abare

china’s future growthIMPLICATIONS FOR SELECTED AUSTRALIAN INDUSTRIES

abare eReport 05.13

Prepared for the Australian Government Department of Industry, Tourism and Resources

Lindsay Fairhead and Helal Ahammad

December 2005

© Commonwealth of Australia 2005

This work is copyright. The Copyright Act 1968 permits fair dealing for study, research, news reporting, criticism or review. Selected passages, tables or diagrams may be reproduced for such purposes provided acknowledgment of the source is included. Major extracts or the entire document may not be repro-duced by any process without the written permission of the Executive Director, ABARE.

ISSN 1447-817XISBN 1 920925 46 5

Fairhead, L. and Ahammad, H. 2005, China’s Future Growth: Implications for Selected Australian Industries, ABARE eReport 05.13 Prepared for the Austra-lian Government Department of Industry, Tourism and Resources, Canberra, December.

Australian Bureau of Agricultural and Resource EconomicsGPO Box 1563 Canberra 2601

Telephone +61 2 6272 2000 Facsimile +61 2 6272 2001Internet www.abareconomics.com

ABARE is a professionally independent government economic research agency.

ABARE project 2960

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foreword

China has experienced rapid economic growth over the past fi ve years and has become an important destination and source for Australia’s international trade. Given the substantial trade complementarities between China and Australia, the economic relationships between the two countries have the potential to deepen in the coming years, with important implications for Australian industries.

The Australian Government Department of Industry, Tourism and Resources has commissioned ABARE to analyse the implications of the potential future growth of the Chinese economy for the Australian automotive products, aluminium, steel, iron ore and coal industries.

BRIAN S. FISHER

Executive Director

December 2005

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acknowledgments

The authors gratefully acknowledge the contributions made to this study by a number of people. In the Department of Industry, Tourism and Resources, the authors thank Beau Damen for coordinating the study, and Marshall Blain, Karl Brennan, Cassandra McCarthy, David Merrett, Mark Mussared, Rangarajan Parimala and Matthew Paull for their helpful comments. In ABARE, the authors thank Don Gunasekera and Jammie Penm for their advice and guidance; Guy Jakeman and Daniel McDonald for their contribution to the modeling exercise; and Frank Drum and Simon Richmond for their input to the commodity analysis.

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contents

Summary 1

1 Introduction 3

2 An overview of recent growth and bilateral trade fl ows – selected industries 4Trade complementarity between China and Australia 4Recent developments in focus industries 6

3 Modeling framework – GTEM 10Interpreting GTEM results under China’s investment slowdown scenario 10

4 Reference case growth outlook for China and Australia 12Reference case assumptions 12

5 Low growth in China 18Impacts of the low growth scenario 18

References 24

fi guresA Deviation from the reference case in a GTEM

simulation 10B Growth in real gross domestic product in China,

reference case 12C Growth in Australian automotive production and

imports, reference case 13D Growth in Australian automotive exports,

reference case 14E Growth in Australia’s production and exports of

alumina, reference case 15

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F Changes in Australia’s production and exports of steel, reference case 15

G Growth in Australia’s production and exports of iron ore, reference case 16

H Growth in Australia’s production and exports of coal, reference case 16

I China’s GDP growth path, alternative scenarios 19J Changes in China’s exports and imports, low growth

scenario 19K Changes in Australia’s exports and imports, low

growth scenario 19L China’s share of the Middle East automotive export

market under alternative scenarios 20M Changes in Australia’s aluminium and alumina

exports, low growth scenario 21N Changes in China’s steel industry, low growth scenario 22O Changes in Australia’s steel and iron ore exports, low

growth scenario 22P Changes in Australia’s coal industry, low growth

scenario 23

tables1 Australia–China trade, by broad commodity, 2003 52 Macroeconomic projections – Australia and China,

reference case 133 Automotive products projections – China,

reference case 13 4 Aluminium projections – China, reference case 145 Steel and iron ore projections – China, reference case 156 Coal projections – China, reference case 167 Impacts on China’s automotive products industry, low

growth scenario 208 Impacts on China’s aluminium industry, low growth

scenario 219 Impacts on China’s steel and iron ore industry, low

growth scenario 2210 Impacts on China’s coal industry, low growth scenario 23

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summary

To capture the likely impacts of potential future growth paths in China on fi ve industries of signifi cance to Australia — automotive products, aluminium, steel, iron ore and coal — two alternative scenarios are considered:

• China maintains its rapid economic growth – the reference case

• Economic growth in China slows – following an assumed investment slowdown in China in 2010 and 2011.

These scenarios are simulated using ABARE’s global trade and envi-ronment model, GTEM. Projections under the alternative scenarios are made for a range of variables, including consumption, production and trade in the focus industries.

In the reference case scenario, China’s real gross domestic product (GDP) is assumed to grow at an average rate of 7.1 per cent a year over the period 2005–25. During the period, China’s total exports and total imports are projected to grow at an average rate of 8.1 per cent and 4.9 per cent a year respectively.

China’s automotive industry is projected to emerge as a signifi cant exporter, accounting for about 10 per cent of global exports by 2025. Furthermore, by 2025, China could account for about 13 per cent of total exports of automotive products to the Middle East, currently an important market for Australia. In contrast, Australia’s automotive exports are projected to grow at a modest rate of 3 per cent a year during the projection period to 2025 and the industry is projected to lose some market share in the Middle East, particularly in the period 2015–25.

China’s rapid economic growth is projected to contribute to strong growth in its domestic use and imports of minerals and energy commodities. In particular, China’s import demand is projected to grow strongly for iron ore and coal — by an average rate of 9.4 per cent and 12.2 per cent a year respectively over the period 2005–25. As a major world supplier of these commodities, Australia is expected to benefi t. Australian exports of iron ore, for example, are projected to expand by an average rate of 7 per cent a year in the period 2005–10.

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However, Australia’s downstream minerals processing industries, specifi cally steel and aluminium, are projected to experience little growth over the projection period to 2025. Australian steel output, for example, is projected to grow by just 1.7 per cent a year on average in 2005–15, with the rate of growth slowing to 1.1 per cent a year in 2015–25. This trend refl ects the growth in market share of lower cost producers such as China.

Under the alternative growth scenario for China, the assumed invest-ment decline within China is projected to lead to lower domestic demand and hence lower prices in China than in the reference case. The lower domestic prices in China are projected to improve its international competitiveness, leading to higher exports and lower imports than in the reference case. However, the overall impact of the hypothetical invest-ment slowdown in China is a reduction in its gross domestic product rela-tive to the reference case for the rest of the projection period to 2025.

