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OPINION |
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'Chindia'
Boosts Demand
for
Australian Resources
Sector
By Tim
Harcourt, Chief
Economist, Australian
Trade Commission
Australia's recent
economic success
can almost be
summed up in two
words China and
India (sometimes
referred to as
one word 'Chindia').
The economic expansion
of these two emerging
economic superpowers
in Asia has fuelled
demand for Australia's
vast resources
sector and the
services we build
around our key
commodities.
According to new
research just
released by the
Reserve Bank of
Australia (RBA),
in 1999, China
and India accounted
for just under
6.0 percent of
Australian exports,
whilst in 2007,
'Chindia' accounted
for 18 percent
(with Japan on
16 percent and
'other East Asia'
on 16.7 percent).
China is now our
2nd most important
export destination
(up from 7th place
in 1999) and India
is now the new
number 7 (up from
13th spot eight
years ago). Over
this period average
annual growth
rate of Australian
exports was 24.8
percent for China
and 24.7 percent
for India. Part
of the reason
Chindia's dash
up the charts
has, of course,
been the high
commodity prices
particularly in
key sectors like
coal and iron
ore.
In fact, according
to the RBA, the
growth in Australia's
export volumes
(taking out price
effects) has been
relatively subdued
in the 2000s growing
at an average
annual growth
rate of 2.4 percent
compared to 8
percent for the
1990s. Much of
the growth in
exports is price
driven and supply-side
or 'capacity'
constraints such
as infrastructure
'bottlenecks'
and labour shortages
have been holding
volumes down.
However, Australia
is not Robinson
Crusoe in this
regard as infrastructure
and logistics
difficulties and
skilled labour
shortages are
considered to
be a global phenomenon
as the strength
and duration of
the world commodity
boom has taken
many pundits and
participants by
surprise.
So that's the
macroeconomic
'big picture',
what's happening
microeconomic
level on the ground
for Australian
export businesses?
How are exporters
seeing the global
picture?
According to the
new DHL Export
Barometer, Australian
exporters are
also looking to
China and India
for their future
success. China
and South Asia
(mainly India)
were in first
and second place
when exporters
were asked where
their export orders
would come from
over the next
year. Whilst China
has been consistently
'top of the pops',
India's rise up
the exporter sentiment
ranks is a new
phenomenon. Other
high place getters
include our Trans-Tasman
neighbour New
Zealand, South
East Asia, the
Middle East (particularly
the UAE) and North
America.
Despite the sub-prime
crisis in the
US, Australian
exporters believe
it to be a short-term
affair and regard
the North American
market as a good
medium term prospect
given the US's
ability to bounce
back. Also Australian
exporter's engagement
in China, India,
the rest of East
Asian and the
emerging economies
has left Australia
with minimal 'northern
exposure' from
the US credit
crunch.
How about the
exchange rate?
Exporters are
feeling the pinch
from the rampaging
Australian dollar
with 2/3 of all
exporters worried
about the appreciation
compared to one
half a year go.
The high Aussie
dollar which has
been hovering
in the 90s for
some time has
adversely affected
manufacturing,
agribusiness and
tourism exporters
who don't have
the benefit of
the high resources
prices. However,
whilst exporters
are hurting, they
are still hanging
in there because
of the overall
growth in the
global economy
and the fact that
almost 40 percent
are also importers
and are therefore
getting some benefit
on the cost side.
Is it just a case
of 'Rocks and
Crops' benefiting
and the rest suffering?
Are we seeing
a 'Gregory effect'
or 'Dutch disease'
where a mining
boom crowds out
the rest of the
economy via an
appreciation of
the exchange rate?
It's not as simple
as that as many
manufacturers
and services provide
inputs to the
mining boom and
are therefore
benefiting. In
addition, it's
wrong to say that
Australia's booming
trade relationship
with Chindia is
all about the
resources boom.
In a companion
piece by the RBA
on education exports,
the Bank notes
that Australia
is experiencing
a major boom in
the export of
education services
to both China
and India. According
to the RBA, China
and India's combined
share of Australia's
education exports
are now a third
(on 2006-07) compared
to just under
9.0 percent a
decade or so ago
(on 1995-96).
In conclusion,
Chindia is making
a difference to
Australia at the
chalk face as
well as at the
coal face and
will do so for
a long time yet.
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