What Chinese investors need in Australia

SUCCESSFUL Chinese investors in Australia retain Australian management – and strive for meaningful engagement with their local community, says a new report on the angst that can be caused by wrong decisions  . . .

SOCIAL LICENCE, or the lack of, is the reason that Chinese investments in Australia, especially in agriculture, a sector keenly sought-after by Chinese investors, fail.
 Quite apart from needing official approvals, says a report jointly produced jointly by Powell Tate’s Sydney office and Weber Shandwick’s Beijing office, Chinese investors must have social licence — meaning engagement with the Australian community — from the grassroots level upwards, together with respect for the rules and regulations in Australia, including local industrial laws.
 To have a social licence is therefore to have acceptance of the local community, including local businesses, says the report, The Licence That Matters: Beyond Foreign Investment Review Board Approval.
 The report points to successful Chinese investments in Australia, all of which retain Australian management, engage Australian employees and contract local suppliers.
 The biggest mistake made by the Chinese investor is a belief that FIRB approval translates to having a licence to do as they wish with their investment.
 The report cites the celebrated failure of Ningbo Dairy in Gippsland, Victoria, a tale of naivety, ignorance, or, at worse, arrogance on the part of the Chinese investor.
 Ningbo Dairy acquired five farms in Gippsland, and planned major expansion —without first doing its homework.

“They hadn’t connected with the local community to see if they were on board with their expansion plans,” an interviewee is quoted as saying in the report.
 Wanting to treble production, company executives complained about Australia’s high wages and spoke of importing 2,000 Chinese to work at a farm which was geared to supply the Chinese market.
 Harry Wang, a Vice President at Ningbo, was reported to have told the Weekly Times newspaper:  “With labour so expensive — three times more than in China — and milk returns lower, it makes profitable farming very hard. We see the only way is to process the milk ourselves, export it to China and bring some of our workers here.”
 Wang was quoted as describing the low price of milk in Australian supermarkets as “a joke”.
To add salt to the wound, Wang then told The Australian: “It’s strange in some ways, because really milk is milk, and we will be producing milk the same way in Australia as we do on our Chinese farms, with all the same levels of cleanliness, hygiene and animal welfare standards.”
 It is hardly surprising, then, that Ningbo’s ambitious plan to place 1,000 milk-producing cattle in barns and to build a bottling plant was unanimously rejected by Bass Coast Shire Council in 2015, after 400 objections from local residents.
 “Indeed, Ningbo Dairy Group’s Harry Wang told  The Australian  he couldn’t understand how Bass Coast Shire Council could overrule the company’s plans given that it had received approval for its investment from both the Federal and Victorian State Governments,” the newspaper reported.
 Interviewees told the researchers that an issue common among Chinese investors is that they import managers from China.
 Jim Harrowell, Immediate Past President of the Australian China Business Council (NSW), noted that many Chinese companies, even outside agriculture, had got this aspect of (management) wrong.
 He pointed to Huawei, which installed an Australian Board of Directors and senior management structure.
 Harrowell suggested that Chinese investors in agriculture should learn from Huawei and emulate its example in having managers who could integrate into the local market, to bring the best of Chinese culture mix in with local culture.
 Shangdong RuYi, which now owns a cotton plantation in Australia, is seen as a success because it contracts local businesses to supply the property — and continues to hire its casual workforce from the surrounding area.
 Cubbie Station, the largest irrigation project in the Southern Hemisphere, is also seen as a success because the Chinese owner chose to keep the Australian management structure in place.
Like Shangdong RuYi, Cubbie Station retains its connection to the local communities of St George and Dirranbandi.
 Ben Matigan, an executive with National Australia Bank who worked on the sale of the Moxleu dairy farm to the New Hope Group from China, said the family entered into a joint venture with the Chinese investor. The investor brought in financial investment and opened the door to a distribution network in China.
 Matigan said New Hope appreciated that it didn’t know how to operate a dairy production plant in Australia, and knew that it would need local partners to do that.
 Similarly, another investor, Moon Lake, which bought the Van Dieman’s Land company for AUD280 million, committed to retain the board, management and retain jobs while creating 200 new jobs. It also undertook to honour all existing supply contracts held by the Australian company.
 The report on Chinese investment in Australia was jointly written by Nicholas Alistair, Power & Tate’s  Director of Special Projects in Australia, and Yang Xing, Associate Director of Weber Shandwick in Beijing.
 The authors interviewed Australians involved with Chinese investment, including Government officials, industry figures, and Chinese investors, in the second half of 2016 and early 2017 — when concerns about Chinese investment in Australian agriculture and agribusiness were reaching a crescendo. Nicholas and Yang sought out reasons for such strong feelings against Chinese investment in Australian agriculture, which they say, in the overall scheme of things, was small relative to investment from other nations, particularly the United States.
They acknowledge that Chinese investment into Australia spiked during 2014-15 – but half of all Chinese investments went into real estate, with agriculture representing about 10% of the total inflow.
 The report makes recommendations which, if followed by Chinese investors, should result in the granting of that sought-after social licence.
 First, the report says, would-be investors should undertake full and appropriate due
diligence before making an investment, to ensure that expansion/development plans will be approved.
 Nicholas says the recommendations of the report were well-received in China, with good publicity after the Farmers Daily, an in-house publication of the Chinese Ministry of Agriculture, reported on its findings. Other Chinese media then followed suit.
 Back in Australia, Nicholas was invited by the Chinese Chamber of Commerce in Australia (CCCA) to address their members.
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