Sunday, December 14, 2014

Is Australia becoming too ‘China dependent’?

Treasurer Joe Hockey is known for some interesting quotes, but his recent suggestion that China will have a billion of its people raised into the middle class by 2030 stands out from the rest.

Given that China currently numbers 1.3 billion people and its population growth rate is falling (at just 0.47 per cent it is ranked 159th in the world) there will not be many more Chinese around in 2030 than there are now. In other words Mr Hockey is suggesting that something more than 80 per cent of the nation’s population will be designated ‘middle class’ in just 16 years.

That would be an outstanding achievement, especially as the current estimation of the middle class in China is around 150 million people, mostly living in the capital and the eastern coastal cities.

Of course there is really no scientific definition of ‘middle class’ and it may be that people living a few percentage points above the poverty line will be counted as ‘middle class’ by the statisticians in Beijing, but leaving aside this argument it is the reasons behind Mr Hockey’s optimistic statement that are most concerning.

Once again the Treasurer is holding China up as Australia’s lifeline to continued prosperity as the century progresses. What is most worrying is that it is increasingly looking like the nation’s only lifeline. As Griffith University academic, Tom Conley pointed out in a recent article Australia is already the most China-dependent economy in the world.

The nation’s exports to China have grown from 8.5 per cent of the total in 2003-04 to 32.5 per cent in 2013-14 and with a free trade agreement in the offing they will grow further.

So, if things go wrong in China – economically or politically – then Australia will be hit harder than any other nation

Dr Conley says Australia is in need of a Plan B and suggests it should be based on a diversification away from the resource industries that that have provided the bulk of our exports to China in recent years.

Given the plunge in world prices, notably for iron ore, this make a great deal of sense, but I would add to it by suggesting the Federal Government should actively encourage exporters to look at other potential destinations to at least stem the growth in China’s market share.

The most obvious example is India – a nation similar in size to China but at the moment taking just one tenth of the goods and services we send to Beijing. Like China, India is becoming more prosperous and under the new Government elected in May is embarking on a program of rapid economic expansion.

Last month Indian Prime Minister Narendra Modi was in Canberra pushing for a free trade agreement. While he got a polite reception the fear is that our exporters, blinded by the Chinese ‘miracle’, will see no urgency in such a deal and put it on the back burner.

As Dr Conley gloomily concludes: “If policymakers simply believe that China will sustain Australia’s prosperity over the next 20 years, then many Australians will think there is no reason to change tack – until it’s too late.”     

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