Just as China’s industrialisation helped reshape our economy, the Asian giant’s move toward consumer-led growth is challenging it anew.
Chinese demand for food and energy will only partly offset slowing growth in iron ore exports that funnelled cash here for more than a decade, according to the RBA. That means the economy must find new growth drivers at a time when cooling housing market and a resurgent currency compound difficulties posed by the slowdown in the nation’s biggest trading partner.
RBA Governor Glenn Stevens acknowledged last week it’s impossible to know how China’s transition will unfold, given nothing on the scale has been tried before. His comments signalled the risks ahead for Australia, the economy most dependent on China in the developed world. Minutes from the RBA’s March 1 board meeting — where interest rates were kept at a record low 2 per cent — showed a bigger chunk of policy makers’ time was spent discussing China.
“The Australian economy at the moment is being buoyed by the confidence that comes from extraordinarily low interest rates driving up asset prices,” said Andrew Charlton, director of consultancy AlphaBeta in Sydney and one-time adviser to former Prime Minister Kevin Rudd.
The housing boom and wealth creation “have been temporary policy stimulus holding up what will be a long-term negative impact of the changing Chinese economy on Australia.”
High stakes
The stakes are high, with China accounting for about a third of Australia’s trade and accounting for about 5 per cent of the gross domestic product.
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