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Cebit 2014: China's broken growth model will change Australian business: CMR

Allan Swann | May 7, 2014
Green-tech, targeting younger demographics and brand trust key to winning China

"They're saying, who cares if I can buy a Louis Vuitton bag if the air is going to poison me?" he said.

Interestingly, this is driving a huge growth in online shopping - this is hurting the Main Street, while malls seem to do well. When people want to come out of their 'Cocoons' they need to be in a fully functioning environment, with shops, movies, food and playgrounds for kids. Twenty per cent of this online retail is now mobile lead.

This is also driving a huge rise in Chinese external tourism and migration, as families look to give their kids clean air, cheap housing and a nicer lifestyle - something Australia has certainly benefitted from.

"It's not all about the bling they can show off," Rein said.

Rein also said this re-engineering of the Chinese economy to deal with pollution, combined with high wages, means that the country is rejecting permits for energy and water intensive factories. These low end businesses are being driven offshore.

While this is of concern for the west, and Australian businesses looking to get their low-end gear built in China, it also means that Chinese manufacturing is moving up the value chain.

It also means that they are bringing their weight to bear in terms of innovation, and no longer simply looking to imitate western trends and steal IP.

Low hanging fruit
Venture capitalists are also coming around to this way of thinking. In the past, VC firms would throw all their money at Chinese companies producing Chinese versions of western properties - for example, Baidu, the Chinese Google: "They want to pick the low hanging fruit."

Rein said Chinese innovators have been stifled by this period of capitalism, and as these markets approach saturation, VCs are looking to support Chinese innovation. The next big tech market disruptor will come out of China, he believes.

WeChat, a new Whatsapp style data based SMS system, that also combines shopping has been disrupting the CHinese telcos SMS revenues. It is already valued at $130bn. China's eBay Alibaba has been mentioned as listing at $168bn.

CMR interviewed 5000 Chinese business people across 15 companies, and compared the results to the same survey five years ago. Back then 85 per cent preferred foreign brands, because they believed that local brands cut corners. This year that number has dropped to 75 per cent.

Various food scares and low quality electronics made the Chinese middle and upper classes wary of trusting local brands. Major western brands such as KFC and New Zealand dairy exporter Fonterra have had scandals, and it has tarnished their reputations.

Already some top Chinese companies have seen the holes in the market, such as infant formula, and advertise the fact that they cost 50 per cent more than the competition as a positive, because their supply chain is reliable. Technology is the same.


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