China
Keep your eyes on China. Image – Canva.
  • They were the first into Covid, and the first out. They’re flying.
  • The Chinese economy is linked to our economy and property market
  • Chinese government is actively boosting economic activity

When China sneezes, we catch a cold. Quite tragically, as the whole world discovered to its cost over the past year.

The latest economic growth figures for the most populous country in the world, and our northern Asian neighbour, are quite extraordinary.

Yes, the Chinese economy was coming off a lower, weaker base, but to achieve a staggering growth figure of 18.3% year on year is jaw-dropping.

Yet that is the figure to the end of the March quarter 2021. Within it though is some more sombre reading, as growth within the quarter was only 0.6%, the weakest since 1999.

China’s Economic Growth, 2005-2021

China's Economic Growth
Source: CEIC, Refinitiv, NAB Economics

What we are seeing here is a snapping back to reality of the Chinese economic growth trajectory. Economic growth was 6.1% in 2018, 6.7% the year before that, and 6.9% and 6.8% the years before that. So it was pretty consistent, you might say. And strong.

The pandemic hit towards the end of 2019 and early 2010, and China locked down hard. They were the first to grow out of the pandemic, and although they suffered a sharp decline during 2020, they ended up with 2.3% growth overall, about the only major economy to grow at all last year.

So the 18% result is perhaps more of a return to normal trajectory, making up for lost time.

What has this got to do with the property market in Australia, I hear you ask?

Well, just about everything.

China, the world’s top steel producer, imported a record 1.1 billion tonnes of iron ore in 2020, most of that from Australia. While Brazil had to close its industry during the pandemic, Australia’s was kept open. With roaring demand and reduced supply, the price of iron ore soared.

China’s Industrial Production, 2005-2021

China industrial growth
Source: CEIC, Refinitiv, NAB Economics

Today, iron ore prices stand at a record US$200/tonne. A few years ago, they had plunged to less than $30, with massive impacts on Australian producers, who were forced to cut costs and improve efficiencies.

They did so, and are now reaping the rewards. The Australian economy – which feeds the property industry – is growing along nicely thank you, with forecasts today from the CBA of 4.7% growth, and unemployment falling to 5%.

Marry this with historically-low interest rates, various home builder government subsidies still working their way through the market and a massive fear of missing out (FOMO) effect, and you have a good old-fashioned property boom on your hands.

And it all starts, and perhaps ends, with China. A wise person will keep an eye on how they travel, from here on.

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