Canberra has spent billions on stimulus packages this year, but huge sums are going directly to China, helping its economy, not ours.
In January, factories and workshops across China went eerily silent as Beijing sent most of its country into what was then the toughest and most widespread lockdown in modern history.
A nation that ended up being called the “factory of the world” has come to a halt, leaving many wondering how the Chinese economy would recover from such an unprecedented shock.
Economic growth forecasts were revised down, contracts were suspended, and the world waited to see how the chips fell.
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Now, almost nine months later, the Chinese economy has apparently experienced a miraculous recovery. On paper, China’s economy is booming, even as other parts of the northern hemisphere face an economic battle that the European Union currently predicts could take four or five years.
Although there is great controversy going on over the accuracy of the Chinese government’s economic statistics, the enormous volume of container ships filled to the brim with Chinese-made consumer goods, crossing the Pacific to the United States, cannot be denied.
In fact, due to the record demand for trans-Pacific transport, there is actually a global shortage of shipping containers, forcing container manufacturers to face backlogs of orders that extend into 2021.
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But behind the scenes of a booming manufacturing sector and record high construction level, China’s consumer economy is not doing as well.
After the release of Beijing trade figures for October, Chinese expert and Peking University finance professor Michael Pettis said it was clear that China’s economic recovery was unbalanced.
“Almost all of the recovery is on the production side, and the little recovery on the consumption side has been indirect, due to the measures on the supply side,” Pettis said.
Essentially, the miraculous recovery of the Chinese economy is strongly supported by Western consumer spending, driven by the government’s stimulus measures.
Much like during the GFC, when Australians were buying flatscreen TVs and other consumer goods with their stimulus payments, they helped support Chinese manufacturers, this time it’s happening on a much larger scale.
During GFC, the Rudd government injected $ 12 billion into the economy through cash donations. This time, between cash payments to welfare recipients, retirement pension withdrawals and other forms of government stimulus, well over $ 150 billion in support has flowed through the economy.
This is clear when looking at Australia’s total imports from China. After dropping earlier in the year due to China’s initial lockdown to its lowest level since 2016, it has since risen to 80% as Australian retailers scramble to restock their shelves amid record demand.
Another factor that is boosting the Chinese economy is the high level of construction of infrastructure and real estate. As a result, China’s iron ore imports, which largely come from Australia, have skyrocketed in the stratosphere, steadily breaking record after record since Beijing reopened after the lockdown.
Although nearly a decade has passed since former President Hu Jintao urged his Chinese Communist Party colleagues to rebalance the economy by avoiding growth in exports and fixed capital investment, it appears Beijing has fallen back. in his old ways.
The push towards a Chinese economy focused on domestic consumption has apparently been put on the back burner.
While the return to export-led growth has helped secure Beijing’s immediate economic future, it has also made it increasingly vulnerable to further shocks to global consumer demand.
Amid the current global uncertainty, this potential shock could take many forms.
With much of Europe in varying degrees of lockdown as the number of coronavirus cases continues to rise, there are growing risks that long-term damage could be caused at the demand of European consumers.
Looking at the European Union’s existing forecast, it is clear that many of the world’s largest economies face very long paths to recovery.
If the lockdowns persist for longer than expected, which is certainly possible given the scale of infections many European countries are currently facing, the possibility of long-term damage to several European economies becomes even greater.
It is not only Europe that is facing potential long-term economic damage from the pandemic. With more than 130,000 cases a day in the United States, more than 20 million unemployed, and policymakers currently refusing to compromise on a stimulus package, the United States also faces a difficult future.
If a heavy blow is dealt to global consumer demand and Beijing is forced to face a world in which one of the pillars of its economy is strongly impacted, it will undoubtedly fall back on the other, construction.
In recent months, Chinese steel production has reached record levels as Beijing tries to repeat its global financial crisis-era strategy of pulling itself out of economic difficulties. This capital investment, the construction boom, is driving a currently almost insatiable demand for Australian iron ore.
This effectively leaves Beijing in the unenviable position of depending on America and the West for their consumers and Australia for its iron ore.
Despite all the chest pounding, aggressive accents, and threats, the very nature of today’s global economy means Beijing needs Western consumers to recover and Australian miners continue to dig.
As we increasingly move towards an uncertain future, Beijing is not as secure or self-sufficient as it would like or was envisioned under the leadership of former President Hu Jintao.
In the long term, that could change as Beijing seeks to diversify its supply of raw materials such as much needed Australian iron ore. But it takes time.
The same goes for the slow and very gradual shift from an economy based on exports and construction to an economy based on domestic consumption.
Ultimately, until Beijing can finally wean itself from debt-fueled capital investment and its reliance on exports of consumer goods to the West, its dreams of someday achieving the world supremacy could be just that, dreams.
Tarric Brooker is a freelance journalist and social commentator | @AvidCommenter