Treasurer Fears Struggling Chinese Economy Could Cost Australia Billions

The contraction of China’s economy will cost Australia billions of dollars in lost export earnings, Treasurer Jim Chalmers has warned in an opinion piece.
It was widely believed that Beijing’s decision, in late 2022, to end its draconian “zero COVID” policy would rapidly reignite the economy.
Instead, the economy has faltered, with sluggish GDP growth, falling consumer confidence, and a collapse in property prices that has caused some of the country’s largest companies to default on loans or collapse completely.
In July 2024, official data revealed that GDP growth was falling behind the government’s target of about five percent.
China is bedevilled by multiple economic problems, including a sustained real estate crisis, its rapidly ageing population, and Chinese leader Xi Jinping’s insistence on interfering in the market.
But its critical weakness is an economic strategy that has long placed industrial production above all else. That has resulted in overinvestment in parts of the economy that make things, from raw materials to emerging technologies such as batteries and robots.
To fund this, many firms have taken on huge debt burdens to produce more output than China, and foreign markets, need or want.
But this is China, which means the survivors usually have close ties to the CCP and access to cheap financing.
As a result, the economy risks getting caught in what some economists call a “doom loop” of falling prices, insolvency, factory closures and, ultimately, job losses.
Aside from cheap Chinese-produced goods flooding the international market and pushing out Australian producers—as has happened with nickel recently—the biggest risk for Australia from a contracting Chinese economy is a fall in demand.
China is Australia’s largest trading partner. In 2023, China bought $219 billion of Australian exports, worth 32.5 percent of the country’s total exports to the world. China is Australia’s top overseas market for agriculture, resources, and services.
Treasury is forecasting China’s GDP growth at below 5 percent for the next three years, the weakest since China began opening its economy in the late 1970s.
“Our resilience and prosperity are closely connected to China’s economy and the global economy,” Chalmers wrote in The Australian newspaper.
“This is why we monitor the Chinese economy so closely,” revealing that “a one-percentage-point drop in China’s GDP growth roughly costs Australia a quarter of a percentage point of our growth, or about $6 billion in lost output.”
Because China has traditionally been the largest customer for iron ore—taking 80 percent of total exports in 2022—it is in this commodity that Australia is particularly vulnerable.
And trade impediments affecting more than $20 billion worth of Australian exports have been lifted, leaving less than $1 billion in contention.
“The Chinese market is once again open to Australian coal, cotton, copper ores and concentrates, timber logs, oaten hay, barley and wine,” he said.
But the government is also looking beyond traditional exports to new industries and products, particularly sectors in which Australia perceives it has an advantage as the world moves to net zero.
“We can cooperate in areas such as decarbonising steel supply chains and certifying green products and investments consistently to maintain the complementarity of our economies,” the Treasurer wrote.
“Our dialogue with China is about ensuring stability at a time of significant uncertainty. With rising geopolitical tensions globally and in our region, it’s more important than ever to maintain open lines of communication.
“There’s a lot at stake and there’s a lot to gain.”