$150b Chinese export market – where to from here?

$150b Chinese export market – where to from here?

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• China is Australia's largest trading partner, by a very long way.  Arguably our exposure to China is greater than our exposure to COVID-19, at least in word with effective vaccines. With diplomatic relations at an all-time low, we review the size and significance of our largest trading partner. Both countries have benefited extensively from this trade which appears to have become fragile.

• China is of particular interest to Australia's TMT sector with around $9.4 billion of imports being in the telecommunication equipment and IT products markets. Obviously, the ban of Huawei for 5G equipment will shift the mix but the large bulk of consumer electronics are still manufactured in China. • It is nigh on impossible to find a replacement export market that has a population of 1.4 billion people and an economy growing at 5-10% per annum. For example, you would need to find rough 3x Japans to fill the void. As such, we believe that Australia will need to constructively re-engage with China (without compromising on its values as has been the case over the past 50 years) and diversify its export and import markets. A hard landing on exports would be devastating for Australia's economy and as such is a non-starter or would be a failed end game. • Our trade surplus with China is around $70 billion, made up of $150 billions of exports less $80 billions of imports. Australia runs a modest trade surplus overall. However, without China, our imports would exceed our exports by around $7 billion. Exports and imports with China have grown rapidly over the past 5 to 10 years and it is fair to say that Australia's economy is highly exposed to China success. China's exports alone represent around 8% of our total GDP.  Or put another way, a 10% swing in these exports, say $15 billion would represent a 0.8% movement in GDP. • Australia's exports to China have roughly doubled since 2015, and currently sit at around $150 billion in 2020. Minerals and fuels represent 80% of these exports, with the remaining being in various manufacturing and primary industries. China's exports have become increasingly significant, with many commentators describing our economy has been linked to China's success.

• Australia is also highly dependent on imports from China. In 2020 we imported $81 billion, which is roughly 1.4 times larger than it was 5 years ago. These imports are made up of telecommunication equipment and IT product 12%, Computers 9% and Furniture 4%.


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