These Two Charts Show Why Australia Would Be Screwed By A Hard Landing In China

Tony Abbott leads a trade delegation to Asia next week which will include some of Australia’s most senior executives. The PM has described Japan as “our closest friend in Asia” but the China leg of the tour is the part that counts for the economy.

Many will have seen the BBC documentary aired on ABC’s 4 Corners last night, How China Fooled The World, which looked at the extraordinary credit growth in China and painted a worrying picture of potential structural problems with China’s financial system.

The state of corporate finance in China is one of the big talking points global markets and it has a special resonance in Australia with our economic fortunes so closely tied to China’s.

A note today from Scott Haslem at UBS shows that Australia’s reliance on Chinese demand is rapidly increasing even as overall China’s growth is slowing. First, Australia’s share of China’s imports is rising quickly, showing how much China needs Australia’s products:

Then there’s this extraordinary chart which shows exports to China are on track to account for 7% of Aussie GDP.

Haslem comments:

This places a strong onus on policy makers – as we venture out the risk/reward frontier with China – to ensure Australia has monetary and fiscal policy levers ‘on hand’ to replenish domestic income if and when China experiences a sharp downturn.

The federal government needs to be thinking about what they would do at home in the event of a sharp downturn of the nature the BBC’s documentary warned about.

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