Australia pins hopes on China to take off, but headwinds loom for Australian economy

If you want to understand the pace of China’s economic recovery and how it might boost the Australian economy, look to the sky, says a seasoned Chinese-Australian businessman.

In particular, watch out for the expansion of flights between the two countries, especially those operated by China Eastern Airlines from China’s financial center Shanghai.

“Of China’s ‘golden collar’ population – or high net worth individuals – 80 per cent are from Shanghai,” said the businessman, who asked not to be identified given his extensive links to Chinese companies in Australia. “It’s a signal. If China Eastern doesn’t operate many flights, it means trouble.”

Early signs are promising. A spokeswoman said China Eastern had reduced its pre-pandemic 10 weekly flights from Shanghai to Sydney to one, while its 10 flights to Melbourne had been suspended entirely – but from 1 February, The Sydney-Shanghai route will operate daily. .

China is the world’s second largest economy and is critical to the fate of Australia and many of its neighbours. China buys about a third of Australia’s exports, equivalent to what is shipped to Japan, South Korea, the US and India combined.

When China reported this week that annual GDP growth had slowed to 3 per cent in 2022, the second-worst result since the mid-1970s, Treasurer Jim Chalmers declared the slowdown “an important step for Australia in 2023.” One of the main economic challenges at the beginning of the year”.

“The global economy is in turmoil right now, and China’s development is a big part of that,” Chalmers said.


China’s GDP slowed for a decade before hitting 2.24% in 2020, the slowest growth rate since the mid-1970s. Before that, it grew dramatically during political movements such as the “Great Leap Forward” and the “Cultural Revolution”. (Source: Macro Trends)

— (@p_hannam) January 17, 2023

Much of the volatility stems from Chinese President Xi Jinping’s abrupt abandonment of a tough rolling lockdown aimed at curbing the spread of Covid. Earlier this month, the government reported that 60,000 people had died from the virus in the past five weeks, although the true figure is likely to be higher.

The Albanian government remains concerned that the immediate burst of economic activity in China may be short-lived. A sluggish real estate sector and a shrinking population lurk as a speed bump to the 10 percent growth China achieved more than a decade ago.

Global banks such as Morgan Stanley were more optimistic, as recent developments “were well ahead of our expectations”. “Reopen [of China’s borders] Happened earlier, faster,” it said in a briefing on Thursday. “Housing Relief Measures [have] become more coordinated and powerful. “

Besa Deda, chief economist at Westpac Commercial Bank, is waiting to see evidence of increased activity. The Christmas lull extended into China’s ongoing Lunar New Year celebrations, overshadowing activity.

“Uncertainty has really increased at this point,” Deda said, adding that “the dial is turning to foster growth.” China’s relatively low inflation rate – 1.8% by the end of 2022 – “gives Chinese authorities more room to stimulate if needed”.

Mike Henry, chief executive of mining giant BHP Billiton, said this week that China would be a “stabilizing force in commodity demand” in 2023 as OECD countries “experience economic headwinds”. He predicts that the country’s steel production will exceed 1 billion tons for the fifth consecutive year.

Australian iron ore company Fortescue is similarly “optimistic” for 2023. It believes China will continue to pour money into infrastructure and real estate, justifying the recent rise in iron ore prices.

Iron ore prices are still well above the market price of US$100 per tonne and far from the conservative estimate of US$55 per tonne by the Australian Treasury user assessment of royalties flowing into the federal budget.

— (@p_hannam) January 20, 2023

Chinese students and property investors are also expected to boost the Australian economy.

The University of Melbourne said applications from international students were 25 per cent higher than pre-coronavirus levels in 2019.

“Applications from China are up 50 percent compared to last year, reflecting the easing of pandemic-related restrictions around the world,” said Nicola Phillips, the university’s provost.

For the University of Western Australia, applications from overseas students are up 40 per cent on last year and a third higher than before the pandemic. About 35 percent came from China, a spokesman said, with applications up 47 percent from a year ago.

“We have seen a large number of Chinese students returning home,” said Yu Tao, dean of the Asian studies department at the University of Western Australia. Spinoffs to the Australian economy will extend to retail, restaurants and real estate.

Monika Tu, founder of real estate firm Black Diamondz, sees clients who aren’t shy about splashing $50 million on a property.

Tu estimated that about 85 percent of those who received Significant Investor Visas were from mainland China, and they collectively brought in billions of dollars when they settled. “Obviously, this investment is very important to the economy,” she said.

The high fees charged by the Foreign Investment Review Board on certain property purchases are also helpful, though not at all welcome.

A client recently bought The Abbey estate in Sydney’s inner west for $12.5 million, attracting $340,000 in FIRB fees and another $1.3 million in stamp duty. “A lot of people think it’s extortion,” Tu said.

Business processes are certainly not just one way. China is at the forefront of products Australians are increasingly keen to buy. For example, more than 80 percent of solar panel components are made in China.

Automotive could be the next industry to be shaken up by China. Australia’s imports rose 61 per cent last year, making China the fourth-largest supplier.

Luke Todd, head of EVDirect, which distributes BYD vehicles in Australia and New Zealand, said that since 2013 Sydney Airport – where many “gold collar” arrivals will land – has operated six vehicles made by BYD in China. electric bus.

BYD, backed by US billionaire Warren Buffett, started selling its Atto 3 EV late last year and has already delivered nearly 2,500 of them, with orders for another 7,000.

Electric vehicles cost less than $50,000 and are now close to parity with conventional gasoline-powered vehicles when you factor in savings over the life of the vehicle, Todd said.

China, which accounts for about 60 percent of global EV sales, has become an international technology hub. All electric cars sold in Australia by Tesla and Volvo’s Polestar are made in China.

“The transition will be faster than people expect,” Todd said, predicting that “the next few years will be dynamic.”

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