Skip to main content

Site navigation

  • University of Technology Sydney home
  • Home

    Home
  • For students

  • For industry

  • Research

Explore

  • Courses
  • Events
  • News
  • Stories
  • People

For you

  • Libraryarrow_right_alt
  • Staffarrow_right_alt
  • Alumniarrow_right_alt
  • Current studentsarrow_right_alt
  • Study at UTS

    • arrow_right_alt Find a course
    • arrow_right_alt Course areas
    • arrow_right_alt Undergraduate students
    • arrow_right_alt Postgraduate students
    • arrow_right_alt Research Masters and PhD
    • arrow_right_alt Online study and short courses
  • Student information

    • arrow_right_alt Current students
    • arrow_right_alt New UTS students
    • arrow_right_alt Graduates (Alumni)
    • arrow_right_alt High school students
    • arrow_right_alt Indigenous students
    • arrow_right_alt International students
  • Admissions

    • arrow_right_alt How to apply
    • arrow_right_alt Entry pathways
    • arrow_right_alt Eligibility
arrow_right_altVisit our hub for students

For you

  • Libraryarrow_right_alt
  • Staffarrow_right_alt
  • Alumniarrow_right_alt
  • Current studentsarrow_right_alt

POPULAR LINKS

  • Apply for a coursearrow_right_alt
  • Current studentsarrow_right_alt
  • Scholarshipsarrow_right_alt
  • Featured industries

    • arrow_right_alt Agriculture and food
    • arrow_right_alt Defence and space
    • arrow_right_alt Energy and transport
    • arrow_right_alt Government and policy
    • arrow_right_alt Health and medical
    • arrow_right_alt Corporate training
  • Explore

    • arrow_right_alt Tech Central
    • arrow_right_alt Case studies
    • arrow_right_alt Research
arrow_right_altVisit our hub for industry

For you

  • Libraryarrow_right_alt
  • Staffarrow_right_alt
  • Alumniarrow_right_alt
  • Current studentsarrow_right_alt

POPULAR LINKS

  • Find a UTS expertarrow_right_alt
  • Partner with usarrow_right_alt
  • Explore

    • arrow_right_alt Explore our research
    • arrow_right_alt Research centres and institutes
    • arrow_right_alt Graduate research
    • arrow_right_alt Research partnerships
arrow_right_altVisit our hub for research

For you

  • Libraryarrow_right_alt
  • Staffarrow_right_alt
  • Alumniarrow_right_alt
  • Current studentsarrow_right_alt

POPULAR LINKS

  • Find a UTS expertarrow_right_alt
  • Research centres and institutesarrow_right_alt
  • University of Technology Sydney home
Explore the University of Technology Sydney
Category Filters:
University of Technology Sydney home University of Technology Sydney home
  1. home
  2. arrow_forward_ios ... Newsroom
  3. arrow_forward_ios ... 2014
  4. arrow_forward_ios 12
  5. arrow_forward_ios China-Australia doomsayers overlook strong fundamentals

China-Australia doomsayers overlook strong fundamentals

10 December 2014

James Laurenceson

 

James Laurenceson, Deputy Director, Australia-China Relations Institute, University of Technology Sydney

Download

This article appeared in The Conversation on December 10 2014.

Pop quiz: in 2014 the quantity of Australian iron ore demanded by China has: a) fallen sharply, b) fallen modestly, c) remained the same, d) increased modestly, e) increased sharply? 

The answer in just a moment. 

Last week the Australian Bureau of Statistics (ABS) told us that the economy is suffering from an income recession. Our exports aren’t fetching the prices they used to – the terms of trade are down by around 9% for the year - and that means we can’t afford to buy as much from overseas as before. 

Growth in China has also slowed and the construction industry there is in the middle of a major funk. Moreover, China’s economy is rebalancing away from growth led by resources-hungry investment. 

Joining the dots is proving irresistible. But there’s a problem with this story, and it’s a big one. 

The answer to the above question is unambiguously option e. In the September quarter – that’s the same quarter Australia shifted into an income recession - exports of iron ore to China were up 33% from a year earlier, according to Westpac and the Bureau of Energy and Resources Economics (BREE). This followed a 32% jump the first quarter and a 36% leap in the second. 

