Australia’s Treasurer Concerned about Potential Economic Impact of China’s Struggles

The Treasurer cautioned that the contraction of China’s economy will result in significant losses in export earnings for Australia in an opinion piece.

Initially, it was anticipated that China’s decision to end its strict “zero COVID” policy in late 2022 would lead to a rapid economic revival.

However, the economy has struggled, with slow GDP growth, declining consumer confidence, and a housing market collapse leading to major companies defaulting on loans or going bankrupt.

Recent data from July 2024 indicated that GDP growth in China was falling below the government’s target of around five percent.

China is facing various economic challenges, including a prolonged real estate crisis, an aging population, and interference in the market by Chinese leader Xi Jinping.

One of the key weaknesses is an industrial-focused economic strategy, resulting in excessive investment in sectors like raw materials and emerging technologies.

Many companies in China have taken on significant debts to overproduce, leading to oversupply in the market.

The survival of firms in China is often linked to their connections with the CCP and access to favorable financing.

This situation could result in a cycle of declining prices, insolvency, factory closures, and job losses.

A key concern for Australia due to China’s economic downturn is the decrease in demand, as China is its largest trading partner.

The Treasurer highlighted that a one percent drop in China’s GDP growth costs Australia approximately $6 billion in lost output.

China’s reduced demand for iron ore, a major Australian export, poses a significant threat to the budget.

Despite these challenges, the Treasurer indicated some positive developments in trade, such as record two-way trade reaching $327 billion in 2023.

He also expressed optimism in exploring new industries and products for trade with China to maintain economic stability and growth.