You turn into James Laurenceson, Deputy Director and Professor, Australia-China Relations Institute (ACRI), University of Technology Sydney via BS:
Capital outflows are the latest sign of things to come according to China bears. Last year China’s foreign exchange reserves fell by $US513 billion. And in January, the People’s Bank of China spent another $US100bn defending the value of the renminbi.
To hear some commentators tell it, there’s been a dramatic shift in sentiment towards the world’s second largest economy and the best that Australia can hope for is that China will come to a slow, grinding halt rather than end with a crash.
But leave aside that China’s stockpile of foreign exchange reserves is still a staggering $US2 trillion bigger than Japan’s, the world’s second largest reserves holder.
Here’s the big reason why we shouldn’t be panicking: Chinese consumers aren’t buying into the negativity.
If China’s prospects are being written down, it’s not being done by those most closely connected to the action on the ground.
In 2015, consumption accounted for two-thirds of China’s GDP growth, up from half the year before.
The Westpac-MNI China Consumer Sentiment Index was up for the third straight month in January and now stands at a level higher than one year ago.
Australia’s education sector is also benefiting from the spread of China’s middle class. In each of the last two years the growth rate in student visa applications coming from China’s inland provinces has been higher than the traditionally wealthier coastal region.
Since the early 2000s, there’s been no brighter spot on Australia’s economic radar than China. Nothing’s changed.
Well, perhaps. But there is the less commodity-intensive and slower growth, wholesale monetary easing and breathtaking capital flight resulting in an equally large crack down on capital outlets whether that registers with consumer surveys or not. There is also greatest commodity price crash in a century to consider. And if you want to get really bearish the debt levels, housing overhang and collapsed productivity are good candidates.
I’m not saying it’s a Chinese crisis just yet but it’s already a global one, so long as you’re not operating in the complete dark that is!
