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Published 15 July 2013 12:22, Updated 18 July 2013 00:46
China is slowing a little from its heady – but normal – pace of economic growth. So should we worry? In 2012-13, China absorbed 32 per cent of our merchandise goods exports, and 36 per cent as Greater China (including Hong Kong and Taiwan). China is a growing consumer of our export services as well. In the year just finished, in-bound Chinese tourists had grown to 13 per cent of the total, and poised to overtake our current biggest source (New Zealand) in 2016. So, it is an important nation for us.
China currently accounts for just over half the GDP of our region, the Asia Pacific, and is the second biggest economy in the world at an expected 16.2 per cent of global output in 2013, closing fast on the United States (18.6 per cent of world GDP). China is expected to be No. 1 in 2016.
Yes, it is already the Asian Century if we include the Indian subcontinent, though the Asia Pacific by itself is already 28 per cent of world GDP, the world’s largest of its eight geographic regions, and is expected to be bigger than the North American and western and central Europe regions combined by 2025.
Some analysts are fearful of China’s business and financial outlook in the medium term, but China’s own business sentiment seems largely unfazed, so far, as the first chart reveals.
A slight dip during the onset of the GFC in 2008-09 was the only blip in business confidence that has consistently sat higher than ours in Australia. That said, our dramatic fall in confidence at that time did not convert into a recession.
We are nervous Nellies, often more so than consumers. One only has to see the scary volatility in Australia’s capital expenditure patterns to realise we get spooked easily. That said, Australia has been spending some 28 per cent of the economy on investment (compared with 17 per cent in the US), a gutsy level by world standards, helped significantly by the mining boom that has single-handedly accounted for a quarter of all investment. It is just that China has been spending more than 45 per cent of its economy for a long time, which helps to explain its phenomenal economic growth.
This leads to important perspective on China’s long-term growth history. The second chart shows China’s real GDP growth since the middle of the past century. Growth has averaged 8.2 per cent per annum over the past 60 years and higher over the past 35 years.
In passing, it is worth noting that Australia’s average was over 8 per cent, too, for the 19th century leading up to Federation in 1901. But we got a lot of help from much faster population growth than China over that magic run, which included two depressions (in the 1840s and 1890s). China has also had two depressions in its run, both under Chairman Mao’s leadership; none, however, since that leader died in 1976.
China hasn’t discovered the law of perpetual motion. Nevertheless, it has an economy that appears able to weather the odd dip or even shortish depression. We should be watchful as China repairs its internal banking and finances and regroups for more excellent growth – this time with faster consumption expenditure growth than capital expenditure.
Looking long term, it is an economy we should be delighted to have as an alliance partner in trade and investment.