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Australia confident China’s economy will take off, but headwinds ahead | australian economy

If you want a clue about the pace of China’s economic recovery and how it might boost Australia’s economy, look to the sky, says a seasoned Chinese-Australian businessman.

See in particular for the expansion of flights between the two nations, especially those operated by China Eastern Airlines from Shanghai, China’s financial powerhouse.

“Of China’s ‘golden neck’ people, or high net worth individuals, 80% are from Shanghai,” said the businessman, who requested anonymity because of his extensive ties to Chinese firms in Australia. “That is a sign. If China Eastern is not operating many flights, that spells trouble.”

The first signs are promising. China Eastern had reduced its pre-Covid schedule from 10 weekly flights from Shanghai to Sydney to just one, while its 10 trips to Melbourne were suspended entirely, but from February 1, the Sydney to Shanghai route will be daily. said a spokesman. .

China’s economy, the world’s second largest, is critical to the fortunes of Australia and many of its neighbours. China buys about a third of Australia’s exports, equal to those sent 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 main economic challenges facing Australia in early 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 has been slowing for a decade before hitting 2.24% in 2020, its slowest pace since the mid-1970s. Before that, it had strong growth amid political campaigns like the ‘ Great Leap Forward’ and the Cultural Revolution. (Source: Macrotrends) pic.twitter.com/CiSIglgofD

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

Much of that volatility stems from Chinese President Xi Jinping’s abrupt abandonment of ongoing strict lockdowns aimed at slowing the spread of Covid. Earlier this month, the government reported that 60,000 people had died of covid in the previous five weeks, although the true number is likely to be higher.

The Albanian government remains wary that an immediate burst of Chinese economic activity may prove short-lived. A declining real estate sector and shrinking population loom like speed bumps at something close to the 10% growth rate that China generated just over a decade ago.

Global banks like Morgan Stanley are more optimistic, as recent developments “far exceeded our expectations.” “The reopening [of China’s borders] it happened sooner and faster,” he said in a briefing note on Thursday. “Housing rescue measures [have] it became more coordinated and forceful.”

Besa Deda, the chief economist at Westpac’s commercial bank, is waiting to see evidence of increased activity. The Christmas break extends into the Lunar New Year festivities now taking place in China, masking the activity.

“Uncertainty is really high at this point,” says Deda, adding that “the dial is turning to nutritious growth.” China’s relatively low inflation rate (1.8% at the end of 2022) “gives the Chinese authorities more room for stimulus if necessary.”

Mike Henry, chief executive of mining giant BHP, said this week that China would be “a stabilizing force when it comes to demand for raw materials” in 2023 at a time when OECD nations were “experiencing economic headwinds.” “. The country will reach its fifth consecutive year with more than 1,000 million tons of steel, he predicted.

Australian iron ore company Fortescue is similarly “optimistic” about 2023. It is confident that China will continue to pump money into infrastructure and property, justifying the recent rise in iron ore prices.

Iron ore prices remain well above $100 per tonne, and well below $55/t for Australian Treasury users as a conservative estimate for assessing royalty 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 boost Australia’s economy.

The University of Melbourne says international student applications are 25% higher than pre-Covid 2019 levels.

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

For the University of Western Australia, applications from overseas students are up 40% from last year’s levels and are a third higher than before the pandemic. About 35% come from China, with a 47% increase in applications from the previous year, a spokesperson said.

“We are seeing a huge wave of Chinese international students coming back to land,” said Yu Tao, chair of Asian studies at the University of WA. Spillover benefits to the Australian economy will spill over to retail, restaurants and real estate.

Monika Tu, the founder of Black Diamondz, a real estate firm, deals with clients who don’t hesitate to splurge $50 million on a property.

Tu estimates that about 85% of those who get major investor visas are from mainland China, and together they bring in billions of dollars when they settle. “Obviously, this investment is really important for the economy,” he said.

Also helpful, though not entirely popular, are the high fees charged by the foreign investment review board on certain property purchases.

A client’s recent purchase of The Abbey estate in Sydney’s inner west for $12.5 million attracted $340,000 in foreign investment review board fees and a further $1.3 million in stamp duty. “A lot of people think it’s a scam,” Tu said.

The flow of business is of course not only one way. China is at the forefront of the products Australians are increasingly interested in buying. More than 80% of the components of solar panels, for example, are made in China.

Automobiles are perhaps the next industry to be rocked by China. Australia’s imports rose 61% last year, making China the fourth largest supplier.

Sydney airport, where many of those “gold-neck” arrivals will land, has operated six electric buses built by China’s BYD since 2013, says Luke Todd, director of EVDirect, which distributes BYD vehicles in Australia and New Zealand.

BYD, backed by US billionaire Warren Buffett, began selling its Atto 3 EV car late last year and has already delivered almost 2,500, with orders for 7,000 more.

Priced below $50,000, Todd says electric vehicles are now close to parity with conventional gas-powered cars when calculating savings over the life of the vehicle.

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

“The speed of the transition will be faster than people expect,” Todd says, predicting “a very dynamic couple of years ahead.”

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