To deal effectively with China, it is best for Papua New Guinea and the Pacific to target its second-tier cities, David Thomas, Chief Executive of Think Global Consulting, told the Business Advantage Papua New Guinea Investment Conference in Sydney. He said the country’s GDP and middle class will double in the next decade, offering enormous opportunities for those who are ‘China-ready’.

Thomas said the economic rise of China is changing the balance of economic power in the world. He expects the BRIC countries (Brazil, Russia, India and China) to take on a greater leadership role.

‘China is already a big economy, the second biggest in the world—so doubling again is pretty significant,’ he said, adding that there will also be changes within the country,

China expert David Thomas. Source: Business Advantage International

‘There are currently about 300 million people in China who are defined as middle class. These are people who can now afford plasma televisions, who can eat different types of food, who can afford foreign holidays and buy foreign properties.

‘In the next 10 years, the middle class will double to 600 million and, 10 years after that, the middle class will be 900 million.’

China’s One Belt One Road initiative. Source: Hong Kong Trade Development Council

Plans

Thomas says China typically boosts its economy by implementing Five Year plans. In about 90 per cent of cases, he said its leadership has met its milestones.

‘China will build the One Belt One Road [see illustration above]. I am pretty confident that is not just a pipe dream invented by Chinese bureaucrats. It is President Xi’s No.1 priority.

‘Build those links. They love government-to-government type relationships.’

‘China is an unusual country because it generally sets a plan, usually five years. They set a whole lot of goals and milestones and ideas.

‘They put it into a document that gets debated throughout the country and then they launch it. Generally, when they say they are going to do something they do it. Which is quite unusual by Western standards.’

Sister cities

Thomas says the target for business people and governments should be second tier cities like Chonqing, Chengdu, Wuhan and Changsha.

‘Build those links. They love government-to-government type relationships.

‘Every Pacific island needs to be building those sister city and provincial relationships.’

Thomas says the Chinese have three current priorities: ‘going out’ (investing internationally), ‘going West’ (building up cities in central and Western China) and ‘going green’.

China’s outbound foreign direct investment is increasing. Source: Think Global

Investment

Thomas said China’s initial spate of foreign investments were targeted at the resources sector, in part to ensure energy security. The next phase, he said, will be to ensure food security. Tourism will also be a burgeoning sector.

‘We have Air Niugini flying to Shanghai. We are going to see huge opportunity in tourism.

‘The Chinese believe the island states in the Pacific have ‘strategic value’.’

‘China tends to think in 10, 20, 30 year cycles and they are always thinking where they can turn the tap on and turn the tap off.

‘It is a very deliberate way of achieving the growth and results they want.’

Strategic

According to recent research by the Economist Intelligence Unit (EIU), the Chinese believe the island states in the Pacific have ‘strategic value’. The relationship with PNG is viewed as a  ‘stabilising force’.

PNG accounts for only 1 per cent of China’s overseas direct investment (ODI) in Oceania, but it represents 10 per cent of China’s overseas direct investment in construction.

Chinese investment has to date focused on ports and, more recently, roads. The EIU claims PNG’s lack of electricity is viewed as an opportunity by Chinese investors, rather than as a risk. It notes that there has been significant hydro investment from Shenzhen.

The EIU report suggests Chinese investment in agriculture may prove to be the ‘third wave’.

Only five countries have more than 200 million square kilometres, more than 100 million people and GDP greater than US$600 billion. Source: Think Global