Australian companies are largely optimistic about expanding their investments in China despite the shifting market challenges, a new report by KPMG Australia suggests.
The research, conducted by KPMG in partnership with the China-Australia Chamber of Commerce (AustCham), the Australia China Business Council (ACBC) and the University of Melbourne as part of the second edition of the Doing Business in China report, polled executives from 165 Australian companies operating in or doing business with China.
81 per cent of respondents indicated that China is in their top three destinations for short‐term global investment plans. In addition, two in every three companies continue to increase their investment in China, highlighting that Australian businesses in China continue to expand their operations. This is further underlined with over 60 percent of businesses expecting to increase headcount in 2018. Three quarters of the increase in investment is cited as a response to future growth opportunities.
Despite the vote in confidence for the future of the Chinese market, changed market demands, unclear laws, rising labour costs and market access are still of concern to business. Local partner requirements have dropped significantly as a primary concern.
When asked about challenges, there was consistency with labour costs being among the highest priorities. Payment issues have emerged as a much more signi cant hurdle than last year.
Conditions in China’s inbound investment environment have stabilised with 39 per cent of businesses seeing no change in the investment environment. Those seeing improvement were 37 per cent, while 24 per cent considered the environment had deteriorated, a marginal increase year on year by 2 percentage points.
There is a notable increase in the rating of China being difficult for doing business (72 per cent). This could be the result of having a larger set of survey respondents operating out of Australia. There remains a bias that doing business in China is challenging. However, education and resources continue to be among the sectors that consider doing business to be easier.
With regards to profitability, the surveyed companies continue to perform well with more than two thirds being profitable or breaking even, while another one‐ fifth could not answer due to statutory obligations. Education and nance appear to be the most pro table sectors. Businesses in the healthcare sector reported mixed profitability results.
Tensions in Sino‐Australian relations emerged as the largest risk that businesses faced in China. This was followed by increased protectionism and the risk from an overall Chinese economic slowdown. Almost a third of Australian companies reported a negative impact as collateral effects from the bilateral US‐China trade sanctions.
Just under half of respondents have seen an increase in attention or engagement by Chinese authorities. A notable minority saw a decrease in engagement.
Unsurprisingly, companies have continued to report rising operating costs, of which human resources, payroll, tax and general inflation are reported as the top concerns.