Islands Business | November 2007
Interview: ROHAN ELLIS
How to tap the growing China market
China’s interest in the Pacific region has become more pronounced in recent times, with funding support made available by the Chinese government to Pacific Islands countries.
This commitment has been supported by regular China-funded trips of governments and business officials in the region to China for an idea of its reality.
The Chinese market therefore is a new one for Pacific islands countries and there have been calls for a coordinated approach in order to save costs.
Senior writer DIONISIA TABUREGUCI spoke to Rohan Ellis, the head of the Beijing-based Pacific Islands Forum Trade Office (PIFTO) on issues relating to Sino-Pacific trade relations.
The interest by China in the Pacific is growing. What do Pacific islands need to do in order to align themselves to the realities and expectations of the Chinese market?
"Chinese interest in the Pacific islands is definitely growing. This is being spearheaded by the Chinese government’s stance on making available development funds and investment funds through its soft loan programme, which has been authorised by China’s Ministry of Finance and facilitated by the Exim Bank of China. There is now an impetus by the government to stimulate its private sectors and state-owned enterprises to seriously consider investments into the Pacific islands by providing the soft loan arrangement for their companies. The Chinese government is committed to assisting these companies to remove risks of investing in an unknown territory like the Pacific region. Currently Chinese investment is growing rapidly, they are going into the more well-known destinations...the European Union, the United Stated of America and of course, South East Asia. However, the time right now in the Pacific Islands is not conducive for Chinese investment into the islands. But the Government of China wishes to speed this up by putting in place this soft loans. All these were orchestrated when Premier Wen Jiao Bao came to Nadi in April last year."
Do we in the Pacific islands understand how the Chinese think or what their expectations are in order to do business with them or should we put in more effort?
"I think there’s a lot of misunderstanding and misconception by both sides. The Chinese businesspeople simply have their point of view of Pacific islanders and Pacific islanders have their own view of Chinese business people. And both are not good. So there is a great need for more dialogue between the two and perhaps more opportunities for matchmaking whereby we are able to bring serious parties from both sides together, put them at a table, to talk about opportunities, cultural issues, incentives, to talk about the political climate and regulations, rules and parameters on which they can operate in the Pacific islands. I think this needs to be fleshed out. It needs to be brought out immediately."
And it hasn’t been?
"We try to do this in our Beijing office. However, with limited funding, we can only do so much. I think there needs to be a drive by both the Pacific islandd governments as well as the Chinese government to make things happen. So we are simply talking to parties in China and the Pacific islands to try to organise a joint meeting of some form with a trade, investment and tourism focus for 2008 to be held, hopefully here in Nadi as a regional hub. And in doing so, we are going to be working very closely with the Ministry of Commerce, China Council of the Promotion of International Trade, as well as other industry associations, business associations throughout China. It’s not going to be an open invitation for everybody. The key pitch will be talking to Pacific islands private sectors, identifying what they want out of China and then taking their needs and requirements and linking them and matchmaking them with appropriate parties in China. Right-sizing and you know trying to select people that have the right attitude and the right business model to succeed in the Pacific islands. Otherwise, if we don’t match them up properly, there will be problems and the project could go sour."
What industries in the Pacific could potentially be of interest to Chinese investors?
"China is going through an economic boom right now and China simply does not have the natural resources to actually fuel that economic boom, so they are looking to every corner of the earth to source raw materials and to facilitate and to fuel this boom. So automatically, the first industries that pop up are our natural resource industries. So Melanesia, with a particular focus on Papua New Guinea is hot property. Minerals and metals are always hot in China. The timber industry is also very hot in China. Fisheries is also very hot in China because they have 1.3 billion people to feed and the seas around China are not very conducive to biodiversity. So these are the very immediate requirements from the Chinese perspective. However, it’s an interesting question because, I will give you an example. The Pacific Trade Office in China is doing its best to promote tourism investment, resort development investment into many tourism destinations in the region. However, the rate of return in the Pacific is very, very low compared to the real estate market in China. A lot of investors are quite focused on developing their own real estate projects in China because the rate of return is over 30 percent, whereas in the Pacific islands, our rate of returns vary between 8% and 12%. In some outstanding cases, 15%, but we’re nowhere near the return that China currently offers. So this is a tough call that we have at the moment because I mean, do we continue and go along to try and promote tourism real estate development throughout the Pacific islandd countries or do we focus on new areas that are in high demand in China but in which they’re not able to actually compete? That takes us right back to raw materials found in Melanesian countries. The Chinese investors are also very interested in investment migration proposals that come through from the Pacific islands. There are a great number of successful Chinese people that are looking for an alternative citizenship or passport and if that can be tied to an investment scheme. Through our deliberations for potential investments from China, we’ve bandied figures like US$1 million minimum investment requirement before you can get into a country and you have to live in that country for the next five years before you can apply citizenship of that country and they think that’s very viable. The challenge now is for the Pacific islands to actually see this opportunity, see this niche and try to develop investment vehicle models which we can promote and pitch to the Chinese."
What is the reality of supplying the Chinese market from the Pacific perspective?
