China has attempted to destroy Australia’s economy in the past, but this time there is a combination of factors beyond even Beijing’s control.
In the years since the global financial crisis landed on Australian shores in 2008, the story of Australia’s economic performance has been inseparable from the success story that is China’s industrialization.
Seemingly like clockwork, every time Australia’s economy started to look like its luck was finally about to run out, another industry would explode in the Middle Kingdom or a Chinese government stimulus package would inadvertently mount. to the rescue of the Lucky Country.
Although it may not have been as evident as it was in the late 2000s, Chinese demand for Australian bulk commodity exports has once again come to Australia’s aid over the past two years. that followed the start of the pandemic. Despite Beijing’s attempts to hit the Australian economy again and again with punitive trade actions, China’s insatiable appetite for iron ore and coking coal has once again given them a huge boost to Australia’s fortunes. Australia.
Between April 2020 and May 2021, the price of Australia’s most important export iron ore tripled in value, giving a huge boost to the economy and a hard hit Treasury bank balance.
But as a range of global challenges, including those stemming from the war in Ukraine, slowly become clearer, it raises a major question: will China’s demand for bulk products be there to cushion the fall of the economy? next time things start to go wrong?
As the war in Ukraine continues to rage, it is increasingly easy to see the challenges facing the world through the prism of the impact of the ongoing conflict. But even before the first Russian tanks crossed the border on February 24, a number of different indicators were already pointing to difficult times ahead.
Globally, fertilizer prices were heading towards historic highs, with some regional indices reaching price levels similar to those historically associated with contributing to social unrest in 2008 and the Arab Spring movement in 2011.
In China, cities were still going in and out of lockdown, as Beijing continued its “Covid Zero” strategy to deal with the virus using some of the toughest movement restrictions in the world.
As anyone who went to a supermarket or gas station even before the war in Ukraine could tell you, the cost of living was already skyrocketing globally before the first shot was fired.
In the United States, annual inflation reached 7.9%, its highest level since the early 1980s. In Germany, cost pressures facing manufacturers reached their highest level since 1949 , defined by the aftermath of World War II.
As inflation returned with vigor after spending decades largely contained in much of the developed world, central banks around the world quickly moved from accommodative monetary policy designed to fight the pandemic to rapidly raising rates. of interest.
And then things got worse
Since the beginning of the war in Ukraine, these challenges have grown considerably, especially the issue of food security, which has become an issue at the forefront of the concerns of world leaders.
French President Emmanuel Macron warned last week that “we are entering an unprecedented food crisis”.
“The war in Ukraine makes it impossible to sow [seeds] it takes as much and creates a situation that will be even worse in 12 to 18 months. This situation will create a food crisis and serious humanitarian situations in many countries, with surely massive political consequences,” he said.
Earlier this month, Chinese President Xi Jinping warned the People’s Political Consultative Conference that China cannot rely on international suppliers to ensure China’s food security, noting that “the people’s rice bowls Chinese are filled with Chinese cereals”.
While inflationary pressures and food security concerns are likely to hit developing countries the hardest by far, the world’s most populous nation will also face major challenges as it seeks to feed its huge population while maintaining its series of economic successes.
With several major Chinese cities currently in lockdown, including the mega metropolis of Shanghai, affected households and businesses face an uphill battle amid slowing growth in the Chinese economy.
According to recent data released by the Chinese government’s National Bureau of Statistics, the non-manufacturing sector is currently experiencing only its second contraction in 15 years since records began.
Meanwhile, the woes of China’s real estate sector have continued, with real estate think tank China Index Academy recording a drop in total home sales by floor area of 49.1% year-on-year in March, a significantly larger drop. than the 23.4% year-on-year decline recorded in February. .
China’s problems could drag on in Australia
If the war in Ukraine and all the problems that come with it are prolonged, Beijing will have to devote an ever-increasing share of its resources to ensuring that food prices remain affordable and to supporting households and businesses in the face of the impact. of rising costs.
Some major steps towards these goals have already been taken in recent days, with the announcement that Beijing will allocate 1 trillion yuan (A$210 billion) in VAT refunds to small businesses, self-employed households and taxpayers. VAT regulations in all sectors.
A State Council meeting led by Premier Li Keqiang on Wednesday called on the nation to prioritize stable growth and develop contingency plans to deal with possible greater uncertainties, according to local media. Chinese state.
Although stimulus packages may benefit Australia in the short term, in the form of increased demand for bulk commodity exports. In the longer term, the more resources that are spent supporting households and businesses, the less there will be for traditional Chinese growth engines like the construction sector.
Although the problems in China’s real estate sector have largely subsided in terms of broader media coverage, these problems have not gone away. Behind the scenes, the situation continues to deteriorate for many large developers, including mega-developer Evergrande whose obligations are almost twice as large as all of Russia’s sovereign debt.
It remains to be seen whether China will continue to step up to the lucky country’s rescue amid these rapidly evolving challenges, but it could be a circumstance the government may have to contend with in what promises to be a tough next legislature. .
Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator