Australia counts on the rise of the Chinese economy, but the winds threaten | Australia’s economy

If you want an indication of the pace of China’s economic recovery and how it could boost Australia’s economy, look to the sky, says one seasoned Chinese-Australian businessman.

Pay special attention to the expansion of flights between the two nations, especially those operated by China Eastern Airlines from Shanghai, China’s financial powerhouse.

“Of China’s ‘golden collar’ people – or high net worth individuals – 80% are from Shanghai,” said the businessman, who requested anonymity given his extensive links with Chinese companies in Australia. “It’s a signal. If China Eastern doesn’t have many flights, that means trouble.”

Early signs are promising. China Eastern has cut its pre-pandemic schedule from 10 flights a week from Shanghai to Sydney to just one, while its 10 flights to Melbourne have been suspended entirely – but from February 1 the Sydney-Shanghai route will be daily, a spokesman said.

China’s economy, the second largest in the world, is central to the fortunes of Australia and many of its neighbours. China buys about a third of Australia’s exports, equal to those supplied to Japan, South Korea, the US and India combined.

When China reported this week that annual GDP growth had slowed to 3% in 2022, the second-worst performance since the mid-1970s, the treasurer, Jim Chalmers, declared the slowdown “one of the major economic challenges facing Australia faces in early 2023.”

“The global economy is a volatile place right now, and developments in China are a big part of that,” Chalmers said.

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China’s GDP slowed for a decade before reaching 2.24% in 2020, the slowest pace since the mid-1970s. Prior to that, the surge amid political campaigns such as the ‘Great Leap Forward’ and the Cultural Revolution. (Source: Macrotrends)

— @[email protected] (@p_hannam) January 17, 2023

Much of this volatility stems from the sudden lifting of harsh restrictive measures by Chinese President Xi Jinping aimed at curbing the spread of Covid. Earlier this month, the government reported that 60,000 people had died from Covid in the previous five weeks, although the actual figure is likely to be higher.

The Albanian government remains cautious that the current surge in Chinese economic activity could be short-lived. A slumping real estate sector and dwindling population lurk as bedbugs to anything like the 10% growth rate China achieved just over a decade ago.

Global banks such as Morgan Stanley are more optimistic as recent developments have “far exceeded our expectations”. “Reopening [of China’s borders] it happened earlier and faster,” said the briefing on Thursday. “Measures to save residential buildings [have] became more coordinated and stronger.”

Besa Deda, chief economist of Westpac’s commercial bank, is waiting to see evidence of increased activity. The Christmas lull extends to the ongoing Lunar New Year festivities in China, obscuring activity.

“Uncertainty is really heightened at the moment,” says Deda, adding that “the dial is turning towards nurturing growth.” The relatively low inflation rate in China – 1.8% at the end of 2022 – “gives the Chinese authorities more room for stimulus if they need to”.

Mike Henry, chief executive of mining giant BHP, said this week that China would be a “stabilizing force when it comes to commodity demand” in 2023 at a time when OECD countries are “going through economic problems”. The country will record its fifth consecutive year with more than a billion tons of steel, he predicted.

Australian iron ore company Fortescue is similarly “optimistic” about 2023. It is confident China will continue to pour money into infrastructure and assets, justifying the recent surge in iron ore prices.

Iron ore prices remain well above the $100/t mark, and are a long way from the $55/t the Australian Treasury uses as a conservative estimate for assessing royalty flows to the federal budget.

— @[email protected] (@p_hannam) January 20, 2023

Chinese students and property investors are also expected to boost Australia’s economy.

The University of Melbourne says international student applications are 25% higher than pre-Covid 2019 levels.

“The number of applicants based in China has increased by 50% compared to last year, reflecting the easing of pandemic-related restrictions around the world,” university vice-chancellor Nicola Phillips said.

For the University of Western Australia, international student applications are up 40% on last year’s levels and up a third from pre-pandemic levels. About 35% come from China, and applications are up 47% from the year before, the spokesman said.

“We’re seeing a big wave of Chinese international students coming back to the coast,” said Yu Tao, head of Asian studies at the University of WA. The benefits of the spinoff for the Australian economy will extend to retail, restaurants and real estate.

Monika Tu, founder of Black Diamondz, a real estate company, deals with clients who are not shy about spending $50 million on real estate.

That’s where he reckons around 85% of those who have secured significant investment visas are from mainland China, bringing in billions of dollars together when they settle. “Obviously, this investment is really important for the economy,” she said.

Also useful, if not at all popular, are the hefty fees charged by the Foreign Investment Screening Board for the purchase of certain properties.

A client’s recent purchase of The Abbey estate in Sydney’s inner west for $12.5 million attracted $340,000 in Foreign Investment Review Board fees and another $1.3 million in stamp duty. “A lot of people think it’s a scam,” Tu said.

The flow of business, of course, is not only one-way. China tops the list of products Australians increasingly want to buy. More than 80% of solar panel components, for example, are made in China.

Automobiles may be the next industry to be shaken up by China. Australia’s imports rose 61% last year, making China the fourth largest supplier.

Sydney Airport – where many of those “gold necklace” arrivals will land – has had six electric buses made by China’s BYD since 2013, says Luke Todd, head of EVDirect, which distributes BYD vehicles in Australia and New Zealand.

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

Boasting a price tag of less than $50,000, Todd says electric vehicles are now close to parity with conventional gasoline cars when the lifetime savings are calculated.

With the country accounting for around 60% of global electric vehicle sales, China has become an international technology hub. All Tesla and Volvo Polestar electric vehicles sold in Australia are made in China.

“The speed of the transition will be faster than people expect,” Todd says, predicting “very dynamic years ahead.”

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