Wandering China

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

Closer to China by degrees [Guardian] #RisingChina #Australia

Australia looking to shift its sights – how to milk rising China’s next phase of growth. By becoming a confluence of China’s booming middle class hierarchy of needs, perhaps?

The Aussies have taken big steps to show the world it is possible to grow up and smell the roses. There is good business to be done and they know how to do it. The White Australia policy is still in recent memory yet the Chinese have been here since the gold rush days in the 1800s.  Nevertheless for some perspective – Chinese make up  4% of the Australian population in one of the planet’s sparsest spaces with 2.8 people per km/2.

Fast forward 2013, Australia is smart enough to manage both the US and China without greatly offending the other – yet milking both abundant strategic and economic reward from both.

– – –

Closer to China by degrees
As Chinese growth slows, Australia needs to focus on exports in which it may not always enjoy a natural advantage
by Greg Jericho
Source – Guardian, published Monday 24 June 2013

As China's economy slows, Australia needs to focus on education and tourism to draw spending from the country. Photograph: AAP

As China’s economy slows, Australia needs to focus on education and tourism to draw spending from the country. Photograph: AAP

Recent news from China and America has caused some panic around the world and should reinforce the view that the Australian economy of the early 2000s will not come back, regardless of who is in power after 14 September.

The tremors started in America and flowed to China, and in some ways the news out of both was the same. In essence it boiled down to both nations saying that the government could not carry the economy forever.

The chairman of the Federal Reserve, Ben Bernanke, let it be known that if the US economy improves and if the unemployment rate goes below 7% it will start to think about easing its monetary policy by cutting back on buying $85bn worth of bonds each month. He also noted that later the Federal Reserve might think about raising interest rates. Much later – like perhaps two years’ time!

That such news resulted in the US dollar appreciating against all currencies gives you an indicator of how skittish markets can be. This was an announcement of things that might happen if things keep going well. So you can imagine how edgy they would get when news comes out about things happening now – bad things.

And this brings us to China.

Please click here to read the entire article at the Guardian.

The June HSBC manufacturing purchasing manager index recently came out showing a fall to a nine-month low of 48.3 (50 is neutral). This was weaker than expected and HSBC noted that China’s manufacturing sector is “weighed down by deteriorating external demand and moderating domestic demand”. Not great news. But here was the kicker: “Beijing prefers to use reforms rather than stimulus to sustain growth. While reforms can boost long-term growth prospects, they will have a limited impact in the short term.” As such, HSBC expected weaker growth in the next two years.

How much weaker? Well they revised down their 2013 projection for China’s GDP growth from 8.2% to 7.4%, and for 2014 from 8.4% to 7.4% as well.

Now, 7.4% still sounds like boomtown, but let’s give it some context:

China's annual GDP growth Photograph: IMF

China’s annual GDP growth Photograph: IMF

China hasn’t had three consecutive years of less than 8% growth in the past 15 years. So no, we’re not talking a boom.

This comes off the back of news earlier this month that China’s industrial output for the year to June had grown by only 9.2%. Only 9.2%? Again, some context:

China's annual growth of industrial output Photograph: Trading economics

China’s annual growth of industrial output Photograph: Trading economics

The only time it has been worse than this in the past decade was during the GFC – after which the Chinese government unleashed a stimulus program worth 4tn yuan (about US$586bn).

This time round, that’s not happening. They want the economy to actually grow on its own.

The problem is China, somewhat like the US prior to the GFC, has a credit bubble that looks set to burst. The Chinese central bank – the People’s Bank of China (PBOC) – tried to give the bubble a slight prick by tightening monetary policy and putting the screws on borrowing among China’s banks.

That caused the rate at which their banks lend to each other to triple, and set off a fair bit of selling in world financial markets. When liquidity (the amount of money in the system) in the market tightens, that can quickly get banks to stop lending, which means less investment and thus less growth.

In the end the PBOC stepped back in and injected money into the system, settling things down a bit. But it seems to be a sign of things to come. The Chinese government appears more interested in stable growth than a boom fuelled by either government stimulus or unsafe bank lending.

So if we can’t count on China’s boom are we in trouble?

Well, perhaps. We already know mining investment has peaked but should stay high, and exports should continue to grow. But we need to focus on other aspects. We export things to China other than minerals, and the big growth areas are education and tourism.

A look at our tourism numbers shows that China is now more important to us than Japan, the US or the UK.

And the number of Chinese students coming to Australia in the past decade rise from 17% of all foreign university students in 2002 to 41% in 2012.

Numbers of chinese student enrolments. Photograph: Australian education international

Numbers of chinese student enrolments. Photograph: Australian education international

While this sounds all good, a word of warning.

China’s middle class is expected to explode in the next 20 years. And with a larger middle class comes more tourists and more children being sent to study overseas. But unlike iron ore, coal and other minerals, Australia doesn’t hold any especial advantage over other wealthy nations when it comes to tourism and education.

Getting students and tourists here will require investment just like mining has. Education, however, relies mostly on government investment.

This year the government decided to cut university funding, though it has been put off until after the election. Traditionally such funding has also come under the gun of an incoming LNP government. It might seem like an easy area in which governments can economise and cut back, but given its importance in developing our own skills and where we hope to encourage that Chinese middle class for the next 20-30 years, it could be a terrible false economy.

But China is our Asian neighbour, I hear you say, they’ll come to study and sightsee here because we’re so close.

Just remember Beijing is actually closer to London than Sydney.


Filed under: Australia, Beijing Consensus, Charm Offensive, Chinese Model, Communications, Culture, Domestic Growth, Economics, Education, Ethnicity, Finance, Government & Policy, Hard Power, History, Human Rights, Ideology, Influence, International Relations, Mapping Feelings, Media, Migrant Workers, Modernisation, New Leadership, Overseas Chinese, Peaceful Development, Politics, Public Diplomacy, Resources, Social, Soft Power, Strategy, Tao Guang Yang Hui (韬光养晦), The Chinese Identity, The construction of Chinese and Non-Chinese identities, The Guardian, Tourism, Trade

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