In terms of the world's financial markets, China is the centre of attention. Last week I argued that concerns about stock markets and exchange rate devaluations were minor and ephemeral issues. Attention should instead be on the longer-term challenges that China faces in keeping its growth rate close to 7%.
How much does this matter to Australia?
Sometimes a table can tell the story better than a thousand words. The table below shows the share of each G20 country's exports going to China. Australia is at the top. This dependency has increased dramatically since 2007 – well over two-fold.
Actually, Peterson Institute data suggests that there are 10 or so other countries (such as the special cases of Hong Kong and Mongolia, but mainly in Africa) which may be even more dependent on exports to China than Australia. But Australia tops the list of countries with data that is sufficiently reliable to draw a firm conclusion.
The graph below draws on the same data, but groups countries by region. China's imports have grown so quickly that every region has increased the share of its exports. Overall, China's share of global exports has grown from 6% in 2007 to 9% in 2013.
These statistics are over a year old, and more recent information shows a sharp fall in the value of China's imports. This may be evidence of a significant slowing in China's growth rate. But there are other possibilities. It may instead reflect cheaper global commodity prices (a ton of iron ore or coal now costs a lot fewer US dollars). Or there may be reduced reliance on imported inputs into manufacturing production, as China develops capacity to make these requirements domestically. Or the larger volume of services now in China's output mix may have little or no import content. Whatever the reason, it seems unlikely that the spectacular growth of imports will resume.
Australia has a lot of adaptation ahead if we are to continue to be pulled along on the coattails of China's evolving economic expansion.
There is an often-heard concern that the export-led model that propelled China's growth in the two decades before 2007 cannot be maintained. But that model expired six years ago when China shifted away from using net exports to boost growth. Exports are still important, but have grown more slowly than imports (shown by the negative net exports in the most recent years in this graph).