Feb 18 2019
According to industry research company IBISWorld, the Chinese economy’s two decades of rapid growth are coming to an end. IBISWorld analysts have found that China’s annual GDP growth has declined from close to 10.0% a decade ago, to 6.6% in 2018. The analysts anticipate that China’s slowest economic growth since 2009 will have significant implications for the Australian economy, particularly for the mining, education, tourism and retail sectors.
The Chinese economy in 2019
In January, the International Monetary Fund downgraded its 2019 forecast for emerging markets and developing economies, citing an expected decline in China’s economic growth. According to IBISWorld, this decline can be attributed to increasing trade tensions with the United States, which are reverberating across global markets. Most notably, Apple issued a rare earnings downgrade in January, attributing lower iPhone sales in China to falling consumer demand and rising uncertainty in financial markets.
“Australia is more exposed to a downturn in Chinese economic growth than most nations. China is Australia’s largest trade partner, and accounted for 30.6% of total Australian export revenue in 2017-18,” said IBISWorld Senior Industry Analyst, Jason Aravanis. “For context, Australia’s second largest trading partner is Japan, which accounted for 12.7% of export revenue in 2017-18. In fact, China accounts for more Australian trade than the United States and Japan combined.”
Australian mining exports
In the Australian mining sector, IBISWorld expects Iron Ore Mining and Black Coal Mining to be the industries most at risk of a downturn in Chinese demand. IBISWorld anticipates that the Iron Ore Mining industry will generate revenue totalling $64.1 billion in 2018-19, with close to 80% of this revenue generated through exports to China.
“New projects under consideration by major iron ore miners, such as Rio Tinto, BHP and Hancock Prospecting, will likely be threatened if Chinese demand declines. However, Australian iron ore producers may perform well relative to their foreign competitors over the long term. Australian firms operate with costs of about $30 per tonne, while the average Chinese firm operates at twice that cost,” said Mr Aravanis.
IBISWorld expects the Black Coal Mining industry to generate revenue totalling $52.1 billion in 2018-19, with over 30% of this revenue coming from exports to China.
“Chinese demand for black coal is projected to decline over the next five years as steel production contracts in line with slowing economic growth,” said Mr Aravanis.
Australian education exports
The Australian University and Other Higher Education industry is highly reliant on demand from international students, particularly Chinese students.
“Australian education providers have benefited from China’s growing middle class, which has led to Chinese enrolments at Australian universities increasing by at least 12% every year since 2002,” said Mr Aravanis.
According to IBISWorld, Chinese students contributed $32.4 billion to the Australian education sector in 2017-18. However, Australian education providers are at a high risk of a rapid and significant decline in demand from Chinese students.
“A downturn in China’s economic growth could lead to a sharp decline in household incomes and stricter capital controls to curb the flow of money out of the country. These trends could cause Chinese students to opt for domestic education rather than studying abroad,” said Mr Aravanis.
Australian tourism exports
Over the year through September 2018, Chinese tourists accounted for the largest share of the 9.2 million international visitors arriving in Australia, with 1.43 million arrivals. The next largest source of visitors was New Zealand, with 1.38 million arrivals.
According to Tourism Australia, Chinese tourists spent $11.5 billion on Australian goods and services over the year through September 2018. IBISWorld analysis reveals several luxury retail brands have benefited from Chinese tourism, particularly those within the Clothing Retailing, Footwear Retailing, and Watch and Jewellery Retailing industries.
“As the Chinese economy slows down, the rate of Chinese arrivals in Australia is expected to decrease. This trend will likely threaten a range of industries linked to the tourism sector, such as the International Airlines industry,” said Mr Aravanis.
Australia confronted the global financial crisis of 2008-09 without falling into recession, primarily due to robust Chinese demand for Australian exports. Although Australia’s trading relationship with China provided protection a decade ago, it is now becoming an increasing source of risk.
“As the outlook for the global economy weakens in 2018-19, Australia has little protection this time. The trade war between the United States and China is escalating, and it remains unclear if the two countries can come to an agreement. In the absence of a breakthrough during trade talks in February, tariffs applied to Chinese goods exported to the United States will automatically increase to 25% on 1 March.
“As Australia currently maintains low interest rates and high government debt relative to prior years, the economy has little to protect it from a global economic downturn,” said Mr Aravanis.
IBISWorld Industry Reports used in this release:
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