China’s economy has been considered a force to be reckoned with for a while now. Since the Global Financial Crisis, China’s economy has boomed and Australia has been a major benefactor of that wealth. Australian businesses have profited from lucrative trade deals with the economic giant, particularly within the mining and agriculture sectors.
But what if China’s strong economy is not everything it appears to be? With the stock market bubble going ‘pop’ in 2015 and the Chinese government stepping in to save the day, China could be more of a debt burden than an economic miracle. Operating as a capitalist country under a communist government comes with unique economic consequences – namely, under these circumstances, debt. Now the dust has settled and economies around the world have recovered, what does the looming debt crisis hold for China’s own economic decline?
Official reports don’t provide a clear picture
China’s official economic reports are generally pre-determined, so they don’t provide detailed insight into how the giant is actually performing. However, reports from the ABC claim that there have been concerning messages coming from Beijing, which could indicate that all is not as it should be in the Chinese economy.
Factory activity has slowed considerably and employment has been declining faster than usual. These signals hint at an economy that’s not as robust as it might appear. And if the Chinese economy’s growth really has peaked, the ripple-on effect from the nation’s large debt could be global.
China’s slowdown will have a ripple on effect
Australian business has benefitted enormously from China’s economic boom. Now China is back-flipping between policies that advocate for investment in infrastructure as the cornerstone of their economy, and a more consumer-oriented economy. While a focus on consumerism saw China’s economy slow and stall, the sudden switch back to an infrastructure-based economy doesn’t necessarily bode well.
If Australian businesses expect to profit from supplying China with the resources needed to continue their economic stimulus, they need to prepare for China’s growth and buying power to slow.
Overreliance on China’s economy could be folly
While China’s economy has an enormous impact on global economies, Australians are more likely to experience the backlash of a China slowdown than most. With huge Chinese investment in Australia and more than 28 per cent of our exports going directly to China, we’re heavily reliant on China’s economic strength.
China’s economy slowing could affect Australian businesses in a number of ways. It could mean a sudden reduction of trade, leaving Australia with an oversupply of goods and no one to sell them to. It could also result in Chinese investors pulling out of Australian assets. Tourism industries could even take a hit if China’s middle-class decides to slow down its spending, too.
While further stimulus from the Chinese government can delay any severe impact Australia may face in the future, Australia needs to think about diversifying its economic relationship with China. That could mean relying less heavily on mining resources and looking towards new economic avenues.
If you’re interested in how Australia stands in a global economy – and the impact it has on business – consider studying one of Southern Cross University’s online business courses. Our MBA can give you the knowledge you need to thrive in a global economy Speak to one of our expert Student Enrolment Advisors today on 1300 589 882 to learn more.