- China’s rapid industrialisation has fuelled the Australian economy
- Demand and prices for Australian resources has never been higher
- However, the relationship between the two countries has soured
In the thirty years to 2019, China’s manufacturing sector grew by more than 10% a year, year in, year out. An unparalleled period of growth, which fed into an ever-increasing demand for Australian exports, from iron ore and coal through to beef, grain, wine, education and tourism.
According to new research from NAB Economics, back in 2000, the US had the lion’s share of global manufacturing (27%). Twenty years on, China has just under 30% of the industry and there is clear daylight between them and the US in second place on 17%, followed by Japan (7%) and Germany (5%).
Share of global manufacturing, since 2000 (%)
As China has grown, so has its household income, with consumers demanding everything from housing to cars to beef. In 1980, the average Chinese diet was two-thirds grains-based (rice). By 2018, this had fallen to 46% with animal products accounting for much of this change.
53% of exports into China are iron ore – an incredible amount – feeding its steel production plants, spurred on by the expansion of its big cities.
Australia has benefited from this, being a major producer of exactly the right grade of iron ore China needs. 80% of Australian iron ore is shipped to China, together with 75% of wool and more than 50% of food exports, along with education and tourism.
In 2017, China even overtook neighbouring New Zealand as the most common source of short term tourists.
Australian exports to China in 2019 (% share)
It’s not an understatement to say that China holds up the Australian economy, and thereby its property market.
When China went into a bit of a decline, followed by the collapse of the iron ore price in 2012, so the Australian economy dived in 2013 and, in Western Australia’s case, a six-year decline in the property market.
The Covid-19 pandemic, emanating originally from China, was a problem for Australia on many levels, not least political.
On top of the blocking of Chinese companies Huawei and ZTE from Australia’s emerging 5G telecoms network, the call for a global enquiry into the pandemic’s origins by our Prime Minister led China to retaliate strongly.
Tariffs were levied on Australian wine and grain in addition to moves against coal. There have been reports that China is working hard to find an African source of iron ore, to reduce its reliance on Australia.
For now, Australia has been able to find some alternatives for their coal exports, and with travel restrictions in place, any impact on education or tourism will be hard to know until we are ‘back to normal’.
If China did reduce its reliance on Aussie iron ore, the impact on our local economy, and property, could be seismic.
For the moment, it is growing apace, and ships off the northwest corner of Australia move millions of tonnes of iron ore a week.
As we have said before, we should all keep an eye on China.
Source: ‘China Economic Update’, May 2021, NAB Economics