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Australia-China Relations: Investing in Innovation

 
 

Trans-Pacific View author Mercy Kuo regularly engages subject-matter experts, policy practitioners, and strategic thinkers across the globe for their diverse insights into U.S. Asia policy.  This conversation with Andrea Myles – co-founder and CEO of China Australia Millennial Project (CAMP) and former head of the Australia China Business Council – is the 96th in “The Trans-Pacific View Insight Series.”

Describe innovation trends between Australia and China.

Innovation is a hot topic in both China and Australia. Both nations realize, to differing degrees, that the world is being reshaped by megatrends and that we either get busy adapting or we’ll get left behind. Innovation in China is characterized by economies of scale, high growth and a strong appetite for change. The Chinese government at all levels is pouring billions of dollars into transforming the economy from advanced manufacturing to one that also innovates domestically.

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In a three-year study of the topic, University of Technology, Sydney Professor Bruce McKern identifies three major phases in Chinese innovation. Replication – where Chinese companies created poor quality facsimiles of Western products, with domestic demand soon calling for simple but better quality copies. World’s Best Practice Aspiration – where the likes of Alibaba.com sought to beat eBay in China and did. The third phase is characterized by a Going Global Strategy – with these Chinese grown enterprises such as Alibaba, Haier, and Huawei competing internationally with multinational brands.

Being immersed completely in the Chinese innovation landscape for the past three years and engaging with China for 15, I would go one further and add a fourth phase – Influencer. Within the space of 10 years we have seen Chinese innovation grow from referencer of Western innovation to being referenced. In a context where Alibaba.com is now the world’s largest retailer, we are beginning to hear startups pitch themselves as the Alibaba of Africa, Japan, or Europe.

This transformation cannot be underestimated. McKinsey Global Institute estimates that the confluence of globalization, urbanization, technology, and aging population has facilitated a doubling of productivity in China in just 12 years. During the Industrial Revolution, this took England 150 years to achieve. What we’re seeing in China is 300 times the scale, 10 times as fast, leaving an impact which is 3,000 times that of the Industrial Revolution. Chinese innovation itself is a global megatrend akin to digital transformation.

In Australia, innovation transformation is a trend; however we are not running it at a rate proportional to China. Nobody is. The rise of China and the rise of the digital world are the two greatest megatrends shaping the Asia-Pacific, if not the world. The transformation toward an innovation-driven Chinese economy is a strategic national interest addressing employability of millennial Chinese who are graduating from university at a rate never before seen and yet not finding suitable employment upon graduation. The Chinese government’s solution to this is to transform tens of millions of graduates into entrepreneurial job creators. This force will no doubt reshape how the world views innovation, and China.

In Australia, we already have what is called an “advanced economy,” but I do not see our economy hustling anywhere near as hard as China’s to achieve a future economic trajectory which is in tune with the internet age. Australia’s population is too low to create our own innovation ecosystem domestically. There simply isn’t the population to support the capital investment so we need to partner at scale with a major economy. Personally, I’m becoming less interested in east and west in this current geopolitical climate and more interested in north and south between Australia and China. A generation ago the Australian narrative was characterized by what was termed the “tyranny of distance,” a sense that we were very far away from anywhere that mattered. It’s recently dawned on us that we share a time zone with what will be the world’s largest economy for decades to come. The opportunities are abundant for Australia, but I worry about our complacency.

What Australia thinks we excel at in terms of innovation is quite different to what China thinks we excel at. In China, Australia is known for having a very strong clean, green, and safe brand, with Australian beef, tourism, and education being leading trends. Jack Ma recently stated when he opened the brand new Alibaba Group Australia and New Zealand headquarters in Melbourne that Australia’s 21st century strengths will be our clean soil, air, and water. In this sense, Australia can be characterized as the dumb blonde of the Asia-Pacific: young, naïve, blessed with natural resources but not much else. I’d rather be known for elements which have not existed since time immemorial: our brains and our innovation. After all, we invented WiFi, the BlackBox, the ultrasound scanner, the cochlear implant and even Google Maps. Therefore, when we think about that clean, green, and safe brand Jack Ma was referencing, in addition to agriculture, let’s up the ante and think about AgTech; agriculture as a service. For clean, let’s think about clean energy. In an expansive and reliably sunny country, I’d love for Australia to be the first nation to be carbon neutral and powered by clean energy only.

Assess differences and similarities between Australian and Chinese millennials.

