There has been a lot of discussion about China lately

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There has been a lot of discussion about China lately .

Courtesy of The Knowledge Shop
Free Trade Agreements, financial stability and growth and the impact on the Australian economy, and Chinese investment in Australia.  With the help of our international contacts, we explore the impact of China on Australia and give some context to the debate.
According to Austrade, one in every three Australian export dollars earned is from sales of goods and services to China.  On top of that, 80 per cent of the value of Australia’s export growth in 2013-14 was from trade with China.  It’s not surprising then that we have a fixation with the welfare and continued consumption of Australian goods and services by China and China’s rising influence on the Australian economy.

Chinese growth – an insider’s view
China’s economic growth has been spectacular: until recently growing at around 10 per cent per annum from a low economic base to arguably the leading global economy.  While construction and infrastructure projects were the primary drivers of growth, the opening of the Chinese economy to foreign investment in the late 1970s saw it become the ‘factory of the world.’  The fuel to drive this growth was a massive growth in Chinese consumption of resources – steel, iron ore, copper – you name it China needed it.  You can see this consumption growth reflected in Australia’s export statistics.
With an increase in wealth came an increase in consumerism with a growing middle class.  And, with a growing middle class came a property boom with many Chinese able to afford better housing.
Demand for housing escalated and development after development was launched, many snapped up within hours of launching.
The cost of this success was a rapid increase in the cost of living, high property prices fuelled by speculators, and corruption.
With the global financial crisis, demand for China’s goods started to decline creating excess capacity, factory and company closures, and staff lay-offs.  Banks were then asked to reduce their loan exposure and Government projects scaled back.  Starved of funds some companies sought funding from underground banks – shadow funding – paying extreme rates of interest that further aggravated the slow down and excess capacity.

Looking forward
The People’s Bank of China recently reported that it expects economic growth to be 6 – 7 per cent over the next three to five years – although businesses on the ground will tell you it’s lower than this at about 5.8 per cent.  Interest rates were cut for the sixth time in 12 months in late October to try and hit growth targets.