Thursday, 4 October 2012

ADDRESS TO THE QUEENSLAND TOURISM INDUSTRY COUNCIL


Brisbane Convention and Exhibition Centre, South Brisbane

 Thursday, 4 October 2012

Back in 2007, then as Leader of the Opposition, I argued repeatedly that Australia should future-proof its economy for when the mining boom was over.

This was greeted with great ridicule back then.

The then Government often responded that it was almost unpatriotic to contemplate that possibility.

However anyone with a passing familiarity with a history of commodity prices in this country will know they fluctuate - they always fluctuate.

A complicating factor in all of that has been the huge addition to global demand for resources and energy from the Chinese industrial revolution.

China’s rapid industrial expansion has of course prolonged significantly the current commodities cycle. And Chinese demand is not about to disappear tomorrow.

But since 2010, the Chinese have been publically indicating that they were in the process of changing their growth model – a growth model which for the previous 30 years had emphasised low wage, labour-intensive manufacturing for export, consistent with the classical application of the growth model of the newly industrialised countries (NICs) across east Asia in the 70s and 80s and prior to that, with the reindustrialisation of Japan.

However with China’s new growth model (announced in the 12th five year plan in late 2010) the Chinese Government has seen the need to change that growth model from one which places a greater priority on the domestic market rather than purely on exports; on domestic consumption rather than primarily investment; and on an increasing demand across the range of China’s services industries, across China’s rising middle classes, and concentrated on China’s first and second tier cities.

That is why last year, together with the Trade Minister, I conducted a series of addresses across Australia entitled China 2.0 – The Opportunities and Challenges Arising from China’s new Growth Model.

Well the times now seem to be upon us, and the question arises for us all, as we look to our economic future, both in this state and across the nation: how well prepared are we?

China’s New Growth Model

You are all familiar with the basic economic statistics on China.

China is already the world’s second largest economy having passed Japan in 2010.

China is likely to become the world’s largest economy either before the end of this decade or certainly by the end of the following decade.

The Chinese economy has grown at an average annual rate of 10 per cent for the last 30 years.

Although it’s now an open debate as to whether it will reach this year’s stated target of 7.5 per cent.

I believe they will and it’s more likely to be closer to 8 per cent by year’s end.

China is already the largest merchandise exporter in the world.

China is already the largest manufacturing power in the world.

China is the world’s largest automobile market.

China now has the largest pool of internet uses.

China’s gross investment in R and D is now ahead of all other advanced economies apart from the United States.

Much of China’s economic modernisation has been driven by urbanisation.

For the first time in China’s history, its urban population now exceeds its rural population.

China now boasts more than a hundred cities (so called second-tier cities) with populations in excess of 5 million.

And within these cities, the demand from China’s rising middle class for manufactured consumer goods, as well as increasingly sophisticated services, is rapidly unfolding.

Chinese per capita income has risen from $280 US per annum when the reform program began 30 years ago, to $4380 US per annum as of 2010.

Of course, Chinese per capita income in China’s major cities is now vastly in excess of that, with average per capita income in major cities like Beijing, Tianjin and Shanghai now ranging between $US15,000 and $US20,000.

By 2020, various of China’s eastern provinces will have a gross domestic product larger than many of the national economies of Europe.

Within this growth pattern, the services sector has expanded over the last 30 years to account now for almost 40 per cent of Chinese GDP.

In fact it’s about to eclipse manufacturing as a proportion of GDP.

As of 2010, China was the third largest importer of commercial services in the world.

Of course underpinning the Government’s resolve to change the growth model from a high savings and investment model to a higher domestic consumption model is whether the government can persuade Chinese consumers that expanding social welfare programs (including pension schemes) will be such that Chinese families will no longer need to save as much as they did before in order to sustain their household health, education and retirement costs.

The Chinese Government is implementing these reforms although it remains to be seen what impact they will have on the domestic savings ratio, and any further turbo-charging of the growth of domestic consumption and the consumer products and services sectors.

Many questions are being legitimately asked about whether the transformation of China’s growth-model will be sustained following the leadership transition scheduled for the middle of next month.

I believe the answer to that question is yes.