Under the low growth scenario, Australian exports of automotive products are estimated to fall below the reference case during 2010–15. Compared with the reference case, China’s gains in international competitiveness contribute signifi cantly to the decline in Australia’s automotive exports. Also, during 2010–15, Australia’s exports of minerals and metals are projected to be lower than in the reference case. In 2015, Australia’s aluminium exports, for example, are projected to be 6 per cent lower than in the reference case, and Australia’s coal exports are projected to be 1 per cent lower.

At 2025, under the lower growth scenario, economic activity in China remains signifi cantly below the level in the reference case. This results in Australia’s exports of iron ore being 3.4 per cent lower than in the refer-ence case, as these are highly oriented toward China. However, Austra-lia’s exports of coal rely much less on demand from China; as a result, coal exports remain as high in 2025 as they are in the reference case.

The analysis in this report demonstrates signifi cant impacts for Australia of future economic growth in China, particularly for the focus industries. In particular, the growth (or lack thereof) in China’s domestic demand for iron ore and steel is projected to have substantial direct impacts on Australia’s production and exports of these commodities. In the case of the aluminium smelting and automotive manufacturing sectors, China’s domestic cost conditions, and hence its international competitiveness, have a signifi cant impact on Australia’s production and exports.

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introduction

China has maintained rapid economic growth for three decades and now accounts for more than 13 per cent of world gross domestic product (GDP), in purchasing power parity terms (IMF 2005). In the fi ve years to 2004, China has accounted for a third of the increase in global GDP (IMF 2005). China has emerged as one of the world’s fast growing economies and is playing an increasing role in shaping the world economy.

The rapid economic growth and considerable size of the Chinese economy presents Austra-lian industries with both opportunities and challenges. To sustain its rapid economic devel-opment, China requires imports, including of commodities in which Australia enjoys a comparative advantage, such as iron ore and coal. China has therefore become an impor-tant market for Australian exports of these commodities. However, rapid technological advances, the ability to exploit large economies of scale and the endowment of cheap labor provide China with a competitive advantage in a range of downstream processing and manufacturing industries.

The Australian Government Department of Industry, Tourism and Resources has commis-sioned ABARE to undertake quantitative analysis of the likely implications for selected Australian industries of the potential future growth of the Chinese economy. The selected industries are automotive products, aluminium, steel, iron ore and coal.

There is considerable uncertainty about China’s potential future growth path. Accordingly, the likely impacts of China’s economic growth to 2025 are analysed under alternative scenarios using ABARE’s global trade and environment model, GTEM. The fi rst scenario — the reference case — assumes that China continues along a path of rapid economic growth, averaging 7.1 per cent a year over the period to 2025. The second scenario considers the implications of lower economic growth in China over the period 2010–25, resulting from a hypothetical investment slowdown in China in 2010 and 2011.

1

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an overview of recent growth and bilateral trade fl ows – selected industriesChina’s economic growth affects the Australian economy directly through bilateral trade fl ows and indirectly through its impacts on global markets. This chapter provides an over-view of recent bilateral trade between China and Australia, followed by an overview of the recent growth and trade performance of selected industries in China and Australia.

Trade complementarity between China and AustraliaChina’s rapid economic growth has been infl uenced considerably by the liberalisation of its trade and investment regimes. China is committed to free and open trade and investment through its membership of the Asia Pacifi c Economic Cooperation (APEC) forum. In addi-tion, China became the 143rd member of the World Trade Organisation (WTO) in 2001, signaling the country’s continuing commitment to trade reform.

The opening up of China’s economy in recent years has greatly increased Australia’s trade with China. For example, total bilateral merchandise trade between Australia and China (or Australia’s total merchandise exports to China plus Australia’s total merchandise imports from China) grew from A$15.1 billion in 2000 to A$28.9 billion in 2004, an average annual growth rate of 18 per cent (DFAT 2005). In this period, Australia’s total merchandise exports to China rose from A$6 billion to A$11 billion, while its merchandise imports from China increased from A$9.1 billion to A$17.9 billion.

Table 1 presents the 2003 bilateral merchandise trade between the two countries, both in absolute terms and as a share of the country’s total exports of each commodity. Austra-lia’s main exports to China are minerals, energy and agricultural products. Minerals and energy commodities alone comprise more than 50 per cent of Australia’s exports to China, amounting to almost A$4 billion. Exports to China account for a large proportion of total exports of iron ore and steel. China is also a signifi cant market for Australia’s agricultural exports.

In contrast, China’s merchandise exports to Australia are mainly labor intensive manufac-tures, with the major categories being textiles, wearing apparel and leather products, as well as machinery and electronics. Together, these items amounted to A$6 billion in 2003, and constituted approximately 70 per cent of China’s exports to Australia (United Nations 2004).

2

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The patterns of bilateral trade fl ows between China and Australia in the past have revealed substantial trade complementarities between the two economies. Given their respective resource endowments and development paths, the bilateral trade relationships between the two countries could deepen in the coming years.

1 Australia–China trade, by broad commodity, 2003

China’s share Value of exports in Australia’s to China total exports

A$m b %Australia’s exports to ChinaBroad commodities in order of importance to Australia a Iron ore 1 732.1 34.1Agriculture, forestry and fi sh 1 347.2 13.5Energy nec 914.1 8.7Minerals nec 703.2 5.3Manufacturing nec 543.8 5.2Machinery and electronics 375.9 3.7Food products 318.5 2.3Ferrous metals 317.7 27.6Aluminium c 315.9 8.7Coal 241.9 2.2Textiles, wearing apparel and leather 200.6 9.4Automotive products 55.2 1.3

Total 7 066.2 7.1

Australia’s share Value of exports in China’s to Australia total exports

A$m b %China’s exports to AustraliaBroad commodities in order of importance to China aMachinery and electronics 3 306.9 1.1Textiles, wearing apparel and leather 2 781.6 1.8Manufacturing nec 2 535.7 1.8Energy nec 328.9 2.8Automotive products 99.9 0.9Agriculture, forestry and fi sh 37.4 0.3Food products 32.8 0.2Minerals nec 16.6 0.3Aluminium c 3.6 0.1Coal nil naIron ore nil naFerrous metals nil na

Total 9 143.7 1.4

a Commodities are grouped to match GTEM commodity aggregates. b Converted from US$ using 2003 exchange rate of A$1 = US$0.651. c Alumina is included in minerals nec. nec Not elsewhere classifi ed. na Not applicable. Source: United Nations (2004).

