china’s resources needs and australia’s resource tradesources: abare; ame mineral economics;...
TRANSCRIPT
economics@
Presentation toPresentation to
AustraliaAustralia--China Business CouncilChina Business Council
China’s resources needs and Australia’s resource trade
China’s resources needs and China’s resources needs and Australia’s resource tradeAustralia’s resource trade
Intercontinental HotelIntercontinental HotelBeijingBeijing
2323rdrd October 2006October 2006
Saul EslakeSaul EslakeChief EconomistChief EconomistANZANZ
www.anz.com/go/economicswww.anz.com/go/economicswww.anz.com/go/economics
economics@2
Metal prices are at record highs in nominal terms though below previous peaks in real termsMetal prices are at record highs in nominal terms Metal prices are at record highs in nominal terms though below previous peaks in real termsthough below previous peaks in real terms
Nominal and real metal prices
0
50
100
150
200
250
300
56 61 66 71 76 81 86 91 96 01 06
Index: 2000 = 100
Nominal terms
Deflated byUS CPI
Source: IMF International Financial Statistics;Economics@ANZ.
economics@3
China is now the major influence on global demand for base metals and steelChina is now the major influence on global China is now the major influence on global demand for base metals and steeldemand for base metals and steel
1993-2002 2002-2005
Contribution to growth (%) of
Contribution to growth (%) of
Other EMs* China
9
15
15
-11
11
16
10
48
51
110
87
54
86
113
World consum
-ption growth†
World consum
-ption growth† China
Other EMs*
Aluminium 3.8 38
43
42
12
38
34
42
7.6 9
Copper 3.5 3.8 41
Lead 3.0 4.3 -7
Nickel 4.4 3.6 -11
Steel 3.4 9.2 8
Tin 1.3 8.1 2
Zinc 3.4 3.8 7
† % pa * Emerging Markets (India, Russia, Brazil and Mexico)Source: IMF World Economic Outlook, September 2006 Table 5.3.
economics@4
Base metal consumption in developing countries is likely to grow strongly over timeBase metal consumption in developing Base metal consumption in developing countries is likely to grow strongly over timecountries is likely to grow strongly over time
Base metal consumption and GDP per capita, 2004
0
10
20
30
40
50
60
70
80
0 5 10 15 20 25 30 35 40
Tons
GDP (at purchasing power parities) per capita
Base
meta
l co
nsu
mption p
er
capita
US$000
US
Canada
Australia
Japan
Germany
Korea
UK
FranceSpain
Russia
Sth AfricaBrazil Mexico
Taiwan
China
India
Thai-land
Malaysia
Indo-nesia
Italy
Sources: ABARE Australian Commodities 2006; IMF World Economic OutlookSeptember 2006; Economics@ANZ.
economics@5
Per capita consumption of base metals and steel typically rises with income up to US$15-20,000 Per capita consumption of base metals and steel Per capita consumption of base metals and steel typically rises with income up to US$15typically rises with income up to US$15--20,000 20,000
China
Korea
EU
US
0
5
10
15
20
25
30
0 10 20 30 40
Kgs
Real GDP (at PPP) per capita
Alu
min
ium
con
sum
pti
on p
er c
apit
a
US$000Japan
Aluminium
China
Korea
EU
US
0
100
200
300
400
500
600
700
800
900
1000
0 10 20 30 40
Kgs
Real GDP (at PPP) per capita
Ste
el c
onsu
mpti
on p
er c
apit
a
US$000
Japan
Steel
Sources: IMF World Economic Outlook September 2006; (Figure 5.7); Economics@ANZ.
economics@6
Metal supply has responded more slowly to the acceleration in demand than in earlier cyclesMetal supply has responded more slowly to the Metal supply has responded more slowly to the acceleration in demand than in earlier cyclesacceleration in demand than in earlier cycles
Mining companies have to some extent been surprised at the strength of the upturn in demand
– industry views on the outlook for prices were generally pessimistic in the aftermath of the Asian economic crisis
The mining industry globally is more consolidated than in previous cycles
– companies are more conscious of the impact that an increase in their own production may have on prices
Mining companies now have alternative ways of spending windfall cash flows
– expanding exploration or production is no longer the first instinct
– takeovers, ‘special dividends’ and share buybacks are now much more common-place among mining companies
economics@7
Strong demand combined with muted supply increases have driven metal stocks to low levels Strong demand combined with muted supply Strong demand combined with muted supply increases have driven metal stocks to low levels increases have driven metal stocks to low levels
02468
10121416
65 75 85 95 05
Weeks' consumption
Aluminium
Copper
Nickel
Zinc
02468
101214
65 75 85 95 05
Weeks' consumption
0
5
10
15
20
85 95 05
Weeks' consumption
02468
101214
65 75 85 95 05
Weeks' consumption
Sources: ABARE; AME Mineral Economics; Economics@ANZ.