I believe the new leadership fully grasp the need to not only sustain current reform directions of the Chinese economy but to also take them further

There was a time back in 1992 when some feared that China’s reform process was faltering.

Deng Xiaoping’s response was to undertake his famous “Southern Tour” when his simple message to the nation was it was imperative to reform even faster.

Not bad for an 88 year old.

And so China did.

20 years later I believe the Chinese leadership sense they are at a similar threshold.

Therefore I believe once the new leadership transition has been consolidated, we are likely to see further market reforms of the Chinese economy.

I believe we’ll see reforms to China’s state-owned enterprises and the possible privatisation of some.

I believe we’ll see reforms to the Chinese financial services industry and a greater ability for Chinese private enterprises to have easier and more competitive access to finance, sustain and expand their operations.

I believe we’ll also see further reforms to Chinese currency markets which over time is likely to make Chinese imports more competitive in their domestic market.

Not every analyst agrees with this conclusion.

But I believe the imperatives to continue to expand the economy and to generate sufficient employment to provide jobs to the 20 or 30 million additional Chinese emerging into the labour market each year, will leave the Government with little choice.

I also believe that the likely political composition of the new Standing Committee of the Politburo will be significantly reform-orientated and will possess the political will to make further decisive changes to ensure China’s long term national and global future.

The cornerstone of this will be China’s new President and Party General Secretary Xi Jinping who has sufficient reformist, party and military background to be very much his own man.

Of course making predictions about the future of Chinse politics is a hazardous business. I fully concede that.

But in the business of government, and in the business of business, we have to make a strategic call.

And this is the call that I am making.

Implications of the Australian Economy and Tourism

So what does all this mean for the Australian economy?

What does it mean for Australian services exports?

And what does it mean for the future of Australian and Queensland tourism?

The answer to all these questions is – a lot.

The global and Australian impact of a slowdown in Chinese demand for Australian resources and energy is already being felt in the Australian economy. 

Australia’s former Ambassador to China, Ross Garnaut, spoke of this recently in what he described as a perfect storm of three coinciding sets of factors: first the current cyclical downturn; second China’s decision to engineer a less carbon-intensive economy; and third the transformation of the growth model which I referred to earlier in my remarks today.

This does not mean that Chinese demand Australian resources and energies exports are likely to collapse.

But is does mean that the rate of increase is likely to slow.

But we should be mindful of the fact that Chinese steel producers still have much to build in the central and western provinces in the country which lag some 10 – 20 years behind the rest of the country in their overall growth profile.

The binary nature of much of our national debate on China's boom or bust does not do justice to the complexity of the unfolding reality, nor to the relative robustness of medium-term demand.

New opportunities will emerge for Australia in the area of agribusiness.

There is a huge demand for quality foods in China to meet the needs of the rising middle class.

And a general paranoia about the adequacy of the food standards regimes in China.

Australia, legitimately, is seen as clean and green.

There is much business to be done in this sector.

Across the services industries, the opportunities are vast.

Education services. Health services. Financial services. Architecture and design services. Environmental services. Logistics.

And increasingly, both domestic and international tourism.

The bottom line is this: if we are prepared for it, the Australian tourism industry stands to be a massive beneficiary of the continuing change in China’s economic growth model.

According to Boston Consulting, China is expected to surpass Japan as the second largest travel and tourism market in the world.

By 2020, China’s outbound travel market will have grown to triple the size of Japan’s.

But as Boston Consulting reminded us, China’s travel industry is still in its infancy.

Again quoting Boston Consulting “fewer than 200 million urban Chinese consumers have taken an overnight leisure trip, with an average of 25 million people taking their first ever such trip every year.”

This number will double by 2020. And two thirds of these new tourists will reside in China’s smaller cities.

And here is a critical statistic: by 2020 there will be nearly 800 urban locations where real disposable income per capita will be greater than what Shanghai’s is today.

These figures relate to Chinese total tourism (domestic and international).

The World Tourism Organisation tells us there will be a 100 million outbound Chinese travelers by 2020.

The Chinese market for international travel is also expected to grow by 17 per cent per annum.

Chinese international travelers are likely to travel for longer periods of time than other international travelers given the relative novelty of the experience for many.

Chinese tourists also like to shop and have a propensity to purchase big brands.