"Like any market, the Chinese market is big. And you know, from a novice or an outsider, it seems quite daunting. You don’t know where to start and how to get in. But like any market in the world including our small, small countries in the Pacific islands, you need to target the market well. Pacific islands products come in limited supply but our products are quite special, so there is a huge opportunity for us to be smart about how we get our products into the country. If you want to gun for the mass market, forget it because you will be overtaken by South East Asia, who are our competitors. However, where there is an opportunity for us to pitch at the top end market, at the exclusive niche markets which are looking for organically produced products, unique products with a distinctive cultural element to it. So we can get in and I think if we are smart enough, we need to be able to, through research and development and through creative marketing and branding, actually package our goods to target the upper end of the local market in China, which will guarantee us high returns and high yields, for minimal effort or for minimal disruption to our natural environmental base or resource base."
Do you think there is a collective move in the Pacific to take advantage of China’s robust growth?
"No. I don’t think there’s a collective move at this stage. Right now countries that have a comparative and competitive advantage are moving into China quite quickly. But then again, I highlight the Melanesians are busy doing their own thing and they’re doing it very successfully. They are doing it extremely well, with a notable highlight to PNG, who is doing a phenomenal trade with China. All the other Pacific islands countries are doing things on their own, they’re using their own initiatives to get their products, whatever they may be, into the Chinese market. But I think that process of going alone can be very expensive. However, I do see huge opportunities and potential for the Pacific to come together and get ourselves organised, get our products organised and do proper packaging, marketing and branding. And to feature our products, whatever they may be, as premium products from the Pacific region. Anything is possible. We only have to look at the case of Japan. Some of our Pacific Islands countries are doing extremely well with their exports into Japan through creative marketing, branding and product policy. We can certainly replicate that model in China."
What has been the progress of talks for a China/Pacific Free Trade Agreement?
"A recent visit by Dr Roman Grymberg (of the Forum Secretariat) to Beijing was for Round Two of preliminary discussions with the Chinese government and Chinese counterparts and this was two-three months ago. The feedback from this second round of discussion was a lot more positive than the first round. In the first round (held last year), the Chinese were quite perplexed about the whole idea. It’s quite strange for the Pacific islands to engage an FTA with China. However, some time had passed and on Grymberg’s visit back to Beijing, the Chinese government was certainly a lot more researched on the topic and they were very favourable towards an FTA. And so, it’s progressing on that front and I think China will do its best to negotiate an FTA with the Pacific islands on ‘friendly terms’, meaning on terms that Pacific Islands will want. Because at the end of the day, an FTA will be lopsided in favour of China. But China’s political stance to develop a very friendly stance with the Pacific islandd nations will work in our favour in that China will be very, very warm in its approach in the negotiation of a potential FTA with the Pacific islands region as a bloc."
Tourism in the region also presents opportunities for trade. How do we get the Chinese tourists to come here?
"Yes they do. But again, don’t be overwhelmed by the numbers. Again we have to be smart. We have to target people. We have to target the upper echelons of the Chinese society because they are the ones with the disposable income to afford a holiday to the Pacific islands. Because the Pacific islands holidays right now are, well, out of reach for the ordinary Chinese citizen, which is a blessing in disguise. We simply cannot cope, with the notable exception of Fiji and possibly Tahiti that have the capacity to absorb the volume. But the rest of the Pacific islands are simply not there yet. The Pacific does have an opportunity to cater for Chinese market. Chinese like to do non-stop flights and we don’t actually have direct flights into the Pacific islands-point to point access from China into the Pacific islands. However, we do have secondary links...Qantas, linking Australia, Shanghai and Beijing, we also have Air New Zealand that has recently started a service to Shanghai with the view to fly into Beijing next year. And the other important one is that most of our Pacific islands’ airlines are flying into Asia.
"Air Pacific, AirCalin, Tahiti Nui and Air Niugini fly to Japan and Air Niugini has just resumed services into Hong Kong. And, of course, Korean Air straight into Fiji. So these are all good stepping stones to link China via a secondary hub to access the Pacific islands. Numbers are slow at the moment. That is due in part to poor flight connectivity, very minimal advertising, marketing and promotions going on in the market place and I think many of our Pacific destinations are still investigating China. They haven’t reached a stage yet where they are comfortable, confident and they’re going to launch a full assault, a full-on marketing campaign into the Chinese market. Over time, it will happen. I think the Pacific islands’ NTOs (National Tourism Offices) are still adjusting to shocks around the region with our principal suppliers New Zealand and Australia. With limited advertising and marketing dollar that they all have, they have a duty to invest in markets where they would get a good return and the China market is still a very new market. And in the Pacific islands, a lot of people are still cautious in spending a lot of money into the Chinese market. There is a huge opportunity to work closely with south-pacific.travel (formerly SPTO), to work under one umbrella to push the Pacific islands tourism banner throughout the targeted Chinese cities of Beijing, Quangzhou, Shanghai. And there is a huge opportunity, again through the south-pacific.travel, to work closely with the Chinese Tourism Administration to launch campaigns and programmes that will grow Chinese tourist departures into the Pacific in a sustainable manner and at a rate that the Pacific Islands can cope with."