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Recent developments in focus industries

This study focuses on fi ve industries: automotive products, aluminium, steel, iron ore and coal. These fi ve industries are important to the Australian economy and there are strong linkages between them. In particular, automotive products is a metals intensive industry, and as such is an important user of both steel and aluminium. In turn, coal and iron ore are an integral feedstock in blast furnace production of steel. These linkages underlie the analysis in the study.

Automotive productsWith the rapid growth of national and personal incomes in China, the ownership of motor vehicles has expanded signifi cantly. The number of privately owned cars in China increased at an average rate of 14.7 per cent a year in the fi ve years to 2002 (He et al. 2005). There is still considerable scope for continuing growth in motor vehicle sales in China. In 2002, there were fi ve cars owned per 1000 people in China, compared with about 500 in Australia and close to 800 in the United States (KPMG 2004).

In 2004, China produced 5.1 million motor vehicles, 14 per cent more than in 2003 (National Bureau of Statistics of China 2005). China is the third largest producer of motor vehicles in the world and a signifi cant exporter. Given that an additional US$13 billion of foreign direct investment in China’s automotive sector was announced in 2004, growth in China’s automotive production and export capacity is likely to remain strong, at least in the medium term.

China’s commitment to WTO reforms include liberalising automotive imports. By mid-2006, China is obliged to reduce tariffs on motor vehicles from 30 per cent to 25 per cent, and on automotive parts from 15 per cent to 10 per cent.

Australia is a small automotive producer by world standards, producing 405 000 vehicles in 2004 (APEC 2005). In Australia, exports of automotive products amounted to almost A$4.7 billion in 2004.

On 1 January 2005, Australia reduced its tariff on passenger motor vehicles and parts thereof from 15 per cent to 10 per cent (APEC 2005). This tariff will be further reduced to 5 per cent in 2010. The tariff on light commercial vehicles and parts thereof remained at 5 per cent on 1 January 2005 and will remain at that rate in 2010.

At present, China is neither a signifi cant export market for Australian vehicles nor an impor-tant source of vehicle imports. However, in the component market, China is Australia’s fi fth largest source of imports and Australia’s sixth largest export destination. Australia’s most important export market for automotive products (principally, motor vehicles) is the Middle East (APEC 2005). Other important export markets are the United States, New Zealand and the Republic of Korea.

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Aluminium

Between 2000 and 2004, consumption of aluminium in China increased at an average rate of 19 per cent a year. China was the world’s largest aluminium consumer in 2004, consuming 6.1 million tonnes of aluminium (Mollard et al. 2005). Strong growth in aluminium consumption in China has been the result of strong growth in aluminium intensive indus-tries, particularly the construction and automotive products industries.

China’s aluminium production grew by more than 90 per cent between 2002 and 2004, to around 6.7 million tonnes, accounting for the majority of world aluminium production growth in that period (Mollard et al. 2005). This unprecedented rate of growth has imposed considerable pressure on upstream capacity, particularly in China’s electricity and alumina industries. In order to relieve this pressure, a number of measures were announced in China in 2004, with the aim of slowing growth in China’s aluminium smelting capacity (Mollard et al. 2005). These measures include restrictions on credit to the aluminium industry, taxes on aluminium exports, and the enforced closure of an estimated one million tonnes of smelting capacity. These measures are expected to slow the future rate of growth in China’s aluminium production.

Alumina is an integral feedstock in the aluminium production process. Because China’s domestic alumina sector has been unable to meet all the requirements of the rapidly expanding aluminium smelting industry, alumina imports net of exports have increased threefold since 2000 to an estimated 6 million tonnes in 2004.

The widening gap between China’s domestic alumina production capacity and the feed-stock needs of its rapidly growing aluminium smelting industry presents an opportunity for increasing Australian alumina exports to China.

Australia is an important source of the world’s alumina, supplying around a quarter of total world supplies in 2004 (Mollard et al. 2005). In the medium term, substantial new alumina refi nery capacity is expected to come on line in Australia, as well as in other major supplying countries such as Jamaica, Brazil and Guinea.

Australia is also an important aluminium exporter, supplying almost 10 per cent of world primary aluminium exports in 2004. However, aluminium smelting capacity in Australia is not likely to expand signifi cantly in the near future, as aluminium smelters are likely to fi nd it increasingly diffi cult to extend current favorable contracts for electricity — a key input into the smelting process (Mollard et al. 2005). To date, there has been little commitment to expand Australia’s aluminium smelting capacity. The only signifi cant committed addition is the 70 000 tonnes a year capacity expansion at the Tomago smelter in New South Wales by around 2007 (Mollard et al. 2005).

Steel and iron oreBetween 2000 and 2004, steel consumption in China increased by 20 per cent a year on average, contributing to strong growth in world steel consumption (Richmond and Maurer 2005). More specifi cally, global steel consumption increased by 22 per cent during this period, with China accounting for almost 80 per cent of that growth.

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Behind the rapid growth in China’s steel consumption has been rapid growth in the output of steel intensive industries, particularly construction and automotive manufacturing indus-tries. China has a competitive advantage in steel production, in part because the rapid growth in domestic consumption supports large scale capacity additions, harnessing econo-mies of scale. The recent growth in global steel production has been largely concentrated in China.

In 2004, the volume of steel consumption in China exceeded China’s steel production, requiring substantial growth in steel imports to supplement domestic supplies. This infl u-enced the direction of Australian steel exports. In particular, China’s share of Australia’s steel exports increased from 4 per cent in 2000 to almost a third in 2003 (ABARE 2004).

In the fi rst four months of 2005, however, China’s steel production exceeded its steel consumption, resulting in China exporting 1.8 million tonnes more crude steel than it imported (Richmond et al. 2005). Future growth in China’s steel exports will be moderated somewhat by government measures to dampen export growth. For example, early in 2005, Chinese authorities reduced export rebates on steel and imposed an import tax on raw mate-rials used in the production of exported steel (Richmond et al. 2005). China’s emergence as a net exporter of steel can be expected to have signifi cant ramifi cations for Australian steel exports to China and elsewhere.

Iron ore is a vital feedstock in the blast furnace steel production process. Demand for iron ore therefore mirrors the production of steel in blast furnaces.

While China has become a net exporter of steel, it continues to rely on imported iron ore because its domestic supplies have a low iron content. Australia is the world’s leading exporter of iron ore and has benefi ted signifi cantly from China’s high demand for iron ore. The volume of Australia’s iron ore exports, for example, increased by 20 per cent between 2000 and 2003, driven by an 80 per cent increase in exports to China (ABARE 2004).