Because Chinese travelers are relatively inexperienced, Boston Consulting also tells us that their preference is for pre-packaged, well organised, hassle-free travel – and invariably in groups.

In the 12 months ending June 2012, there were 582 970 Chinse visitors to Australia - and increase of 16.6 per cent.

This made China Australia’s third largest visitor source after New Zealand and the UK.

And critically, the China market is now the most valuable market for international tourism – with Chinese visitors spending $3.8 billion in visiting Australia in 2011.

For the year ending 30 June 2012, 238 000 Chinese visited Queensland – an increase of more than 31 per cent on the previous year.

In Queensland, the preferred destinations are the Gold Coast, Brisbane and Tropical North Queensland. Australia-wide it is Sydney, Melbourne, as well as the three Queensland destinations.

Tourism Australia’s 2020 China Strategic Plan represents a sound approach to how we further develop the Australian and therefore Queensland tourism markets. Their projection is that that by 2020 Chinese international tourists will be contributing annually between $7.4 and $9 billion to the Australian economy.

This is important for growth and important for jobs.

Frankly, I believe we can significantly increase our share of the Chinese international tourism market if nationally and corporately we apply our minds to the task. To this end, I’d like to make a number of broad recommendations to the industry at large.

First, you must pay attention to airline capacity. Both as Prime Minister and Foreign Minister, I placed considerable emphasis on expanding the number of Chinese carriers servicing the Australian market.

For Queensland, the China Southern connection is particularly important.

More broadly, however, we must ensure that we are appropriately expanding the number of appropriately priced seats for Chinese first time tourists travelling to Australia.

We now have five providers (Air China, China Eastern, China Southern, Hainan Airlines, Qantas (including Jetstar)).

However beyond the mass tourism market, there is also an emerging luxury tourism market from China to the rest of the world.

Therefore my strongest possible recommendation to Qantas is to enhance their business and premium services to China as well.

The truth is back in 1984 when I first went to China, it was easier to fly from Beijing to Sydney with Qantas than it is now.

There were direct services then.

Now they are routed through Shanghai.

Surely this expanding Chinese market is big enough for our national carrier to have an aggressive national growth strategy for the world’s second largest economy, for the world’s about-to-be largest travelling class of people, and one which virtually lies within our own time-zone.

I understand that Qantas, like all global airlines, is understandably attentive to its cost structure.

This is a highly competitive global business with many subsidised global carriers.

But at the same time, Qantas must have a vigorous global growth strategy. And given the intersection of the two broad economies as well as the specific opportunities lying within the tourism sectors, I would argue that Qantas needs a new China growth strategy.

Second, we in Government must continue to lift our game in making it easier for Chinese tourists to access tourist visas to this country. My understanding is that Chinese visitor overstays are very small in number.

I also understand the costs involved in radically expanding immigration services in China to deal with a phenomenal case load.

But in Government we cannot cut off our nose to spite our face.

That’s why earlier this year as Foreign Minister I announced that despite resource constraints, we would for the first time be opening a new Consul General in Chengdu, the capital of Sichuan in Western China

Sichuan is an economy of about 100 million people whose GDP by the end of the decade will be about the size of Switzerland.

However we must do more on this front.

Third, on the domestic Chinese marketing of Australian tourist attractions, we have been lifting our game

The campaign “There’s Nothing like Australia” and based on survey analysis has resonated well with Chinese consumers.

But this a highly competitive market and both the Australian and Queensland governments must work seamlessly in selling our product in a highly competitive market.

Now that the future of Australian Television international has finally been determined, the ABC must look at the future programming of the network.

The time has come to stop using this network to show foreign-produced television series.

We should be using this taxpayer-funded resource to promote Australian tourism more broadly across emerging Asia.

And if and when the Australia Network secures better landing rights for the Peoples Republic of China , we should do so in the Chinese market as well.

Fourth, the Australian domestic tourism industry must be prepared fully to package its tourism products to the emerging profile of first time Chinese travellers.

This is a complex

But we should never underestimate the absolute importance of word-of-mouth back to the Chinese market from a first time Chinese traveller recommending the quality of first time travel experience to Australia.

And finally – language.

Language.
 