Though the context in Australia and China are somewhat different, there are a huge number of similarities and shared values uniting Australian and Chinese millennials. Australia has transformed dramatically since my parents’ generation and the same is true in China. Chinese and Australian millennials see borders and barriers as far lower than in previous generations. We are digital natives and are very used to collaborating online, having friends in many parts of the world. We see problems as global and interconnected, rather than purely local. Millennials in both Australia and China have a strong social conscience. We both seek authenticity and meaning in the work that we do and the connections that we make.

In terms of differences, young Australians are realizing that it is quite likely that their career will need to be global. For many Chinese millennials, particularly the entrepreneurs, the domestic market is more than enough sustain a unicorn – a venture with a valuation at over $1 billion.

How are Australian and Chinese millennials reshaping the global innovation landscape?   

At present, many people view millennials as an annoying workforce or simply a customer base. After all we are the largest generation, even eclipsing baby boomers, and we are now entering our prime earning and spending years. However, nobody likes to be thought of as a deep wallet, particularly not millennials. We have been advertised to more than any other generation in history. We expect our brains to be used even when entering the workforce. We don’t resonate with corporate greed as a general rule, so when it comes to reshaping the global innovation landscape, the way that we purchase, who we purchase from and who we invest with, “new school business” will need to exhibit a greater social conscience than old school business has.

Generation gap is not a new concept; however, it would particularly be an error to underestimate millennials, the drivers of a new digital world. No longer do you need an expensive lab and significant resources to reshape an industry. I’m excited for a new generation of lower middle class and working class Australian and Chinese entrepreneurs and innovators creating unexpected businesses catering to needs previously too difficult to aggregate via the digital revolution. The sharing economy and platforms brokering trust between strangers come into play here; however, I do not believe that trust is truly built through electronic transactional sharing. The next 30 years of global innovation will genuinely forge trust between human beings while we leave robots to do the work that we never wanted to do in the first place.

The fact that Chinese and Australian millennials are demanding to put their minds, their education, and their hands to use solving major global problems is a very good thing. We certainly have a lot of work to do in this space – more than enough for people and robots to cover.

What Chinese innovation sectors are attracting Australian investment?

Australia and China have a very strong trading relationship; $150 billion in two-way trade per year, which is more than our two next ranked relationships — with the U.S. ($69 billion) and Japan ($60 billion) — combined.

Like many other nations, China is Australia’s largest trading partner, Australia China’s sixth largest trading partner. Though diversifying rapidly, the lion’s share is still with resources. Professional services, particularly expansion of financial services, have held promise but in-country deployment has been a frustrating barrier. Fewer than 200 Australian companies have operations in China, compared with 1,000 in the U.S. It is fair to say that the growth in trade has outstripped business understanding of the reality of operating in each other’s markets. If we take a look at the skill set of an average Australian CEO — statistically over 55, male, white, monolingual, private school-educated, and more likely to be named “Peter” than they are to be a woman or of Asian descent — they are gaining their Asia skills toward the end of their careers. They certainly are unlikely to be able to speak Mandarin. When it comes to millennials, statistically we are working the hardest to make sure that we get our Asia experience at the beginning of our careers. Hence we will be able to invest in and have the confidence to invest in Chinese innovation sectors much earlier on.

A sector most often overlooked are the small businesses employing under 20 employees, which account for 45 percent of private sector employment in Australia. It is very difficult for a large enterprise to double its workforce and much easier for a small enterprise to do so. The aggregation of Australia’s small enterprises investing in their China skill sets, their China markets, making calculated partnerships with China’s innovators, utilizing fresh channels and business models which are in synergy with China’s business culture, has the potential to surpass or at least lead the big end of town while they are developing their risk appetite.

Just over one quarter of outbound investment from Australia goes to the U.S. ($594.4 billion); over 50 percent heads to the Anglosphere ($1.1 trillion) compared with around 15 percent to Asia ($306.2 billion). Australia investment in China is too low, given the opportunities which abound.

On a policy level, how are Canberra and Beijing fostering bilateral innovation and investment?  

Premier Li Keqiang recently visited Australia and announced an Australia-China innovation initiative. Additionally, programs such as the China Australia Millennial Project have received funding from the Australian government and partner with the Chinese government to bridge these innovation connections and foster new businesses which are global from day one. Interestingly, Australia has a significant investor visa program, which is designed to attract migration from high net worth Chinese who would like to live in Australia. If they invest AU$5 million into our country, part of which is venture capital funding, they will receive permanent residency. Australia is the number one destination for migration of China’s millionaires, with 11,000 people migrating last year.

Personally, I would love to see even more ambitious policy driving bilateral innovation connection and investment between our nations. After all, it is the work that we do now which is laying the foundations for the future generations. A teenager in 2030 will have a very different set of decisions to make about their future than we do ours. Amplifying our ambition now will only create more bountiful opportunities for that teenager to step into.

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