Australia hopes China’s economy will turn around, but headwinds are looming.australian economy

If you want a hint of the pace of China’s economic recovery and how it will boost the Australian economy, look to the skies, says a veteran Chinese-Australian businessman.

In particular, look out for increased flights between the two countries, operated by China Eastern Airlines from China’s financial powerhouse Shanghai.

“80% of China’s ‘gold-collar’ people, or wealthy people, are from Shanghai,” said the businessman, who requested anonymity given Australia’s extensive ties to Chinese companies. “It’s a signal. If China Eastern doesn’t operate many flights, it means trouble.”

Early signs are promising. China Eastern has reduced his pre-Covid schedule of 10 flights a week from Shanghai to Sydney to his 1, with 10 flights to Melbourne completely suspended, but from 1 February to Sydney to Shanghai. flights will operate daily, a spokesperson said. .

As the world’s second largest economy, China’s economy is crucial to the fate of Australia and many of its neighbors. China buys about a third of Australia’s exports, equivalent to what is shipped to Japan, South Korea, the United States and India combined.

When China reported this week that annual GDP growth slowed to 3% in 2022, it was the second worst performance since the mid-1970s, declared treasurer Jim Chalmers. ”.

“Currently, the global economy is a volatile place, and China’s development is a big part of it.

Much of that volatility stems from China’s President Xi Jinping’s abrupt abandonment of a stringent rolling lockdown aimed at curbing the spread of Covid. Earlier this month, the government reported that 60,000 people had died from his Covid in the past five weeks, but the real figure could be higher.

The Albanian government continues to warn that any rapid economic upswing in China could be short-lived. A slowdown in the real estate sector and a declining population lurks when it reaches rates like the 10% growth rate that China spawned over a decade ago.

Global banks such as Morgan Stanley are more optimistic as recent developments have “far exceeded our expectations”. “The reopening [of China’s borders] It happened faster and faster,” he said in Thursday’s briefing notes. “Housing Rescue Measures” [have] More collaborative and stronger. ”

Besa Deda, chief economist at Westpac’s business bank, is waiting for evidence of increased activity. The Christmas lull extends to the Lunar New Year celebrations now taking place in China, masking activity.

“There’s a lot of uncertainty at the moment,” Deda said, adding that “the dial is turning to foster growth.” China’s relatively low inflation rate (he put it at 1.8% at the end of 2022) “gives room for Chinese authorities to take stimulus measures if necessary.”

Mining giant BHP CEO Mike Henry said this week that China will be a “stabilizing force in terms of commodity demand” in 2023 at a time when OECD countries are “experiencing economic headwinds”. The country will produce more than 1 billion tonnes of steel for the fifth year in a row, he predicted.

Australian iron ore company Fortescue is similarly “optimistic” about 2023. The company is confident China will continue to pour money into infrastructure and real estate, justifying the recent rise in iron ore prices.

Chinese students and property investors are also expected to boost the Australian economy.

Applications from international students are up 25% from pre-corona levels in 2019, according to the University of Melbourne.

“The number of applicants located in China has increased by 50% compared to last year, reflecting the easing of pandemic-related restrictions around the world,” said Nicola Phillips, president of the university.

For the University of Western Australia, applications from international students are up 40% from last year’s levels and three times higher than in the pre-pandemic period. About 35% of the applications came from China, a 47% increase from a year ago, a spokesperson said.

“We are seeing a huge wave of international students from China return to shore,” said Yu Tao, director of Asian studies at the University of Washington. Benefits of the spin-off to the Australian economy extend to retail, restaurants and real estate.

Monika Tu, founder of real estate firm Black Diamondz, doesn’t hesitate to splurge $50 million on real estate to treat her clients.

Tu believes that around 85% of those securing significant investor visas are from mainland China, bringing in billions of dollars in total once they settle down. “Obviously, this investment is very important for the economy,” she said.

Also not very popular are the hefty fees that the Foreign Investment Review Board imposes on certain property purchases, but they are helpful.

A client’s recent $12.5 million purchase of The Abbey property in Sydney’s inner west resulted in $340,000 in foreign investment review board fees and another $1.3 million in stamp duty. “A lot of people think it’s a rip off,” he says Tu.

Of course, business is not a one-way street. China is at the forefront of products that Australians are increasingly willing to buy. For example, more than 80% of his solar panel components are made in China.

Automotive is perhaps the next industry China will shake up. Australia’s imports rose 61% last year, making China her fourth-largest supplier.

Luke Todd, head of EVDirect, which sells BYD vehicles in Australia and New Zealand, said Sydney Airport, where many of the ‘gold-collar’ arrivals land, has had six cars built by China’s BYD since 2013. An electric bus is in operation.

BYD, which is backed by US billionaire Warren Buffett, began selling its Atto 3 EV cars towards the end of last year and has already delivered about 2,500 with another 7,000 on order.

Boasting prices below $50,000, Todd said EVs are now close to par with traditional gasoline vehicles when calculating savings over the life of the vehicle.

China accounts for about 60% of global EV sales, making China an international hub for technology. All EVs sold in Australia by Tesla and Volvo Polestar are made in China.

“The speed of the transition will be faster than people expect,” says Todd, who predicts “the next few years will be very dynamic.”