International affairs

Business in China: formidable market but dynamics changing

China is a formidable market but the dynamics are changing rapidly, Brownes Foods, Managing Director and Chief Executive Officer, Tony Girgis has told a CEDA audience.

Speaking in Perth, Mr Girgis spoke on the Chinese dairy industry.

“Milk in China between 2010 and 2016 was growing at an incredible rate,” he said.

“In 2016 alone, the market was estimated to be about 17 billion litres of liquid milk, and to put that into context the remainder of ASEAN consumes about 2.7 billion litres.

“Growth has plateaued. (But) it’s continuing…at six per cent.

“When you consider the Australian market grows at about less than one per cent per annum – it’s still a formidable market but the dynamics…are changing rapidly.

“The average consumption of milk is 60 litres per annum, 90 per cent of milk sold is UHT which we know as long life.

“There are approximately 280 million litres that are imported into China.

“Ninety per cent of that is in UHT form and the large majority of it is imported from Germany.

“The 280 million litres represent not even one per cent of the total milk market in China.

“In recent estimates the Chinese market by 2022 will have about 19-20 billion litres of liquid milk being consumed…the majority of that is in UHT form.”

Mr Grigis discussed the impact of foreign relations on trade.

“In 2014 the Russian embargo happened – when Russia invaded Ukraine,” he said.

“The European Union started putting in sanctions on Russia, Russia put an embargo on milk.”

“That coincided with a lot of milk from Europe entering the Chinese market just as consumers were developing a strong preference for branded imported milk.

“What happens in a market when all of a sudden you’re drowning in offerings?

“People got used to good quality products at a valued price.

“The premiums and upmarkets started to disappear very very quickly.

“When you’re competing…in China you can’t be a ‘me too’ or a ‘me three’ on the shelf, you have to have a compelling proposition as to why people should buy off you and pay your premium.”

Speaking on the China Free Trade Agreement, Mr Grigis said “by 2026 these rates of 10-15 per cent tariffs depending on whether you are talking about cheese or yoghurt will progressively decrease down to zero." 

“One of the advantages of being in WA is the proximity to Asia – the growth hub in the world today,” he said.

“You can ship from WA to any of the South East Asian countries with a delivery advantage of anything between three days to eight days depending on where you’re shipping to, relative to Victoria for example. The gap is even bigger when you consider New Zealand.”

Other key considerations to doing business in China were:
  • Know and understand the market;
  • Find the right partner;
  • Utilise State and Federal resources; and
  • Know the route to market including complex and multi-layered regulations.
AusAsia Resources Partner, Esther Oh, discussed the importance of cultural literacy and observing cultural considerations in business.

“You cannot underestimate the importance of culture, particularly in Chinese society,” she said.

“In order to understand culture, you do need to understand its history, its values and its beliefs.

“Respect is a very key core value that undermines everything.”

SinoSteel Australia Managing Director and China Chamber of Commerce in Australia (Perth) President, David Sun, also emphasised the importance of respect.

“Losing face is a terrible thing. If you let your Chinese partner lose face, you won’t do business with them again,” he said.

Mr Sun also highlighted the importance of having a local partner with local connections who can provide help and reduce potential red tape.