economics@8
Nickel and copper prices now very high relative to production costs – should prompt increased supplyNickel and copper prices now very high relative to Nickel and copper prices now very high relative to production costs production costs –– should prompt increased supplyshould prompt increased supply
Aluminium
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
1985trough
1988peak
2002trough
2005up-turn
2006cur-rent
Ratio
Nickel
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1985trough
1988peak
2002trough
2005up-turn
2006cur-rent
Ratio
Copper
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1985trough
1989peak
2002trough
2005up-turn
2006cur-rent
Ratio
Ratio of price to cash operating cost of least efficient 10% of producers – selected base metals
Sources: Brooke Hunt Metal Consultants; International Monetary FundWorld Economic Outlook September 2006 Table 5.5.
economics@9
Modest increases in global production of most major mineral commodities now in prospectModest increases in global production of most Modest increases in global production of most major mineral commodities now in prospectmajor mineral commodities now in prospect
% change from previous year
1999-2004*
2005 (e)
2006 (f)
2007 (f)
Coal 5.0 7.4 2.2 2.2
Iron ore 5.9 10.3 11.7 9.2
Alumina 5.0 6.1 11.7 4.4
Copper 1.7 5.7 3.6 4.6
7.0
11.8
5.8
6.3
0.0
Aluminium 4.7 5.0 4.8
Lead 1.7 6.6 3.7
Nickel 3.3 4.7 3.0
Zinc 4.0 6.9 0.9
Gold (mine) -0.6 0.0 4.0
* Average annual rate. Sources: ABARE, Australian CommoditiesSeptember quarter 2006; Economics@ ANZ.
economics@10
200
400
600
800
1000
1200
1400
01020304050607080910
US¢/pound
LME
50
75
100
125
150
0102 0304050607 080910
US¢/pound
LME
2025303540455055
01 02 030405 06 070809 10
US$/tonne
NY Mercfutures
Prices of most energy and metals expected to ease Prices of most energy and metals expected to ease from recent peaks from recent peaks –– but only graduallybut only gradually
Thermal coal Gold
Copper
Aluminium
Zinc
50100150200250300350400
0102 0304050607 080910
US¢/pound
LME
Nickel
200
300
400
500
600
700
0102 0304050607 080910
US$/oz
Comex
25
50
75
100
125
150
175
0102 0304050607 080910
US¢/pound
LME
Note: Futures contract prices as at 12 October 2006.Source: Datastream; Bloomberg; Economics@ANZ.
economics@11
Oil prices have been at elevated levels for some time now, and seem likely to remain soOil prices have been at elevated levels for some Oil prices have been at elevated levels for some time now, and seem likely to remain sotime now, and seem likely to remain so
Nominal and real oil prices
0
10
20
30
40
50
60
70
80
90
100
70 75 80 85 90 95 00 05 10
US$ per barrel
Oil price incurrent dollars
Futurespricesas at
12 Oct2006
Oil price in2005 dollars
Note: Oil price is West Texas Intermediate. Shaded periods indicate ‘oil shocks’. Source: Thomson Financial Datastream; Bloomberg; US Bureau of Labor Statistics; Economics@ANZ.
economics@12
High oil prices aren’t hurting growth as much as in the 70s/80s because it’s a different type of shockHigh oil prices aren’t hurting growth as much as in High oil prices aren’t hurting growth as much as in the 70s/80s because it’s a different type of shockthe 70s/80s because it’s a different type of shock
World oil supply and demand
45
50
55
60
65
70
75
80
85
90
70 73 76 79 82 85 88 91 94 97 00 03 06 09
Mn barrels ofoil per day
Demand
Supply
Note: shaded areas denote ‘oil price shocks’. Sources: BP Statistical Review of World Energy 2006; ABARE Australian Commodities September Quarter 2006.
