Australia riding the Chinese Roller Coaster

Published on Author kuveke

Australia’s relationship with China is great… or worrisome depending on who you talk to. Like many countries Australia has rode the Chinese wave, only Australia has ridden the wave more than anyone else. In 2013 out of Australia’s total exports 31% went to China. The reliance on China’s economy has been a boon for Australia in the past few years, but with recent risk worries in China some economists are worried that Australia has placed itself in a position of too much risk.

While its obvious that Australia has placed itself in a position where its economy will to great extent rise and fall with China’s economy there are other worries for Australia’s economy. One of which is that the Australian bond is now seen as the best way to hedge an overexposed Chinese position. This is because if Chinese markets were to falter their would be a sell off of Australian bonds and the interest rates on the bonds would have to rise to compensate investor’s additional risk.

An Australian Fund’s manager Peter Nathanial says,

China is like all the big emerging economies at the moment – vulnerable. It has an overvalued currency, no productivity gains, no structural reforms, capital outflows, inflation in dollar terms. All the signs are there.

While fund managers like himself think that a gamble on Australia and China is acceptablem he thinks that policy makers in Australia should work to diversify risk. Although such a position would make his own funds safer their there is a certain amount of truth to the position. While unlikely, if China were to experience a downturn Australia would quickly follow. On top of that the interest rates on bonds might reach high levels impeding Australia’s ability to finance stimulus.

Read more: Sunday Morning Herald [Sydney]

5 Responses to Australia riding the Chinese Roller Coaster

  1. You are very right to emphasize the extent to which Australia’s economy relies on exports to China. I am writing my term paper on this relationship between the two nations specifically in the context of iron ore exports from Australia to China. It is fascinating how much the success or faltering of China’s economy has significant bearing on the economies of other nations. It is such an enormous market that it is of great importance to the economic well being of much of the world. For all of our sake, let’s hope it remains steady for a long while.

  2. If there were any economy to latch onto, China is a good choice. Although there are recent concerns about debt, and currency value, China’s economy isn’t going anywhere for the moment. It is growing at 7% and is considered a bad year. This is still great by any other countries rate. With trends of increasing consumption, Australia shouldn’t be concerned about exporting a large percentage of goods to China and latching onto China’s economy for now.

  3. It is hard for me to understand the reasons for why Australia has put so many of “their eggs in one basket”. Even to an inexperienced person like me, it seems far too risky and irresponsible to base to economic future of one country on that of another.

    • Think about the size of China’s economy and then look at a map and check where Australia is….! However, this is not a grand strategy, as it’s not a planned economy. Rather it’s a natural outcome of market forces.

  4. Tate one of the reasons Australia has become so attached to China is that Australia exports a large amount of iron ore as well as other metals from its mining sector and China demands a large amount of these metals for industrialization.