The slowing Chinese economy: Australia’s outlook

The slowing Chinese economy presents both challenges and opportunities for Australian businesses. The weak Chinese official (50.0 points) and Caixin (47.8 points) Manufacturing PMI for July signalled further slowdown in the Chinese economy, after the country recorded annual GDP growth of 7.0% p.a. in Q2 2015, the slowest in six years. Recent volatility in the Chinese share market and the authority’s drastic effect to stabilise the situation also highlighted the need for further reforms in the country’s financial systems, although its effect on the real economy is yet to be assessed.

As the Chinese economy transitions from growth driven by investment to consumption, outlook for Australia’s resource-related sectors may come under further pressure despite rising export volumes. However, as living standards continue to grow for the average Chinese citizen, a number of trade-exposed sectors in Australia, including food manufacturing, education, tourism and financial services, have the opportunity to benefit from the growing number of middle-income households in China, particularly on the back of a lower Australian dollar.

Indeed, as the Chinese RMB is more or less pegged to the USD, the appreciation of the USD over the past year meant that the RMB has increased by around 30% against the Australian dollar and around 20% against the euro over this period.

For Australia, the depreciation in the Australian dollar is helping the domestic manufacturing industry. The Australian PMI® released today recovered 6.2 points to 50.4 points in July, with manufacturing exports expanding for a third month and the sixth month so far this year (readings above 50 indicate expansion in activity, the distance from 50 indicating the strength of the increase).

Are you an Australian business looking towards China, or already operating there? Share your impressions below.

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Yi Ming joined Ai Group as an Economist in 2013. He has broad experience covering economics and financial markets, having previously worked as an economist for the Reserve Bank. Yi Ming holds a first-class Honours Degree in Commerce from the University of Melbourne and is a CFA charterholder and a CPA.

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