Wednesday 18 Jul 2018 | 07:37 | SYDNEY
Wednesday 18 Jul 2018 | 07:37 | SYDNEY

Australia-China: Some faulty economic assumptions

22 July 2011 15:38

Jeffrey Wilson is a Departmental Visitor in the Department of International Relations at the Australian National University. This post is part of the New Voices series.

Australia's place in Asia is said to be threatened by the prospect of great power rivalry between its primary security guarantor (the US) and its main economic partner (China).

Such concerns draw on a spatial metaphor of Australia being bound up in unstable 'triangle': Australia relies on the US for the majority of its external security, but has become economically dependent on the export of resources to China. Both these relationships are relatively healthy, but there is a problem in closing the triangle, as the US and China have increasingly become strategic rivals. This raises a worrying scenario – what if deepening Sino-US rivalry forces Australia to choose between ANZUS and the mining boom?

Does this triangle metaphor really capture Australia's dependencies in the region? While the security dimension of this debate has attracted sustained attention recently, less has been said about its economic assumption – that Australia has become dependent on resource exports to China. Yet  this assumption holds little water.

Certainly, the resources sector makes a disproportionate contribution to Australia's presently healthy trade balance – some 54% of exports in 2010. But when measured against broader economic indicators its salience falls. Mining accounted for only 18% of net capital expenditure between the 2006-07 and 2009-10 financial years, when the country was supposedly in the grip of a mining boom; and its share of industry value-added currently sits at a meagre 11%.

When employment is considered, its weight falls even further, accounting for a paltry 1.4% as of June 2010, though soaring mining salaries mean the industry pays out a slightly more respectable 4.1% of national wages.

Of course, for Western Australia and Queensland in particular, mining acts as a major employer and investor. But how could such a relatively small industry lift the entire country out of the worst global recession in history? It simply cannot.

Nor is Australia dependent on China as a market for its resources. Given that China became Australia's largest trade partner in 2007, one could be forgiven for thinking Australia's resources all end up in Rizhao. But Australia's resource export markets are actually quite diverse. In 2009, China accounted for 30.2% of Australian resource exports – a sizeable minority. But other regional markets are equally important – Japan, Korea and Taiwan together took 37.9%, India and ASEAN another 11.7%, leaving 20.2% for markets outside Asia entirely.

Of course, as industrialisation continues apace in China, its market will continue to provide major growth prospects. But any future slowdown in Chinese growth, or the emergence of new markets in the other BRICs, will slow China's march to the top of the list of Australia's resource trade partners.

This data clearly reveals that the metaphor of Australian triangularity in Asia is based on a faulty economic assumptions. While the mining boom has provided a helpful fillip to economic performance, the country is far from 'dependent' on resources. Moreover, China accounts for only a third of Australia's resource exports, with a greater amount going to US security partners in the region (Japan, Korea and Taiwan); prospects for new markets make China's future share an open question.

While the situation may look different in 2020 or 2030, the time for Australia to choose between our biggest ally and our biggest trading partner has not yet arrived.

Photo by Flickr user gfpeck.