Australia’s fortunes are linked to China’s economy

Australia’s dependence on Chinese money has been a blessing for the local economy, but it could unravel painfully if China’s economic slowdown worsens.

Given that China is the world’s second-largest economy, its slowdown is expected to have a ripple effect across the world.

A third of Australia’s exports are shipped to China, meaning any shockwaves from Beijing will be felt particularly sharply in the lucky country.

In recent months, China’s economy has taken a beating as a consequence of its ongoing trade war and tit-for-tat tariffs with the United States.

The latest figures revealed that its exports fell by an unexpectedly sharp 4.4 per cent in December, while imports plunged 7.6 per cent — their biggest monthly slide in at least two years.

China’s manufacturing sector also took a dive, with factory activity contracting for the first time in 19 months.

Apple even blamed its recent profit downgrade on China’s slowing economy — with GDP growth at 6.5 per cent in the September 2018-quarter, its slowest pace in almost a decade.

Earlier this month, China’s central bank slashed the amount of capital that its domestic banks need to hold as reserves, for the fifth time in 12 months, to boost the money available for loans.

After all, China is Australia’s largest trading partner, the dominant source of demand for most commodities and the key driver of growth for the Asian region.

“For Australia, weakening global growth presents a challenge, but the key is what happens to China and commodity prices,” said Paul Bloxham, HSBC’s chief economist.

“Interestingly, it seems that so far, most of the weakening in China’s growth momentum has been in its domestic indicators, rather than a sharp slowdown in exports.”

Mr Bloxham expects China to implement further stimulus measures to boost its economy, including further loosening of monetary policy, greater infrastructure spending and devaluing its currency.

How much is Australia leaning on China?

Iron ore and coal are Australia’s key exports, together worth more than $120 billion — or 30 per cent of what gets sold to foreign countries.

They are followed by education services, which rake in $32.4 billion (or 8 per cent of the nation’s exports) from international students.

These happen to be the key goods and services that China buys from Australia.

In 2017-18, China was by far Australia’s largest trading partner, contributing $194.6 billion worth of imports and exports. This was more than the combined value of trade with Japan and the United States ($147.8 billion).

(Adapted from: ABC NEWS)

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