In a world where consumers and many corporations are deleveraging and smaller companies are becoming more risk averse, where will growth come from?
In Australia there is little doubt what is going to drive our growth: the ballooning Chinese and Asian middle classes. In the US, companies will also target this market but they have sensible energy and flexible labour policies, which are also driving a renaissance in manufacturing.
Australia’s energy policies, particularly in gas, are a mess. But one day that may change and we will be able to follow the US at least part of the way.
There is no segment of the Australian corporate base that isolates ‘supplying the middle class of Asia’, but when you look around it is remarkable the number of Australian companies and industries that are basing their growth on that market.
Let me isolate a number of companies and industries. I am sure readers will think of more:
- Seek is seeking to duplicate its online recruitment strategies in China and other countries, and one day those operations will be bigger than its operations in Australia.
- Crown is expanding its casino base in Australia, particularly Sydney, looking to tap more high net worth Chinese. And of course it has a strong operation in Macau.
- Our apartment development industry in Melbourne and Sydney is building a large number of apartments for Chinese buyers wanting a residence in Australia to diversify their asset base. Both cities are studded with cranes.
- Our dairy industry has been much slower than New Zealand in understanding the potential of the Chinese middle class market, but it is now starting to catch up. Trade Minister Andrew Robb wants to develop northern Australia to meet the demands of the growing Chinese and Asian middle class (The one minister who has a vision for Australia, August 19).
- We are seeing global private equity groups led by KKR move on Treasury Wine Estates, our largest winemaker and the company with the best brands to sell to middle-class China. They are long-term investors who are buying in anticipation of a boom.
- China’s middle class is moving against coal. Our coal industry is in denial and I received a strong reaction when I revealed that Beijing would not use coal to generate power and this would gradually spread through China (Australia’s coming coal firestorm, August 18). The latest restrictions on low-quality coal confirm the drive. But such a strategy in China will require more gas and our LNG exporters are supplying some of that gas. Russia will be the big beneficiary. Better energy efficiency requires more copper, and BHP has an active copper development program in China and South America because it believes copper will be a growth metal. BHP is also looking to accelerate the expansion of Olympic Dam by heap leaching the ore first to remove the uranium and some copper and then the rest of the copper. If the current test plant is successful, BHP will accelerate Olympic Dam’s underground mining development and erect new heap leaching treatment plants there.
- The vast number of tourist facility operators including hotels and bus lines are set to become part of an enormous growth industry.
Step by step, our growth is going to be based around the Chinese middle class.