economics@13
Developing countries now account for over threeDeveloping countries now account for over three--quarters of world crude oil demand quarters of world crude oil demand
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
90 93 96 99 02 05
Developing economies
Advanced economies
Millions of barrels per day
Growth in worldoil demand
Oil consumption
15
20
25
30
35
40
45
70 75 80 85 90 95 00 05
Millions of barrels per day
'Advanced'economies
Developing oremerging economies
Note: ‘advanced economies’ are the US, Western Europe, Japan, Canada, Australia and New Zealand. Sources: BP Statistical Review of World Energy 2006; Economics@ANZ.
economics@14
Developing country demand for oil is likely to grow rapidly as incomes riseDeveloping country demand for oil is likely to Developing country demand for oil is likely to grow rapidly as incomes risegrow rapidly as incomes rise
Oil consumption and GDP per capita, 2005
0
5
10
15
20
25
30
0 5 10 15 20 25 30 35 40 45
Barrels
GDP (at purchasing power parities) per capita
Oil
consu
mption p
er
capita
US$000
USCanada
Australia
Japan
Germany
Korea
UKFrance
Spain
Russia
Sth AfricaBrazil
Mexico
Argentina
Taiwan
ChinaIndia
Thailand Malaysia
Indonesia
Sources: The Economist ‘Survey of the World Economy’ 16 September 2006 p. 20; BP Statistical Review of World Energy 2005; IMF World Economic OutlookSeptember 2006; Economics@ANZ.
economics@15
China will become a major consumer of most forms of primary energyChina will become a major consumer of most China will become a major consumer of most forms of primary energyforms of primary energy
China’s share of global primary energy (%)
2003 2020 (f)
2030 (f)
Coal 28.1 40.8 44.0
Oil 7.0 11.2 12.7
Natural gas 1.3 3.4 3.8
Hydro & other renewables 8.9 13.4 12.2
Nuclear 1.7 5.5 9.2
Source: Energy Information Agency (2006).
economics@16
Higher oil prices aren’t (thus far) leading to higher inflation and interest ratesHigher oil prices aren’t (thus far) leading to Higher oil prices aren’t (thus far) leading to higher inflation and interest rateshigher inflation and interest rates
Oil prices and inflation Oil prices and interest rates
0
10
20
30
40
50
60
70
80
90
100
70 74 78 82 86 90 94 98 02 060
2
4
6
8
10
12
14
16US$ per barrel(2005 prices)
Real oilprices
% per annum
G7 3-mth interest rates(right scale)
`
0
10
20
30
40
50
60
70
80
90
100
70 74 78 82 86 90 94 98 02 060
2
4
6
8
10
12
14
16US$ per barrel(2005 prices)
Real oil prices
% change fromyear earlier
G7 consumer prices (right scale)
Sources: Datastream; OECD; [email protected]: Shaded areas denote “oil price shocks”
economics@17
China’s resource needs and Australia’s resource endowments are remarkably complementaryChina’s resource needs and Australia’s resource China’s resource needs and Australia’s resource endowments are remarkably complementaryendowments are remarkably complementary
Australia’s share of
world exports
(%, 2004)
China’s share of
world imports
(%, 2004)
Metallurgical coal 53.6 3.5
Steaming coal 19.7 3.0
Zinc† 27.3 7.5
Lead† 32.9 17.8
Uranium * 30.3 na
Iron ore 36.0 31.6
Aluminium 8.5 5.6
Nickel* 14.1 9.8
* Production and consumption, respectively. † Ores & concentrates.Sources: ABARE, Australian Commodity Statistics 2005 and Australian CommoditiesSeptember 2006.
economics@18
Resources trade has propelled China to Australia’s #2 trading partnerResources trade has propelled China to Resources trade has propelled China to Australia’s #2 trading partnerAustralia’s #2 trading partner
Australia’s merchandise trade with China
0
2
4
6
8
10
12
14
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
% (12-month moving average)
Imports from Chinaas a % of total
Australian imports(ranked #2 in 2006)
Exports to Chinaas a % of total
Australian exports(ranked #2 in 2006)
Australia’s merchandise trade balance with China
-8
-7
-6
-5
-4
-3
-2
-1
0
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
A$bn (12-month moving total)
Sources: Australian Bureau of Statistics; Department of Foreign Affairs and Trade.
