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Saturday 22 August 2009
Like it or not, Australia’s fortunes hitched to China economy
People everywhere are discovering the communist superpower looming ever larger over their economic fortunes, and few so much as Australia’s 22 million denizens.
Like it or not, Australia’s fortunes hitched to China economy
Reuters in Sydney 20 August 2009
We’re all China experts now.
People everywhere are discovering the communist superpower looming ever larger over their economic fortunes, and few so much as Australia’s 22 million denizens.
It was the appetite of the Chinese for Australia’s iron ore and coal that essentially rescued the country from the global recession. And that is the main reason the Reserve Bank of Australia feels confident enough to consider raising interest rates way ahead of other developed nations.
“China has been the difference between growth and recession,” said Rory Robertson, a strategist at Macquarie. “China’s dramatic stimulus effort swung that economy from bust to boom in minutes, and allowed Australia to record the best export performance of pretty well anyone. It also helped support Australian commodity prices at levels we could barely have hoped for just a few months ago.”
China now consumes almost 80 per cent of Australia’s iron ore exports by volume, up from less than 60 per cent a year ago and about 20 per cent at the start of the decade. China’s share of coking coal exports hit 28 per cent in June, up from less than 1 per cent last year.
In all, China took A$39 billion (HK$247.85 billion) of Australia’s goods exports in the year to June, up 45 per cent on the previous year.
Central bank assistant governor Phillip Lowe last week was moved enough to call that performance “truly remarkable”.
Chinese demand, he said, was the main reason Australian export volumes rose 3 to 4 per cent in the past nine months, when every other developed nation saw exports slide, some by 20 to 30 per cent.
And this relationship is only set to get closer as China looks to secure its future energy and resource needs. On Tuesday, the two countries struck their biggest trade deal ever, a A$50 billion project to supply liquefied natural gas to China.
One result is that all things China are becoming a major driver of the Australian dollar, with markets hyper-sensitive to any change in Chinese demand, real or imagined.
In July, a routine report that one iron ore shipment from Australia had been cancelled by the Chinese client while at sea sent the Australian dollar sliding 2 US cents.
It quickly became clear this was a one-off event and Chinese demand for Australian iron ore was only getting stronger, but the message was not lost on currency traders, who now watch all and any news on iron ore like hawks.
Investors are also becoming increasingly sensitive to swings in the Shanghai share market. When the index slid early this week, currencies leveraged to global growth such as the Australian and New Zealand dollars slid while safe havens such as Japan’s yen and the US dollar rose.
This linkage is not fully welcomed by analysts, given how wild the Shanghai index can be, compared with old favourites such as the S&P 500 Index.
“We have been warned - this is the very start of a much longer-term trend where Chinese equities will act as an additional variable and a counterweight to take notice of, especially when the signal contradicts that of the S&P,” said Alan Ruskin, an international strategist at Royal Bank of Scotland.
Markets across Asia now hold their breath for Chinese data, much as they once did for Japan’s. That can be a painful process as it is not always clear when the data will be released.
Pretty much all of July’s major indicators were released on one day last week, led by industrial production. The 10.8 per cent rise in output seemed impressive enough, but it still fell short of the 11.7 per cent tipped by analysts, and the aussie promptly dived.
Analysts at HSBC Holdings reckon that electricity production is the most reliable measure of the Chinese economy and note that, when charted, the Australian dollar has tracked eerily close to output in the past few years.
So important has timely Chinese data become for Australia that the central bank has greatly expanded its research on the country, largely at the expense of the United States.
RBA governor Glenn Stevens has long been a China bull seeing several decades of boom ahead for the country as it has all the resources it needs to expand. But there are also challenges.
“If we are more integrated into China’s expansion, we will be similarly more exposed to the consequences of whatever might go wrong in that country,” Mr. Stevens said recently. “So our understanding of how the Chinese economy works, and of what risks may be accumulating, will need continual work.”
