Australia is banking on China’s economy to take off, but headwinds are looming

If you want a hint at the pace of China’s economic recovery and how it might lift the Australian economy, look to the sky, says one veteran Chinese and Australian businessman.

Witness in particular the expansion of flights between the two countries, especially those operated by China Eastern Airlines from Shanghai, China’s financial might.

“Among China’s ‘gold collar’ people – or high net worth individuals – 80% are from Shanghai,” said the businessman, who asked not to be identified due to his extensive links with Chinese companies in Australia. “This is a signal. If China Eastern does not operate many flights, then there is a problem.”

The early signs are promising. China Eastern had cut its pre-Covid schedule of 10 weekly flights from Shanghai to Sydney to less than one, while its 10 flights to Melbourne have been suspended entirely – but from 1 February, the Sydney-Shanghai route will be daily, a spokesperson said. . .

The Chinese economy, the second largest in the world, is crucial to the fortunes of Australia and many of its neighbours. China buys about a third of Australian exports, the equivalent of those shipped to Japan, South Korea, the United States and India combined.

When China reported this week that annual GDP growth had slowed to 3% in 2022, its second-worst result since the mid-1970s, Treasurer Jim Chalmers declared the slowdown “one of the major economic challenges facing Australia at the start of 2023.” .”.

“The global economy is a volatile place right now and developments in China are a big part of that,” Chalmers said.

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China’s GDP had been decelerating for a decade before reaching 2.24% in 2020, its slowest pace since the mid-1970s. Before that, growth was sharp amid political campaigns such as the Great Leap Forward and the Cultural Revolution. (Source: Macrotrends) pic.twitter.com/CiSIglgofD

– @phannam @mastodon.green (p_hannam) January 17, 2023

Much of this volatility stems from Chinese President Xi Jinping’s sudden dumping of draconian lockdowns aimed at curbing the spread of Covid. Earlier this month, the government reported that 60,000 people had died from Covid in the previous five weeks, though the true number is likely higher.

The Albanian government remains cautious that the immediate surge in Chinese economic activity may be short-lived. A stagnant real estate sector and shrinking population lurks with a speed bump of anything like the 10% growth rate China achieved just over a decade ago.

Global banks such as Morgan Stanley are more optimistic, because recent developments have “far exceeded our expectations”. Re-opening [of China’s borders] It happened earlier and faster. Home saving measures [have] He became more coordinated and powerful.

Bessa Dida, chief economist at Westpac’s business bank, is waiting to see evidence of increased activity. The Christmas lull extends into the Lunar New Year celebrations now underway in China, where the activity is hidden.

“The uncertainty is really building at this point,” Dida says, adding that “the dial-up turns out to be a growth booster.” China’s relatively low inflation rate – 1.8% at the end of 2022 – “gives the Chinese authorities more room for stimulus if they need to.”

Mike Henry, CEO of mining giant BHP, said this week that China will be a “stabilizing force when it comes to commodity demand” in 2023 at a time when OECD countries were “facing economic headwinds.” He predicted that the country would witness its fifth year in a row with more than one billion tons of steel.

Likewise, Australian iron ore company Fortescue is “optimistic” about 2023. It is confident that China will continue to pour money into infrastructure and property, which justifies the recent hike in iron ore prices.

Iron ore prices remain well above the $100/tonne mark, a far cry from the $55/tonne Australian Treasury users estimate conservatively to assess royalties flows into the federal budget. pic.twitter.com/50a57ET0RL

– @phannam @mastodon.green (p_hannam) January 20, 2023

Chinese students and property investors are also expected to support the Australian economy.

The University of Melbourne says applications from international students are running at 25% above pre-Covid levels for 2019.

“The number of applicants located in China has increased by 50% compared to last year, reflecting the easing of pandemic-related restrictions around the world,” said the university’s dean, Nicola Phillips.

For the University of Western Australia, applications from international students have increased by 40% from last year’s levels and are a third higher than in pre-pandemic times. About 35% of the order comes from China, a company spokesperson said, with orders up 47% from last year.

“We are looking forward to a huge wave of Chinese international students returning to the beach,” said Yu Tao, chair of the Department of Asian Studies at the University of Washington. Spin-offs for the Australian economy will extend to retail, restaurants and real estate.

Monica Too, founder of Black Diamondz, a real estate company, takes on clients who aren’t shy about spending $50 million on a property.

Tu believes that about 85% of those on large investor visas are from mainland China, and collectively make billions of dollars when settling in. “It’s clear that this investment is really important to the economy,” she said.

Also helpful, though not at all common, are the exorbitant fees that the Foreign Investment Review Board charges for some real estate purchases.

A client’s recent purchase of The Abbey property in Sydney’s inner west for $12.5 million attracted $340,000 in Foreign Investment Review Board fees and another $1.3 million in stamp duty. “A lot of people think it’s theft,” Tu said.

Business flow, of course, is not just one way. China is at the forefront of the products that Australians are increasingly keen to buy. More than 80% of solar panel components, for example, are made in China.

Cars may be the next industry to shake up in China. Australia’s imports rose 61% last year, making China the fourth largest supplier.

Luke Todd, president of EVDirect, which distributes BYD vehicles in Australia and New Zealand, says Sydney Airport – where many of these “gold-collar” arrivals will land – has operated six electric buses made by China’s BYD since 2013.

BYD, backed by US billionaire Warren Buffett, started selling its Atto 3 EV at the end of last year and has already delivered nearly 2,500 orders for another 7,000 vehicles.

And at less than $50,000, Todd says electric vehicles are now approaching parity with conventional gasoline-powered cars when calculating savings over the life of the vehicle.

With the country accounting for about 60% of global electric vehicle sales, China has become the international hub for technology. All electric vehicles sold in Australia from Tesla and Volvo’s Polestar are made in China.

“The pace of transition is going to be faster than people expect,” Todd says, predicting “a very dynamic couple of years to come.”

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