow to 100 million households over the coming decade. That’s an enormous consumption power growing in China alone.”
He said this presents a huge opportunity for investment.
Companies like Meituan - China’s equivalent of Uber Eats - are a prime example.
“Food delivery on demand and convenience is a global trend, and it’s also a trend happening in China and the rest of the Asian region,” he said.
“As we look at these companies around the world, we see that the Meituan market share in China is one of the highest in the world. It has a very strong position in a very underpenetrated market where we think food delivery has a lot of runway for growth.”
Bangia said the modernisation of grocery shopping in China will also present huge investment opportunities.
He explained that wet markets will gradually be phased out in favour of larger supermarkets.
“That will be, not only digitalised, but it will become efficient. The supply chains will get built out and cold storage will be built out,” he said.
“We see these businesses have a few ways to win and tackling some of the really interesting and really exciting opportunities over the coming decade as the Chinese premium economy takes off and the middle class economy continues to hum along.”
Broadly, the growth of the Asian middle class is a trend that Australia can’t afford to miss, Swan added.
“People don’t sufficiently appreciate that the Chinese - as a matter of policy - are lifting their wages and consumption power, they’re moving their economic model away from investment in manufacturing and export through to domestic consumption,” Swan pointed out.
“That will ricochet through the region.”