Wandering China

An East/West pulse of China's fourth rise from down under.

Chinese sneeze as alarming as US storm [The Age]

25 percent versus 4 percent. That’s a difference of 21 percent of Australian exports that are bought up by China over the U.S., which is traditionally Australia’s strategic partner. This article re-presents the prevailing sentiment in Australia, that a looming US recession is no good for anyone, but unlike the past, Australia’s fortunes are less dependent on the US to do well, as long as dynamic China keeps chugging along.

”In terms of exports, we’re more dependent on China than any other major country,” said Dr Geoff Raby, Australia’s ambassador to Beijing.

– – –

Chinese sneeze as alarming as US storm
Source – The Age, published August 6, 2011

A recession in the US is no longer a reliable indicator of Australia’s economic fortunes.

AUSTRALIA’S financial traders have responded to the market bloodshed in the United States and Europe but their eyes will soon return to China, the resource-hungry giant upon which Australia’s economic future hangs.

”China is now taking 25.5 per cent of our exports,” Australia’s ambassador to Beijing, Geoff Raby, told BusinessDay.

”In terms of exports, we’re more dependent on China than any other major country,” said Dr Raby, on his last day in the job before moving on to consultancy work in Beijing.

The United States, by contrast, bought just 4 per cent of the goods that Australia exported to the world last year.

A looming recession in the US is not good for anybody but, unlike in decades past, it is no longer a reliable predictor of Australia’s economic fortunes.

China’s stockmarkets have been shaken but there are, as yet, few signs of reverberations in the broader economy.

Building, particularly in inland mega-cities such as Chongqing, is still booming.

Industrial production is roaring at a growth rate of 15 per cent, continuing a trajectory that pushed Australia’s commodity export prices up an astonishing 28 per cent in the year to July in ”special drawing rights” international currency terms – and 10 per cent in Australian dollar terms, according to the Reserve Bank.

But manufacturing performance indicators have been slipping and the world will be scrutinising China’s monthly data for July when it is released early next week.

”The key thing is China is also slowing but not because the rest of the world is collapsing but because its own slowing policies have been in place for a long time, and this is good news for Australia,” said Stephen Joske of the Economist Intelligence Unit.

How Australia fares depends on whether China’s industrial machine can keep humming.

And this is driven less by debt crises in Washington and New York than, strangely enough, less-watched indicators such as the price of pigs.

Soaring pork prices have been the largest factor in China’s inflation hitting an uncomfortably hot 6.4 per cent in June, triggering a prolonged tightening of Chinese monetary policy.

The good news is that the Chinese ”hog cycle” – high prices leading to a piglet boom which leads to softer pork prices – appears to have reached its peak, raising the possibility that Beijing will be loosening credit conditions.

”I think CPI growth has already reached a peak, and in the fourth quarter it will decline significantly, so we will see a loosening of monetary policy in the second half of the year,” said Zhang Ming, a senior economist at the Chinese Academy of Social Sciences.

”The short-term prospects for the Chinese economy are still OK. There will be no hard landing this year, and the economy can maintain a growth rate of 9 per cent,” said Dr Zhang.

In previous cycles, Beijing has been known to tighten too late and too far.

”They are clearly in the contractionary phase of the business cycle, trying to let air out of the many bubbles that have built up in the economy, and now it’s going to be a very fine judgment to balance tightening to bring down inflation without throwing the economy too much,” said Dr Raby.

”The news overnight on world markets has just made the job that much harder for the Chinese government.”


Filed under: Australia, Beijing Consensus, Charm Offensive, Chinese Model, Domestic Growth, Economics, Environment, European Union, Finance, International Relations, Politics, Public Diplomacy, Resources, Soft Power, The Age, The Chinese Identity, The construction of Chinese and Non-Chinese identities, Trade, U.S.

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