21/07/2010 - 08:35

Analysis: "It's China, stupid"

21/07/2010 - 08:35


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"It's China, stupid." With apologies to former U.S. president Bill Clinton, that's the big issue Australia should be debating in the current election campaign, but isn't.

Analysis: "It's China, stupid"

"It's China, stupid." With apologies to former U.S. president Bill Clinton, that's the big issue Australia should be debating in the current election campaign, but isn't.

When not dallying with Monica Lewinsky, Clinton maintained his 1992 election focus by putting a sign on his desk which read "it's the economy, stupid".

In as few words as possible he cut through the flim-flam of baby kissing, hairstyles and whether the time of a debate clashed with a cooking show, and got down to the core issue confronting every country - its economy.

Back in 1992, America was recovering from a recession and jobs where the No.1 issue. Clinton was able to defeat George Bush senior by pinpointing what really mattered to voters.

In Australia today we seem to be talking about everything but the economy, which is a good thing because we dodged the global downturn (for now), and a bad thing, because our political leaders do not seem to understand how dependent we have become on a single country paying for the lifestyle to which we have become accustomed.

The importance of China as a seemingly bottomless pit for Australian resources is both our greatest asset, and our greatest future problem.

The positive nature of the relationship is obvious. China pays handsomely for our iron ore, coal, gas, and other commodities it needs to fuel its factories.

The negative nature is that in time we run the risk of becoming hooked on China and, as every small business owner knows, it is never a good thing to rely on a single customer because a relationship, no matter how sweet today, can turn sour tomorrow.

We saw, but no politician said a word, about three important events in our relationship with Asia last week.

First came news that China has officially passed the U.S. as the world's biggest energy user, consuming the equivalent of 2.25 billion tonnes of oil equivalent (oil, plus other energy sources such as coal, gas and uranium), which was 4% more than the U.S.

A fair proportion of that energy came from Australia, and more will come in the future as new gas, coal, and uranium projects are developed.

The second item of news was confirmation that the countries of the Asia Pacific are significantly outperforming the rest of the world. Most countries in the region are expected to grow at around 6%, and better, this year, and 5% next year.

With Europe and the U.S. struggling to achieve any growth at all Australia's future will be more dependent than ever on Asia, and when you mention Asia you cannot avoid the fact that it is dominated in every way by China.

The third item was that Korea has signed a gas purchasing agreement with Chevron for LNG supplies from the Wheatstone project, and while not a deal made directly with China it is to supply gas to a country which does most of its trade with China.

In other words, a gas sale to Korea is partly to fuel Korea's exports to China.

For now this booming trade in commodities is good news. The lucky country pulls it off, again.

For our children it might be a different matter with China rapidly strengthening its hand as our dominant customer, with a growing ability to influence commodity prices, and a desire to use Australia as a private quarry and farm supplying cheap bulk raw materials.

Australia might not be feeling it now, and certainly our politicians don't want to discuss it, but in time our relationship with China will become an issue we cannot avoid.


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