China's slowdown and its implications for the Australian economy | Griffith Asia Insights

On Thursday 9 June the APEC Study Centre convened a panel discussion event, hosted and jointly organized by Morgans, in the Brisbane CBD on the topic How Serious is China’s Slowdown?: Implications for the Australian Economy.

An excellent lineup of expert speakers – Mr Clinton Dines, former BHP China executive, Professor James Laurenceson, Deputy Director, Australia-China Relations Institute, University of Technology and Mr Michael Knox, Chief Economist at Morgans – provided interesting perspectives on the nature of this slowdown and its implications for the Australian economy.

China’s economy, the world’s second largest and Australia’s largest trading partner, is now growing at its slowest rate in 25 years, well below the phenomenal rates experienced before the Global Financial Crisis. This slowdown has crimped global trade and caused a sharp fall in world commodity prices as China’s economy restructures from investment and exports to domestic consumption and services.

This restructuring is being mirrored here in Australia, as the economy transitions from the China-fueled mining boom to increased trade in services. The path-breaking China-Australia Free Trade Agreement, with its heavy focus on services trade, has proven timely and is sure to take up some of the export value slack resulting from the fall in commodity prices, which still happen to sit well above historical levels.

Panel event attendees

China’s fast growth stemmed from a series of radical pro-market economic reforms begun by leader Deng Xiaoping, who famously said that “it did not matter whether the cat was black or white so long as it catches mice.” Largely pro-capitalist reforms ensued in several distinct phases through the 1980’s, 1990’s and early 2000’s.

Encouragement of foreign direct investment, greater labour mobility, higher saving due to contraction of social welfare entitlements previously extended by the state sector, and an improved investment climate for the private sector with less corruption, each played a role. A new entrepreneurial class also emerged to start up predominantly manufacturing enterprises and restructure privatised and reformed state-owned enterprises. Meanwhile, the labour force became much better educated.

For almost three decades before the GFC, China’s economy grew at an annual average of 9-10 per cent, some three times higher than the average rate of its trading partners. Since the GFC, it has fallen to 6-7 per cent which has generated much alarmist commentary worldwide. A key reason for this slowdown is that the Chinese economy post-crisis is transforming into an economy more like advanced economies where consumption spending and a large services share of GDP are the norm.

Contrary to the widespread alarmist view, the consensus view of the guest speakers at the event was that China’s slowdown was inevitable, and its current economic performance remains quite robust. Hence it should not be of major concern.

Download all of the presentations from the “China’s Slowdown and its Implications for the Australian Economy” panel event [PDF].