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China well on top of trade negotiations says Australian business

Sydney - March 4, 2013 – An overwhelming majority of Australian importers and exporters believe that when negotiating trade and finance issues with Chinese buyers and suppliers, the Chinese are in the stronger negotiating position. The second round of the quarterly Citi Australian Trade Finance Index found that five out of six exporters and importers with a view on the subject believe that the balance of power in trade and finance negotiations lay with China.

The research, conducted by East & Partners for Citi, showed that of the more than half of respondents with a view, 83 percent believe China had the upper hand when negotiating on trade, while 17 percent said it lay with Australia. There was no statistical variance in the result from importers and exporters.

The Australia-China bilateral trade relationship was worth $120 billion in 2011-12, comprising $77 billion in exports and $43 billion in imports according to the Department of Foreign Affairs and Trade. China supplanted Japan as Australia’s biggest trading partner in 2007, and bilateral Australia-China trade broke through the $100 billion barrier for the first time in 2011.

Ashley Bakes, Citi’s Senior Vice President of Treasury & Trade Solutions in Australia, said that the results clearly showed China’s power as a price maker when both buying and selling. “It comes as no surprise that our exporters are highly reliant on Chinese demand in areas such as resources and agriculture and China is setting the price. Our importers, however, are also price takers. Chinese manufacturing now dominates areas such as electronics, computers, clothes and furniture because they are competitively priced. Without competition from other countries we are becoming increasingly dependent on China and this has shifted perceptions on the balance of power.”

Importers continue to expect trading volumes to increase on strong A$

The second round of the Citi Australian Trade Finance Index also confirmed trends identified in the first round released in November, with exporters continuing to forecast lower trading volumes in the quarter to April 30 2013, while importers continued to forecast increased volumes. The gap has widened in this second survey.

In this round, exporters forecast a 3.0 percent decline in trading volumes in the three months to 30 April, 2013, with importers expecting a 6.9 percent increase. The results in the first round were a 2.6 decline percent for exporters, and a 6.2 percent increase for importers.

The exception continues to be in organisations with A$500 million or more in annual turnover, the institutional business sector, where exporting respondents expected a 4.7 percent increase in volumes, up from 4.4 percent in the prior quarter. Within this sector, the Metals and Mining sector is anticipating a 9.5 percent increase in trade volumes, up from 8.3 percent in the prior quarter.

“Business sentiment for larger exporters appears to be improving as global growth improves, but it’s early days and has yet to extend to smaller exporters and importers”, said Ashley Bakes.

Large IMM exporters go against trend and expect to raise prices

The disparity in pricing intentions identified in the first round was also confirmed and largely unchanged, with exporters saying they expected to reduce their pricing by 4.9 percent over the next quarter while importers were anticipating a 4.2 percent increase. Within these results, Industrials Metals and Mining exporters went against the trend, expecting to increase their prices during the upcoming quarter.

In other findings:

  • Engagement with the Chinese currency CNY continues to gather momentum. Respondents expected their CNY volumes to growth 18.0 percent in the next quarter, compared with a 15.9 percent rise in the first round.
  • The CNY results compare with an 8.3 percent forecast increase in the USD, compared with 7.1 percent in round one.
  • Engagement with the NZ$ and trade with NZ continues to be important. NZ$ volumes were expected to grow by 7.1 percent in the next quarter, and NZ/Oceania was the top ranked export destination, nominated by 65.2 percent of respondents, ahead of China on 60.7 percent.
  • The Asia-Pacific region continues to be the focus for exporters, with respondents expecting greater volumes to all of the regional markets – India, South Korea, the Rest of Asia, China and NZ/Oceania – while the scores for Africa, United States, Eastern Europe and Western Europe all fell.

Commenting on the results, Citi’s Ashley Bakes said the index clearly illustrated some key trends for Australian businesses trading offshore. “Businesses are still adjusting to the continuing high dollar environment with inverse results for exporters and importers and that process is ongoing,” he said.

“The fact that exporters are still forecasting lower volumes and anticipating cutting their pricing shows that they are still very much under pressure, while importers are enjoying improved trade flows and are taking advantage of demand with plans to increase pricing.

“The index also underlines Australia’s continued engagement with China and the region, but clearly our businesses feel that they are price takers, rather than price makers.”



About the Citi Australian Trade Finance Index
Owners of the trade finance relationship in 864 corporates were interviewed in January 2013, with majority of them either Corporate or Group Treasurers (46.5 percent) or Trade Officers (41.0 percent). Of the sample, 30.8 percent were from the SME segments (A$25-A$150 million annual turnover), 33.9 percent were corporates (A$150-A$500 million) and 35.3 percent were institutions with annual turnover of more than A$500 million. For a complete understanding of the survey results, please refer to the full report. Citi is not responsible for any losses arising from the usage of the information contained or extracted from the report.

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About Citi
Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citi provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management. In Australia, Citi serves over 1 million customer accounts and 1,000 corporate accounts. It has the most comprehensive offering and largest global reach of any bank with operations in Australia. Additional information may be found at www.citigroup.com | Twitter: @Citi | YouTube: www.youtube.com/citi | Blog: http://new.citi.com | Facebook: www.facebook.com/citi or www.facebook.com/citibankaustralia | LinkedIn: www.linkedin.com/company/citi

About Citi Transaction Services
Citi Transaction Services, a division of Citi’s Institutional Clients Group, offers integrated cash management, trade, and securities and fund services to multinational corporations, financial institutions and public sector organizations around the world. With a network that spans more than 95 countries, Citi’s Transaction Services supports over 65,000 clients. As of the fourth quarter of 2012, it held on average $428 billion in liability balances and $13.2 trillion in assets under custody.

About East & Partners
East & Partners is Asia-Pacific’s leading specialist business banking market research and analysis firm. East & Partners delivers both bespoke and multi-client research programs and consulting services to client banks and financial services providers across the institutional, corporate, SME, business, investment and financial services markets.