(By Jason Simpkins)
Australia defied the global trend in the first quarter, recording a 0.4% year-over-year rise in gross domestic product (GDP).
Of course, Australia’s economy didn’t shrug off the global economic downturn all by itself. It got a very big helping hand from China, a country whose growing influence in the Pacific has been both a blessing and a curse for the land down under.
Australia’s unexpected economic growth was largely the result of strong trade, as trade figures recorded their biggest contribution to growth since 1961. Healthy retail sales and government stimulus measures also helped.
"Today’s national accounts data shows a fairly large contribution to growth from net exports in the March quarter, and that follows a substantial contribution to growth from net exports in the December quarter," said Australian Treasury Secretary Ken Henry. "We’ve got two quarters now of strong contribution from net exports and, of course, the other strong contributor in this quarter is household consumption."
But over the past six months, the bulk of Australia’s exports have been headed to China—Australia’s largest trading partner—and haven’t been split between the Red Dragon, Japan and the United States, since those latter two developed economies have been mired in a deep downturn.
China is a growing nation with insatiable needs. It needs cotton and wool for its textile factories, iron ore for its steel mills, coal for its power plants, and grain for its growing population. And Australia, which is a mere 4,641 miles away, has an abundance of all these goods.
China consumes half of Australia’s wool and half of its iron ore exports, as well. In fact, China consumes nearly half of Australia’s total mineral exports.
After hitting $60 billion at the end of last year, bilateral trade volume between Australia and China soared 30% in the first five months of the year, according to China’s CCTV.
“Trade and investment links with China and other emerging economies are going to help Australia survive the global credit crisis," Tim Harcourt, chief economist of the Australian Trade Commission, said at the Australia China Business Forum.
Australia’s share of exports to emerging countries rose to 53 %, compared with 43% 10 years ago, Harcourt said. And exports to China have seen an average annual growth of 24.8% in that time.
"According to research commissioned by the Australia China Business Council, the average Australian household now benefits to the tune of A$3,400 ($2,550) a year from Australia’s trade with China," Harcourt said.
China’s foreign direct investment (FDI) in Australia also has soared. China’s total FDI in Australia reached $5 billion (A$6.2 billion) in 2007, a 78% year-over-year increase and a 120% increase over five years.
"Investment is also an increasingly important part of the Australia-China relationship,” said Harcourt. “Strong outward FDI flows from China are replacing the traditional trade route as a form of global engagement."
But while China’s voracious appetite for resources has been the flotation device that’s kept the Aussie economy from joining others on the ocean floor, there is a growing sense in Australia that China has become a little too enamored with Australia’s out-of-the-earth bounty.
Indeed, Australia’s cozy relationship has become something of a political bugaboo for Prime Minister Kevin Rudd. Before being elected prime minister, Rudd, who speaks fluent Mandarin, worked as diplomat in Beijing for Australia’s Department of Foreign Affairs.
