Michael Pettis, professor of international finance at Peking University, has reiterated his forecast that Chinese growth will slow to 3% or 4%, from above 7% currently, which will adversely impact commodity exporters like Australia. From The ABC News:
Michael Pettis, professor of international finance at Peking University, believes growth rates might fall to as low as 3 or 4 per cent, which he says means the reform process is working…
Australia’s mining companies and its national accounts have done very well out of China’s rapid growth…
Forecasters say iron ore sales alone for this year will earn Australia between $80 to 100 billion.
However, Michael Pettis says if China’s growth rate falls to 3 or 4 per cent then it is a different story.
“China consumes something like 60 per cent of total global iron ore,” he explained.
“So an adjustment in China almost certainly will mean a significant reduction in the price of hard commodities, which affects countries like Australia, Peru, Brazil, etc”…
Professor Pettis says growth will slow dramatically if genuine reforms are implemented.
“Well in my opinion the best case scenario suggests the upper limit of growth on average during the ten year expected Presidency of Xi Jinping is probably not going to exceed 3 or 4 per cent,” he said.
“The beginnings of the adjustment have lopped about 3 percentage points off growth, and we’ve only just begun the adjustment process. Now if growth rates don’t drop I would consider that to be an indication that Beijing has had real trouble implementing the reforms.”
However, Michael Pettis still believes that China’s leadership will avoid disaster.
“It depends on whether it happens in an orderly way, which I’m still betting it will happen, or in a disorderly way,” he said.
Of course, there is nothing new in Pettis’ summation, since he has made similar arguments over the past few years. What does make me increasingly nervous, however, is Australia’s growing dependence on China and iron ore, which both hit record high export shares in the latest trade data released by the Australian Bureau of Statistics (see below charts).
With increased concentration comes increased danger for the Australian economy in the event that Pettis’ predictions come to fruition.