China is the second largest destination for Australia’s iron ore exports, purchasing a third of Australia’s total iron ore export volumes in 2003, with the prospect of ongoing strong growth as additional capacity comes on line in Australia (ABARE 2004). China’s demand for imported iron ore under long term contracts is likely to be strengthened by new regu-lations in China that restrict the access of Chinese companies to the iron ore spot market (Richmond et al. 2005). These regulations will be an additional incentive for buyers to enter long term contracts, favoring low cost and reliable Australian suppliers.

CoalAccording to ABARE estimates, between 2000 and 2004 China’s coal consumption grew by 88 per cent, to reach 1.8 billion tonnes in 2004. Coal accounted for an estimated 73 per cent of total primary energy consumption in China in 2004.

The use of coal varies for different types of coal. Coking (or metallurgical) coal is characterised by a high carbon content that makes it an integral feedstock in blast furnace steel production. Thermal coal is used mainly to generate electricity and in other heat

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raising applications in the manufacturing sector. Thermal coal accounted for 78 per cent of electricity generation in China in 2002 (IEA 2004).

China is well endowed with thermal coal and coking coal. However, China’s coking coal deposits are semisoft coal, which is of a lower quality than the hard coking coal of countries such as Australia and Canada. China therefore relies on imports to supply its hard coking coal requirements.

The strong growth in coal consumption has placed pressure on coal production and distri-bution infrastructure in China. Despite China’s production almost doubling from 1 billion tonnes in 2000 to more than 1.9 billion tonnes in 2004, there have been widespread coal and electricity shortages since 2003 (National Bureau of Statistics China 2005; ABARE 2004).

Because of high demand in the domestic market, the Chinese Government adopted a formal export quota system in 2004 to restrict China’s coal exports. Under this system, there are four licensed exporters. Together, they were permitted to export 80 million tonnes in 2004, a signifi cant reduction from the 94 million tonnes of actual exports in 2003. Thermal coal exports in 2004 did not fall much from the level in 2003. However, coking coal exports more than halved over the same period, from 13.1 million tonnes in 2003 to an estimated 5.8 million tonnes in 2004. The target for coal exports in 2005 remains at 80 million tonnes.

China’s coal imports have grown in order to supplement domestic supplies. Coal imports in 2004 rose by 47 per cent over the previous year, reaching 17.1 million tonnes. Much of this increase has been driven by greater import requirements for hard coking coal as an input to coke ovens for blast furnace steel production. Coking coal imports reached 6.4 million tonnes in 2004 and accounted for an estimated 37 per cent of total coal imports, compared with 14 per cent in 2002. Thermal coal imports also rose in 2004, to reach 10.7 million tonnes.

While China remains a minor destination for Australian coal exports, China’s importance is growing quickly. Between 2000-01 and 2003-04, China’s share of Australia’s thermal coal exports increased from less than 1 per cent to more than 2 per cent, or from 0.6 million tonnes to 2.5 million tonnes (ABARE 2004). Similarly, over that same period, China’s share of Australia’s hard coking coal exports rose from below 1 per cent to around 4.5 per cent, or from 0.4 million tonnes to 3.1 million tonnes.

Australia is in a competitive position to benefi t from future growth in China’s hard coking coal imports. Australia is a competitive, reliable supplier of hard coking coal, and has the added advantage of proximity to the Chinese market, compared with suppliers such as Canada.

Because of strong growth in exports to China and developing economies more generally, exports have been the principal source of growth in Australia’s coal sector. Between 2000-01 and 2003-04, Australia’s coal exports rose by about 13 per cent to 218 million tonnes, whereas domestic coal consumption rose by just 4 per cent to 67 million tonnes (ABARE 2004).

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modeling framework – GTEM

The alternative scenarios of China’s economic growth are analysed using ABARE’s global trade and environment model, GTEM. GTEM is a dynamic general equilibrium model of the world economy that incorporates up to 68 regions, including China and Australia and their major trading partners, and up to 62 sectors within each regional economy. The model simulates production, consumption, bilateral trade and investment for each economy over the medium to long term. A comprehensive description of GTEM and its programming code can be viewed at www.abareconomics.com.

For the purpose of this study, GTEM includes detailed representations of key sectors, including the industries that are the focus of this study — automotives products, aluminium, steel, iron ore and coal. The model captures interindustry linkages and linkages with the broader economy. The model also incorporates the bilateral trade links between the Chinese and Australian economies as well as between these and other economies.

Interpreting GTEM results under China’s investment slowdown scenarioThe economic impacts of an investment slowdown in China — China’s low growth scenario — are expressed in relation to the reference case in which no unanticipated events or policy changes are assumed. Unless stated otherwise, the impacts under the alternative growth scenario are reported as percentage deviations from the reference case levels.

For example, the impact of an investment slowdown in China on Australia’s total imports can be identifi ed by comparing the value of Australia’s total imports under the low growth scenario with that in the reference case, as illustrated in fi gure A. To provide a numerical example, consider that the value of Australia’s reference case imports at 2010 is projected to be $10 billion

3

A Australian imports (2005$billion)

Reference case

c

b

a

d

e

2005 2010 Time

Impactcalculatedas deviation from the reference case

Deviationfrom thereference case

2005

0

2

10

10.2

2010 Time

Deviation from the reference case (%)

Deviation from the reference case in a GTEM simulation

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(in 2005 Australian dollar terms; distance ab in the upper panel of fi gure A). Also consider that following the investment slowdown in China, the value of Australia’s total imports at 2010 is projected to rise to $10.2 billion (in 2005 Australian dollar terms; distance ac). The effect of China’s investment slowdown on Australia’s total imports at 2010 in this example is an increase of $0.2 billion from the reference case level (distance bc). This corresponds with the 2 per cent increase in the value of Australia’s total imports from the reference case identifi ed as the distance de in the lower panel of fi gure A.

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reference case growth outlook for China and AustraliaAfter three decades of rapid economic growth, China has become the world’s third largest economy in purchasing power parity terms after the United States and the European Union 25 (IMF 2005). China’s rapidly growing demand for raw materials and products, together with its increasing import dependence, may provide opportunities for Australian exporters in the future. Australian industry must, however, compete effectively with other major suppliers in order to benefi t from the strong growth in Chinese demand. This chapter considers the implications for selected Australian industries if China’s economy continues to grow rapidly in the period to 2025.

Reference case assumptionsThe reference case projects the outlook for the global economy in the absence of any unanticipated policy changes or external shocks. Key assumptions underpinning the reference case include the rate of growth in gross domestic product (GDP) and fuel shares in electricity generation for each individual GTEM region.

In this study, the reference case is a scenario of continuing ‘high’ economic growth in China. China’s real GDP is assumed to grow at an average rate of 7.1 per cent a year over the projection period, 2005–25 (fi gure B). The Chinese economy is assumed to grow slightly faster in the fi rst decade to 2015 than in the following decade of the projection period. In Australia, GDP is assumed to grow at an average rate of 3.3 per cent a year over the projection period.