economics@19
China’s rapid growth and industrialization is a particularly & uniquely ‘Good Thing’ for AustraliaChina’s rapid growth and industrialization is a China’s rapid growth and industrialization is a particularly & uniquely ‘Good Thing’ for Australiaparticularly & uniquely ‘Good Thing’ for Australia
Long-term price changes for Australian exports and imports
-6
-4
-2
0
2
4
6
8
1960s 1970s 1980s 1990s 2000s
Export prices
Import prices
% per annum (real US$ terms)
Ratio of Australian exportprices to import prices
60
70
80
90
100
110
120
130
140
150
160
170
50 55 60 65 70 75 80 85 90 95 00 05
2004-05 = 100
Korean Warwool boom
Mid-1970scommoditiesboom
Keating's'BananaRepublic'
Chinaboom
Note: the ‘terms of trade’ is the ratio of export to import prices; it is a measure of the international ‘purchasing power’ of Australia’sexports. Sources: ABS; US BEA; Economics@ANZ.
economics@20
‘Terms of trade’ gains since 1999 have been worth $2,844 pa to each Australian, on average‘Terms of trade’ gains since 1999 have been ‘Terms of trade’ gains since 1999 have been worth $2,844 pa to each Australian, on averageworth $2,844 pa to each Australian, on average
Note: Gross domestic income (GDI) is GDP adjusted for changes in the terms of trade (ratio of export to import prices). Sources: ABS; Economics@ANZ.
0
1
2
3
4
5
6
7
00 01 02 03 04 05 06
% change from year earlier(trend) Real gross
domestic income (GDI)
Real grossdomestic
product(GDP)
Real gross domestic productand income
38
39
40
41
42
43
44
45
46
47
00 01 02 03 04 05 06
A$ 000 (at annual rates;trend; 2004-05 prices)
GDI per capita
GDP per capita
-$1,783
$1,062
Real gross domestic productand income per capita
economics@21
Higher commodity prices have prompted a surge in resources-related investment …Higher commodity prices have prompted a surge Higher commodity prices have prompted a surge in resourcesin resources--related investment …related investment …
Export-oriented infrastructure investment
Capital expenditure bythe mining industry
0.0
1.0
2.0
3.0
4.0
5.0
6.0
00 01 02 03 04 05 06
A$ bn (current prices,annualized rate)
Railways
Harbours
Electricity
0
2
4
6
8
10
12
14
16
18
20
00 01 02 03 04 05 06
A$ bn (constant prices,annualized rate)
Sources: ABS; Economics@ANZ.
economics@22
Coal, iron ore, LNG and alumina export volumes have been rising – but oil exports have fallenCoal, iron ore, LNG and alumina export volumes Coal, iron ore, LNG and alumina export volumes have been rising have been rising –– but oil exports have fallenbut oil exports have fallen
180190200210220230240250260
02 03 04 05 06 07
Mt
Coal
Volume of exports of mineral and energy commodities
150
175
200
225
250
275
300
02 03 04 05 06 07
Mt
Iron ore
12
13
14
15
16
17
02 03 04 05 06 07
Mt
Alumina
180
190
200
210
220
230
240
02 03 04 05 06 07
Kt
Nickel
6
8
10
12
14
16
02 03 04 05 06 07
Mt
LNG
6
11
16
21
26
02 03 04 05 06 07
ML
Crude oil
Source: ABARE, Australian Commodities, September 2006.
economics@23
The ‘resources boom’ has arrived at a time when the economy is bumping into capacity constraintsThe ‘resources boom’ has arrived at a time when The ‘resources boom’ has arrived at a time when the economy is bumping into capacity constraintsthe economy is bumping into capacity constraints
4.5
5.0
5.5
6.0
6.5
7.0
7.5
00 01 02 03 04 05 06
% of the labour force
Actual
Trend
Lowest in30 years
Unemployment rate
Labour shortages
0
5
10
15
20
25
00 01 02 03 04 05 06
%
Businesses reporting labour shortages as aconstraint on output
Highest in historyof survey (since 1989)
`
CBD office vacancy rates
456789
101112
00 01 02 03 04 05 06
%Sydney
Rest of Australia
78
79
80
81
82
83
84
00 01 02 03 04 05 06
%
Actual (seas. adj. by ANZ)
Trend
Capacity utilization
Sources: ABS; National Australia Bank; PropertyCouncil of Australia.
