China\'s Growth and Its Effect

China's Growth And Its Effect On Australia

China has gained its stature as one of the economic giants of the 21st century and is spearheading the recovery of the ailing global economy with its steady growth. China and Australia have developed a growing friendship, as complimentary economies with improving bilateral relationships. There is no question of doubt that the growing stature of China is good news for Australia as evinced by the growth in the national income and positive reinvestment climate. However, the changes in the geopolitical climate resulting from a growing China would require some delicate balancing in Australia's relationship with China and its Western allies.

The transformation in global economic scene over the last few years is clearly obvious. China and India are emerging as the new economic workhorses. Australia with its geographic proximity to China has become an important and leading trading partner of China. The rapid and consistent development of China over the last decade has made the country a dominant force in the world economy. As a traditional communist nation the western world has always viewed China with measured caution. Over the last decade the development of China as a new force has bought about new economic and geopolitical changes. The developed western countries have now acknowledged the growing power of China and are now looking towards China's growth to propel the ailing global economy. A growing China and India, two of the largest democracies in the world hold the balance for the global economy, which is currently reeling under a period of severe recession. One question remains a concern for the western world and particularly for Australia. How does the China boom affect Australia? Does china's growing global stature imply security threats to Australia and a challenge to the western world in general? These are important geo political issues that cannot be ignored. A brief overview of these issues will shed more light in our understanding the impact of China emerging as the next super power.

China -- (Economic Indicators)

Since the economic reforms instituted in the late seventies, China has continued to grow steadily. Over the last several years China's growth has been more pronounced as witnessed by the GDP, which has increased to $4,833 billion in 2009 from $1,931.6 billion in 2004. In 2007, the country's GDP peaked at 13% and even in the current year of global recession the GDP registered a 7.5% growth, which is further expected to improve due to the stimulus package of $586 billion, which the government has pumped in. [Frederick Balfour] So at a time when the entire western world is plunged in recession China has sustained its growth. China's per capita GDP has also practically doubled within the last 5 years from $3,614 in 2004 to around $6,379 in 2009. [ABS] With a significant drop in its exports to U.S. And other European countries (owing to recession) the Chinese government has a new outlook in stabilizing and continuing the economic momentum. The government wants to sustain an economic growth that is based on more local demand and consumption than depending on global exports. The aforementioned stimulus package has aided this by increasing more lending and more investment projects.

China-Australia Bilateral Relationship

Ever since 1972 when Prime Minister Gough Whitlam opened diplomatic relationships with China there has been a continuous exchange of high-level visits between the countries. Former Australian Prime Minister Howard has in fact paid 6 visits to China, which goes on to indicate how Australia perceives China as a preferred trading partner. More recently in 2006, the Chinese premier Mr. Wen Jiabao visited Australia to further strengthen and enhance the bilateral relations. Traditionally a western ally, Australia has developed into an important trading partner of China. In fact today China stands out as the leading trading partner for Australia. [Zha Peixin, 2008] as per the 2008 statistics the total trade value has exceeded (a$m) 67,736. Mutual investments have also gone onto a new scale with Australia investing around (a$m) 6,949 while China's investment in Australia stood at (a$m) 7,897. [ABS] the educational and tourism sector in particular have boomed considerably in the past few years. More than 100,000 Chinese students study in Australia and each year around 800,000 people from both the countries visit each other. Next to English, Mandarin and Cantonese are the most spoken languages in Australia indicating the significant Chinese presence in Australia. [Zha Peixin, 2008]

Skyrocketing Growth and Energy Crisis

The most important component when we discuss economic development in the case of a huge nation such as China is Energy. China is virtually skyrocketing in its economic growth but at the same time it is hard pressed for finding new and efficient energy resources to continue the growth. Next to the United States, China is the largest consumer of petroleum products in the world. Generation by power plants has increased enormously and over the last three years there has been a one third increase in capacity. China is adding the equivalent of the entire UK power grid every year which gives us a clear picture of the enormous quest for energy. [Richard Lester] Thus China's hunger for mineral resources and power sources make Australia a highly preferred trading partner given that Australia is rich in minerals. Australian exports of iron ore to China reached a$b 18,016 in 2008. Also with Australia having around 40% of the world's Uranium resources it could cater to the huge demands of Chinese nuclear power plants. Thus Australia is an important energy source for China while on the other hand a growing China would contribute significantly to Australia's economy by increasing the trade and FDI, which has already crossed (a$m) 3048. The fact that at the moment Australia only contributes to 3.2% of Chinese imports gives immense scope for increasing future trade volume. [ABS]

