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China the new frontier for international Australian SMEs

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Considering trading opportunities with China, many Australian SMEs may view the market as almost exclusively an exporter.

Yet new research by HSBC Australia has revealed that the reality is in fact quite the opposite. China is on the cusp of overtaking the US as the key overseas trading partner for the Australian SME sector with the majority importing from China rather than exporting to it.

Alongside the forecast that China’s middle class will reach more than one billion people by 2030, HSBC is encouraging Australian SMEs to consider the consumer market opportunities in China rather than seeing it purely as a manufacturing hub.

“Since 2008, the US economy has decreased by 1% whereas China’s has grown by 45%. Despite recent signs of slowing, China’s government is committed to delivering 7.5% pa growth to 2017. Considering the below-inflation growth in other markets, it makes sense that small businesses will continue to gravitate to China,” Paul Edgar, Head of Business Banking for HSBC Australia said.

Key findings:

  • China and the US are currently the key trading markets for Australian SMEs
  • 40% are currently trading with the US and 39% with China.
  • China will eclipse the US as the most dominant trade partner for SMEs in future with 19% of respondents intending to enter China for the first time in the next 12 months compared to 14% who intend to enter the US.
  • China’s share of Australia’s overall total trade volume is 24% compared to 7% for the US.

Alongside China’s increasing trade popularity, the survey also identified a greater import bias amongst SMEs currently trading with China compared to other trade partner markets.

Edgar said Australian SMEs’ higher-than-average importing focus with China shows smaller Australian companies continue to see it predominately as a low cost supplier of goods for the Australian market.

“China has been the world’s factory for more than two decades and Australian companies have certainly taken advantage of the low manufacturing costs to improve their margins and grow their businesses back in Australia,” he said.

Despite its historic role as the world’s manufacturing hub, Edgar suggested that China’s rising middle class and move to domestically-driven economic growth may give other Australian SMEs the impetus needed to enter the market and access the sales potential of its emerging middle class’ new-found wealth.

The reduction in China’s entry barriers combined with the recent falls in the Australian dollar should also encourage SMEs to take a closer look at exporting to China.

“While it is understandable that Australian SMEs would generally establish themselves in Australia first, it is important that they still keep their eyes on the emerging growth opportunities in this market, particularly as the Australian market becomes more saturated,” Edgar said.

The survey, conducted by RFI research on behalf of HSBC Australia, involved Australian SMEs with annual revenues of AUD$3 – $30 million with existing international connections.

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