09/10/2019 - 14:52

Unseen diversity in foreign ties

09/10/2019 - 14:52

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Australia is not as exclusively dependent on China’s economy as commonly perceived, according to research by Business News.

Unseen diversity in foreign ties
The index uses export and import values, and data on foreign investment stocks, sourced from the Australian Bureau of Statistics..

Australia is not as exclusively dependent on China’s economy as commonly perceived, according to research by Business News.

During a week in which the Asian superpower celebrated the 70th anniversary of the founding of the People’s Republic, Chinese ambassador Chenge Jingye told a local newspaper that Australia depended on China for its economic success.

However, Business News has compiled an index of Australia’s economic connections (see table) showing that, although China is important, it is not the only vital relationship.

The index uses export and import values, and data on foreign investment stocks, sourced from the Australian Bureau of Statistics.

Trade relationships and investment relationships are given equivalent weighting, and inflows and outflows are considered equally important when judging the intensity of the connection.

On both characteristics, countries are compared to the top performer, China for trade and the US for investment, and given a score out of 50.

The US tops out the list, mostly because of the massive investment relationship.

US-based entities had $940 billion of investments in the Australian economy at the end of December 2018, while domestic businesses and households had investments valued at $719 billion in the US.

The world’s largest economy played a pivotal role in Australia’s recent resources boom, funding major projects such as Chevron’s Gorgon and Wheatstone LNG facilities.

These investments particularly highlight the interdependence of economic relationships.

The US supplied capital that supported the construction of assets, with the production sent as exports to other nations such as China and Japan.

The level of US investment in Australia as of 2018 was more than double that of 2008, when it was $423 billion.

Both direct investment, which includes equity stakes of more than 10 per cent, and portfolio investment, which includes debt and smaller equity stakes, rose.

Direct investment increased 144 per cent to be $214 billion, and portfolio investment lifted 136 per cent to $570 billion.

By contrast, Chinese entities are the ninth biggest investors in Australia, with assets of $63 billion here.

That has grown nearly eight-fold since 2008.

Australian investment in China is $75 billion, making it the eight most significant destination.

Other major investors are from the UK ($575 billion), Belgium ($317 billion), Japan ($229 billion) and Hong Kong ($119 billion).

In addition to the US, Australian investment outbound is in the UK ($408 billion), Japan ($113 billion), New Zealand ($97 billion) and the Cayman Islands ($78 billion).

Trade
While exports earn income for a country and create jobs, imports are important because they improve accessibility to a wider choice of products for more people.

China is Australia’s top trading partner by a large margin, with exports around $136 billion and imports of $78 billion in the 2018 calendar year.

These numbers include both merchandise and services trade.

Speaking in response to the release of recent trade data, Commsec chief economist Craig James said China had driven Australia’s strong recent trade surplus.

“Exports to China continue to soar to fresh highs, so much so that over 37 per cent of all our exports are destined for mainland China,” he said.

“Add in Hong Kong and the export share lifts to 40 per cent.”

Japan is ranked second.

Australian exports to Japan were $59 billion in 2018, while imports were $27 billion.

The US is third, with Australia shipping $23 billion of exports stateside while importing $51 billion of goods and services.

Other significant relationships include Germany, from which Australia imports $15 billion of merchandise annually, and India, where Australia sells $17 billion of goods.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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