China’s slowdown is a tale of two products for Tasmania.
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Reports of a drop in China’s imports continues a run of bad news for industries that have come to rely on its rocket-speed economic growth.
The expected fall in its GDP growth to 6.6 per cent puts the figure below the 7.9 per cent achieved three years ago, hurting commodities markets whose prices impact Tasmanian miners.
Imports in June shrank more than forecast, indicating efforts to stimulate growth in the world's second-largest economy could be fading in effect.
Figures showed imports dropped 8.4 percent from a year before.
Tasmanian Minerals and Energy Council chief executive Wayne Bould said the growth China once had is no longer there.
“You can’t have one economy stand out forever and a day,” he said.
The problem for miners isn’t only the slowdown.
China’s growth is moving away from resource-intensive sectors like manufacturing and construction towards household consumption and services.
Tasmania’s miners have had to reduce costs to survive. At Grange this has meant staff reductions.
Meanwhile downstream processors like Temco and Bell Bay Aluminium have developed niche products to stay competitive, and have focused on productivity and production costs.
“Because they’ve done it well, they’re still here.”
FERTILE GROUND FOR GROWTH
The rise in Chinese consumption could hold promise for another major Tasmanian industry.
Tasmania’s agricultural products may be needed as the nation makes its economic shift.
Leading economist Saul Eslake said the change’s effect on Tasmania’s revenues could be mixed.
“There might be a silver lining for Tasmania, given that agriculture, forestry and fishing accounts for almost three times as big a share of our economy as it does of the national economy.”
The impact on the state’s GST revenues may be different.
“To the extent that slower, and less resource-intensive, economic growth in China means lower prices for mineral and energy commodities, that means that Western Australia’s share of the GST revenue is likely to increase, from its present very low base, which will be at the expense of Tasmania and South Australia and the two territories over time.”
Tasmanian Farmers and Graziers Association chief executive Peter Skillern said farmers weren’t anticipating a large reduction in exports to China despite its slower economic growth.
China has a desire for the high-end niche products that Tasmanian farmers sell, he said.
TOO EXPOSED?
Nearly two years after Chinese President Xi Jinping’s heralded visit to Tasmania, the state is developing ties with more trading partners.
Ricky Ponting in September will lead a Tasmanian trade delegation to India, where he is revered, before it continues to Sri Lanka, Singapore and Indonesia.
Mr Bould said the state had to diversify its markets.
“We need to be conscious of the fact we shouldn’t have our eggs all in the one basket,” he said.
“It’s not prudent to be so totally reliant on one market.”
Tasmania would be hit by any abrupt downturn in the Chinese economy, much as all Australia would, Mr Eslake said.
China took 30.6 per cent of Tasmania’s merchandise exports last year, a large increase on its 19.2 per cent share in 2014-15.
However it is still less than China’s 33 per cent share of Australia’s total merchandise exports.
Among states, Western Australia is most exposed to China with 54 per cent of its merchandise exports going there in 2015-16. Tasmania is second.
By comparison, NSW sent 15.8 per cent of its merchandise exports to China, Victoria 20.7 per cent, Queensland 23.3 per cent, and South Australia 19.8 per cent.
“Does that mean we are ‘too dependent’ on China? Well, that depends on what the alternative is. In many cases there isn’t one,” Mr Eslake said.
“If China wasn’t buying as big a share of our exports as they currently are, we probably wouldn’t be selling them to anyone else, or if we did, we would be selling them at lower, perhaps much lower prices.”
Diversifying Tasmania’s markets would lower its exposure to Chinese economic problems, he said.
“But it’s not as simple as saying, ‘we have too many eggs in the China basket, let’s sell a bit less to China in favour of selling more to the Japanese, the Americans, or someone else’.
“Most of the obvious alternatives have been experiencing very weak economic growth since the financial crisis, in contrast to China; some of them, particularly the EU and the US, maintain some significant barriers to imports of some of our key exports.”
Nevertheless, Tasmania could be doing more in countries like Japan and Korea, given that Australia has recently signed free trade agreements with both, Mr Eslake said.
Ultimately the quality of the state’s agricultural products would ensure they could find other markets in the case of economic troubles in China, Mr Skillern said.
“That’s not to diminish in any form China’s a very important market to the state and will remain so well into the future.”
Premier Will Hodgman said following Mr Xi’s visit, and Tasmania’s trade missions, the value of its exports had risen dramatically.
“Chinese tourists are coming here in record numbers, driving economic growth and creating jobs,” he said.
“We will continue to work to identify new market opportunities, further our engagement with the rapidly growing economies of South Asia, and continue diversifying Tasmania’s export markets.”