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Chin Communications · Chinwags July 2011

Hey, Big SpenderS! Spend a LittLe time Studying WHat CHineSe touriStS Want and Be a Big Winner

more than ten years on, there is a lot more competition with over 140 ADS countries luring group travellers, explosion in the use of internet to influence Chinese travel and a number of negatives creeping in to the Australian market. A price war with travel agents in China promoting ‘below cost’ travel to Australia is symptomatic of a culture relying on rip-off commissions; also highlighted was the need for investment in tourism infrastructure and qualified, properly paid tour guides. There is a trend in Australia for tour guides to be paid nothing for their work, making them totally reliant on shopping ‘experiences’ at expensive stores to earn their daily ‘fees’. While shopping is currently the most popular pastime, research indicates that future motives are likely to be a more individualized treatment, excitement, self-realisation and an in-depth cultural experience.

The Chin Communications interpreting team provided all interpreting for the 2011 tourism summit. Chin also produces a large number of tourism translations for marketing materials and web for clients around Australia.

CHINESE TOURISTS NUMBER ONE BIG SPENDERS Australia moves to boost experience with focus on language and cultureQueensland tourist numbers dropped 9% in the March quarter following floods and cyclone, but in a sign of what China means to Australian tourism, Chinese visitors increased by 15%. At the end of June Premier Anna Bligh, underlining the importance of the China market, launched what they are calling ‘Project China’, pitching to the big-spending Chinese to visit Queensland for a great outdoor experience. It is not just Queensland and Australia benefitting from this trend, now China is the fastest growing outbound market in the world. Last year 57.4 million Chinese travelled abroad spending 48 billion US dollars in other countries and 454,000 travelled to Australia, some 14 per cent more than the previous year. Growth in Chinese tourists in Australia has been about ten per cent a year and they are the top spenders in Australia making them the most valuable.

In world terms, Chinese tourists are the fourth biggest spenders following Germany, USA and Britain, and Chinese tourists are number one in France. Some well-known Paris department stores are ignoring all other languages (including English) and adopting Chinese language support as their top priority.

By 2020, visitors from China are forecast to bring $6 billion into the Australian economy in a single year and visitor numbers will be close to 1 million, double the economic value of Chinese visitors in Australia at the moment.

Queensland has also been blitzing the Chinese airwaves following the natural disasters, supporting attractive tourism campaigns and offers, and as such Cairns was a fitting place to hold the second China Australia Tourism Summit at the start of June. Around 300 attendees heard from Chinese and Australian speakers including Minister Martin Ferguson launching a strategic plan to achieve the aims by 2020 for Chinese tourists visiting Australia and to shore up the experience Chinese visitors expect.

Australia was the first western destination to be awarded Approved Destination Status (ADS) by China in 1999 – now

According to VISA, Australia tops the list of destinations Chinese want to visit in the next two years. Initiatives of the government to capitalize on this include investing $40 million on tourism projects, a training accreditation program to deliver quality tour guides and better language and culture support, and improved consumer education and awareness to ensure a quality experience. Underpinning this is the need for language support and we’ve been pleased to see a trend to generating tourism offerings in Chinese over recent years. The next thing operators need to focus on is their internet presence in China; evidence at the Summit showed that 60% of prospective Chinese travellers sourced their travel ideas from the web, compared with 38% from travel agents and 16% from recommendations. With all Australian states competing for visits, not to mention the rest of the world, getting your message out there in good Chinese is going to be more and more important.

Audience at the Australia-China Tourism Summit in Cairns; Tjapukai Aboriginal Cultural Park; Hartley’s Crocodile Adventures

China’s Economy in early 2011 – Prospects and ProblemsIn the first three months of 2011 China’s economy did what it has done with monotonous regularity for decades – it grew quickly at 9.7%. The World Bank forecasts that in 2011 China’s economy will expand by 9.3%. If this is true it will be the first time in three decades that growth has slipped below double digits. The World Bank forecasts lower growth again of 8.7% in 2012. Decades of growth have had a massive impact on the Chinese economy – not least the increase in personal wealth and national demand for energy, commodities and raw materials which have made China Australia’s number one trade partner.

Inflationary SignsIf sustaining high growth is not the problem for China, then inflation is. In the first quarter of 2012 China’s inflation rate skipped ahead to 5.2% - up from 4.7% at the end of 2010. The inflation rate is above the Chinese government’s annual target of 4%. Rising food prices have been the major contributor, propelled by global price rises for commodities. In March 2011 food prices jumped 12% compared to March 2010. On the ground, inflation may be much higher than the ‘official’ figures suggest.

