Australia bullish over Chinese growth

Policymakers say China's economywill grow 7.5 per cent this year despite stock rout

PUBLISHED : Wednesday, 12 February, 2014, 12:50am
UPDATED : Wednesday, 12 February, 2014, 12:50am

Australian policymakers see little evidence of a slump in China's economic growth, defying global pessimism that helped wipe US$1.6 trillion from stocks this year.

The Reserve Bank of Australia and the country's Treasury forecast the world's second-largest economy will grow 7.5 per cent this year.

The view is underpinned by a 21 per cent expansion in Australian-Chinese trade to a record A$141.8 billion (HK$993.3 billion) last year, led by shipments of iron ore to fuel China's construction boom.

Premier Li Keqiang has set a "bottom line" of 7 per cent growth in gross domestic product as his leadership team seeks to engineer a transition to consumption from investment-led expansion.

"We're really only seeing early signs, but consumption is a somewhat higher share of GDP than it was, and I would expect that trend to continue," said John Edwards, an RBA board member. "China is effecting a bit of a transition and that's also apparent in the shrinkage of its current account surpluses. A somewhat smaller contribution from net exports now than was true two to three years ago."

Trade data to be published today may show Chinese exports increased 0.6 per cent last month from a year earlier, compared with 4.3 per cent in December, and import gains eased from a five-month high, based on surveys of economists.

The comparison with year-earlier figures is distorted because of inflated data last year and the different timing of the Lunar New Year holiday.

China's producer prices probably extended the longest slide since the 1990s with a 1.6 per cent drop last month from a year earlier, according to analyst projections. Consumer-price inflation may have slowed to 2.4 per cent from December's 2.5 per cent.

Australia's trade links and doubts over the accuracy of some Chinese data have encouraged analysts including Citigroup's Steven Englander and HSBC's Frederic Neumann to use reports and commentary from Australia to help form views on the health of China's economy.

Australia's Treasury said in mid-year economic forecasts that "continued solid growth is expected for China over the forecast horizon".

The RBA, in its quarterly monetary policy statement released on Friday, said that while it saw a slight easing of growth in China's domestic demand, in part reflecting the government's efforts to moderate the expansion of financing, this was expected to be largely offset by a modest improvement in export demand from China's major trading partners.

Fortescue Metals, Australia's third-largest iron ore exporter, is boosting capacity to 155 million tonnes by the end of next month. Rio Tinto, the world's second-largest mining firm, said last month that iron ore production rose 7 per cent to 55.5 million tonnes last quarter and was seeking to expand its iron ore output capacity to meet Chinese demand.