However, despite slowing growth in this major market, China still offers great opportunities for Australian small to medium-sized enterprises in the mining services sector, given its long-term economic growth trajectory and rising middle class.
China’s population is forecast to continue to grow, and drive strong demand in the manufacturing and construction industries. This will continue to increase domestic demand for energy and in turn, create significant export opportunities for Australian SMEs in mining services.
Iron ore and concentrates, coal and gold are Australia’s largest exports to China. Australia is also one of China’s largest bauxite suppliers – with volumes expected to continue to grow significantly over the coming years.
Furthermore, the China-Australia Free Trade Agreement, which is going through Parliament, is expected to significantly benefit Australian exporters to China.
The resources and energy sectors form a significant component of ChAFTA, as 92.9% of resources and energy products will be duty free on entry once the agreement has been ratified, with most remaining tariffs due to be removed within four years under the agreement.
Managing local risks
There are some unique challenges of doing business in China. Mining services SMEs should be aware of, and take appropriate steps to manage these risks.
When exporting to China, it is paramount to understand the local language, culture and business practices. Language can be a particular barrier when doing business in China, but hiring a local translator early in the process can help. This will let SMEs build strong relationships with Chinese contacts – a prerequisite for any deals being signed in China.
Understanding local regulations is crucial for any expansion into China. Regulation and local protectionist barriers can mean it is harder for an international business to operate than a Chinese business. In fact, the World Bank’s ease of doing business gauge – which attempts to measure local regulation relevant to SMEs – ranks China 96th out of 189 economies.
Steps have been taken to improve this situation, with the Chinese government introducing steps to equalise policies and treatment of foreign and local enterprises in 2013.
Once ratified, the ChAFTA should go further in improving foreign firms’ access to the market.
Nonetheless, the best way to mitigate against any potential risks is by accessing high quality legal advice to help navigate the regulatory environment.
Operating in China can also present businesses with a number of payment challenges.
Mining services SMEs should make sure they protect themselves from any possible payment issues. One way of doing so is to seek advice from an accountant and banker to help understand the possible payment options available when operating in China.
Another risk associated with doing business in China is the protection of intellectual property rights. Establishing strong networks and relationships with local partners can be valuable in avoiding IP risks, as can protecting your products with patents.
Advice on navigating China
Trade advisers can help mining services SMEs expand into China through offering advice and support, as well as helping to connect them with potential partners in China.
The Australian government’s trade and investment agency, Austrade, provides its full range of services in China and is a great place to start when seeking advice on the market.
For more information on all of the topics discussed in this article and further information about export finance, please visit Efic’s website to download a free eBook for SMEs on Exporting to China.
- Andrew Watson is the executive director, finance at EFIC.