Complementary Economies

China's increasing urbanization, increased expendable income and the limited natural resources make it largely dependent on agricultural imports to meet its growing demands. [Zhou et.al 2005] This is a huge market for Australian agricultural products. Australia has a strong agricultural economy and over 60% of its agricultural produce is for export. This implies that Australia could find China as a major export source for its agricultural products. China and Australia are ideal trading partners as they have high complementarity in their trading products. This is further complemented by the opposite agricultural production seasons. Australia mainly exports livestock products, (wool, hides, etc.), natural resources including iron ore, magnesium ore, cotton and agricultural products. Also the agricultural imports from China are mainly crustaceans, fruit juices, and cereals, which are labor intensive while Australian agricultural exports are mainly resource based. A more expanded agricultural trade would be greatly beneficial for Australia. If the Free trade agreement is signed between the countries Australia shall stand to benefit in the agricultural domain as it would have a greater market access for its agricultural products in the China. In short, growth in China would create an opportunity for increasing agricultural products exports to China. [Zhang-Yue Zhou et.al, 2006] Hu et al. (2006) reported that a free trade agreement would increase the Australian GDP by .6% while China's GDP would increase by .08%.

Asian Economy and Australia

In future Asian economies of which China and India are the major players are going to have a profound influence on the global market. Australia with its geographical proximity with Asia could find it reciprocally beneficial to participate intensely in this changing global economic scenario. Also being two big countries in the Asia pacific region they can together have great impact in the economic stability of the region. The fact that Australia registered 1.8% growth in its exports during the first quarter of this year while the other western economies such as UK, France, U.S. And Canada have experienced a 10% decline in their exports speaks strongly of the China factor. [Wayne Swan]

The recently conducted HSBC trade index that assessed more than 2100 companies including 300 Australian companies reflects this positive picture. As Andrew Skinner, head of the HSBC trade and Supply chain Australia pointed out, "Australia is entrenched in the global economy and continues to be impacted by international uncertainty, however the Index highlights the opportunity that may end Australia's slump sooner rather than later -- the link to Greater China and South East Asia.." [HSBC] the same point was emphasized by Tim Harcourt, the chief economist of the Australian trade commission, who said, "Australia's amazing recession-dodging continues this week with new evidence of how China's role in regional trade is helping Australia. According to the HSBC Trade Confidence Index, the overall fall in demand for Australian exports globally has been counteracted by the strong economic performance of China." [HSBC] the survey also indicated that almost 54% of Australian firms did trading with South East Asia and almost one third of the Australian exporters find China as the main market in the next 3 or four months. (during this period of recession) Thus Asian market and in particular the thriving Chinese economy has helped Australia dodge over the recession which has completely halted growth in the western countries.

China's Rise: The strategic Stake

While we have so far discussed the positive economic impact of a growing China from the perspective of Australia, there are also some concerns about China's growing stature and the changing strategic balance. As a communist nation, the U.S. And its allies including Japan have always viewed China with caution. China has repeatedly claimed that it is fully committed to peaceful economic growth as Zha Peixin, the vice president of CPIFA (Chinese people's institute of foreign Affairs) stated, "China will stick to the peaceful development, opening up, and building a harmonious society domestically and promoting a harmonious world internationally." However, the recent arrest of the Australian mining giant Rio Tinto's executive officer in China over charges of espionage has created some friction in the relationship. The recent issues involving Australia granting of visa for Rebiya Kadeer, the human rights activist from China, much against the Chinese government's wishes, have caused more problems. [Andrew Shearer, 2009]

Largescale Investment by China's state owned companies are creating another uproar. For instance, China's control of the rare metals market known as Lanthanides is already causing concern. China now controls almost 95% of the worlds lanthanide market and the country is gradually restricting the export of the rare metals. Since lanthanides are used in a variety of electronic gadgets, automotives and in military explosive and radar devices, China's dominance in this market is perceived as a strategic threat. Recently, China Nonferrous Metal Mining Group (CNMC) agreed and bid for a deal worth $185.7 million for a 51.66% stake in the Australian mining corporation Lynas Ltd. [China Daily] While the review board is still delaying the final decision on the proposed deal it has triggered widespread speculation and concern over china's bid to monopolise the Lanthanide market.