As Macquarie’s Mr. Robertson says: “We are all Sinologists now.”
2 comments:
Like it or not, Australia’s fortunes hitched to China economy
Reuters in Sydney
20 August 2009
We’re all China experts now.
People everywhere are discovering the communist superpower looming ever larger over their economic fortunes, and few so much as Australia’s 22 million denizens.
It was the appetite of the Chinese for Australia’s iron ore and coal that essentially rescued the country from the global recession. And that is the main reason the Reserve Bank of Australia feels confident enough to consider raising interest rates way ahead of other developed nations.
“China has been the difference between growth and recession,” said Rory Robertson, a strategist at Macquarie. “China’s dramatic stimulus effort swung that economy from bust to boom in minutes, and allowed Australia to record the best export performance of pretty well anyone. It also helped support Australian commodity prices at levels we could barely have hoped for just a few months ago.”
China now consumes almost 80 per cent of Australia’s iron ore exports by volume, up from less than 60 per cent a year ago and about 20 per cent at the start of the decade. China’s share of coking coal exports hit 28 per cent in June, up from less than 1 per cent last year.
In all, China took A$39 billion (HK$247.85 billion) of Australia’s goods exports in the year to June, up 45 per cent on the previous year.
Central bank assistant governor Phillip Lowe last week was moved enough to call that performance “truly remarkable”.
Chinese demand, he said, was the main reason Australian export volumes rose 3 to 4 per cent in the past nine months, when every other developed nation saw exports slide, some by 20 to 30 per cent.
And this relationship is only set to get closer as China looks to secure its future energy and resource needs. On Tuesday, the two countries struck their biggest trade deal ever, a A$50 billion project to supply liquefied natural gas to China.
One result is that all things China are becoming a major driver of the Australian dollar, with markets hyper-sensitive to any change in Chinese demand, real or imagined.
In July, a routine report that one iron ore shipment from Australia had been cancelled by the Chinese client while at sea sent the Australian dollar sliding 2 US cents.
It quickly became clear this was a one-off event and Chinese demand for Australian iron ore was only getting stronger, but the message was not lost on currency traders, who now watch all and any news on iron ore like hawks.
Investors are also becoming increasingly sensitive to swings in the Shanghai share market. When the index slid early this week, currencies leveraged to global growth such as the Australian and New Zealand dollars slid while safe havens such as Japan’s yen and the US dollar rose.
This linkage is not fully welcomed by analysts, given how wild the Shanghai index can be, compared with old favourites such as the S&P 500 Index.
“We have been warned - this is the very start of a much longer-term trend where Chinese equities will act as an additional variable and a counterweight to take notice of, especially when the signal contradicts that of the S&P,” said Alan Ruskin, an international strategist at Royal Bank of Scotland.
Markets across Asia now hold their breath for Chinese data, much as they once did for Japan’s. That can be a painful process as it is not always clear when the data will be released.
Pretty much all of July’s major indicators were released on one day last week, led by industrial production. The 10.8 per cent rise in output seemed impressive enough, but it still fell short of the 11.7 per cent tipped by analysts, and the aussie promptly dived.
Analysts at HSBC Holdings reckon that electricity production is the most reliable measure of the Chinese economy and note that, when charted, the Australian dollar has tracked eerily close to output in the past few years.
So important has timely Chinese data become for Australia that the central bank has greatly expanded its research on the country, largely at the expense of the United States.
RBA governor Glenn Stevens has long been a China bull seeing several decades of boom ahead for the country as it has all the resources it needs to expand. But there are also challenges.
“If we are more integrated into China’s expansion, we will be similarly more exposed to the consequences of whatever might go wrong in that country,” Mr. Stevens said recently. “So our understanding of how the Chinese economy works, and of what risks may be accumulating, will need continual work.”
As Macquarie’s Mr. Robertson says: “We are all Sinologists now.”
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