Saturday, July 18, 2015

Australia's China Dependence Compared

Australia is one of the most China dependent economies in the world. The impact of China's demand for exports has been largely positive for Australia in expanding Australia's export income, although it is important to remember that Australia's mining sector is 80 per cent foreign owned, which means that eventually most of the profits go overseas. Pity we don't have an effective tax regime to ensure that more of the gains of the resources owned collectively by Australians are returned to those same Australians.

Australia's position as the country most dependent on China for exports has been overtaken by Taiwan. 

Another way to assess China dependence is to consider exports to China as a percentage of GDP. Australia does not have a high level of exports as a percentage of GDP and therefore the impact of China on GDP is slightly less. Nevertheless, if we compare the situation in 2014 with last year, dependence has grown markedly

Australia is also an important destination for Chinese investment. 

Any slowdown or worse in China will have a direct impact on Australian exports and GDP. It will also negatively affect a lot of other countries that Australia exports to as well, particularly Japan and South Korea. 

Recently Joe Hockey said
The economy is not affected by what's happening in either Greece or China ... The Chinese stock market dropped 25 per cent in four weeks, but is now 18 per cent higher than its low point last Thursday. It is a very volatile market, [but] it's still 90 per cent higher than it was 12 months ago. ... As far I am concerned, and the Treasury is concerned, our budget forecasts for the Chinese economy remain unchanged. 
The evidence suggests, at least in the case of China, that Hockey's optimism might be misplaced.  

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