economics@24
-2
-1
0
1
2
3
4
5
6
7
8
00 01 02 03 04 05 06
Real % change from year earlier
Domestic production(GDP)
Domesticfinal demand
Real domestic spendingand output
So, increasingly, strong demand is not being met by increased domestic productionSo, increasingly, strong demand is not being met So, increasingly, strong demand is not being met by increased domestic productionby increased domestic production
Note: ‘Final demand’ is the sum of domestic final demand (consumption and fixed investment) and exports. It is met by a combination of increased domestic production (GDP), running down stocks and imports. Source: Australian Bureau of Statistics;Economics@ANZ.
-1
0
1
2
3
4
5
6
2002-03 2003-04 2004-05 2005-06
Domestic production Stocks Imports
% point contribution tochange in final demand
How final demand has been met
The economy is near the point in the cycle where the seeds of previous recessions have been sownThe economy is near the point in the cycle where The economy is near the point in the cycle where the seeds of previous recessions have been sownthe seeds of previous recessions have been sown
Allowing wages to grow faster than justified by productivity in a tight labour market
– much less of a risk now that centralized wage fixation is (almost) dead
Failing to allow the Reserve Bank to raise interest rates before inflation has begun to accelerate
– not a serious risk now that the RBA is ‘independent’
‘Giving away too much’ of the revenue dividend in spending increases and tax cuts
– still a significant risk (as demonstrated in recent years)
In some important respects the Australian economy is at a similar stage to where it was in 1960, 1973, 1981 and 1989 – just before each of the past 4 recessions
Three policy mistakes have traditionally been made at this stage of the business cycle -
economics@25
economics@26
Each year, the Government collects tens of billions of dollars more than originally forecastEach year, the Government collects tens of billions Each year, the Government collects tens of billions of dollars more than originally forecastof dollars more than originally forecast
180
190
200
210
220
230
240
250
260
2004-05 2005-06 2006-07 2007-08 2008-09
2002-03 Budget 2003-04 Budget 2004-05 Budget 2005-06 Budget 2006-07 Budget
$bn
Financial years
Successive Budget estimates of total tax revenues
Sources: Budget Papers 2002-03 through 2006-07.
$13bn
$22bn$26bn
$18bn
$6bn
economics@27
Much of these windfall revenue gains have come from company taxMuch of these windfall revenue gains have come Much of these windfall revenue gains have come from company taxfrom company tax
30
35
40
45
50
55
60
2004-05 2005-06 2006-07 2007-08 2008-09
2002-03 Budget 2003-04 Budget 2004-05 Budget 2005-06 Budget 2006-07 Budget
$bn
Financial years
Successive Budget estimates of company tax revenues
Sources: Budget Papers 2002-03 through 2006-07.
$8bn
$16bn
$19bn$13bn $8bn
economics@28
0
5
10
15
20
25
30
35
40
45
50
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
'Parameter variations' 'Policy decisions'
$bn
Financial years
Cumulative impact of:
Net ‘bottom line’ impact of ‘parameter variations’vs ‘policy decision’ (tax cuts or spending increases)Net ‘bottom line’ impact of ‘parameter variations’
vs ‘policy decision’ (tax cuts or spending increases)
The Government has had a $263bn windfall over the past 4 Budgets – and ‘spent’ $248bn of itThe Government has had a $263bn windfall over The Government has had a $263bn windfall over the past 4 Budgets the past 4 Budgets –– and ‘spent’ $248bn of itand ‘spent’ $248bn of it
Sources: Budget Papers 2002-03 through 2006-07 andEconomics@ANZ calculations.
economics@29
The government is saving almost none of the windfall gains produced by the resources boom The government is saving almost none of the The government is saving almost none of the windfall gains produced by the resources boom windfall gains produced by the resources boom
-20
-15
-10
-5
0
5
10
15
20
70 75 80 85 90 95 00 05 10-5
-4
-3
-2
-1
0
1
2
3
4$bn
As a % of GDP(right scale)
$ bn(left scale)
%
Commonwealth ‘underlying’ cash balance
Forecast surpluses smaller as a % of GDP than at previous cyclical
and commodity price peaks
Sources: 2006-07 Budget Paper No. 1, Statement 13, Table 1(and previous issues).