These are extraordinary numbers and we should not be at all surprised when they start to slow. But, for now, Chinese demand continues unabated. 

In a sense this is not difficult to understand. The law of demand says that when the price falls, the quantity demanded will increase. The price of iron ore is down nearly 50% since the beginning of the year. 

And while growth in China is now 7.3%, the slowest pace in five years, that’s coming off an ever-larger base. In terms of the number of dollars being added to the economy each year, 7.3% growth now is more than a match for 8% a couple years ago. 

If the price has fallen and the quantity traded has increased, there can be only one culprit – a dramatic increase in supply. And so there has been: BHP Billiton alone is in the midst of a 65 million tonne per annum expansion of its Western Australian iron ore operations. 

Treasurer Joe Hockey may be worried about falling iron ore prices but BHP Billiton certainly isn’t. Even with iron ore prices sitting as they are between A$70 and $80 per tonne, the business remains hugely profitable. Its current cost of supply is around A$27 per tonne and the target is less than $20 in the medium term. Producers in other sectors of the economy would kill for those sorts of margins. 

While it’s become popular to dismiss the projections for Chinese demand from the miners themselves as being overly optimistic – why exactly is not clear. Remember, it’s their billions of investment dollars on the line - and forecasts offered by the Commonwealth Treasury in May based on an analysis of demand and supply fundamentals are proving remarkably accurate. In reference to iron ore they concluded that “… supply will increase at a much faster rate than demand…” and that “The shift of production to the flatter section of the supply curve is expected to cause a rapid fall in the real price…” 

These dynamics will play out until 2017-2018. From then on, the price will stabilise at a touch above $70 per tonne. There’s little to worry about here. 

The bottom line in all of this is that the impact of China on the Australian economy remains a tremendously good news story. According to the latest trade data from the ABS, the value of our exports to China is more than double that to our second-largest customer, Japan. This ratio holds true across the board - agriculture, fuels and minerals, services and even manufactured goods. 

None of this is expected to change any time soon. China is the world’s second-largest economy and the International Monetary Fund continues to forecast that it will grow by 7.4% this year and 7.1% next year. That growth in 2015 is more than double that predicted for the US and nearly nine times that for Japan. There’s always room to quibble about the exact numbers but few would disagree that China will continue to outperform other major economies. 

For the Australian economy it doesn’t get much better than that.


Author

Professor James Laurenceson is Deputy Director of the Australia-China Relations Institute at the University of Technology Sydney. 

Share
Share this on Facebook Share this on Twitter Share this on LinkedIn
Back to Commentary

Acknowledgement of Country

UTS acknowledges the Gadigal People of the Eora Nation and the Boorooberongal People of the Dharug Nation upon whose ancestral lands our campuses now stand. We would also like to pay respect to the Elders both past and present, acknowledging them as the traditional custodians of knowledge for these lands. 

University of Technology Sydney

City Campus

15 Broadway, Ultimo, NSW 2007

Get in touch with UTS

Follow us

  • Instagram
  • LinkedIn
  • YouTube
  • Facebook

A member of

  • Australian Technology Network
Use arrow keys to navigate within each column of links. Press Tab to move between columns.

Study

  • Find a course
  • Undergraduate
  • Postgraduate
  • How to apply
  • Scholarships and prizes
  • International students
  • Campus maps
  • Accommodation

Engage

  • Find an expert
  • Industry
  • News
  • Events
  • Experience UTS
  • Research
  • Stories
  • Alumni

About

  • Who we are
  • Faculties
  • Learning and teaching
  • Sustainability
  • Initiatives
  • Equity, diversity and inclusion
  • Campus and locations
  • Awards and rankings
  • UTS governance

Staff and students

  • Current students
  • Help and support
  • Library
  • Policies
  • StaffConnect
  • Working at UTS
  • UTS Handbook
  • Contact us
  • Copyright © 2025
  • ABN: 77 257 686 961
  • CRICOS provider number: 00099F
  • TEQSA provider number: PRV12060
  • TEQSA category: Australian University
  • Privacy
  • Copyright
  • Disclaimer
  • Accessibility