Australia and China's FTA: The Long Game
The long awaited China-Australia Free Trade Agreement (ChaFTA) was recently signed. The China FTA joins Australia’s other recently signed FTAs with South Korea and Japan. Together, the three countries covered by these agreements account for more than 61% of Australia’s exports of goods and services. The clock is ticking to take full advantage of the unique opportunities afforded by the new agreement.
There has been a lot of media celebration about the FTA but it is important to understand what the FTA means for you. Although there is still plenty of work to be done before the FTA is finalised, here are some indicative signals of the benefits to specific Australian industries:
Full or a percentage removal of tariffs on food items such as dairy, beef, wine, seafood and a range of processed foods including fruit juice and honey.
New or significantly improved market access for Australian banks, insurers, securities and futures companies, law firms and professional services suppliers and education services exporters among other service providers in the most comprehensive services commitments in an FTA between China and another country.
A memorandum of understanding to establish an official renminbi (RMB) clearing bank in Sydney to provide a more direct means of facilitating cross-border RMB transactions between Australian and Chinese entities than was previously available; this will improve the efficiency of cross-border RMB transactions.
Australian service providers, manufacturers, and agricultural producers who already export to China will now have much greater access to the markets in which they operate. Companies that do not currently export to China now have a stronger reason to do so.
Depending on your product or service, awareness and acceptance may take longer than you think. Even when taking the early-mover advantage, firms should keep the long game in mind. The Chinese market is like no other. Its scale, rate of change and regional variances, together with influences such as political intervention, a rising middle class, urban migration, changing family dynamics, rapid modernization and internationalization, and the increasing influence of the Internet, social media, eCommerce and smartphones has created a market more dynamic and complicated than anywhere else.
China's constant changes really come to light with each research project that China Skinny does. For example, in 2012 China Skinny research found that by far the most common reason Chinese migrate was for education. Similar research a year later found that pollution had become the main reason. Change happens quickly in China and understanding the consumer is vital. The appeal of Australia, driven by the perceptions of the country as an unpolluted, clean, and natural environment, bodes well for Australian products looking to enter the China market today.
Chinese consumers are bombarded by advertisements and new products, so communicating your focused key benefits in a way that is comfortable and relevant to them is vital. Online channels are the most cost effective and targeted channels that Chinese use to find information about purchases. A China optimized website and the pertinent social media communications are vital as more Chinese get online, specifically with their mobiles. Having a strong strategy is key to seizing ground in the Chinese market. Getting in early is important, but only if it is carefully planned and executed. While the agreement will not be a panacea for doing business in China, it will make it easier, not just by bringing down your landed costs, but also through the Chinese Government endorsing Australia as a country to do business with.
The agreement will go through a checking and translation process and is not expected to be fully approved for another year. In addition, some tariffs and other barriers will not be eased immediately. Some of these trade barriers will take years to remove. For example, it will take 4 to 11 years for the removal of all tariffs on Australian dairy products. This timing is not all bad as it allows time for market entry preparation. Brands in China who do their due diligence in researching their target market and building a strong presence will take the lead in brand awareness and understanding of the market before the inevitable influx of goods and services after the FTA is finalized. Fortune is most likely to favour those who lead than follow.
