The China Factor Boosts Australia

In a financially unstable world, China has become the global economy's only working growth cylinder. For Australia, trading with China adds to the budget stimulus, the official interest rate cuts and the solid banking system and helps keep the world recession at arm’s length.

Australia's economy will still likely contract in 2009. The Organisation for Economic Co-operation and Development this week tipped a drop of 0.4 per cent in the calendar year. Unemployment will continue to climb in 2010 towards its forecast 8.5 per cent peak. But this would be easily the mildest recession among all 30 developed economy members of the OECD. Elsewhere, in this first synchronised contraction in worldwide economic growth since the 1930s, developed economies are expected to shrink 4.1 per cent this year.

The main reason is the good news contained in Australia's Chinese fortune cookie. Soon to become Australia's biggest export market, China is now the only major economy posting solid growth. And, while global trade has collapsed, China is actually buying more from Australia to feed its new wave of infrastructure-based growth. While cutting its global growth numbers, the World Bank this week lifted its 2009 Chinese forecast from 6.3 per cent to 7.2 per cent growth. The OECD suggested China was "rebounding strongly" to 9.25 per cent growth in 2010, supported by "one of the largest booms in urban investment since the early 90s".

In turn, the IMF nominated "strong commodity exports" as the first reason why Australia so far has experienced a "milder" economic downturn than other developed nations. While financial stress in the US and Europe could retard the global economy, the OECD suggested Australia faced a "stronger recovery" upside risk as a result of a "faster, more sustainable upturn in the Chinese economy". The IMF said, "a key risk is stronger than expected demand from China". In contrast to previous warnings, the IMF downplayed Australia's foreign debt build-up because of the "relatively attractive returns" to foreign investment in mining development.

Beijing's efforts to kick start its own economy after the crisis hit in September last year has been super-effective, largely because of its centralised control of capital works, bank lending and credit growth. Its strong budget position provided room for its massive 4 trillion yuan ($US586billion) fiscal stimulus, including a government investment program equal to 12 per cent of GDP. Local authorities have been given the go-ahead for shovel-ready infrastructure projects that previously had piled up in the National Development and Reform Commission's in tray while Beijing instead focused on export-led growth. After being instructed to lend, the banks have made sure credit growth has exploded.

China's switch from export-led growth from its coastal economic regions to pump-primed infrastructure and property spending in the less-developed interior may soak up even more of the raw materials that it mainly sources from Australia.

The second highest commodity export revenues on record will be accompanied by Australia's biggest ever output of commodity exports. ABARE forecasts iron ore volumes will increase 8 per cent in calendar 2009 to 333 million tonnes as Fortescue Metal Group ramps up its Pilbara operations, and a further 5 per cent in 2010. That's an amazing result amid an expected 11 per cent slump in global steel production this calendar year.

For Australia, increased mining production, including for iron ore, coking coal and copper will support GDP and employment growth. ABARE tips mining production in Australia will increase 2.7 per cent in real terms in the coming financial year. ABARE forecasts new capital expenditure in mining will post a 26 per cent jump this year, rising another 10 per cent in 2009-10 to nearly $38bn.

This suggests Australia has avoided a deep recession more because of a fiscal stimulus injected from Beijing than from Canberra. Australian hopes for a sustained economic recovery might depend on whether Chinese entrepreneurs can soon take over from Beijing's central planners.

If you’d like to share in the expanding wealth and prospects of any Australian state, start the ball rolling today. An immigration advisor can tell you all you need to know.