Language.

I have been preaching this message for the last 18 years

And I continue to preach it today.

The Australian travel industry must encourage, recruit and pay for Chinese language-speaking Australian nationals to work across the breadth of our tourism industry.

The front desks of all our major hotels must have Chinese language skills for the future.

So too with guided tours.

So too with explanatory information for all of our major tourism sites.

Surely as a nation which is now home to nearly one million ethnic Chinese, we can pull this off.

Not to mention encouraging non-ethnic Chinese Australians to pursue well-paid and secure careers catering for this critical, emerging Chinese market.

Conclusion

I began by saying today that back in 2007, I issued warnings about how we would need to prepare the Australian economy for beyond the mining boom.

More broadly, how have we gone about this?

This is an important question for the tourism sector, together with the rest of our services industries, given they represent a major part of our long term economic future.

Our first challenge, through the breadth of the Global Financial Crisis, was to preserve the macroeconomic fundamentals of the Australian economy.

Uniquely amount he major developed economies, we prevented Australia from going into recession.

We avoided mass unemployment like we have seen elsewhere in the world.

And we did so on the basis of the lowest debt and lowest deficit of all the major advanced economies.

We also undertook radical long term investments in the future drivers of productivity growth.

The two main arms of this have been our investments in 21st century infrastructure as well as our investment in an Education Revolution.

We are building a National Broadband Network which will put us at the forefront of the global digital economy.

This will help overcome the tyranny of distance which Australia has traditionally suffered.

For the services industries, this will be critical as clicks rather than bricks will be the principle means of delivering much of what our nation has to offer to the rising middle classes of China and wider Asia.

Education services.

Health services.

Financial services.

Architecture and design services.
 
And, of course, the back office functions of the tourism industry as well.

None of this would be possible if this country continued to operate on the basis of 19th Century infrastructure in the face of the growth opportunities of 21st Century economies across Asia.

The NBN will turbo charge small businesses into big businesses.

It will grow small regional businesses into companies which rival and surpass their metropolitan cousins.

In fact, the full set of business applications within and between firms has not yet been fully imagined.

But none of it can be imagined, particularly outside the CBDs of our five mainland state capitals, unless we have a high-speed, high quality broadband network for the nation.

Fully wired to link with the broadband networks of the rest of the world.

And never forget that China has already become, by a country mile, the largest internet user nation in the world.

Third, as I foreshadowed earlier, our radical investment in what we legitimately call the education revolution. Radical new investments in the quality and quantity of what we provide our current and future workforce.

From early childhood education through to record investments in primary and secondary schools; nationally consistent NAPLAN testing; the first national curriculum in our history; nearly 4000 new state of the art 21st Century libraries across the school system fully wired for the information age; hundreds of new science laboratories  and language centres; massive new investments in vocational education and trading including hundreds of new trades training centres attached to the nation’s secondary school; together with the largest single Commonwealth investment in the nation’s university and research secrets including 50,000 additional tertiary places. And in the midst of all this the rebirth of a national Asian languages and studies strategy for Australian schools which our predecessors abolished back in 2002 to the nation’s determinant.

Of course the yield from these productivity enhancing investments will not flow through for a decade. But unless these investments were made, then there would be no yield at all.

And remember the vision we set for ourselves: to become the best educated, best trained, best skilled workforce anywhere in the world.

Fourth, while these are the essential drivers of productivity growth across the entire Australian economy, our industry policies must also continue to embrace what needs to be done for the various sectors of our economy as well.

The new car plan, including the green car plan, announced in 2008, made it possible for the Australian can industry to navigate the GFC and to remain a significant exporter of vehicles around the world.

Our strong support for the financial services industry by critical decisions taken to reduce the withholding tax to regionally competitive rates.

As well as a more robust regulatory environment to support the sale of Australia’s education services around the world.

Under Martin Ferguson, we’ve enhanced our global tourism promotion campaigns.

But with all these things, there is more to be done.

But through a combination of maintaining the strength of our economic fundamentals, investing in the long term drivers of productivity growth in our infrastructure and in our skills; and by providing necessary support to core sectors of our economy, we have a strong base for navigating our long term economic future.

And your industry represents a strong part of that future.
 

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