If you want an indication of the pace of China’s economic recovery and how it could boost Australia’s economy, look to the heavens, says a veteran Chinese-Australian businessman.
In particular, note the expansion of flights between the two nations, particularly those operated by China Eastern Airlines from Shanghai, China’s financial hub.
“Of China’s ‘gold collar’ people – or wealthy individuals – 80% are from Shanghai,” said the businessman, who requested anonymity given his extensive ties to Chinese companies in Australia. “That’s a sign. If China Eastern doesn’t operate many flights, that means trouble.”
The first signs are promising. China Eastern had reduced its pre-Covid flight schedule from 10 weekly Shanghai-Sydney flights to just one, while its 10 flights to Melbourne have been suspended entirely – but from February 1, the Sydney-Shanghai route will be offered daily, it said a speaker .
China’s economy, the second largest in the world, is vital to Australia’s fortunes and those of many of its neighbors. China buys about a third of Australia’s exports, equal to those going to Japan, South Korea, the US and India combined.
When China reported this week that annual GDP growth had slowed to 3% in 2022, the second-worst result since the mid-1970s, Treasurer Jim Chalmers called the slowdown “one of the biggest economic challenges Australia is facing in early 2020.” 2023 stands”.
“The global economy is a volatile place right now and developments in China are playing a big role,” Chalmers said.
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China’s GDP slowed for a decade before hitting 2.24% in 2020, the slowest pace since the mid-1970s. Before that, strong growth amid political campaigns like the Great Leap Forward and the Cultural Revolution. (Source: Macrotrends) pic.twitter.com/CiSIglgofD
— @[email protected] (@p_hannam) January 17, 2023
Much of this volatility comes as Chinese President Xi Jinping abruptly lifted strict lockdowns to curb the spread of Covid. Earlier this month the government reported that 60,000 people had died from Covid in the past five weeks, although the true number is likely higher.
The Albanian government remains concerned that an immediate burst of Chinese economic activity could prove short-lived. A collapsing housing sector and a shrinking population lurk as speed bumps for something like the 10% growth rate that China achieved just over a decade ago.
Global banks like Morgan Stanley are more optimistic as recent developments have “far exceeded our expectations”. “The reopening [of China’s borders] happened earlier and faster,” said a briefing on Thursday. “Housing rescue measures [have] became more coordinated and powerful.”
Besa Deda, Westpac’s commercial bank chief economist, is awaiting evidence of increased activity. The Christmas break extends to the Lunar New Year celebrations now taking place in China, masking activities.
“Uncertainty is really elevated at this point,” says Deda, adding, “the dial is turning to support growth.” China’s relatively low inflation rate – 1.8% at the end of 2022 – “gives the Chinese authorities more room for stimulus if they need it”.
Mike Henry, chief executive officer of mining giant BHP, said this week China will be “a stabilizing force in terms of commodity demand” in 2023, at a time when OECD countries are “experiencing economic headwinds.” The country will record more than 1 billion tons of steel for the fifth consecutive year, he predicted.
Australian iron ore company Fortescue is similarly “optimistic” about 2023. It is confident that China will continue pumping money into infrastructure and real estate, justifying the recent spike in iron ore prices.
Iron ore prices remain well above the US$100 per tonne mark and a far cry from the US$55 per tonne that Australian Treasury users are using as their conservative estimate flows into the federal budget for assessing royalties. pic.twitter.com/50a57ET0RL
— @[email protected] (@p_hannam) January 20, 2023
Chinese students and real estate investors are also expected to boost Australia’s economy.
International student applications are up 25% from pre-Covid 2019 levels, according to the University of Melbourne.
“The number of China-based applicants has increased by 50% year-on-year, reflecting the easing of pandemic-related restrictions around the world,” said the university’s rector, Nicola Phillips.
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For the University of Western Australia, applications from overseas students are up 40% year-on-year and a third higher than before the pandemic. About 35% are from China, with applications up 47% from a year earlier, a spokesman said.
“We are anticipating a huge wave of Chinese international students coming back to shore,” said Yu Tao, Chair of Asian Studies at the University of WA. Spin-off benefits to the Australian economy will extend to retail, restaurants and real estate.
Monika Tu, the founder of Black Diamondz, a real estate company, serves clients who are not afraid to spend $50 million on a property.
Tu estimates that about 85% of those who secure major investor visas are from mainland China, collectively bringing billions of dollars with them when they settle. “Obviously this investment is really important for the economy,” she said.
Also helpful, if not at all popular, are high fees charged by the Foreign Investment Review Board for certain property purchases.
A client’s recent purchase of The Abbey estate in western Sydney for US$12.5 million netted US$340,000 in foreign investment screening committee fees and an additional US$1.3 million in stamp duty. “A lot of people think it’s a rip-off,” Tu said.
Of course, the course of business is not just one direction. China is leading in products that Australians are increasingly looking to buy. For example, more than 80% of the components of solar modules are manufactured in China.
Cars may be the next industry to be shaken up by China. Australia’s imports rose 61% last year, making China the fourth largest supplier.
Sydney Airport — where many of these “gold-collar” arrivals will land — has operated six electric buses built by China’s BYD since 2013, says Luke Todd, head of EVDirect, which distributes BYD vehicles in Australia and New Zealand.
BYD, backed by US billionaire Warren Buffett, began selling its Atto 3 EV car late last year and has already shipped nearly 2,500, with orders for 7,000 more.
Priced under $50,000, Todd says electric vehicles are now nearly on par with traditional gasoline-powered cars when calculating savings over the life of the vehicle.
With the country accounting for about 60% of global electric vehicle sales, China has become the international technology hub. All Tesla and Volvo Polestar electric vehicles sold in Australia are made in China.
“The speed of the transition will be faster than people are expecting,” Todd says, predicting “a very dynamic couple of years ahead.”
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