China

• emerging economy
• rapid economic growth (10% → 7% → 4%)
• middle income country
• Geopolitics:
  • China is a large export market for Australia:
    • Iron ore
    • Coal
    • Education
    • Agriculture
  • China placed [tariffs] on Australia in response to international criticism
    • hurt both economies
  • Countries like the US have started to move production elsewhere (such as Vietnam)
• Stress in China’s financial system could affect the global financial system, including Australia, via slower growth and an increase in risk aversion.

Impacts on Australia:

• GWP downturn effects:
  • GWP (world growth) slows
  • demand for China’s exports slow
  • Demand for our Primary exports slows (less iron ore)
  • Falling value of AUD
    • Speculation: Forex dealers dump the AUD

China’s Economic Reform Strategy:

• Deng Xiao Ping becomes Chairman of the CCP
• He implemented economic reforms between 1978 and 1997
  • Agricultural reforms
    • abandoning the commune system of agriculture, replacing it with the Household Responsibility System
    • led to households making their own production decisions → selling surplus output in free markets once the state quota was met.
    • leading to increases in food production
    • surplus income was invested in privately run town and village enterprises (TVEs)
  • an ‘open door policy’
    • the establishment of Special Economic Zones (SEZs)
    • the SEZs attracted foreign investment through a range of incentives:
      • low tax rates
      • exemption from import duties
      • cheap labour and power
      • less stringent government regulations
  • taxation reforms
    • shifted the power away from provincial governments to the central government in Beijing
  • Banking laws
    • to develop a system of network banking
    • establish stock exchanges
    • and promote a more efficient capital market to facilitate saving and investment in China
  • cuts to tariffs
    • supported China’s drive to attract foreign investment

China property market impact on Australia and global economies:

• China is Australia’s biggest export market
  • major exports: Iron Ore
• Falling China housing sector:
  • → reduced demand for Australian exports (Iron Ore)
    • → Australian domestic businesses fall in revenue
      • → reduced Canberra taxation revenue (company tax)
      • → reduced Australian GDP