Australia needs to take advantage of China's love for our dairy and health products – before it's too late, economist says

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Australia needs to be careful how it responds to the daigou phenomena and be aware a change is on the horizon in how Chinese consumers buy overseas, an expert told Business Insider Australia.

Professor of economics Li Wei from the Cheung Kong Graduate School of Business (CKGSB) spoke at the China-Australia Business Forum in Melbourne on Thursday about the changing economic relationship between China and the rest of the world – and Australia’s place in it.

Speaking with Business Insider Australia, Professor Wei said Australia’s relationship with China, which had initially started around the trade of commodities and shifted to trades in services and health products, could change.

Professor Wei said it was worth keeping in mind that the huge boom in Australian dairy products and health products – like vitamins, supplements and lanolin cream – with Chinese consumers was the consequence of a lack of trust in domestically produced goods and a growing taste by China’s middle class for upmarket Australian food and healthcare products.

“Chinese people always want the best for their kids,” he said. “Authentication is very important.”

Due to this, daigou, or surrogate shoppers who buy goods on behalf of others and ship them back to China, has become a huge business in recent years.

But he said past experience in Hong Kong showed that sentiment can change and consumers preferences can shift, particularly if barriers are put up on trade or the public hostility to Chinese daigou gets in the way of the trading relationship.

“Australia needs to be careful about trade with China,” he said. “If [Chinese consumers] can’t get [milk powder and healthcare products] from Australia they will get it from somewhere else.”

Professor Li Wei speaking at the China-Australia Business Forum on May 2 in Melbourne

Following the 2008 milk scandal in China, which saw 300,000 toddlers fall sick after milk was adulterated with the toxic chemical melamine, the amount of milk powder imported globally increased significantly as the reputation of domestically produced products was tainted. In response, Hong Kong put restrictions on the export of milk powder in 2013.

“The consequence of that was demand shifted to somewhere else,” Professor Wei said. “I do see negative sides to the Chinese trade relationship with Australia, both sides need to learn from the experience of Hong Kong.”

Hong Kong recently decided to stick with bans on milk powder exports to China, according to Hong Kong Free Press, which demonstrates the continued sore point and what Professor Wei points to as a damaging factor to the Hong Kong-China relationship. He said many Chinese buyers now shop directly in Japan for products they previously bought in Hong Kong.

If Australia puts up barriers, just like Hong Kong, the shoppers will look towards the US where there are underdeveloped opportunities, Professor Wei explained. For the moment Chinese interest in American milk powder is not as great as milk powder produced in other countries due to the quality, but that could easily change.

He said the current daigou boom couldn’t last, as they operated on small sizes and were difficult to scale, but would instead be replaced by businesses going to China or larger scale daigou style retailers.

“It’s already happening, this is part of economic development,” he said.

He said it was important that the Australian-Chinese economic relationship shifted beyond commodities and that the process was already underway. “People will find new venues, new sources of products,” he said.

In a panel talk before the interview, Professor Wei said Australia had done very well out of its relationship with China but that China too had benefitted greatly.

“The Australian education system adds a lot to Chinese society,” he said. “If we take a really broad picture then it becomes very clear that we all benefit from globalisation.”

Professor Wei said China was facing big demographic problems in the near future.

“The [Chinese] population has a huge impact on Chinese development,” he said. “The Chinese baby boom and bust is going to hit like a tsunami, maybe it’s too late to change.”

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