Ross Garnaut on Australia’s China bust


Find above MBTV’s inaugural interview with Professor Ross Garnaut on the magnitude of the structural shift underway in the Chinese economy and the difficult adjustment ahead for the Australian economy.

In summary, Professor Garnaut’s points are:

  • current conditions in China are subdued
  • a renewed stimulus package is possible in the next few months, however it will be focussed almost entirley on energy efficiency and environmental amenty, not infrastructure
  • China is managing four simultaneous structural shifts: a shift away from exports; a shift towards growth in its interior provinces driven by investment in soft infrastructure like education, health and and a social safety net; a shift away from infrastructure-led towards consumption-led growth, and a shift towards industries with greater environmental amenity
  • the balance of these four shifts is a significant downwards shift in the contribution of metals and energy intensive growth to GDP
  • we are approaching (or at) an overhang in global bulk commodity supply capacity and prices will need to fall far enough to knock out high cost production
  • Australia’s real exchange rate is far too high for this emerging context and the dollar will need to fall as much as 40%
  • a huge expansion in investment in non-mining tradable sectors is required if Australia is to grow through the forthcoming fall in mining investment, which will return to its historic average of around 2% of GDP from around 8%
  • LNG is a positive story with China’s environmental push set to strongly boost its demand however North America’s and Russia’s entry into the North Asian market makes the market highly contestable. No new projects can be expected in Australia for the foreseeable future.


About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.