economics@30
It’s likely that there will be at least one more rate increase before the middle of next yearIt’s likely that there will be at least one more rate It’s likely that there will be at least one more rate increase before the middle of next yearincrease before the middle of next year
4.0
4.5
5.0
5.5
6.0
6.5
01 02 03 04 05 06 07
% pa
90-daybill yield
Cash rate
Shaded areas denote forecasts.Sources: ABS; RBA; Economics@ANZ.
Interest rates In its most recent Statement on Monetary Policy, the Reserve Bank raised its forecast for ‘underlying’ inflation to 3% - the top of its ‘target range’It also raised its forecast for economic growth to 3½% - at the top of the range of estimates of Australia’s ‘potential’ growth rate, at a time when idle resources are becoming increasingly scarceWith another pre-election Budget likely next May, the clash between monetary and fiscal policy will continue …… creating a situation where further increase(s) in interest rates are likely
economics@31
The resources boom is keeping the A$ stronger than it otherwise would have beenThe resources boom is keeping the A$ stronger The resources boom is keeping the A$ stronger than it otherwise would have beenthan it otherwise would have been
Economic influences on the value of the A$
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
01 02 03 04 05 06-100
0
100
200
300
400
500US¢
Australia-US 90-day
interestrate spread,
forward 1 year(right scale)
Basis pointsA$-US$
(leftscale)
Interest rate spreads
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
0.85
01 02 03 04 05 0680
100
120
140
160
180
200
220US¢
RBA commodityprice index (in US$)(right scale)
2002-03 = 100
A$-US$(left scale)
Commodity prices
Sources: Datastream; Reserve Bank of Australia.
economics@32
Commodity prices and interest rate differentials have been working in opposite directions on the A$Commodity prices and interest rate differentials Commodity prices and interest rate differentials have been working in opposite directions on the A$have been working in opposite directions on the A$
If commodity priceshadn’t risen since June 2001
Alternative hypothetical scenarios for the A$
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
0.85
0.90
01 02 03 04 05 06
US¢ A$ predicted by model ifAustralia-US interest rate
spread had remained atJuly 2004 level
Actual
A$ as predictedby ANZ model
If the interest rate spread on the A$ hadn’t narrowed since July 2004
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
0.85
0.90
01 02 03 04 05 06
US¢
A$ predicted bymodel if commmodity
prices had remained atJune 2001 level
Actual
A$ as predictedby ANZ model
Sources: Datastream; Reserve Bank of Australia; Economics@ANZ.
economics@33
These factors will continue to work against one another – but from opposite directionsThese factors will continue to work against one These factors will continue to work against one another another –– but from opposite directionsbut from opposite directions
Economic influences on the value of the A$
0.50
0.55
0.60
0.65
0.70
0.75
0.80
01 02 03 04 05 06 07 0880
100
120
140
160
180
200
220US¢
RBA commodityprice index (in US$)(right scale)
2002-03 = 100
A$-US$(left scale)
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
01 02 03 04 05 06 07 080
50
100
150
200
250
300
350
400
450
500US¢
Australia-US 90-day
interestrate spread
(right scale)
Basis points
A$-US$(left
scale)
Interest rate spreads
Shaded areas denote forecasts.Sources: Datastream; Reserve Bank of Australia.
Commodity prices
economics@34
Two unusually complementary economies – but both face medium-term risksTwo unusually complementary economies Two unusually complementary economies –– but but both face mediumboth face medium--term risksterm risks
The economies of China and Australia are remarkably complementary to one another
– China’s ‘peaceful rise’ is extending Australia’s record-breaking run of continuous economic growth
– A bilateral free trade agreement would help to cement this relationship
China needs to ensure that it avoids ‘bubbles’ emerging in sectors of its economy
– an indirect risk of its FX policy (as it was for Japan in the second half of the 1980s)
Australia needs to ensure that it does not ‘blow’ this new-found prosperity
– as it has nearly always done at the same stage of previous commodity price cycles