Feeding The Dragon

// Feeding The Dragon

Feeding the Dragon

Australia and China: Trying Not to Get Burnt

By Jeff Robson
China’s economic appetite is voracious. And its rise as a political and economic power is ferocious.
China has remained on a relentless period of growth in the last decade. As more and more of its vast rural population migrates to urban areas, seeking the comfort of a middle class lifestyle, construction projects continue to boom. Whether it’s homes for the aspirational, or colossal government-funded infrastructure projects, the demand for raw materials is vast.

And raw materials are something we have in abundance. The world’s second largest economy needs our resources, and we’re only too happy to profit from this boom.

The Australian economy is now dominated by the resources sector (particularly good for us here in WA and the Northern Territories). Next year, commodity exports are expected to rise to $251 billion, up nearly 14% on 2011.

The premier of Western Australia, Colin Barnett, attributes China’s hunger for natural resources as ‘‘probably the single biggest factor’’ behind our region’s strong performance during the financial meltdown of 2008.

But will China’s growth continue?
Since it joined the World Trade Organisation (WTO) in 2001, China’s dollar GDP has quadrupled and its exports nearly quintupled. In fact, its growth has been faster in the last 10 years than many economists expected. Around 2014, it is even expected to overtake America as the world’s largest importer of goods.

But, with that said, China has not avoided the current financial malaise. And that may have serious repercussions for us here in Australia. Emerging-market growth has quickly moved from sizzling hot early in the year, to lukewarm as 2011 closes. Chinese factory activity has actually declined in recent weeks.

For now, though, things still look promising. Leading experts think that the earliest the current commodities boom will end is 2014 (and that’s being pessimistic). That gives us some time (and hopefully a significant surplus) with which to prepare for any rainy days ahead.

Australia, China and America: a political storm approaches

It’s interesting to think that back in the 60s and 70s, China was perceived primarily as a threat. Now it’s our principal trading partner.

And, inevitably, the diplomatic relationship has become more complex, especially when you consider our close ties to America. You may have noticed that America and China have a little competition going on for global dominance.

In recent months American sentiment toward China has turned negative, with a majority of Americans believing China’s success is detrimental to its own. Surely the exact opposite would be true of public opinion here.

American opposition stems in large part from China’s controversial currency regime. By artificially holding down its exchange rate (allege the critics) it has gained a substitute for some of the concessions it had to make to join the WTO (relaxing over 7,000 tariffs and other trade barriers).

So China’s inevitable rise to superpower status, to sit alongside America, will cause unprecedented diplomatic problems for Australia. China has fast become a global economic powerhouse that is so far from the international norms of social and political organisation, that we’d be wise to approach with caution.

As this economic and political creature, just like the mythical dragon itself, is something we’ve never seen before.

2017-03-08T03:54:04+00:00 Financial Modelling|