Macroeconomic outlookOne important aspect of the GTEM macroeconomic projections for China is that the high economic growth in China underpins signifi cant and continuing growth in exports (table 2). Exports are projected to grow at an average rate of 8.1 per cent a year over the period to 2025. During the period, China’s domestic consumption is projected to grow at an average rate of 7.8 per cent a year and total imports at 4.9 per cent a year.

4

B Growth in real gross domestic product in China, reference case

20252000 2005 2010 20202015

%

7

8

5

6

9

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In Australia, domestic consumption is projected to grow at an average rate of 3.3 per cent a year over the projection period, slightly faster than the overall growth in exports of 2.7 per cent a year (table 2).

The reference case outlook for the selected industries, of automotive products, aluminium, steel, iron ore and coal, is presented in the remainder of this chapter.

Automotive productsChina’s automotive production is projected to grow at about 10 per cent a year over the period 2005–25 (table 3), becoming the world’s second largest manufacturer after the United States by 2025. By 2025, China is also projected to account for about 10 per cent of global exports of automotive prod-ucts.

In Australia, the growth in automotive imports is signifi cantly higher than the growth of output in the period 2004–15 (fi gure C). This is in response to Australia’s unilateral tariff liberalisation in 2005 and 2010, which allows cheaper imports into the Australian market.

As noted earlier, the Middle East is Austra-lia’s largest export market for automotive products. The possible emergence of China as an exporter to the Middle East is there-fore of particular importance for Australia. Australia’s exports to the Middle East are projected to slow signifi cantly in the latter part of the projection period as this market matures, growing by just 2.6 per cent in

2 Macroeconomic projections – Australia and China, reference caseAverage annual growth

Australia China

2005–10 2010–15 2015–25 2005–10 2010–15 2015–25

% % % % % %

Gross domestic product 3.4 3.4 3.2 8.0 7.5 6.4Consumption 3.4 3.4 3.3 8.1 8.2 7.4Exports 3.1 2.7 2.4 8.5 7.9 8.0Imports 3.1 2.9 2.9 5.3 5.1 4.5

3 Automotive products projections – China, reference case

Average annual growth

2005–10 2010–15 2015–25

% % %

Production 11.5 10.0 8.9Exports 16.0 13.1 11.9… to Middle East 17.0 14.0 12.7Imports 1.6 2.1 1.4

C Growth in Australian automotive production and imports, reference caseAverage annual growth

%

2

1

3

2015–252009–152004–09

Imports

Production

Time periods chosen to demonstrate the impacts of unilat-eral tariff liberalisation in 2005 and 2010.

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the period 2015–25 (fi gure D). In contrast, China’s exports to the Middle East are projected to grow rapidly from a low base, at a rate of more than 14 per cent a year over the period 2005–25 (table 3). At this rate of growth, China would account for about 13 per cent of total Middle East imports of automotive products by 2025.

AluminiumRefl ecting China’s GDP growth path in the reference case, the growth in China’s aluminium consumption and production is projected to moderate from the current high growth rates (table 4). Nonetheless, the growth in China’s aluminium consumption is projected to remain strong, increasing by 4.1 per cent a year on average in the period 2005–25.

China is projected to remain heavily dependent on alumina imports for its aluminium production (table 4). Imports as a share of domestic alumina sales to Chinese aluminium smelters are projected to increase from an estimated 50 per cent in 2005 to more than 53 per cent in 2010. However, in the medium to longer term, China’s alumina industry is projected to keep pace with domestic requirements as the growth in aluminium production is projected to slow to a more moderate rate.

Australia’s production and exports of aluminium are projected to increase only modestly, refl ecting that there are limited known plans to expand its smelting capacity over the projec-tion period. It is projected that Australian aluminium exports will rise at an average rate of 0.9 per cent a year in the period 2005–10, to 1.7 million tonnes in 2010. Beyond 2010, little growth in Australian aluminium capacity is projected. This refl ects the expectation that, at least in the medium term, the cost of electricity in Australia will not be as competitive as in other aluminium producing economies (Mollard et al. 2005).

There is currently a world shortage in alumina refi ning capacity, as is refl ected in high alumina prices (Richmond et al. 2005). In response to high prices, Australia’s alumina production and exports are projected to expand strongly in the short term, with exports increasing at an average rate of 6.6 per cent a year in 2005–10 (fi gure E). Strong growth in alumina capacity in Australia and in other important alumina producing economies is likely to moderate alumina prices, contributing to more moderate growth in Australia’s alumina production and exports in the period 2010–25. Over the period 2010–25, Australia’s produc-

D Growth in Australian automotive exports, reference caseAverage annual growth

%

2

1

3

4

2015–252009–152004–09

Total exports

Exports to the Middle East

Time periods chosen to be consistent with fi gure C.

4 Aluminium projections – China, reference case Average annual growth

2005–10 2010–15 2015–25

% % %AluminiumConsumption 5.3 4.1 3.5Production 5.6 4.2 3.5

AluminaProduction 4.3 4.9 3.6Imports 7.0 3.5 3.4

abare eReport 05.13

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tion and exports of alumina are projected to grow at an average rate of 1.1 per cent and 1.5 per cent a year respectively.

Steel and iron oreRapid expansion of Chinese steel inten-sive production activities, including auto-motive manufacturing and construction, is projected to continue to drive strong growth in China’s steel consumption at an average rate of 6.6 per cent a year over the period 2005–25 (table 5). This implies that the real value of China’s steel consumption will increase almost fourfold between 2005 and 2025.

China’s steel production is projected to grow at an average rate of 7 per cent a year over the projection period (table 5). Blast furnace technology dominates steel production in China and is projected to continue to do so because it produces larger quantities of steel at lower unit costs than electric arc furnaces and is less affected by the current electricity supply constraints (Richmond et al. 2005).

The substantial increase in China’s blast furnace steel output is projected to support strong growth in demand for iron ore and metallurgical coal. China’s domestic iron ore deposits are of a low grade, making it more economic for China to import from economies such as Australia (Richmond and Maurer 2005). Chinese imports of iron ore are therefore projected to grow strongly at an average rate of 9.4 per cent a year in the period 2005–25, mirroring the strong growth in steel output (table 5).

Global steel production is expected to be dominated by economies with lower oper-ating costs and higher forecast growth in steel consumption, such as China, India and Brazil (Richmond and Maurer 2005). Growth in steel production in Australia is projected to be moderate, supported by steady growth in domestic consumption rather than expansion in exports.

