While all eyes have been on China’s new security laws for Hong Kong, something has gone by relatively unnoticed. Chinese Premier Li Keqiang has decided to set no GDP (growth) targets for the first time since 1994.
The targets are usually something of mantra for China’s ruling Communist Party (CCP) — a neat summary of the country’s ever-increasing prosperity. They have also underpinned Australia’s economy.
COVID-19, of course, caused the CCP to dramatically lock down China. This shut down an already slowing economy, further buffeted by the trade war with the US. As the virus spread across the globe, the already precarious global economy has also been smashed.
With this in mind, there is no GDP target that could look remotely respectable. Instead, the narrative from Chinese Premier Li Keqiang — who delivers the central economic work report to the National People’s Congress — is that China will pull focus on its domestic economy.
Li admitted that a mind-blowing 600 million people still live on less than US$140 per month. Meanwhile, average monthly earnings across China are US$4100. There is a vast chasm of inequality in the country. (It’s worth remembering that the grievances of Hongkongers are rooted not just in freedom, but in fading economic opportunity and inequality.)
With China’s global export markets looking awfully shaky, there was really nowhere else to go. But the imperative to boost the domestic economy has been sharpened by growing joblessness (its official unemployment figures are widely seen to be next to meaningless) and the aforementioned wealth gap.
This has meant, quite explicitly from Li, a renewed emphasis on self-sufficiency. It’s part of the broader “decoupling” narrative that has further implications for Australian trade beyond any tit-for-tat spats over Canberra’s inept diplomacy and Beijing’s chest beating.
What’s critical to remember is that, for all the gushing praise (and subsequent derision for the budget deficit it left) heaped upon the Rudd government for its sharply executed economic stimulus in late 2008, the role of China was critical.
Indeed, it was the massive stimulus by Beijing — at the time price-tagged at $4 trillion, but costed by economists as many multiple times that number — that provided the ballast. This came, primarily, in the shape of a historically unprecedented infrastructure binge on rail, airports and a local government-backed housing boom that gobbled up just the kind of raw materials Australia digs up.
Once the sugar rush of Rudd’s cash splurge was over, it was this — and an ensuing Chinese tourism and student boom — that underpinned Australia’s economy. China ensured that Australia did not slip into recession like the rest of the OECD nations did.
But debt levels in China have soared on the back of the government cash splash and this time Beijing has far less room to move. There’s little left to do in the way of nation building with a sagging property market.
Respected China analyst Professor June Teufel Dreyer has written on Li’s latest moves for the Foreign Policy Research Institute:
Perhaps learning from the experience of a decade before, when a large stimulus package had encouraged local governments to front-load investments in infrastructure projects that were often less than wise and raised their debts to alarming levels, Li’s plans appear more modest.
The proceeds of local government special purpose bonds and treasury bonds are to be transferred to local governments to stimulate consumption and raise employment rates. National rail capital funds are to be raised; electricity rebates and tax breaks for small businesses will continue until the end of 2020; and the country’s largest state banks have been told to increase lending to small firms by 40% from 2019.
None of this sounds like catnip for Australia’s miners, despite the serendipitous surge in iron ore prices that is due to problems with China’s other main supplier Brazil (and has had the deleterious effect for other exporters of lifting the Australian dollar).
None of this means that China is not still going to be Australia’s biggest export market, just that Beijing’s stimulus efforts will be directed toward domestic imperatives such as improved healthcare — in a suddenly health-obsessed world — social security, and the nitty-gritty of keeping its manufacturing sector afloat.
Australia appears to have escaped the worst of COVID-19 but, unlike the 2008 crisis, there won’t be a free ride up and out of this slump on the dragon’s back.
How is it possible to get the figure $4100 average weekly earnings when annual earnings are listed 90501 yuan per worker which is about $13000US according to trading economics.com
Too much sugar in his decaf coffee?
Yes….$4100 per week is clearly rubbish
I’m not going to comment on the arithmetic or the accuracy of the data, but on the English comprehension. The article says $4100 average monthly earnings.
It has been slyly amended when various readers pointed out the error.
When amendments & corrections are made to articles, this is usually noted at the bottom, at least in respectable journals.
And it’s still out by an order of magnitude (assuming it still says ‘month’)…
“Our annual per capita [disposable] income is 30,000 yuan ($4,203), but 600 million people have a monthly income of 1,000 yuan.
