China free trade agreement negotiations at APEC: What it means for small businesses

With the federal government believed to be negotiating a free trade agreement (FTA) with China during the APEC Summit, leading trade experts say an agreement will mean more opportunities and lower costs for small businesses looking at the Chinese market.

But while the details of the agreement remain under wraps, the experts warn other challenges will remain for companies seeking to do business in China.

The negotiations with China follow the signing of the Korea-Australia Free Trade Agreement earlier this year.

Executive director of the Institute for International Trade at the University of Adelaide, David Morfesi, told SmartCompany it is likely an agreement will be reached with China sooner rather than later.

“The political will is now that it’s not a matter of if there’s an agreement with China, it’s when. It could be this week, it could be next week or it could be by the end of the year,” Morfesi says.

“The big problem with getting a free trade agreement is perception. A lot of people don’t understand that trade with China isn’t coming, it’s already here – and the sky isn’t falling. So this agreement is about maximising that relationship.”

“China is our biggest trading partner, it makes a lot of sense to cut costs with our biggest customer. For small businesses, this means lowering the cost of doing business with a wider array of opportunities for more businesses.”

According to Morfesi, reducing the costs of imports from China is likely to be as important to small businesses as encouraging more exports to China.

“In the global economy today, countries have to think about being a good exporter, and you have to be a good importer to be a good exporter,” he says.

“If you go to a supermarket and pick up a can of food that says ‘made in Australia from domestic and imported ingredients’, that’s a product that would not be competitive to make without imports.”

“So we need low cost imports to be competitive in both our domestic and export products.”

Meanwhile, Jane Qiu, senior lecturer in international business at UNSW’s Business School, told SmartCompany there are likely to be two key parts to the agreement.

“Signing the FTA means cutting cost barriers and tariffs, perhaps over time. The other half is intangible – for example, with customs procedures and regulations. This includes in areas relating to national security, including the agricultural sector,” Qiu says.

“A sensitive area is Chinese investment in Australia, especially from state enterprises. However, the costs of exports will be lower, making it a lot easier to do business.”

According to Qiu, lower costs of exports and greater access to the Chinese market will benefit for the two main trade areas for small business – consumer products and services.

“Small businesses are sensitive to bureaucracy, so if customs procedures are simplified, that makes it a lot of easier for businesses,” Qiu says.

“Australian consumer products have a good reputation in China. Being Australian made is a big plus because it means being healthy and natural. The big areas to benefit in consumer products will be food, health products and cosmetic products.”

“The other area is services. There’s an increase in safety and increasing workplace safety is a big government focus at the moment. Australian companies have a good reputation in this area.”

However, both Qiu and Morfesi warn while a free trade agreement is likely to reduce barriers and costs, it is still essential for businesses hoping to trade with China to be aware of local business, cultural and relationship issues.

Qiu stresses the importance of understanding risks and the need to learn about the local payment culture in advance.

“The problem is that it’s not just 1.3 billion people waiting for your product. There are clusters and differences between cities, so businesses will have to target niches. And the competition is going to be tough from around the world.

Qiu suggests online marketplace Alibaba and Chinese social media giant WeChat as good places to start for Australian businesses.

Follow SmartCompany on Facebook, LinkedIn and Twitter.