China has won an undeclared war with Japan to cement its place as Australia's biggest export customer.
Little recognised at the time, China overtook Japan in March to take the title, but the figures for April and those for May released yesterday suggest its won it for keeps.
The change was little recognised partly because it's widely believed it happened some time ago. Politicians have been referring to China as "Australia's biggest trading partner" for years.
The shorthand was a sleight-of-hand.
China was the biggest our source of our imports, not the biggest destination for our exports...
...and when exports and imports were added together it only narrowly beat Japan.
No longer.
Our exports to Japan collapsed in the first five months of this year. From more than $6 billion a month in November and December they fell to $3 billion in April and $2.5 billion in May.
Our exports to China, previously earning us $2 billion to $3 billion per month, jumped to a record $4.3 billion in March, and then $3.6 billion and $3 billion.
Unless Japan's economy recovery recovers quickly - and there are scant signs that it will - China will continue to outshine Japan for years.
In May it accounted for one in every four ships leaving Australia.
Austrade's chief economist Tim Harcourt labels the phenomenon "bamboo shoots", to distinguish it from the "green shoots" of economic recovery pundits are searching for worldwide.
He says China's massive fiscal stimulus measures are paying the same sort of dividends there as ours are in Australia, especially in China's second and third-tier cities.
Virtually forced to spend on infrastructure, those cities are buying Australian iron and increasingly Australian coal amidst the realisation that Chinese coal is dirty.
Japan's economy is shrinking rather than growing as is China's, and can't compete.
As well he says Australian small and medium-sized businesses now find it easier to peddle their wares in China than Japan.
"There's still a bit of resistance in the field of financial services, but when it comes to most Australian small businesses, there's no Great Wall of Trade".
Australian exports fell a further 5.2 per cent in May at a time when the Reserve Bank's Australian dollar commodity price index fell 10.7 per cent, suggesting that volumes grew.
Westpac economist Anthony Thompson said the resilience was unlikely to persist. "Brazil's iron ore exports have weakened and iron ore prices have slipped 31 per cent between March to May."
Australian import fell 3.8 per cent in dollar terms, led down by a higher Australian dollar and a 14 per cent slump in imports of capital goods by businesses. Imports of consumer goods slipped a mere 1 per cent despite the dollar, in accordance with retail trade figures showing consumer spending at record highs.
"We're seeing a business recession , not a consumer recession," said TD Securities economist Annette Beacher. "Business investment has ground to a halt. It's yet to be felt in the wider community."
Published in today's SMH and Age
Top 10 export markets
........................ For the month of May ... Change from Oct to May
China ............. $4.012bn ...................... +21.6%
Japan ............. $2.546bn ..................... -56%
India ............... $1.370bn ..................... -7.2%
Korea ............. $1.149bn ..................... -49.1%
US ................. $744m ......................... -45%
New Zealand ... $657m ......................... -21.6%
Taiwan ............ $629m ........................ -33.2%
Singapore ....... $555m ......................... -9.3%
Britain ............ $390m ......................... -65.5%
Indonesia ........ $331m ......................... -28.5%
Total ............... $20.392bn ................... -25.7%
Source: ABS
3 comments:
That's some pretty lightweight analysis Pete.
The simplistic, rose-coloured glasses view is that China is spending big on infrastructure which will drive demand for Aussie resources, but (as I'm sure you know) the situation is much more complex.
In response to the GFC the Chinese have pumped their economy with easy credit. Banks have been ordered to lend to anyone and everyone, and local government authorities are terrified they won't meet growth targets set by the central government, so they are spending like crazy.
Check out these new loan numbers from Michael Pettis, or this piece from Ambrose Evans-Pritchard: China's banks are an accident waiting to happen to every one of us
Much of this easy credit has flowed into real estate and stockmarket speculation, but significantly for Australia, iron ore traders have also borrowed to speculate on iron ore prices, which has been driving a lot of the speculation and stockpiling.
The Chinese authorities are aware of this and have been attempting to keep a lid on it but with little success. Its almost impossible spray so much easy money at a big infrastructure build and not create a speculative bubble.
Obviously, its not in China's interests to inflate commodity prices, and given that China is virtually the only source of demand ATM, they are in the drivers seat (despite the spin you read coming out BHP, Rio and the sycophantic Australian media). There is no shortage of iron ore supply in the world, but there is a shortage iron ore demand.
The Chinese can and will burst this mini commodities bubble because its in their interests to do so. China is not interested in saving Australia. China is interested in saving China.
Australia Faces the Full Brunt of Global Recession -- Bloomberg
(just adding a bit of balance to Pete's "China will save us" view)
Oh, and I love this quote: We're seeing a business recession, not a consumer recession
I've seen that interpretation a few times now, and it always has me laughing out loud. If I'm not very much mistaken, consumers are employed by businesses, and when businesses are in trouble they lay off consumers. We need to see business investment turnaround to have a sustainable recovery. You're tripping if you think otherwise.
Check out this appalling nonsense from Pascoe:
The doomsayers point to that and say the strengthening of Chinese economic growth therefore can't last because China relies on exports for economic growth. That is simplistic but it also has been basically true.
Fortunately there are plenty of signs that Beijing understands the problem and, unlike the US, is clearly working to do something about it. The switch to greater reliance on Chinese domestic consumption will not be easy to achieve - it is a massive task involving dislocations beyond the understanding of little "lucky country" economies such as ours. But they're working on it.
Which reminds me of Joh BJP saying "don't you worry about that". FFS! Since when does Australia place its entire economic future in the hands of the Chinese Communist Party, and its ability to manage the incredibly difficult task of transitioning China to a nation of consumers. The indications thus far is they're making a total balls up of it, and all they've managed to achieve is the creation a bubble in shares, real estate and commodities.
Does Pascoe attempt to analyse what's happening in China? No such luck, all we get is "its beyond our understanding, and don't worry they're working on it".
Shockingly bad, lazy journalism.
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