Growth in China benefits Australia

Comments on Alan Kohler “Has China gone too far?” 22/06/2009, http://www.businessspectator.com.au/bs.nsf/Article/Has-China-gone-too-far-pd20090622-T8S9U?OpenDocument&src=mp

I think Australia is still well placed to benefit from China's continued growth, irrespective how its exports will perform in the next decade or two.

Given the international imbalance in savings and consumption, we are likely to see a period of slower consumption growth in the US for two main reasons. The first is the adjustment between savings and consumption - the saving ratio will increase and the consumption share declines. The second is the wealth factor, due to the destruction of wealth by the financial and economic crisis and the burst of assets bubbles.

The implications for China's exports are that they will be growing at a slower pace than they used to be in the past decade. An additional factor is that as the size of the major developing economies including China and India's grow more rapidly, the impact of their exports becomes larger. The capacity of the US and other advanced economies to absorb their exports does not grow as fast. so it becomes a constraint.

But China and other developing economies can still grow. What they need to do is to channel their savings to own domestic investment. This in theory can balance their internal savings and investment. But the adjustment may take time.

If China does pursue a high growth through increased share of investment to accumulate capital, then it will be good for Australia. Since investment in capitals requires more metals and more resources - that is Australia's comparative advantages.

I am hopeful that Australia will benefit from China's continued high growth and a closer economic integration between the two economies.