That China was flexing its strategic muscle was clearly evident in 2007 when the country, which literally controls the rare metals market, refused to sell to many of the U.S. companies including W.R. Grace, an important product supplier for the oil refineries. Since rare earth metals are essential for the oil refineries China's stance literally posed a grave threat to the oil companies in the U.S. Only when the U.S. state department intervened China released the supplies again. This threatened domination by China in the rare earth's market is a cause for concern particulary for the west. As Mr. Ed Richardson of Thomas & Skinner, one of the remaining U.S. high-performance magnet companies says, "I think they've worked their plan to perfection," says companies. "If we look at how dependent the world has become on rare-earth elements, it's kind of scary. It all happened right under our nose." [Kent Garber, 2009] the sudden rise in the price of the rare earths is also concerning from the economic viewpoint. For instance, the price of Neodymium, one of the important Rare earth metals, has soared from $8 to $50 per kilogram in 2008. With more than 95% of the rare earths market under its belt, China is all set to exploit the global market demand for these metals. This is exactly why the U.S. And Australia are more concerned about letting more investments from China in the Australian minerals and ore industry. [Kent Garber, 2009]

The growing number of bids by China's State owned companies in Australian mining firms have also caused some concern prompting a cautious stand by the new Australian government. As Peter Arden analyst of Ord Minnett Ltd. says "China has strong financial reserves. Australia has never had sovereign governments investing directly in companies and mineral projects -- that gives them direct insight and ability to bring pressure on pricing." There is also a strong feeling that China is exploiting the economic recession to further its foothold in the rare earths and mineral industry. "In the current difficulties with the global financial crisis and companies having trouble raising capital to expand, I don't see how the government could nock it back. The pressure is already being applied to them that jobs would be lost without this investment." [Gemma Dalley, 2009]

China's Growing Military Presence

As Hugh White in his article relating to the Rise of China reports "China's rise may finally close the era of western maritime domination of the Asia Pacific region which began 500 years ago with Vasco de Gama." [Robert Ayson, 2008] Thus far, Australia had developed peacefully without worrying about any threat to its security from the Asian continent. Now the chief question is if the absence of western dominance in the South East Asian region (now that Hong Kong is back with China) affect Australia?. China's impressive build up of the submarines in the eastern shore has also triggered some concerns. The Australian Prime Minister Mr. Rudd's recent speech stressing the need for the country to boost its defensive capabilities in the wake of the 'regional arms buildup' related to the growing Asian economies has the clear message (though not direct) of the changing geopolitical atmosphere. [Robert Ayson, 2008]

Recently, U.S. And Australia shared their concerns that China's military buildup was way beyond defensive purposes. As admiral Keating, who heads the U.S. global Commands said, "We are anxious to engage with them. We want to understand much better than we do now China's intentions & #8230; China does publish a [defence] white paper but we find it to be less than fulfilling & #8230; We would say, don't stand in isolation in the Asia Pacific." [Jonathan Pearlman, 2009] the recent meeting between Austrlaian defence chief Angus Houston and his American counterpart Mr. Keating was to involve China in a trilateral military exercise to ease the rising tensions in the asia pacific region. The military blueprint of the Rudd govermnment clearly reports Australia's concerns, "[We] place a high priority on engaging China on matters of shared security interest,." Our ability to speak frankly on issues such as China's military modernisation is an indication of the growing maturity of our relationship.." [ Jonathan Pearlman, 2009] Though China has not so far participated in the proposed military excercises it has agreed in principle to consider the offer by the U.S. And Australia as a trust building measure. As China's Australian ambassador Mr. Zhang Junsai said, "Of course anything that is conducive to peace and stability of the region, I think that we'll study it." [Brendon Nicholson, 2009] These mutual military engagements would offer an excellent platform to openly discuss and to allay concerns and unresolved issues that might otherwise affect the progressive and mutually beneficial bilateral ties with Australia.