Introduction
China is one of the largest economies in the world, rivaling the United States of America and the economies of other developed countries. The status of the Chinese economy is attributed to consistent growth of approximately 8% annually. It is also characterized by rapid industrialization, urbanization, and greater openness to global trade (Guttmann et al., 2019, p. 89). However, the past few years have seen a slowdown in China’s economy, leading to several impacts on the region and its trade partners (Chen et al., 2021). The last decade has seen a decline in China’s GDP growth (Song et al., 2019). China’s GDP growth was 10% in 2011 and 6.6% in 2018 (Guttmann et al., 2019, p. 88). The fall is attributed to changes in policies as the sustainability of the economy takes center stage, and the government’s investment share of the GDP also declined (Groenewold, 2018). The slowdown in China’s economy has had several impacts on its major trading partners like Australia, whose economic growth and performance experience uncertainty.
Background
The economic growth in China led to the establishment of significant trading relationships with Australia as the nation became one of the largest exporters to China. The Chinese government has engaged in a consistent investment in development in the country for more than three decades to grow its economy and improve its industrial capabilities (Groenewold, 2018). Most of the development was focused on infrastructure and residential construction. The period also saw changes in previous policies that limited the country’s ability to trade with other countries outside Asia (Dizioli et al., 2016). The policy changes saw increased trading and investment as China’s population significantly encouraged foreign investment. The government’s dedication to ensuring the growth of its economy was seen as a positive factor and encouraged the development of meaningful trading relationships.
Australia is one of the greatest benefactors of doing business with China. The country attributes one-third of its exports to China and one-fifth of its imports to the trading partner (Guttmann et al., 2019, p. 88). Over the years, China has steadily outpaced other countries as the largest importer of products from Australia (Guttmann et al., 2019). China tripled its imports from Australia, making it the second largest importer of Australia’s products after the European Union. It also increased its exports to Australia, making Australia one of its important trading partners (Guttmann et al., 2019, p. 90). Therefore, China is Australia’s largest trading partner, and a slowdown in the economy will mean that Australia’s economy will experience some significant shocks due to the event’s impacts.
Impacts of Economic Slowdown
A slowdown in China’s economy will majorly affect Australia’s exports to the country, affecting the demand and prices of most products. China imports several products from Australia, which implies that a slowdown will result in lower demand for imports from Australia (Groenewold, 2018). China uses nearly half of the world’s steel, and Australia’s steel exports will be affected due to the slowdown (Guttmann et al., 2019, p. 94). China’s imports from Australia include manufactured food, services, cooking coal, thermal coal, iron ore, gas products, and others whose demand is affected by the slowdown (Guttmann et al., 2019). A decline in the market for these products affects Australia directly and indirectly.
Steel will be the most affected product due to China’s level of consumption, and the decline affects revenues and other factors related to the industry. China’s imports account for approximately 40% of Australia’s resource exports (Guttmann et al., 2019, p. 91). Steel is a noteworthy export from Australia to China due to the quantity that China needs and the low cost that Australia offers. Property development has long been a substantial source of revenue for the Chinese government due to the flourishing sector (Groenewold, 2018). The sector’s success has contributed to the demand for steel from Australia and other regions. However, reports indicate that companies in the industry and financial institutions already feel the pain of hard economic times. Some of the major companies in real estate have fallen in China, and the number of overdue loans has increased. The effect this has on Australia’s economy is immense. The steel demand will decline, implying that Australia’s mining, government revenues, shareholder profit, and worker demand will decrease.
Australia has also experienced a shift in oil products by becoming a significant exporter of liquefied natural gas, which overhauls its status as a primary importer of oil products. A considerable percentage of gas is exported to China along with coal. China imports a lot of gas and coal, and the decline also affects these sectors in Australia (Groenewold, 2018). The slowdown leads to lower demand, which negatively affects the mining revenues of coal and gas producers will decline. The revenue decline affects government revenues, worker demand, and shareholder profits from these sectors. Similar trends will also be seen in manufactured products and the service industry that has been growing.
Gas and coal are bound to be affected in the long run because China is shifting its focus on sustainability, and cleaner energy sources are currently being explored. The short-term impact may not be significant because Australia’s coal is of better quality than that mined in China. It will still have a huge demand, especially for manufacturing purposes. The demand for gas from Australia will also remain high until the country gets cleaner energy for all the major gas users. The GDP contribution to Australia’s economy may also be affected slightly, but the country boasts of a flourishing service industry, which is the major contributor to the GDP. The slowdown will significantly affect the trading relationship between China and other countries (China Briefing, 2019). Therefore, the short-term impact of lower demand for mined goods may not be as significant as it has been perceived.
Opportunity
The most significant impact of a slowdown in China’s economy will be the need for Australia to take a new strategy in its exports to ensure that events outside its borders do not spill over. China has become one of Australia’s largest importers of goods and services, coming second after the European Union (Guttmann et al., 2019). The nation has also established itself as an essential trading partner by creating a greater demand for Australia’s iron ore and also exporting various products to Australia. The current trade agreement significantly impacts Australia more than China when such an event occurs. Based on the state of the current deal, the demand for iron ore may be significantly affected in case reports of a crush on China’s real estate are true. A crush would lead to much lower demand for such products and impact Australia’s GDP and a section of the workforce in related industries.
The changing dynamics in politics and world trade indicate the need for greater focus on the type of trade agreements made. Australia’s exports have a significant contribution to the GDP. The contribution is extensive, and measures should be taken to ensure sustainability. Current events should lead to the diversification of exports and a shift from having a few significant importers of Australia’s goods and services to having more importers. The approach will ensure that individual trends in each nation will not majorly impact Australia’s industries.
Conclusion
China has established itself as a major economy in the East and the world, whose success and failure have impacted every party involved in the economy. The country’s investment in development spurred economic growth, and opening trade to the rest of the world has contributed to establishing a major economic force. It has established important trade relationships with nations like Australia, becoming a major export of goods and services to China. However, a slowdown in China’s economy negatively impacts Australia’s economy but comes with an opportunity. The two nations engaged in a trade whereby China’s demand for iron, steel, gas, coal, and other goods and services are partly met with exports from Australia. Some exports from China also reach the Australian market. The slowdown will impact Australia’s economy due to the decline in demand for exports that will emerge. Taking a new export approach is an opportunity that Australia should consider as experts continue to monitor trends in the Chinese economy.
References
Chen, Y., Liu, Y., & Fang, X. (2021). The new evidence of China’s economic downturn: From structural bonus to structural imbalance. PloS One, 16(9), e0257456.
China Briefing. (2019). How a China slowdown would affect your business. Web.
Dizioli, A., Guajardo, J., Klyuev, V., Mano, R., & Raissi, M. (2016). Spillovers from China’s growth slowdown and rebalancing to the ASEAN-5 economies. IMF Working Paper, Web.
Groenewold, N. (2018). China’s ‘New Normal’: How will China’s growth slowdown affect Australia’s growth? Australian Economic Papers, 57(4), 435-445.
Guttmann, R., Hickie, K., Rickards, P., & Roberts, I. (2019). Spillovers to Australia from the Chinese economy. Bulletin, 87-110.
Song, Y., Wang, Y., & Xiang, Z. (2019). The slowdown of the Chinese economy. American Journal of Industrial and Business Management, 09(08), 1653-1665.