Article:

Welcome to 2020 Year of the Rat – Looking into the crystal ball with a rear view mirror

23 January 2020

Dennis Lin , Strategic Adviser – M&A and China |

25 January, 2020 marks Chinese New Year, and the beginning of the 60 year zodiac cycle with the metal rat. It signifies creativity, which can also reflect a trial and error process before one gets to a sustainable winning combination.

60 years ago, or the beginning of the previous cycle, JFK became the youngest President of the USA, and 3,500 US troops were sent to Vietnam. In Australia, we were in the middle of the second Menzies Office that dealt with post war issues, and balancing the ANZUS treaty while maintaining ‘good neighbour terms’ and initiating the Colombo Plan. It was also a time when baby boomers became more vocal through large-scale protests against institutions and advocating for change.

It is always insightful to learn from history and seeing commonalities in dealing with issues of today. As we move into 2020, the Chinese business community is prepared for:

  • A long winter of trade relations between China, USA and rest of the world where uncertainty continues to reign
  • An arms-free war that involves economical arm-wrestling founded on technological advances
  • Continued domestic cash shortage with challenging asset conversion opportunities.

At the same time, transition of family businesses is gaining momentum. Baby-boomer entrepreneurs, who came from villages and built impressive empires that came with the excesses, are now focused on their own wellness and higher desires, as they pass the baton to their well-educated children who are eager to stamp their mark having gained global perspectives. This aligns with the Chinese Government’s desire to show the world a soft superpower that is willing to consume and restore some form of trade balance, and not a repeat of 1900 (beginning of another zodiac cycle) when, despite opium trade, China still had an unhealthy deposit of silver thanks to demand of its goods including silk, tea and porcelain.

In summary:

  • China will continue to trade with Australia on its staples and commodities, while a higher quota of those goods, or free trade/market access on discretionary products will require improvement in government relations for Australia to be higher on the priority policy list – this requires very delicate handling between both governments
  • There remains ample opportunity to work with family offices and second generation business owners, who have more global perspectives and therefore less cultural obstacles
  • Cash will continue to be a challenge in China, and any transaction will require high visibility to the underlying execution risks.

In Chinese, ‘crisis’ translates to two characters that respectively mean ‘danger’ and ‘opportunity’.  This will continue to be a theme in 2020, when one will no longer be able to simply ride the wave.  Meticulous planning that includes agility to respond to black swan events (with much metal rat creativity) will be the winning formula.