Economic Slowdown: imminent reality or Chinese whispers?

China’s rapid growth in the last two decade can’t last forever.  Is Australia equipped to handle the inevitable economic contraction when that time comes? 

The recent threat of a full-scale trade war between China and the United States has sparked animated discussion about whether Australia would be prepared to handle such an event.  An array of forecasts have arisen, charting everything from economic meltdown to seismic structural shifts.  What has been less frequently discussed is why it takes the threat of a trade war to inspire consideration for an economic occurrence which was always going to happen.  Whilst there is an element of Chinese whispers to the nature of current economic forecasts (each seems to become more dramatic than the last), it remains an imminent reality that we will have to divest ourselves of our reliance on China in the near future.

China’s insane growth will reach a plateau as the marginal impacts of their expansions decrease, and this will necessarily depress demand for Australian exports.

Until now, Australia has bullishly invested into minerals and infrastructure exports, capitalising on the geopolitically advantageous position we find ourselves in.  The shortage of exploration into a sustainable course of economic action beyond our current circumstances is alarming; long-term trends forecast decreases in demand for coal and, to a lesser extent, iron and steel.  It would be folly to suggest that the natural resources industry in Australia will dry up entirely, but it will suffer significant knocks as China becomes increasingly self-reliant and less demanding of resources. 

Some would contest that an increase in demand from other South-East Asian countries could partially offset the loss of business caused by a more developed Chinese economy.  This is true.  However, I would speculate that this offset would be nowhere near enough to compensate for the drastic loss of export opportunities provided by China.  Take, for instance, iron ore exports from Australia.  Over 30% of iron ore exports go directly to China; a larger figure than the proportion of exports sent to Japan and USA combined (our second and third largest iron ore receivers).  Even the rapidly expanding India accounts for just over 5% of our exports.  Our reliance on China is terrifying and cannot be overstated. 

If there is a silver lining to be found, it rests in the fact that this downturn does not seem likely in the next few years.  Looking beyond 2025, however, the picture becomes far murkier – as does Australia’s economic outlook.  It is long overdue that Australia begins to diversify its economic operations so that we are appropriately positioned to withstand the inevitable tremors caused by China’s reduced demand for goods and services. 

A strong drive into creating world-leading sustainable energies would be an wise place to start.  With access to one of planet Earth’s largest ‘solar farms’, it makes sense to make the most out of the existent infrastructure provided for fossil fuel industries and repurpose them (where possible) for sustainable use.  It would put less pressure on Government spending, provide commercial opportunities to existent resource companies, and provide a more seamless transition to a diversified economy when trade between China slows down. 

Whilst it is tempting to continue reaping the benefits of unfettered access to a booming Chinese market, it is time we accept a reality check and look ahead to more sustainable alternatives. 

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