Bob Carr's Sydney

Bob Carr's retirement in July was an excellent vantage point from which to survey Sydney's international standing. Carr left office in a different Sydney from the one in which he assumed it ten years ago. Despite all the media comment about wasted years and lost opportunities, the true measure of his achievement lies in comparing Sydney then and now. 

Paul Keating correctly remarked that Bob Carr found NSW an old manufacturing economy, and left it a modern, international service economy. A key feature of this transformation has been the explosion of small business growth in the services sector, and many Chinese migrants contributed to this trend. Over the last 20 years, the number of small businesses in NSW grew by an astonishing 68 per cent. NSW experienced a 3.5 per cent increase in the share of total employment belonging to small business, substantially higher than any other state.

In those same years, small business growth in NSW was 3.1 per cent a year, compared to 2.1 per cent a year for larger businesses. For example, the small business property services sector, which has been especially attractive to migrants from Asia and elsewhere, recorded astonishing growth of 6.4 per cent a year over these two decades.

Hence Sydney is the preferred place of settlement for enterprising newcomers, attracting almost 40 per cent of new arrivals between 1996 and 2001. According to the 2001 census, 57 percent of Australia's Chinese-born residents, around 180,000 people, live in Sydney. Chinese is now the second most spoken language in the city after English - the proportion of Sydney's population speaking Chinese at home increased from 3.9 per cent in 1991 to 6.0 per cent in 2001.

Clearly, NSW and Sydney in particular have been great places to start a small business. In fact, two-thirds of the state's small businesses are located in Sydney, which suggests some relationship with the world economy. To quote SGS Economics and Planning: “it should not be surprising that Sydney and NSW is home to the greatest small business activity (and the greatest relative recent growth in this sector) in Australia given the global orientation of its economy” (Sydney’s Economic Geography: Trends and Drivers, 2004).

Moreover, the settlement pattern of Chinese migrants bears comparison with the city's so-called "global arc corridor", the region most integrated with the global service economy. "The majority of people speaking Chinese at home were located in a band within 10 and 20 kilometres of the city centre", reports the ABS.

To a significant extent, this favourable small business environment relates to Bob Carr's financial prudence, a hallmark of his government. Expenditure restraint and the virtual elimination of government debt held state taxes and charges in line with inflation. Similarly, reforms to state water and power utilities have kept charges low for domestic and commercial consumers. One major cost to businesses, the state's $3.2 billion workers compensation deficit, was reduced by half.

Around 1 in 7 of Sydney's jobs are in the retail sector today, where so many Chinese make a prosperous living. Between 1996 and 2001, 36,000 new retail jobs were created. According to a 2002 report by WorkCover NSW, “for both male and female Chinese workers the largest industry employer was accommodation, cafes and restaurants with 13.8 per cent of men and 12.1 per cent of women working in this industry”. Their customers are just as likely to be overseas residents as locals, considering that Sydney Airport handles about 50 per cent of Australia's international air passengers. Sydney's successful economy draws commerce from all over the world, but Asia is increasingly important.

Indeed, when Bob Carr addressed the NSW Asia Business Advisory Council in November last year, he could boast that in  2003/2004 NSW firms exported $11.2 billion worth of merchandise to Asian countries, representing nearly 60 per cent of NSW exports worldwide. This, as much as anything, is part of his legacy.

Australia's relationship with China may currently be dominated by the export of resources, but it is set to enter a second phase in which the provision of services, linked to or independent from the resource boom, will be increasingly important. The Chinese speaking segment of Sydney’s population is strategically placed to drive this development. 

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The economic performance of NSW relative to other states is a hot media topic these days. Journalists cite the fact that over the last year, full-time employment in NSW grew by just 1 per cent compared to 6 per cent in Queensland and 6.6 per cent in Western Australia. The blame is usually laid at the feet of the NSW Labor Government for ten years of “inaction and evasion”. Needless to say, they forget that until recently the state was described as Australia’s jobs powerhouse.

In fact the state’s recent performance relative to the rest of the country owes less to government failures and more to the same long-term structural developments that fuelled the powerhouse.

Some urban theorists propose that in the wake of globalisation, our state capital cities share in a “division of labour” corresponding to their distinct roles in the national economy. For instance SGS Economics & Planning, in their authoritative report Sydney’s Economic Geography: Trends and Drivers (June 2004), describe an emerging “system” of cities in Australia.

According to SGS, “Sydney plays the major role in the national economy for advanced services dominated by advanced services in finance, insurance, and business services”. SGS sees “Melbourne’s major role as the manufacturing powerhouse of the economy …” On the other hand, “Brisbane is the ‘other services’ city dominated by the transport sector including ‘rail transport’, ‘air and space transport’, and ‘services to transport’ with relatively high manufacturing specialisation”.

Turning to the west, “Perth is the primary industry capital, continuing to specialise highly in ‘oil and gas extraction’ and ‘services to the mining industry’ but also in a number of other services such as ‘other transport’”. Finally, “Adelaide is best described along a ‘manufacturing-other services’ axis given high specialisms in manufacturing sectors such as ‘machinery and equipment’ and ‘other manufacturing’, and service sectors such as health”.

Sydney’s rise to global status owes much to the city’s emergence as the nucleus of our new international service economy. If the roles assigned by SGS are valid, however, Australia’s recent dependence on China's voracious appetite for our mineral resources has inevitable consequences.

