The impact of China’s continuing growth on the Eyre Peninsula Sean Keenihan, Chairman of Partners 24 February 2014

Presentation Overview Discussion 3 years ago about how EP’s future prosperity linked to China Since then we have seen a lot of change – globally and more specifically in China and Australia Were we on the right track 3 years ago? Does LG have a role supporting engagement with China

EPLGA Conference At the EPLGA Conference in 2011 we talked about – Compelling story in China that entitles big thinking about Eyre Peninsula’s future Australia’s economic prosperity is linked to China’s economic growth and transformation China’s and Australia’s economies are highly complementary – Australia has what China needs to fuel and sustain its continuing growth EP is one of SA’s most productive regions – highly export oriented and has what China wants to sustain its growth and economic transformation

EPLGA Conference – 2011 (cont) EP would benefit from China’s demand for resources, agribusiness products and tourism Despite tough times ahead Australia’s and SA’s trade with China would continue to surge More Chinese companies would be seeking investment beyond resources into agribusiness and other industries EP needed to think big and boldly about engagement with China to secure markets and investment dollars that support key EP industries

So what has happened in the last 3 years?

Change in the landscape – China perspective In China: Change in China’s senior leadership – once in a decade event China has embarked on a new growth model – consumption driven growth and an increased focus on private sector participation in the economy Restructuring of China’s state owned enterprises Analysis of outbound investment thinking and strategies Overhaul of China’s financial system Bilateral relationship with Australia upgraded

Change in the landscape – Australia and SA In Australia and SA: Challenges in traditional manufacturing sector Sustained high AUD$ and associated challenges for agri sector Less favourable global mineral/commodity prices impacted resources sector’s growth More and different industries increasingly looking to understand how China might be an opportunity for them – export, import, investment More business groups and industry sectors and all tiers of government openly engaged around China increasingly strengthening that engagement SA has a strategy for engagement with China

Where do we stand in 2014

Where we are at now Despite economic headwinds SA goods exports to China up 30% in 2013 China is SA’s largest 2-way trading partner by considerable margin - 24% of SA’s exports go to China Chinese tourist numbers up 47% in 2013 – outspent all other tourists – outspent US tourists 2:1 and Europeans 3:1 Over 40% of SA’s overseas students are Chinese More and broader Chinese interest in investment in SA – private sector investment and business migrant investment

China slowdown? Year$GDP% GDP GrowthReal GDP Growth ($) 2008$4.5 trillion10%$450 bn 2013$8.2 trillion7.7%$630 bn

SA China Engagement Strategy One year into SA’s China Engagement Strategy Big opportunity that demands a planned approach. By strengthening our partnership with China now, we will provide future opportunities for our businesses to grow as China grows. The essence of the Strategy can be summarised as follows: Developing the SA value proposition Building platforms for engagement Getting business ready to engage Resourcing government to better coordinate and support this engagement

Shandong – SA’s sister state #3 China Provincial GDP 90x larger than SA GDP 2013 GDP US$890 billion Similar size to Indonesian economy Growth rate 9.8% in 2012

Rise of China’s middle class China’s growth a key driver of Asia’s burgeoning middle class It will be lumpy but we will see a transformation into a voracious middle class consumer market right on our doorstep Sustained growth driven by continued urbanisation and substantial capacity for improved productivity and efficiency Continued outbound foreign investment Not without significant challenges and risk but consensus is China’s rise will continue and this middle class will emerge

Rise of China’s middle class (cont)  Source: Peter Drysdale

What this means for the EP Continuing demand for resources to fuel China’s growth Continuing demand for agribusiness commodities to feed China Increasing demand for premium, clean food and wine demanded by middle classes Emerging and growing market for premium seafood Growing tourist demographic from China seeking food, wine and nature experience Growing interest by Chinese companies in trading and/or investing directly with EP businesses in these growth industries

The Agribusiness Landscape in China China’s rising middle class is driving demand for agribusiness products China is now the world’s largest food importer Middle class diet is replacing plant protein with animal protein China’s food industry plagued by scandal and poor reputation Australia’s reputation for food safety and quality assurance a big plus. Competition is fierce – our stocks of supply are limited – South Australia must compete on value – not price

Competition is stiff This won’t just fall in our lap – the whole world wants the Chinese market How do we differentiate our product and selling proposition? Strategically promote and place our product – position for sustainable long term markets Challenged by : High Australian dollar and tariff barriers Scale Two-way knowledge and capability gap

Common stumbling blocks - broadly Language – effective communication Different business culture - interpersonal and government interface Lack of understanding of local issues that dictate value and impact production costs and outcomes Unfamiliar with the business and regulatory environment in which product and projects are developed and delivered in SA Relatively high cost of doing business relative to our competitors We must compete on value – not price – and leverage relationships and platforms that underpin our value proposition

The role of LG Challenge of scale for SA businesses engaging with China Growth opportunity for SA businesses likely to be in second and third tier cities Interlinked nature of government and business in China Fundamental role of Government in establishing frameworks for business engagement with C hina

The role of LG (cont) Small business needs assistance dealing in a new business environment LG sector the right tier of government to support entry to 2 nd and 3 rd tier markets Legitimate role – refer the SA China Strategy Councils have a crucial role to play in supporting business engagement with China

Specifically… Capitalising on Federal and State platforms to establish B2B engagement frameworks in 2 nd and 3 rd tier markets Show support for business in its engagement with Chinese counterparts Facilitate China literacy and business education for local business Nurture a supporting environment for greater cultural and people to people links

What we will see in the short term in SA More Chinese students and parents, skilled, business and family reunion migrants, tourists in SA Chinese FDI will continue – resources, agribusiness and property Greater trade volumes with China as its economy grows and middle class consumers change buying patterns More activity from SA Government and SA industry bodies who have an important leadership role in China engagement Councils more active and hands on in supporting business engagement with China Increased prosperity for SA businesses through grasping the China opportunity

When opportunity knocks, grab it

3 years later….. Give the nature of China’s growth, China’s impact on EP could be profound Opportunity is growing each year - real and present As China’s second and third tier cities and markets grow, can LG assist business to grow with those markets ‘How’, ‘where’ and ‘what are the challenges’ – a separate discussion SA has a strategy – and it’s working – good starting point