A Bull in a China Shop?

For many years, and certainly since I arrived in Sydney from Hong Kong in 1995, I have laboured under the assumption that Australia’s financial services capabilities can, should and will be exported to Asia.  I have led many study tours and delegations, organised many events and business matching activities, and worked with individual companies to explore their market entry options. I have to say that I have not been very successful! This remains an area of “unfinished business” as far as I am concerned, and still very much a ‘work in progress’.

When I talk about “exporting our capabilities”, I’m not talking about selling existing funds management products to Asian investors. Asians are not particularly interested in investing in Australian funds for a variety of tax, investment, regulatory and other reasons. Australia still represents only a small share of global GDP and, more importantly, a tiny share of MSCI, and Asian investors who don’t want to live in Australia only invest here to get exposure to hard and soft commodities, precious metals and, on occasions, a higher yield from a strong Australian dollar. And don’t get me started on tax…I’ve never understood why Australian Governments persist with a tax regime which seeks to collect tax from foreign investors (who pay very low levels of tax if they live in Asian countries) on their holdings in Australia. Try explaining that to an Asian investor!

No, when I talk about “exporting our capabilities”, I’m talking about the detailed, complex and gruelling work that goes into designing, promoting, managing and administering financial services products which have been developed for a particular purpose and/or market. In Australia’s case, financial products are not designed simply to generate a return on investment. Our unique tax, superannuation and social security regime means that we have to jump through myriad and complex layers of regulation, legislation and industry practice to offer products to somewhat reluctant and apathetic consumers. A highly sophisticated product offered by a world class industry to a reluctant consumer.

What if we could offer a sophisticated product to millions of highly engaged and investment savvy Asian consumers?? Wouldn’t this be worth a shot??

Whilst past Australian Governments have talked about the massive opportunity to export our financial services capabilities in Asia, this current one has moved the debate forward by including “financial services” as part of the negotiation for Free Trade Agreements. According to Austrade, The China-Australia Free Trade Agreement (ChAFTA) “secures a range of unprecedented financial services commitments from China. These commitments represent the most substantial market access commitments China has agreed with any FTA partner (other than in its agreements with Hong Kong and Macau) and create new commercial opportunities for Australian banks, insurers and securities firms. They will facilitate deeper participation by Australian financial institutions in China, strengthen financial services trade and investment in both directions and enable future growth in the bilateral economic relationship as a whole.”

The Agreement goes on to spell out a wide range of measures designed to provide improved access for Australian financial services companies operating in the areas of banking, finance, funds management, securities and insurance, aswell as a commitment to review bilateral tax arrangements and the introduction of double taxation agreements.

Will any of this make any difference?

Australia’s financial services industry is relatively stable, profitable and comfortable. The mandatory superannuation system ensures a steady stream of new funds into the industry each year, and Australia’s “four pillars” framework ensures that our major banks are, to some extent, protected from competitive pressures from foreign banks.

As Australia’s largest industry, the financial services and insurance sector accounts for over 10% of GDP, grows on average by 6% per annum and employs over 400,000 people. Is there any need or incentive to risk our domestic business by attempting to compete in Asia? Wouldn’t we better to protect our existing business and make it even harder for foreign players to compete in Australia? And build “Fortress Australia”?!

It probably won’t surprise you to hear that I would have to leave the country if this were to happen!! We owe it to the world, if not to future generations of Australians, to internationalise our financial services sector to truly compete on the global stage. If we believe our financial system is ‘world class’, as many of us do, let’s tear down all the barriers, allow all players (local and foreign, including the banks) to compete on equal terms and challenge ourselves to be the best we can be? Wouldn’t it be more satisfying to compete on the international stage? To win the world cup for financial services?

I have often been called “A Bull in a China Shop” when it comes to my views on Australia’s potential as a global financial services player, with China as our launching pad.

Am I really that crazy to think this could be possible?