One group of critics warn that the inflationary pressures building in China (helped by US policy) are extreme as evidenced by recent reports of unrest in the south. Of particular concern is the argument that rapid rises in Chinese property and real estate prices have created a massive bubble which will inevitably lead to US style sub-prime meltdown. However more conservative commentators – notably the World Bank – although seeing inflation and rising property prices as a concern – predicts inflation will moderate throughout the rest of the year. The World Bank says that food prices are slowing and core inflation appears to be in check. The Bank does warn however that if the economic brakes are pressed too hard a sharp correction to the property market could cause problems.

Most analysts trace the origins of inflationary pressures in the Chinese economy to the massive stimulus package by Beijing in the wake of the GFC two years ago. Hot money first went into the stock market – which suffered a major correction in mid 2010. The second wave of hot money went into real estate. According to figures cited by Bloomberg, lending reached record levels of $USD2.7 trillion in 2009-2010. There are fears the property sector will be next to crash. If it does, China’s banking and financial system will be exposed to massive bad debts.

The government has adopted a number of measures to cool the national economy and property prices in particular. Starting in mid 2010 the reserving levels of financial institutions were lifted, interest rates have been raised and increases made to the size of down payments for purchasing houses and apartments. In key cities such as Shanghai and Chongqing further regulations have been adopted to restrict the purchase of second and third residential properties by individual buyers flocking to the red hot property market. International commentators are urging the Chinese government to allow the Yuan to appreciate as another lever to control domestic inflation.

Redback Vs GreenbackJune marks the first anniversary of China lifting restrictions on the Yuan in its drive to internationalise the currency. Experts debate how long it will take till the Chinese Government allows it to be fully convertible - decades seems to be the consensus.

The reason is that when the RMB inevitably appreciates it will cost Chinese jobs as exports become more expensive which in turn leads to social unrest - something the Chinese Government will avoid at all costs.

While the USD is the world’s reserve currency, more and more trade is being settled in RMB; in fact a report on Radio National on 21 June suggested that by 2015 more than one-third of emerging market trade - 2 trillion dollars - will be settled in RMB. The report even claimed that Rio Tinto is investigating this prospect for iron ore.(Sources: Bloomberg News 15 April 2011, Forbes 1 May 2011, World Bank Quarterly Report on Chinese Economy 2011, Radio National, China’s Push to challenge Greenback’s global dominance, 21 June 2011)

Impact on AustraliaAs we hear on a daily basis, what happens to the Chinese economy has profound economic consequences for Australia. In his first speech as head of Treasury, Martin Parkinson warned that any serious dampening of domestic demand in China (which could be the result of Beijing’s anti-inflation policy) could reduce demand for Australian commodity exports – which could in turn negatively impact the overall health of the Australian economy. (The Australian 18 May 2011)

The most serious consequence of a Chinese slowdown might be to derail the current Federal government’s projections to return the Federal budget to surplus – one of the central planks of its re-election platform. Treasurer Wayne Swan has acknowledged that current budget surplus projections are strongly linked to continued strong growth in China and the region. In reply to the government’s 2011 budget, Australian Opposition Leader Tony Abbott argued that the budget weakness is that it is too reliant on the Chinese economic boom continuing. Putting aside the partisan cut and thrust of the budget debate, one thing is beyond dispute – the health of the Chinese economy is crucial to Australia.

The mainstream economic consensus in Australia suggests confidence in continued strong growth and demand in the Chinese economy. Despite Treasury Secretary Martin Parkinson’s words of caution, his department (Treasury) forecasts strong Chinese growth of 9.5% in 2011 and 9% in 2012.

