Essay on ‘impact of a fall in the rate of growth of the Chinese economy on macroeconomic conditions in Australia’ 2022

Running head: ESSAY
Essay on ‘impact of a fall in the rate of growth of the Chinese economy on macroeconomic
conditions in Australia’
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1
ESSAY
Introduction
China and Australia have very significant economic relationship. Since the 1970s, when
the Chinese economy started to witness growth in urbanization, manufacturing, and investment
in infrastructural investment, the demand for energy, transport, electricity, manufacturing raw
materials and building materials increased considerably. Australia was able to meet a large
portion of the huge demand of the Chinese people, and at the same time, it also provided a big
market for the Chinese manufactured goods. Currently, the biggest trading partner of Australia is
China in terms of both exports and imports, while Australia is the 6th biggest trading partner of
China (Goodman, 2017). According to a publication of the Parliament of Australian (2019),
Australia holds the 5th rank among the biggest suppliers of imports to China and 10th rank in the
list of largest customer for exports. While 25% of the manufactured imports to Australia comes
from China, 13% of the exports of Australia to China consists of thermal coal. The countries are
also involved in two way investment relationship. Thus, any economic impact on any of these 2
countries has its consequences on the global economy as well as on the economy of the trade
partner nations. The economy of China is going through a turbulence since mid-2018 due to the
US-China trade war. The imposition of tariff on the Chinese goods and the retaliation by the
Chinese government have been affecting the growth of the Chinese economy. However, as the
Australian economy, especially some particular sectors are heavily dependent on the Chinese
economy for trading, thus, the slower growth of China would have a significant impact on the
Australian economy (Thomas, 2017). This essay will present a comprehensive discussion on the
impact of a fall in the rate of growth of the Chinese economy on macroeconomic conditions
in Australia.

2
ESSAY
Discussion
Over the years, the Australian economy has become increasingly dependent on the
Chinese economy. Not only imports of Chinese manufactured goods, but the exports to China
also contribute a significant amount in the growth of the Australian economy. Thus, if China
reduced the level of trade with Australia, the Australian economy would face challenges in their
growth prospects. As per the report by Aph.gov.au (2019), China’s economy has been shifting
its focus towards more domestic consumption and production of more complex products and
services, and thus, the demand for resources from Australia to China will be moderate. The
exports to China is expected to grow at a slower rate and the natural gas is expected to replace
the coal exports to some extent. At the same time, the imports from China to Australia majorly
consists of engineering goods, which includes telecommunication and office equipment. The
level of investment both ways has also grown over the years. Thus, any economic shock to China
would have a consequent effect on the growth of the Australian economy (Qi & Zhang, 2018).
However, since 2018, the Chinese economy is facing a slowdown. The trade war between
America and China is having its impact felt on China as well as its trade relationships with other
partners, including Australia. According to a report by Beveridge (2019), the trade war of China
with USA has cast a negative impact on the China’s economic growth. The Chinese economic
growth has been slowest in the past 27 years. The quarterly growth of GDP was only 6.2% in the
June quarter of 2019, which is a worrying fact for Australia, being the largest trading partner of
China. Australia itself is facing the challenge of slowing growth and along with that, the Chinese
growth rate hovering around 6%, is a major concern for Australia.

3
ESSAYThe trade war between the USA and China started in the mid-2018, when the US
President, Donald Trump imposed increased tariff and other type of trade barriers on the Chinese
imports on the ground of increasing trade deficit due to massive imports of Chinese goods, unfair
trade practices and intellectual property theft by China (Liu & Woo, 2018). Within a year till
mid-2019, the USA has imposed tariffs of more than $360 billion on the Chinese products, while
China also retaliated with over $110 billion on the US products (BBC News, 2019). In
September 2019, while US imposed 15% extra duty on the Chinese imports, including meat and
musical instruments, China retaliated with 5% levy on the crude oil from the USA, which hit the
fuel first time in the trade war. Thus, the net effect of the on-going trade war between 2 of the
biggest economies of the world is the increasing tariffs on the imports, which affected the
production sectors of the nations. As highlighted by Beveridge (2019), the increased tariffs on
the Chinese goods have been affecting both the imports and exports of China, with 7.3% fall in
imports recorded in June 2019. Increased tariffs are making the Chinese imports more expensive
in the USA, which is reducing the demand for Chinese goods in the biggest economy of the
world. Thus, there is a fall in the Chinese exports. On the other hand, the imposition of tariff by
China on the American goods is increasing the prices for the American goods in the Chinese
economy, resulting in fall in imports. The terms of trade and the trade volume are going
downwards for both the economies, especially for China. The domestic sectors, especially the
manufacturing, agriculture and textile industries, have been affected majorly. It is also affecting
the foreign exchange reserves. Along with that, China is facing another challenge of excessive
debts, occurred due to the stimulus efforts taken after the global financial crisis (Li, He & Lin,
2018). The stimulus boosted the economic growth, but it led to $40 million debt on the
government (He, 2019). The debt-to-GDP ratio has become 300% as of March 2019, and the