There are impacts on our economy from Australia’s high dependence upon China.
The key theme regarding China currently is worries about the pace of growth. Export growth is stalling yet there is little sign of a broad switch in the overall driver of growth toward consumption and away from fixed asset investment and exports. Amidst these growth worries concerns are growing about the true level of government debt, or more especially regional government debt, and the quality of lending by China’s largely state-owned banking sector.
As these worries grow the impacts are being felt in our largest trading partner Australia. There has been generalised downward pressure on commodity prices which coupled with concerns about a structural shift downward in China’s average GDP growth have caused cancellation of many large minerals sector projects and declines in forecasts for the overall pace of growth in Australia’s economy.
This worsening outlook for Australia has generated a new deterioration in the Federal Government’s budget deficit projections and as unemployment rises migration flows between NZ and Australia are changing. A year ago the net loss of new Zealanders to Australia was 39,809. Now it is 31,246.
This is one way in which changes in China’s economy are relevant to us. Perversely, the weaker the outlook for China the weaker the outlook for Australia, the lower the net loss of Kiwis across the ditch therefore the greater the population growth rate in New Zealand and the greater the upward pressure on the NZ housing market!
Yet slowing Chinese growth would appear also to be a depressing factor for the NZ economy – especially as now 18.7% of our export receipts come from China and 9.5% of our visitors compared with 7% and 5.7% respectively just before the Free Trade Agreement became effective in October 2008.
True. But followers of the long term economic debate in Australia will be aware that Federal and State development efforts are shifting toward how to position Australia less as a supplier of minerals to China and more as its food bowl. This change is driven partly by the structural easing in China’s rate of growth in demand for minerals, and partly by a realisation that soaring middle income earner numbers are demanding safe, quality food. That is what NZ supplies already.
Therefore, although much of the commentary we shall read about China in the near future is likely to be of downbeat nature, for New Zealand the situation is not as bad as for Australia given our high and still rising exports of quality food products to China.