While the world’s financial markets teeter on the abyss created by falling credit-worthiness of several major countries, the situation has the populous cowering and expecting the worst. Now more than ever, this country needs the relatively new and narrow trading dependence on China to stay strong.
A China fact sheet sitting on the DFAT website shows just how large but narrow that relationship is - and where it has quickly come from. China is now Australia’s largest export customer, responsible for a quarter of all merchandise exports in 2010, while they are our also biggest supplier of imports, with nearly 20% of that share. The usual suspects of clothing, computers and phones (and their associated bits) and toys head that list. Imports are growing as the hunger for cheaper goods driven by bargain-hunting consumers and a strong $A pulled in more products.
It’s the exposure to minerals, iron ore in particular which alone speaks for 60% of the value of exports that stands out in the numbers. We’ve got here very quickly. We didn’t have a trade surplus with China until sometime in 2008/09 when the value of exports first passed imports. A few short years later, exports are now 50% greater in value than imports, and in 2010 grew at almost 40% in value due to the surge in shipments of iron ore.
The Western Australian iron ore quarry shipped more than 400 million tonnes of iron ore offshore last year. China took a staggering 70% of that volume. The base of natural resource exports won’t change too quickly but it will broaden in future years. China would probably like to have more of our coal, which went from a little more than nothing to 4 million tonnes in the short space of a couple of years. The two countries have signed up a $50billion natural gas project that sees a lot of capital being plowed into north-west Australia, but actual export dollars won’t flow on that and other big gas export projects for several years.
Are there risks? The economic power base of the world has firmly shifted to China, not only due to its massively expanding consumer demand, but also given that it is now the effective banker to many, albeit now with added risk due to sliding credit ratings. China has a few internal challenges of its own to digest – inflation is a key one of those.
It is fantastic that we get to ride that coattail – it is probably the best option we have compared to that if we’d staked all our belief in the “special relationship” with the broken and battered United States.
In the meantime the ill wind of recession that endangers stable recovery in the US and many parts of Europe may threaten China’s own growth train. A large part of China’s growth miracle has been due to its role as a low-cost factory for the western world – steel (consuming iron ore and coal) being one of the key products in question, but consumer goods exports are generally at risk.
We’d like more out of the relationship. Australian negotiators have been grinding away for more than 6 years in negotiations over a free trade agreement, while others (such as New Zealand) brokered one seemingly in a flash. Maybe we keep mentioning “human rights” too often in official talks and websites for a broader deal to be a higher priority for our most important customer.
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