Over time, the growth of steel output in Australia is projected to decline, from an average growth of 1.7 per cent a year in

E Growth in Australia’s production and exports of alumina, reference caseAverage annual growth

%

2

1

3

4

5

6

2015–252010–152005–10

Total exports

Production

5 Steel and iron ore projections – China, reference case Average annual growth

2005–10 2010–15 2015–25

% % %SteelConsumption 7.7 6.8 6.0Production 8.4 7.3 6.4

Iron oreProduction 4.4 2.4 1.4Imports 13.5 9.4 7.5

F Changes in Australia’s production and exports of steel, reference caseAverage annual growth

–1.0

%

–0.5

0.5

1.0

1.5

2015–252010–152005–10

Exports

Production

abare eReport 05.13

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2005–15 to 1.1 per cent a year in 2015–25 (fi gure F). This refl ects the impact of declining world demand for Australian steel exports as lower cost producers such as China increase output in a range of steel products.

In response to the current global shortage of iron ore, Australian iron ore exports are projected to rise sharply, at an average rate of 7 per cent a year in the period 2005–10 (fi gure G). Exports to China are projected to be particularly strong, growing at 9.4 per cent a year in the period 2005–10. The growth in steel production and hence in iron ore imports in China will, among other things, continue to support growth in the export of Australian iron ore from 2010 to 2025.

CoalRefl ecting the rapid pace of growth in China’s steel production, together with strong growth in other coal intensive industries such as electricity and cement production, China’s coal consumption is projected to grow at 4.2 per cent a year in the period 2005–25.

China is well endowed with thermal coal and semisoft coking coal but China’s hard coking coal reserves are not adequate to support strong growth in blast furnace steel production. In addition, domestic coal reserves are located in western China and require substantial infrastructure to serve the centres of rapid coal consumption along the east coast. Coal imports are accordingly projected to rise sharply over the projection period, at an average annual rate of 12.2 per cent (table 6).

In 2004 and 2005, China’s total coal exports have been constrained by government policy to 80 million tonnes a year. It is assumed in the reference case that this constraint remains in place until 2015. From 2015, the strong growth in domestic consumption is projected to result in export volumes falling signifi cantly through to 2025. By 2025, China’s coal export volumes are projected to be 33 per cent lower than in 2005.

G Growth in Australia’s production and exports of iron ore, reference caseAverage annual growth

%

2

1

3

4

5

6

2015–252010–152005–10

Total exports

Production

6 Coal projections – China, reference case Average annual growth

2005–10 2010–15 2015–25

% % %

Consumption 5.2 4.3 3.6Imports 12.4 12.7 11.8

H Growth in Australia’s production and export of coal, reference caseAverage annual growth

%

4

2

6

8

10

12

14

2015–252010–152005–10

ExportsExports to China

Production

abare eReport 05.13

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Australian coal production is projected to grow at about 3 per cent a year over the period 2005–25, supported by growth in exports, including to China (fi gure H). Australia’s coal exports to China are projected to rise rapidly at around 13 per cent a year to 2025. However, China currently constitutes a small share of total Australian coal exports, and therefore Australia’s total coal exports are projected to grow around 3 per cent a year over the period 2005–25.

Because of the strong growth in exports to China, China’s share of Australia’s coal exports grows considerably over the projection period. In 2004, China imported around 2.5 per cent of Australian coal exports. By 2025, China is projected to account for around 15 per cent of Australia’s coal exports.

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low growth in China

In the period since 2003, China’s economic growth has been high, driven largely by exports and a rapid rise in investment. Recently, however, some commentators have expressed concern that high economic growth in China is unsustainable (see, for example, Hughes 2005). A key reason for this view is that easy credit from a relatively undisciplined domestic banking sector could lead to overcapacity in the economy. This, together with a possible emergence of skill shortages in China, could have negative impacts on investment in the economy. The current investment in public infrastructure, including that associated with the 2008 Beijing Olympics, may postpone any investment slowdown in China for some time. However, some observers are predicting a decline in investment and a possible slowdown in economic growth some time in the short to medium term.

China’s growth prospects could also be undermined by the risks associated with any likely process of fi nancial reform within China. It is generally accepted that China needs to liber-alise its fi nancial system to ensure the effi cient allocation of loans and investment funds (see, for example, Drysdale 2000). However, the process of fi nancial reform is not without risk as evidenced by the fi nancial downturns in Latin America in the 1980s, and in the Republic of Korea and south east Asia in the late 1990s. Even in some developed econo-mies, fi nancial reforms in the 1980s resulted in an asset price boom and bust, causing signifi cant economic downturns, before prudential regulations managed the transition to smoothly operating fi nancial systems.

In the low growth scenario described in this chapter, it is assumed that there is a decline in investment in China of 10 per cent a year in 2010 and 2011. The overall contraction in investment assumed here is of a similar magnitude to that which occurred during the east Asian economic slowdown in the Republic of Korea in 1997, but is considerably less than that in Indonesia, Thailand and Malaysia in 1997-98.

Impacts of the low growth scenarioThe 10 per cent decline in investment in China in 2010 and 2011 is projected to lead to a much lower level of investment in China in those years than in the reference case. While the rate of growth in investment recovers after 2011, the productive capacity of China’s economy remains lower throughout the projection period, contributing to a lower level of economic activity throughout the rest of the period to 2025 (fi gure I).

The impacts of the assumed reductions in investment involve lower spending and hence lower demand and lower prices within China’s domestic economy, relative to the refer-

5

abare eReport 05.13

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ence case. The decline in domestic prices enhances China’s international competitiveness, leading to higher exports and lower imports than in the reference case (fi gure J). The overall impact of the hypothetical investment slowdown is a reduction in gross domestic product relative to the reference case (fi gure I). Between 2010 and 2025, under the low growth scenario, gross domestic product is projected to grow at an average rate of 6.3 per cent a year compared with 6.8 per cent in the reference case.

Because of the growing relative importance of China in the global economy over the projec-tion period, the hypothetical investment slowdown in China is projected to lead to lower global demand than in the reference case, particularly for certain minerals commodities. This is offset to some extent by stronger growth in other economies that benefi t from an increased availability of capital at the global level. This is because reduced investment in China means that there is greater availability of capital elsewhere in the world (including, for example, the United States and Australia) after 2010 compared with the reference case. As more capital becomes available in these economies, domestic spending, particularly investment spending, is projected to increase in these economies relative to the reference case.