Crap happens, but it shouldn’t happen twice…
Why should Michael Sainsbury just take as given the Coalition view that Rudd’s stimulus package was overspending and did not really save the economy? There is no proof offered whatsoever that Rudd’s stimulus was a “sugar hit” and that all the heavy lifting was done by the side effects of China’s stimulus. While the early cash handouts the Rudd government employed could be described as a “sugar hit”, the real work in averting a recession, apart from the important bank guarantees, was done by the school spending project. The Murdoch media, of course, targeted this program, reporting only bad news stories. The overwhelming part of the spending was a success but Murdoch media only told stories about failures, most of which were in New South Wales.
Michael Sainsbury seems to have a sub-text to his story, as it is so odd. Of course, the net impact of China’s moves and of Australia’s will be negative. Chinese tourists will come in much reduced numbers, even when travel resumes, partly because the campaign to have Australia line up with the US in hostility to China will give the impression that Australians are unfriendly. Chinese higher education students will return in fewer numbers. On the other hand, Australia’s exports to China will hold up and even increase, although this will drive up our dollar. The net effect is likely to be neutral or negative. So what? We have reason to make sure that our basic needs in food and health care can be met, even when Australia is cut off from the east of the world. We have reason to develop renewable energy on a large scale, along with hydrogen production. We also have reason to repair relations with China, since the steps toward hostility that we have taken are yet another example of Australia slavishly following the lead of the US, rather than using our own head to work out what is in our notional interest. We had reason to support the US Initial intervention in Afghanistan, because our treaty commitments required that we help them defend themselves from attack, but we had no reason to follow them into Iraq, thereby giving the Taliban a new life in Afghanistan. The US might think it has reason to try and wrap China in a new iron curtain, so as to block China’s rise to the biggest world economy, but we do not. We do have reason to avoid casting China as a hostile power, as that will contribute to making it hostile when it is in our national interest to have good economic relations with it and to foster good relations with its citizens, as we can only benefit from that.
There are any ghost cities, built during previous stimulus surges, which are still uninhabited which might have something to do with there still being 600M on less than $140pm and even an average wage of $4,100pa – which is only twice that deemed poverty.
China cannot survive on production for domestic consumption let alone thrive as it has done this century by being the world’s low cost workshop because that was dependent upon raw material & energy imports, paid for with foreign exchange.
BTW, tautology does not enhance.
“…price-tagged at $4 trillion, but costed by economists as many multiple times…”
Try “priced or tagged at” and “many times” or “multiple times”.
Is the average weekly salary in China really USD 4100??? Possibly a typo?
Sloppy journalism. I’m sick of typos in news sources I pay for.
Has the article been amended? It now reads monthly, not weekly.
Yep, without any acknowledgement of the error pointed out by readers.
A common occurrence on this site.
And, the site the story links to says:
“Our annual per capita [disposable] income is 30,000 yuan ($4,203), but 600 million people have a monthly income of 1,000 yuan…”
I wish there were an Economist writing this article. I always find it difficult to understand the ‘mining export led recovery’ explanation for Australia avoiding recession, say, during the Rudd successful GFC management.
I know exports help balance imports cashflow figures. I know States get mining royalties, unless they had forgiven them. I know the federal Government gets Tax from mining companies, except when they do not and money is sent overseas to shareholders and to ‘repay loans’. I know that employees in and suppliers to mining companies get paid, except that there might be 100,000 workers, tops, fly in fly out workers do not help local communities and most suppliers are during the construction phase. I remember that Governments have built ports and railways and when they have sold them it has been below cost.
How did this Chinese-led-recovery of our Economy occur, that some ‘economists’ have ‘costed’ as having a benefit to Australia of multiples of $4trillion?
Students were a renewable resource and it looks like that will dry up with China. The students were also exposed to our culture – hopefully to our mutual advantage and cultural awareness. This will be seriously missed and damage our foreign relations.
Mining is mainly to the benefit of a few ultra rich oligarchs who minimize their tax obligations for profits on land that they don’t own & in many cases still belong to its original owners – mining should be nationalized, with profits shared equally by the commonwealth and originating state governments; but only after any indigenous communities assent and remuneration coming first.
This is dreamland. With the exception of Hancock the major shareholders in Rio, BHP, Fortescur etc are the large superannuation funds.
Go check your facts.
I agree with you Ken, I can never work out the benefit to Australia of all this mining, except for a few fifo jobs, which as you say are of little benefit to local communities (check Cobar out these days since the shift schedules have been rearranged).