Fairfax’s Jessica Irvine posted a solid article over the weekend arguing that the much hyped “boom” in services exports to China are likely to disappoint because, unlike with commodities, Australia does not have any natural advantage in these areas:
It’s a nice idea that we could replace our mining boom with a services-driven export boom. But it’s time for a reality check…
Australia exports about $90 billion to China… Last financial year, our exports of iron ore accounted for more than half of our exports to China, followed by followed by coal ($7.5 billion) and gold ($7 billion).
Our service exports, by contrast, pale in comparison, earning us $5 billion from educating Chinese students and $2.5 billion from travelling Chinese holidaymakers.
…Despite the government’s rhetoric about all the “opportunity” that flows from a burgeoning Chinese middle class, in reality our major China boom is over…
While not many countries had the iron ore China needed to fuel its steel furnaces, there plenty of other suitors lining up to supply them with food, holidays and an education.
Australia can be as nimble, agile, innovative and excited as we like, but just because we’re good at providing services, doesn’t mean we’ll necessarily sell lots of them…
Australia is, after all, a high wage and high cost country. Unlike our rare deposits of iron ore, there are many other developed nations who can compete with us in the provision of services.
These points have been made on MB for quite some time. The fact of the matter is that Australia’s exports of commodities completely dwarf those of services. Moreover, the recent decline in the value of commodity exports has easily outpaced the rise in services exports, along with agricultural exports:
Obviously the lower Australian dollar has helped – as we have seen with the record Chinese tourism arrivals and the growth in education (citizenship?) exports. But as Irvine says, there are dozens of countries also lining up to provide the Chinese with these services.
Unlike commodities markets, where Australia is effectively part of an oligopoly supply chain, services is a highly competitive market. Thus, Australia’s ability to extract high profits is limited.
