Michael Priestley, Economics Section
Manufacturing
The Australian and Chinese manufacturing sectors were impacted
by the Global Financial Crisis (GFC) in contrasting ways. In
summary, manufacturing has been in relative decline within the
Australian economy: its share in the economy has been falling and
today stands at 8.5 per cent compared to 12.1 per cent in 2000. By
contrast, China’s manufacturing base is export oriented and
has been growing rapidly on the back of economic growth rates of 10
per cent annually. Its rapid growth has been driven by large
investments in manufacturing facilities and technological advances
achieved by the country.
Manufacturing accounts for 34 per cent of China’s economy
and was exposed to the real and immediate economic fallout from the
GFC and global recession. The decline in US and European economies
impacted Chinese manufacturing dramatically. Manufacturing exports
fell (around 40 per cent of exports are electronic products),
production was reduced, as was the demand for raw materials and
labour. The economic stimulus package implemented by the Central
Government resulted in a quick turnaround of its manufacturing
economy and contributed to an annual economic growth rate of close
to 9 per cent.
The GFC impact on Australian manufacturing was much less severe
than first feared as the impact of the global recession was delayed
and the sector’s long-term decline continued. A major factor
for this decline is the high value of the Australian dollar
commencing in 2002 which has led to a long-term deterioration in
the competiveness of Australian manufacturing. The GFC impact was
greatest on the automotive industry and particularly in regional
areas which recorded the highest rate of job losses. The industry
experienced a sharp decline in exports and fall in local demand for
vehicles as businesses and households limited spending. In response
the Government introduced a business tax break, as well as other
stimulus measures to stabilise the local car market.
Australia-China trade
Affected by the GFC, Australia’s total merchandise trade
decreased by 11.6 per cent in 2009, and experienced the first fall
in exports since 1964–65. Exports fell by $27.4 billion or
12.2 per cent to $196.9 billion from their record peak
in 2008 of $224.3 billion. Imports fell by $25.5 billion or 11.1
per cent to $203.2 billion. The fall in the value of total
merchandise trade cut 0.04 percent off GDP the growth rate of 2.3
percent.
While trade between Australia and its major trading partners
fell considerably, trade between Australia and China, increased by
15.6 per cent reaching a record of $78.1 billion. Two-way trade
grew from $67.6 billion in 2008 to $78.1 billion in 2009. China was
Australia’s largest export market surpassing Japan. Exports
to China accounted for 21.6 per cent of total exports ($42.4
billion) while Australia was the eighth largest exporter to China.
China was also Australia’s largest import source in 2009,
accounting for 17.8 per cent ($35.8 billion) of total imports.
Driven by demand for resources and energy, the growth of exports
far outstripped the growth in imports into Australia. The balance
of trade swung in favour of Australia which recorded a trade
surplus with China ($6.6 billion) for the first time.
Energy and mining
China is in the course of urbanisation and rapid infrastructure
reconstruction and its demand for energy and minerals, especially
for these products from Australia, expanded in 2009. The value of
energy and mineral exports to China accounted for the bulk of
Australia’s merchandise exports (80 per cent) in 2009. In
2007, the value of these exports was only 57 per cent of exports.
While China’s manufacturing production fell the most on
record during the global recession, its energy and mineral needs
from Australia increased more rapidly than its economy.
Australian and Chinese investment
Australia and China are important investment partners and are
engaged in significant joint ventures in the mining, resources and
energy sectors. The table below shows the growth in investment
which was sustained despite the global financial market
instability. In 2009, total Chinese investment in Australia was
$16.6 billion, making China the 12th largest investor country in
Australia. Australian investment in China was $6.3 billion in 2009,
making Australia the 17th largest investor in China. China is also
a major foreign purchaser of Australian debt including government
securities, although precise levels are not available.
Australia-China free trade agreement
The expansion of two-way trade between Australia and China has
brought real benefits to Australian households and manufacturing
sectors reliant on cheaper imports. Further benefits are expected
with the proposed conclusion of a comprehensive free trade
agreement (FTA) by the end of 2010.
Negotiations for an FTA commenced in 2005 and a precondition to
the trade talks was Australia’s recognition of China as a
full market economy. Despite a hiatus in negotiations during the
global recession, both countries remain firmly committed to
consolidating their relationship by concluding an FTA.
Australia’s approach to the negotiations has been the
elimination of tariffs and reduced quotas on selected agricultural
products. Australia has also sought greater services market access
and a more level playing field with Chinese competitors.
Conclusions
Australia’s strong economic performance during the GFC can
be attributed to the Government’s stimulus measures, a sound
and liquid banking system and not least China’s robust demand
for energy and minerals imported from Australia. Bilateral trade
and investment relations have also strengthened and are now highly
complementary to each other in the areas of mining and
energy.
In addition to the expanding trade in energy and minerals, a future
FTA will bring further benefits particularly in services trade
(which has doubled over the past four years) and agricultural
trade.
Two Way Investment Relationship—China and
Australia, A$ million |
Year |
From China
to Australia Total Inward Investment Stock |
From Australia to China Total Outward Investment Stock |
Source: ABS, International Investment Position, Cat. No. 5352.0,
July 2010 |
2001 |
3 132 |
1 885 |
2002 |
2 843 |
1 223 |
2003 |
2 989 |
1 350 |
2004 |
2 285 |
1 262 |
2005 |
2 274 |
2 034 |
2006 |
3 508 |
3 043 |
2007 |
6 241 |
5 789 |
2008 |
8 517 |
6 993 |
2009 |
16 637 |
6 327 |
Change in 2009 (%) |
95.3 |
-9.5 |
Share in 2009 (%) |
0.9 |
0.6 |
Rank in 2009 |
12 |
17 |
Library publications and key documents
Allen Consulting Group, The Benefits to
Australia households of trade with China, report to the
Australia China Business Council, January 2009,
http://www.acbc.com.au/deploycontrol/files/upload/report_household_benefits.pdf
House of Representatives Standing Committee on
Infrastructure, Transport, Regional Development and Local
Government, The Global Financial Crisis and regional
Australia, House of Representatives, November 2009,
http://www.aph.gov.au/house/committee/itrdlg/financialcrisis/report/GFC%20Final%20Report.pdf
M Priestley, China’s reliance on
Australian LNG exports, Background Note, 2009–10,
Parliamentary Library, Canberra, 6 January 2010, http://www.aph.gov.au/Library/pubs/bn/eco/LNG_Exports.pdf