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Australian Businesses need to understand the opportunities that exist in ASIA, before its too late

A mindset change is required by government, business and the community in order for Australian companies to make the most of opportunities in Asia and guard against the risks of the Asian century.

That was the view of former Treasury secretary and special adviser to the Prime Minister Ken Henry last week.

Speaking at the Australian Institute of Company Directors’ national conference in Singapore, Henry said the Asian regional development story was increasingly one of openness and economic liberalism.

As Australia gained increasing trade exposure to large Asian markets, it was more exposed to volatility in the Asian region. But in general, Henry said the Asian development story should be seen as a large positive “demand shot” to the Australian economy.

In a sense, he believed Australia was playing catch up in Asia, noting that initially it was a case of Australia having the resources required to feed the Chinese industrial upsurge.

That is a very small part, I think, of what is going to turn out … in terms of the impact of the Asian century on Australia. Just imagine what Australia will look like when something like 800 or 900 million people in China are essentially middle class. Then you add to that the hundreds of millions in India and the hundreds of millions throughout the rest of the region who will be middle class … Any Australian business which has not found opportunity in those developments will not have survived.

Source – Australian Institute of Company Directors.

“This is for all Australian companies. It is a story that goes well beyond mining and energy.”

Henry noted that today there were around 500 million people in Asia who might be regarded as middle class. By 2020, this was expected to increase to 1.7 billion and by 2030, to more than three billion, with Asia then accounting for about 60 per cent of global middle class consumption.

He said China and India had almost trebled their share of the global economy, each having increased their absolute economic size six times over in just 20 years. Indonesia’s economy had been growing at rates above five per cent a year for the past decade and was now larger than Australia’s.

“China, India, Indonesia and many other countries in Asia have a long way to go to catch up with the GDP per capita of experienced industrialised countries. Thus, for example, despite its impressive growth, today GDP per capita in China is about 30 per cent of the GDP per capita in the richest 16 countries, in purchasing power parity terms.

“In India, it is only half that at 15 per cent. In Japan, it’s about 90 per cent and in Korea, 82 per cent. But it is expected that by mid-century, GDP per capita in China could be as much as 55 per cent of the GDP per capita in the richest 16 countries at that time. In India, it could be as high as 42 per cent.

“That’s a lot of catch up to be done. Maybe these countries will never catch up fully. But whenever there is a gap, you have to think that the potential is there is be exploited.”

Henry saw opportunities right across Asia for Australian businesses, partly because the other countries in the region were becoming integrated with the Chinese economy. “In a sense, they are being dragged along with China – not all of them and not all at the same pace, but many of them,” he said.

But he noted that many of those countries were closer geographically and had closer historic relationships with Australia, and that Australian directors should be thinking more deeply about the opportunities in these countries.

“You will all be aware that China is Australia’s largest trading partner by a considerable margin. All of this occurred over the past 10years. It would be tempting to think that has happened as Australia’s trading relationships with other countries in Asia have declined. But despite China now taking 27 to 30 per cent of our exports, as against only five per cent only 10 years ago, Japan still takes the same proportion of Australia’s exports that it took 10 years ago (20 per cent).

“It seems to me that the trade relationship with Japan is likely to get stronger over the period ahead … There are enormous opportunities for Australia in that relationship and it is one that is regarded as mature. Then we see cases of Australia having doing done very well in places like Thailand and Vietnam.”

Henry did not believe Australia had missed the boat in Asia. “We will get dragged along one way or another,” he said. “The Asian development story is affecting everybody on the planet. Now we can make that an exciting journey one of reward and not just opportunity for the vast major of Australians, or we can have a journey that concentrates value in a relatively small proportion of the Australian economy and leaves a lot of others behind. We have that policy choice. It’s up to the Government to decide how that policy choice should be approached.”





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