Wandering China

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

Australia-China trade no longer just a resources story [Australian Financial Review] #RisingChina #Australia


Australian businesses showing the way to embrace China’s economic rise, can the politicians please catch up? Aussie business demonstrating how to leverage – China’s economic rise during its cruise control mode.

Quick points:
1. China is the largest buyer of Oz minerals and agriculture, fourth biggest customer in manufacturing
2. 35% of all Oz exports in q2 2013

Not since the wool boom of 1950 has Australia been so reliant on a single trade relationship. Even Japan in the early 1970s and late 1980s was not as significant, according to data from the Australian Bureau of Statistics…

…In the second quarter of 2011, China surpassed Japan as the number one destination for Australian rural exports. Meat, oil seeds, cotton and dairy products have seen growth of between 50 per cent and 400 per cent over the past three years. Australian wheat exports could reach 4 million tonnes this season, making China the number one buyer ahead of Indonesia

More official figures from the Australian Department of Foreign Affairs & Trade on Oz trade with China here.

On the other hand, read this for another perspective from Bloomberg.
Here’s the real crisis in Australia

– – –

Australia-China trade no longer just a resources story
By Angus Grigg and Lisa Murray
Source – Australian Financial Review, published August 21, 2013

20130831-080546.jpg
China is not only the largest buyer of Australian minerals, but also the number one purchaser of agricultural products and has surged past Singapore and South Korea in recent years to be the fourth largest buyer of our manufactured goods.  Photo: Bloomberg

Australia has become more reliant on China as a buyer of its exports than any other trading partner in the past 63 years, surpassing the dependence on Britain after World War II.

In the second quarter of 2013, China bought 35.4 per cent of all Australian exports, a new record high and more than double the level of five years ago.

China is not only the largest buyer of Australian minerals, but also the No. 1 purchaser of agricultural products and has surged past Singapore and South Korea in recent years to be the fourth-largest buyer of our manufactured goods.

Not since the wool boom of 1950 has Australia been so reliant on a single trade relationship. Even Japan in the early 1970s and late 1980s was not as significant, according to data from the Australian Bureau of Statistics.

“As you become more exposed to one country, you become increasingly vulnerable to short-term shocks,” said Scott Haslem, a senior economist at UBS in Sydney.

And while economists remain fiercely divided on the likelihood of a hard landing for the Chinese economy, a recent run of positive data suggests the strong trade performance will continue in the near term.

China buys into Australian manufacturing

China now accounts for 38 per cent of all mineral exports and 20 per cent of rural exports, but to the surprise of many it has also become a strong buyer of Australia’s manufactured goods.

High-value medical and pharmaceutical exports to China have grown by more than 200 per cent over the past three years and now command the largest share of Australia’s manufacturing exports to China – worth $856 million in the first quarter.

This can be seen in the strong growth experienced by medical device companies Cochlear and ResMed , but also drug manufacturers such as AstraZeneca, which has a plant in Sydney.

The British drug maker expects exports to grow by 33 per cent by 2015 and has brought forward an additional $20 million in capital expenditure to meet growing demand in China.

But even exports of power generation equipment, beverages (wine) and explosives have grown by more than 50 per cent over the past three years.

“The exponential nature of our resource export growth to China masks the fast growth in . . . rural and manufacturing exports,” Mr Haslem said.

China No. 1 for Australian rural exports

In the second quarter of 2011, China surpassed Japan as the number one destination for Australian rural exports. Meat, oil seeds, cotton and dairy products have seen growth of between 50 per cent and 400 per cent over the past three years. Australian wheat exports could reach 4 million tonnes this season, making China the number one buyer ahead of Indonesia.

This year, China could overtake Korea as the third-biggest buyer of Australian beef behind Japan and the US.

And next year it is tipped to become the biggest single-country buyer of Australian lamb, although the Middle East is the top importing region. “China is the biggest growth market,” said Tim McRae, Meat and Livestock Australia’s chief economist.

“Growth in beef exports to China has taken off in the last 12 months but for lamb and mutton, there has been consistent growth over the last five to 10 years.”

BHP Billiton demonstrated its confidence in the China food story on Tuesday by investing an additional $2.85 billion in its Canadian potash project.

BHP said its bet on potash, a key ingredient in fertiliser used for growing crops, was based on a belief that an additional 250 million Chinese would move to cities over the next 15 years and demand higher-quality food.

Coal and iron ore dominate relationship

But while Australia is experiencing strong growth in non-mining exports, the relationship is still dominated by coal and iron ore. They accounted for 70 per cent of the trade value in the first quarter of the year.

That has led two prominent economists to warn that Australia is in for a difficult economic adjustment as the drivers of growth change in China.

Michael Pettis, a renowned “China bear”, said the surge in demand for iron ore is “wholly unsustainable” and will “reverse sharply”. “I think there is a real possibility that we will return to the price levels of the turn of the century [$US50 a tonne],” he told The Australian Financial Review.

According to Mr Pettis, a former Wall Street bond trader who is now a professor at Peking University, the problems for Australia won’t end with a plummeting iron ore price. He believes a sharp economic slowdown in China will see a surge in capital flight from the world’s second-biggest economy, which will find its way to Australia.

“Australia could suffer from both a sharp drop in mining revenues and a relatively stronger currency than it needs,” he said.

Even former chairman of Morgan Stanley Asia, Stephen Roach, the unofficial leader of the “China Bulls”, said Australia was in for a difficult period.

He doesn’t think China’s level of resource demand will fall but “the growth rate of resource demand will most assuredly drop”.

“The open ended hypergrowth driving the super commodities cycle . . . is going to prove more challenging in the years ahead as China moves to services-led economic growth which is far less reliant on resources.”

READ NEXT:

Chinese production fires iron ore prices

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Filed under: Australia, Beijing Consensus, Chinese Model, Culture, Domestic Growth, Economics, Education, Government & Policy, Influence, International Relations, Modernisation, New Leadership, Peaceful Development, Politics, Public Diplomacy, Soft Power, Strategy, Tao Guang Yang Hui (韬光养晦), The Chinese Identity, The construction of Chinese and Non-Chinese identities, Trade

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