Iron ore exports to China are out while tech, consumer products, and biotech are in, says Australia’s peak trade organisation.

It’s a statement that will come as little surprise to small cap investors, who for the last three or four years have been following the trade in milk powder to China and latterly the rise of other foods and nutritional products.

Austrade export advisor Stan Roche underlined this trend during a talk to high net worth Chinese investors this week.

“China is optimising its economic structure,” he said at the AllFin conference.

“It means they’re not going to need a lot of iron ore and things dug out of the ground. It’s an economy that is moving towards services and consumption, but also tech too.”

The government body is picking tech as the area it will be promoting Australian companies in China.

“We as an organisation at Austrade will probably re-engineer what we’re doing and how we’re set up overseas, particular in China around creating teams specialised in internet services and technology. We see that trend as so important,” he said.

What China wants

The areas the Chinese government is specifically looking at are energy, environmental protection, biotech, new materials such as nanotech, ICT and industrial upgrading, advanced manufacturing, and new energy vehicles that can take on Tesla.

Small caps are almost the canaries of these trends.

Water services company Fluence (ASX:FLC) and water restorer Phoslock (ASX:PET) are heavily invested in China.

The latter has seen its share price rise 429 per cent in the last two years as its projects in China began ramping up.

In the electric vehicle space Altura Mining (ASX:AJM) is shipping lithium to China.

In health, Medical Developments International (ASX:MVP) is trying to get its non-opioid painkiller established in China, while others are starting to run clinical trials there, after the country shifted position to suggest that running trials might help with the drug registration process and commercialisation.

But for now the low-hanging fruit is the Chinese consumer.

China is shifting its economy towards consumption — already 80 per cent of GDP is centered around this, Mr Roche said.

From China-oriented freight forwarder Wiseway Logistics (ASX:WWG) to ‘diagou’ (which means to buy on behalf of) sellers like AuMaker (ASX:AU8) and food companies Food Revolution (ASX:FOD) and Clean Seas (ASX:CSS), consumer-focused small caps in Australia are still the way to access the ‘China story’ here.

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