Why a falling yuan raises economic jitters in Australia
The weaker the yuan, the less Chinese have to spend – and that spells trouble everywhere from Australia’s property and tourism markets to its exports of iron ore and coal
When the yuan hit a six-month low against the US dollar earlier this summer, Australian businesses had more reason than most to sit up and take notice.
China buys almost one-third of Australia’s exports, with a particular appetite for commodities such as iron ore and coal. Chinese visitors, mostly tourists and international students, spend more than A$8 billion (US$5.9 billion) in the country each year, almost five times as much as Americans. In Australia’s red-hot property market, where the average cost of a house in Sydney exceeds A$1.1 million, Chinese are by far the top-spending foreign investors, last year splashing out more than A$15 billion.
All things being equal, the weaker the yuan, the less Chinese consumers have to spend on Australian goods and services.
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“The Chinese kind of deny this, but the yuan is pretty tightly managed these days and I doubt that the yuan would be depreciating in the way it has done in the last few weeks if they didn’t want it to,” Saul Eslake, an independent economist based in Tasmania, said.
Although China’s GDP officially grew 6.9 per cent last year, beating Beijing’s target, there is scepticism about the reliability of the government’s figures.
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“A lot of the other indicators – particularly for commodity-intensive sectors like real estate and fixed investment – do suggest a much more marked slowing than the GDP figures would imply,” said Eslake.
“In my view, it’s not surprising that there are now clear signs the economy is slowing, if you look beyond the GDP numbers, and it may well be, therefore, that the Chinese authorities are allowing the yuan to depreciate as one way to cushion or ameliorate that slowdown.”
Justin Fabo, senior economist at Macquarie Securities, said there were clear signs of a slowdown in Chinese growth as authorities moved to rein in risky lending.
“The way we think about it usually is, if global growth is improving, Australia’s growth is improving, and if global growth is weakening, our growth is weakening because we’re a small, open economy,” said Fabo, while stressing that it was too early to tell how significantly the Australian economy would be impacted.
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“A lot of that capital that was easily taken out of the country and put into foreign property markets is now stalled, can’t get out,” said David Llewellyn-Smith, the founder of financial analysis website MacroBusiness.
“It could well make tariffs worse, in which case you are into a bit of a feedback loop, where the more tariffs you get, the more the yuan falls and the whole thing does get pretty ugly,” said Llewellyn-Smith.
More than most, analysts agree, Australia has reason to fear a full-blown global trade war.
“Australia has always been a champion of free trade, we’re a small open economy. We rely on free trade and we benefit from it,” said Fabo. “If there’s a sense that it’s being wound back globally, that’s not good for us. Simple as that.” ■