A rebalancing of the Chinese economy and fears of a trade war between the world’s two largest economies will see substantial risks arise for some Aussie exporters, while others will see new opportunities arise.
Economist Carlos Casanova of credit firm Coface told a recent gathering in Sydney that low inflation and an abundance of liquidity had seen a “significant uptake” in global trade in recent years.
In Australia, that boom has seen China account for almost one-third (30 per cent) of all exports, while insolvencies among exporting businesses fell from 380 in 2013 to 292 in 2017.
However, he said that fundamental shifts currently underway in the Chinese economy and changes in the global trade environment will have massive ramifications for Australian businesses trading overseas.
“Australia remains very dependent on Chinese demand, and it remains very dependent on commodity exports also tied to this Chinese demand,” Mr Casanova said.
As such, he suggested the three major risks facing Australian exporters are a slowdown in the Chinese economy, a cyclical downturn in trade and an increase in political risks led by global protectionism.
“The Chinese authorities have refocused their emphasis away from quantity towards quality of growth,” said Mr Casanova.
“The two areas that they have highlighted as the focus for these reforms are the housing bubble and corporate debt.”
Both have implications for Australian firms, Mr Casanova said, with housing construction contributing significantly to Chinese demand for Australian resources, while curbs on corporate debt saw “ultra-long delays” in invoice payments almost double in 2017, with “ultra-long delays” defined as those outstanding for six months or more.
However, the news is not all bad for Australian exporters. Protectionist policies led by the US could see a spike in demand for products made elsewhere, including Australia.
And not all resources are likely to suffer, as a shift emerges from iron ore and timber used in housing toward rare earth metals used in electronics.
Mr Casanova claimed that the already announced US tariffs on Chinese products predominantly target China’s high-growth industries, particularly technology, in a bid to curtail potential Chinese growth.
Supporting this argument, Mr Casanova said, is that 70 per cent of the products under China’s “Made in China 2025” industrial initiative are directly targeted by US tariffs, and that the Apple iPhone was excluded from any actions.
“Interestingly iPhones were left out, and iPhones is the product where the US has the largest deficit with China … so it can’t only be about the trade deficit.”
Describing a “significant political dimension”, Mr Casanova said the situation is unlikely to be resolved any time soon.
“Because the US is not really targeting the deficit but they are targeting China’s future — they don’t want China to grow at the expense of the US — this is not a problem that will go away overnight,” he said.