In response to the hypothetical slowdown of growth in China, Australia’s total exports are lower than in the reference case because of lower global demand (fi gure K). In addi-tion, any infl ow of capital to Australia raises domestic spending, particularly investment spending, thereby raising domestic prices relative to the reference case. The rise in prices undermines Australia’s international competitiveness, and as a result, imports rise and exports fall relative to the reference case in the period immediately after the slowdown in growth in China (fi gure K).

J Changes in China's exports and imports, low growth scenario Relative to the reference case

%

20152010

ExportsImports

–20

–10

10

20

30

40

I China's GDP growth path, alternative scenarios

2010 2015 2020 2025

Reference case

Low growth

index 2010 = 1

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

K Changes in Australia’s exports and imports, low growth scenario Relative to the reference case

%

20152010

Exports

Imports

–2

–3

–1

1

2

3

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Automotive products

During and immediately after the slowdown in economic growth in China, its domestic demand for automotive products is projected to decline relative to the reference case, with imports falling and exports rising (table 7). China’s automotive imports, for example, contract relative to the reference case by 25 per cent in 2010 and by 33 per cent in 2015. The expansion in exports and the decline in imports lead to an increase in domestic automotive production in China, relative to the reference case (table 7).

The improvement in China’s export com-petitiveness during the period 2010–15 has important implication for third markets. The Middle East is of particular interest given that it is currently Australia’s most important automotive export market. The improvement in China’s export competitive-ness over the reference case results in China gaining a larger share of the Middle East market than in the reference case (fi gure L). China’s share of the Middle East market increases from an estimated 3.8 per cent in the reference case in 2010 to 6.8 per cent in the low growth scenario in that same year. In 2015, China’s share of the Middle East market remains higher (11.4 per cent) than in the reference case (6 per cent).

In the face of the slowing of Chinese economic growth, and of the changing competitive-ness of Chinese automotive products, Australian exports are projected to fall below the reference case by 6 per cent in both 2010 and 2015.

AluminiumUnder the low growth scenario, the aluminium industry is negatively affected by lower levels of construction activity in the domestic economy but positively affected by the increased level of activity in aluminium intensive manufacturing, such as automotive prod-ucts. China’s production of aluminium is projected to increase by 8 per cent in the low growth scenario at 2010 relative to the reference case (table 8). This can be compared with the much stronger projected growth in automotive manufacturing of 20 per cent relative to the reference case (table 7). In this scenario, the lower growth in aluminium than in automo-tive manufacturing can be explained largely by the negative impacts on aluminium demand of the smaller domestic construction sector in China relative to the reference case.

7 Impacts on China’s automotive products industry, low growth scenario

Relative to the reference case

2010 2015

% %

Production 19.6 19.6Exports 80.7 92.6Imports –25.4 –33.0

L China’s share of the Middle East automotive export market under alternative scenarios

%

20152010

2

4

6

8

10Low growthReference case

abare eReport 05.13

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At 2025, demand for aluminium in the auto-motive industry as well as in the construc-tion sector is projected to be lower than in the reference case, and consumption of aluminium in China is projected to be 4.2 per cent lower than in the reference case.

China imports alumina to supplement domestic alumina supplies. Chinese alumina imports are projected to increase in 2010 by 3.6 per cent relative to the reference case, to help satisfy higher demand in the aluminium industry than in the reference case (table 8). However, by 2025, China’s aluminium output is projected to be 4.4 per cent lower than in the reference case, and consequently the gap between China’s alumina requirements and China’s domestic alumina capacity is projected to be consid-erably smaller than in the reference case. Therefore, the projected alumina imports into China at 2025 are 7.6 per cent lower than in the reference case.

Australia’s aluminium and alumina indus-tries are highly export oriented, exporting more than 80 per cent of output (Mollard et al. 2005). The performance of Australia’s aluminium and alumina industries therefore depends heavily on global factors, including China’s import demand.

In 2010 and 2015, in response to the rise in China’s domestic competitiveness, China’s demand for aluminium and alumina imports is projected to be lower than in the reference case. This contributes to a projected decline in exports of aluminium and alumina from Australia, relative to the reference case (fi gure M).

Steel and iron oreAs in the case of aluminium, steel demand in China is affected by the changes in the input demand for steel in China’s construction, automotive and other steel intensive industries. As discussed earlier, under the low growth scenario, the level of construction activity in China’s domestic economy is projected to remain below the reference case from 2010 onward. This dampens the demand in China for steel, relative to the reference case. However, the steel intensive sectors such as automotives products manufacturing are projected to grow rela-tive to the reference case in the period immediately after 2010, followed by a downturn later in the projection period to 2025. As shown in table 9, at 2010 and 2015, domestic demand for steel in China is projected to increase relative to the reference case, mainly due

8 Impacts on China’s aluminium industry, low growth scenario

Relative to the reference case

2010 2015

% %AluminiumConsumption 5.8 3.8Production 7.8 6.0Imports –9.4 –11.3

AluminaProduction 11.8 12.9Imports 3.6 –1.4

M Changes in Australia’s aluminium and alumina exports, low growth scenario Relative to the reference case

–6

%

20152010

–5

–4

–3

–2

–1

AluminaAluminium

abare eReport 05.13

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to the increased projected output in steel intensive sectors more than offsetting the nega-tive impacts of the construction downturn. At 2025, however, domestic steel demand is projected to fall relative to the reference case. Steel production in China is therefore higher than in the reference case in 2010 and 2015, but 4.6 per cent lower in 2025 (table 9).

Refl ecting the changes in steel production, China’s iron ore imports are higher than in the reference case in 2010 and 2015, but 5.2 per cent lower in 2025 (table 9).

At 2025, in contrast to all other focus com-modities, China’s steel exports are projected to be substantially higher than in the refer-ence case. Despite the scarcity of capital and associated infrastructure constraints relative to the reference case, the cost of steel production in China is projected to remain highly competitive with the rest of the world. The decline in domestic demand for Chinese steel, combined with China’s competitive advantage in steel produc-tion, is projected to result in Chinese steel becoming more export oriented in 2025 than in the reference case. As shown in fi gure N, in 2025, domestic consumption of China’s steel is projected to be lower than in the reference case, whereas exports are projected to be considerably larger.

More than 30 per cent of Australia’s total steel production and more than 90 per cent of its iron ore production are exported (ABARE 2005). China is an important market for both Australian steel exports and Australian iron ore exports. Therefore, the decline in China’s demand for imported steel under the low growth scenario (table 9) contributes to Australian steel exports being lower than in the reference case (fi gure O).

Conversely, Australia’s iron ore exports are higher in 2010 and 2015, and 3.4 per cent lower in 2025, refl ecting the changes in import demand in China (fi gure O).