Australia and China 2.0 – A new phase of mutual economic engagementForeign Minister and former PM Kevin Rudd has put China front and centre of Australian policy thinking. Beginning in April he used his delivery of the 70th annual George E Morrison lecture at ANU to announce that the government would be funding a major new research and education institute at ANU called the Australian Centre on China in the world. A few weeks later Rudd delivered a major policy address on China in Guangzhou. In the speech – described on the front page of the Australian Financial Review as visionary – the former Prime Minister focussed not merely on the standard narration of the extraordinary changes in

Chin Communications · Chinwags July 2011 Page 2

Tough domestic growing conditions have pushed many producers to the wall. But China may offer a glimmer of hope for Australia’s hard pressed vignerons. Rapidly rising urban incomes has created an emerging class of affluent consumers in China - keen to sample the best of global wine. And demand for Australian wine is on the rise in China. But in a still emerging market, Australian exporters will need to understand local preferences and market conditions before they can become established as a premium international brand.According to Wine Australia, in 2010 Australia exported 781 million litres of wine valued at $2.1 billion. China took 55 million litres, making it Australia’s fourth largest wine export destination and generating export earnings of some $164 million. Wine Australia also ranks China as Australia’s fastest growing wine export market, with exports in 2010 increasing 36% over 2009.

The growing potential of the China market for Australian wine was confirmed in a recent quarterly market report by Rabobank. Between 2005 and 2010 the Chinese market for bottled table wine grew by 20% per annum – and the market for imported table wine increased at three times that rate. The report says that in 2010 China imported 150 million litres of bottled wine – which represents only 10% of total domestic wine consumption. Red wine is the dominant variety sold. According to its March 2011 report on the China market, Ferrier Hodgson says that over 83% of imported bottled wine in China is red and 85% is valued at $5 or less per bottle. The Rabobank report commended Australia for its work to get established in the China market and said Australian winemakers have been able to outperform a number of international rivals in terms of price and sales volume. However it concludes France remains the dominant foreign player in China – both in terms of sales volume and status in the eyes of Chinese consumers. One of the biggest challenges for Australian wine exporters is to be recognised as a supplier of premium wine - and to attract high prices. This means going head to head with often better known and well resourced international competition from France, the United States and other international producers. Convincing China’s brand and status conscious wine connoisseurs that wine from down under ranks alongside the world’s very best is not a simple task.Rabobank says the Chinese wine market is at an “elementary stage” of development. And domestic distributors play a critical role in influencing consumer’s wine choices. Wine

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China since the reform process began in 1978 and the usual array of statistics and data but what lies ahead for Australia and the region in the next thirty years. Rudd chose to call this positioning of Australia in anticipation of the rise of China “Australia-China 2.0” – what Rudd defined as “a new phase of mutual economic engagement.”

Rudd observed that although there is a debate about when China will overtake the US economy in terms of absolute size“, what isn’t in debate is that on current projections China’s economy is likely to be the largest in the world before the end of the third decade of this century.” China’s growth has already created massive demand for Australian fuels and minerals, which Rudd noted accounted for over 80% of merchandise exports to China in 2010.

The Australian Foreign Minister highlighted some of the major economic shifts occurring in China, which Australian government and business must be ready to respond to. These include: China’s major focus on addressing the environmental cost of rapid growth and changing its growth model to prioritise the quality of growth over the quantity of growth; a rapid increase in spending on Research and Development to move the Chinese economy higher up the value chain; a new wave of growth coming from second tier cities and inland regions (Rudd cited growth rates of almost 20% in Inner Mongolia), and perhaps the most important shift of all, the Chinese government’s determination to reduce economic reliance on an export led growth model to increased domestic consumption. This latter focus will not only address significant problems with economic and social inequalities in China, but also help cushion the Chinese economy against major shocks in the global economic system. After listing the array of sectors where Australia can match the emerging new trends in China - including financial services, education, environment, international tourism and offshore investment. Rudd concluded: success “ultimately depends on business”, requiring the Australian corporate community to be prepared for the changes coming from China’s new economic development model. Among the suggestions to business from Rudd were employing bilingual Australians to work in the China market, and having an active presence in the regions and emerging second tier cities.

If taken up by Australian business, Rudd’s recommendations will require major investment in recruiting staff with the range of language, cultural and in-market expertise needed for new sectors and locations. Working in the diverse inland regions and less familiar second tier cities will pose challenges even for well established businesses, more used to the relatively developed infrastructure and now familiar business environment of cities like Guangzhou, Beijing, Shanghai or Tianjin. It will also require new commitment of time and resources to establish a physical presence in the new areas and begin to acquire the critical local experience and local networks. (Source: “Australia-China 2.0 - the next stage in our economic partnership” transcript of speech by Australian Foreign Minister Kevin Rudd at Guangdong University of Foreign Studies 22 May 2011)

Like Tourism, Wine Exports to China Promise Much, but More Work to be DoneRecent times have been hard on the Australian wine industry. Overseas sales to the major markets of the USA and UK fell in 2010, caused by a surging Australian dollar.

Chin Communications · Chinwags July 2011

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is usually bought as a gift, for entertaining or for prestige reasons – and that usually means a French brand. The report says the challenge for other international wine makers is to catch up with the French image and reputation. And this means influencing distributors and market gate keepers. The report concluded that significant investment in educating Chinese consumers and building relationships with distributors is essential.Several Australian wine exporters have decided to tackle the China market direct. Rather than solely work through local distributors or partnerships, wineries like Yabby Lake and Bird in the Hand have been reported in the media to have opened their own cellar door outlets in major cities to reach Chinese buyers.To help position Australian wine as a premium product, Wine Australia has launched its ‘A+ Australian Wine’ program in China. The program brings together a range of Australian wineries and brands with Wine Australia to promote a national image for Australian wine in China. Wine Australia has also launched a Chinese language iPhone app to promote higher end Australian wines to Chinese consumers. The app is part of a series of wine education programs in China. Wine Australia’s Vintage 2011 program brought 100 Chinese wine professionals to Australia for a week of winery hosted vintage experiences. The delegates spent time in many different wine regions including at De Bortoli’s in the Yarra Valley where they not only enjoyed the fruits, but also laboured in the vineyard.Another group visited Victoria’s North East where Muscat of Rutherglen put on a brilliant program touring well known local producers like Bullers and Pfeiffer Wines, and went to the trouble of translating menus with such favourites as the Tim Tam Slam (yes we admit this one was challenging in translation!). But not all Australian exporters are trying to crack the high end of the Chinese market. Over half of Australian exports to China are bulk wine, attracting very low prices. In 2010 30 million of the 55 million litres of Australian wine sold to China was bulk wine. Much of this wine is later bottled in China to maintain the lowest possible retail price.One hazard for premium Australian labels –faced by other leading international and also Chinese producers – is counterfeiting. No sooner does a label or brand become popular than fakes and imitations can appear on the market. In recent years reports have emerged of Australia’s leading international brands, including Penfolds, being the victim of fake labelling in China - Benfolds: “thusethat beld theprevicus vinrage of Benfolds Grange.” Yes, this is what you get when you don’t employ proper translators! (SMH 24 August 2010). Leading Chinese brands face a similar challenge – at the end of 2010 the People’s Daily reported that local wineries in Anhui Province had been found to be

Page 4Chin Communications · Chinwags July 2011

WOULD YOU LIKE THE BROWN VENEER WITH YOUR DINNER?

You can certainly spot the fake labels, or those not done by professional translators – “buttered lemon toast” flavoured wine goes down well with your cornflakes for breakfast!

A front label should be designed with a Chinese audience in mind – status, prestige and brand names are important to the Chinese who may purchase a prestige wine as a gift or for a special occasion, or increasingly at wine bars and restaurants and even at wine auctions to impress their colleagues.

The back label needs to be in Chinese and must have the appropriate layout and correct wording for China. Requirements are stipulated in Chinese Standards for labelling, including font sizes and expressions. Wine Australia has developed a listing of a certain number of varieties in Chinese and Chin Communications has added to this and compiled a definitive list of varieties and regions appropriate for China.

Wine Australia also requires a certified back translation by an accredited translator for their procedures to ensure it complies with the import market’s requirements and with the Australia and New Zealand Food Standards Code. Chin Communications has developed a quality system to prepare the labels and certified back translations on a very fast turnaround to meet the tightest deadlines. We offer a guarantee on all of our work.

adulterating and falsely labelling wines as Great Wall and other well known domestic brands.China’s domestic wine production is also ramping up. AP reported in early 2011 that China’s domestic wine production could overtake total Australian production by 2014. The growth is not expected to see Chinese wine becoming a major export player, but rather meet growing domestic demand for wine. The expected growth in China’s domestic production is likely to put pressure on low cost Australian wines, another reason why market analysts want Australia to focus on the premium market. Leading international winemakers, including giants Moet Hennessy and Pernod Ricard have formed local partnerships with Chinese growers to develop premium products for the Chinese domestic market.Potential also exists for Chinese investment in vineyards and wine production in Australia. Ferrier Hodgson concludes that despite “nibbles” and several small scale ventures Australia is yet to see any significant Chinese investment in the domestic wine industry.(Sources Wine Australia, Rabobank April 2011 Quarterly Wine Report, Courier Mail 17 May, AP, People’s Daily, Ferrier Hodgson report March 2011)

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