Cities and regions whose economic specialisation relates to mining and associated activities (such as transport) are booming. We are now sending a massive $12 billion worth of exports to China, mostly commodities. But mining accounts for only 2 per cent of NSW income, compared to 8 per cent for Queensland and a whopping 20 per cent for Western Australia. Hence the diverging employment figures. China's meteoric rise is distorting growth patterns across the country, which transcends the quality of state government performance.

Nonetheless, the Chinese economy is starting to stir in sectors other than heavy industry. One significant development on the horizon is the privatisation of China's financial services sector, particularly banking. As China specialist David Hale points out, “one of the greatest challenges China must confront before the World Trade Organisation treaty comes into force in 2007 is to prepare the country’s banking system for privatisation and competition with foreign banks”. This may be described as China's next economic revolution. Hale is confident that “in the next business cycle, China's banks will be privately owned for the first time since 1949”.

In fact, the Chinese government’s State Asset Supervision and Administration Committee (SASAC) has begun to coordinate the entry of private equity into state-owned enterprises (SOE’s) across all industry sectors, not just finance.

This tectonic shift will offer immense opportunities to Australia’s financial services industry, on the back of the current export boom or otherwise. When this happens, it is to be expected that NSW and Sydney, hub of the nation’s “finance, insurance and business services” sector, will once again come into their own.

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China as a population of 1.3 billion people. What would happen if, in time, Sydney became a major tourist destination for increasing numbers of them? This is a big question that calls for a big answer.

The economic context of Chinese-sourced tourism is increasingly well known. Having grown at the rate of 7 to 9 per cent over the last decade, last year China achieved the milestone of $US1000 GDP per head, described by Business Review Weekly as "a crucial turning point for developing economies". China has experienced annual bank loan growth of almost 16 per cent per year and deposit growth of 19 per cent a year. Lending to consumers has increased 123 times to more than 2 trillion yuan ($US 250 billion) over the last 7 years. Other statistics confirm that many Chinese consumers are joining the affluent ranks of their western counterparts. Businessweek magazine recently pointed out that this year China's passenger car market is expected to reach 3 million, third largest in the world. China already has the world's largest base of cell-phone subscribers (350 million), which is expected to approach 600 million by 2009. It is inevitable that Chinese consumers will also come to spend a growing proportion of their rising incomes on travel.

The World Tourism Organisation predicts that there will be 100 million outbound tourists from China annually by 2020. Since 1997 the Chinese government has nominated 76 "approved destinations" for group travel and Australia was one of the first to be granted that status, back in 1998. Bilateral travel arrangements between the Australian and Chinese governments with respect to travel continue to improve. A deal signed this past October will mean an extra 855 million Chinese will have access to the approved destination status (ADS) scheme (six more source regions added to Beijing, Shanghai and Guandong). This comes at the end of an already solid period of growth in Chinese visitors to Australia, which doubled to 251,000 in the short period from 2000 to (October) 2005. Tourism Australia estimates the total for this year will be 315,000.

The growth rate is impressive. The number of visitors in September this year was 16 per cent higher than for the same month last year. By comparison, the year on year growth of visitors from the United States was only around 4 per cent. The Tourism Forecasting Committee predicts that by 2014 the number of Chinese visitors will hit a staggering 1.2 million per year. Since Sydney was the most visited destination in Australia for Chinese tourists last year (72 per cent, followed by 48 per sent for Melbourne and 32 per cent for the Gold Coast), the implications for the city are substantial.

Yet some in the tourism industry are sober about such forecasts due to the perception that Chinese just aren't big spenders. However, The Australian Financial Review recently reported that while Chinese tourists spend considerably less than other nationalities on accommodation and restaurants, they are prodigious shoppers, spending up to 80 per cent more than Japanese. Recently announced reforms to the ADS will hopefully discourage the practice of travel operators subsidising lower quality accommodation with commissions paid by favoured retailers. In any event, the rate of wealth accumulation in China is so dynamic that past experience is a poor guide to future outcomes.

So the impact of Chinese tourism on Sydney is potentially huge. What is being done to facilitate this? The State Government's Towards 2020 - NSW Tourism Masterplan is premised on a forecasted 3.7 per cent growth in foreign sourced visitors to Sydney between 2001 and 2020, from 2.58 million to 5.11 million. There is every chance, however, that this projection from 2002 represents a serious underestimate. Just consider the more recent figures on Chinese travel cited above. The government may not be planning on the right scale in terms of public spending and private investment to develop the accommodation, retail and transport infrastructure needed to absorb the influx. Arguably, the plan should be reviewed and coordinated with the government's progress on its Sydney Metropolitan Strategy.

Moreover, in some ways the Masterplan is a rather unimaginative document. While it makes much of fashionable concerns about environmental or ecological sustainability, it says nothing about exploiting Sydney's ethnic diversity to cultivate particular tourist markets. For instance, there is enormous potential to leverage off Sydney's 180,000 strong Chinese speaking community (6 per cent of the city's population) to create a network of services delivering a quality experience to Chinese visitors. A significant proportion of Sydney's Chinese are already engaged in the hospitality industry, as a 2002 report by WorkCover NSW pointed out: "for both male and female Chinese workers the largest industry employer was accommodation, cafes and restaurants with 13.8 per cent of men and 12.1 per cent of women working in this industry". Why not integrate these resources and other tourism related industries more strategically?

Nevertheless, given Sydney's beauty, affluence and stability, and China's relative proximity, the relationship can't go far wrong.

 
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