9 Impacts on China’s steel and iron ore industry, low growth scenario

Relative to the reference case

2010 2015 2025

% % %SteelConsumption 4.9 1.5 –7.9Production 6.7 5.1 –4.6Exports 34.0 55.0 35.4Imports –14.3 –25.5 –24.1

Iron oreImports 5.3 3.5 –5.2

N Changes in China's steel industry, 2025low growth scenarioRelative to the reference case

–10

%

10

20

30

Exports

Consumption

O Changes in Australia's steel and iron ore exports, low growth scenario Relative to the reference case

%

202520152010

Iron ore

Steel

–12

–10

–8

–6

–4

–2

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Coal

The expansion in production of steel rela-tive to the reference case in 2010 and 2015 contributes to an expansion in Chinese metallurgical coal consumption and output in the same years (table 10). However, in 2025, there is less Chinese steel production than in the reference case, and this contrib-utes to 3.3 per cent lower coal demand than in the reference case, and to 1.6 per cent lower coal production (table 10).

China requires less coal imports in the low growth scenario than in the reference case, to supplement its domestic coal supplies. For example, China’s coal imports are projected to be 19 per cent lower than the reference case in 2015 and 31 per cent lower in 2025.

As a result of lower import demand in China, Australia’s coal exports are lower in the low growth scenario than in the refer-ence case (fi gure P).

10 Impacts on China’s coal industry, low growth scenario

Relative to the reference case

2010 2015 2025

% % %

Consumption 2.4 0.9 –3.3Production 2.7 2.5 –1.6Imports –3.4 –18.6 –30.8

P Changes in Australia's coal industry, low growth scenario Relative to the reference case

–1.0

%

Exports

Production–0.8

–0.6

–0.4

–0.2

2010 2015

abare eReport 05.13

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references

ABARE 2004, Australian Commodity Statistics 2004, Canberra.

—— 2005, Australian Commodities, vol. 12, no. 2, June quarter.

APEC (Asia Pacifi c Economic Cooperation) 2005, Automotives Profi le – Australia (www.apec.org/apec/business_resources/industry_dialogues/automotive_dialogue.html).

DFAT (Department of Foreign Affairs and Trade) 2005, ‘People’s Republic of China, China: relative importance to Australia’, Canberra (www.dfat.gov.au/geo/china/proc_bilat_fs.html ).

Drysdale, P. (ed.) 2000, Reform and Recovery in East Asia: The Role of the State and Economic Enterprise, Routledge, London and New York.

He, K., Huo, H., Zhang, Q., He, D., An, F., Wang, M. and Walsh, M.P. 2005, ‘Oil consump-tion and CO

2 emissions in China’s road transport: current status, future trends, and policy

implications’, Energy Policy, vol. 33, pp. 1499–507.

Hughes, B. 2005, ‘Chinese outlook chequered’, Australian Financial Review, 8 June.

IEA (International Energy Agency, Organisation for Economic Cooperation and Develop-ment) 2004, Energy Balances of Non-OECD Countries, 2002, Paris.

IMF (International Monetary Fund) 2005, World Economic Outlook Database, Washington DC, April (www.imf.org/external/pubs/ft/weo/2005/01/data/index.htm).

KPMG 2004, Industrial and Automotive Products: China’s Automotive and Components Market 2004, Advisory, Hong Kong, September (www.kpmg.com.au/Portals/0/China-AutoComponentReport04.pdf).

Mollard, W., Richmond, S., Haine, I. and Penney K. 2005, ‘Base metals outlook to 2010’, Australian Commodities, vol. 12, no. 1, March quarter, pp. 126–42.

National Burea of Statistics of China 2005, Statistical Comminque of the People’s Republic of China on the 2004 National Economic and Social Development, Beijing, 28 February (www.stats.gov.cn).

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Richmond, S. and Maurer, A. 2005, ‘Steel and steel making raw materials: outlook to 2010 driven by China, India and Brazil’, Australian Commodities, vol. 12, no. 1, March quarter, pp. 103–18.

——, Mollard, W., Drum, F., Wilson, R. and Maurer, A. 2005, ‘Metals: stocks of most commodities to increase in 2006’, Australian Commodities, vol. 12, no. 2, June quarter, pp. 326–50.

United Nations 2004, UN Commodity Trade Statistics Database (UN COMTRADE), New York.

26

Agricultural Production Systems Research Unit

Asia Pacifi c Economic Cooperation Secretariat

AusAid

Australian Centre for International Agricultural Research

Australian Gas Association

Australian Greenhouse Offi ce

Australian Quarantine and Inspection Service

Australian Wool Innovation Limited

Batelle Pacifi c NW

Canegrowers

Chevron Texaco

Commonwealth Grants Commission

Commonwealth Secretariat, London

CSIRO (Commonwealth Scientifi c and Industrial Research Organisation)

Dairy Australia

Department of Agriculture, Fisheries and Forestry

Department of Business, Industry and Resource Development, Northern Territory

Department of Environment and Heritage

Department of Foreign Affairs and Trade

Department of Health and Ageing

Department of Industry, Tourism and Resources

Department of Infrastructure, Victoria

Department of Natural Resources and Mines, Queensland

Department of Primary Industries, Queensland

Department of Prime Minister and Cabinet

Department of Transport and Regional Services

Deutsche Bank

East Gippsland Horticultural Group

Exxon

Fisheries Research and Development Corporation

Fisheries Resources Research Fund

Food and Agriculture Organisation of the United Nations

Forest and Wood Products Research and Development Corporation

Grains Research and Development Corporation

Grape and Wine Research and Development Corporation

GHD Services Pty Ltd

Horticulture Australia

Institute of National Affairs, Papua New Guinea

ITS Global

Land and Water Australia

Meat and Livestock Australia

Melbourne University Private

Minerals Council of Australia

Ministerial Council on Energy

National Land and Water Resources Audit

National Landcare Program

National Oceans Offi ce

Natural Heritage Trust

New Zealand Ministry of Foreign Affairs and Trade

New Zealand Ministry of Prime Minister and Cabinet

NSW Sugar

Offi ce of Resource Development, Northern Territory

Organisation for Economic Cooperation andDevelopment

Plant Health Australia

Pratt Water

Primary Industries, Victoria

Rio Tinto

Rural Industries Research and Development Corporation

Snowy Mountains Engineering Corporation

Terrapin Australia

University of Queensland

US Environmental Protection Agency

WA Global Ocean Observing System

Woodside Energy

Woolmark Company

Research funding. ABARE relies on fi nancial support from external organ-

isations to complete its research program. As at the date of this publication, the following

organisations had provided fi nancial support for ABARE’s research program in 2004-05

and 2005-06. We gratefully acknowledge this assistance.