This essay will review the economic growth performance of both the Chinese and Australian economy over a period of some 15-20 years from the turn of the century to the present. These economies, while both growing at ‘healthy’ rates have grown quite differently. This essay will look at these differences and provide a review …………………….
b. The economy of China
In a speech by the governor of the RBA, Glenn Stevens (1) noted that the Chinese economy has undergone considerable and meteoric growth over the decade of 1997 to 2007. The accompanying graph (Figure 1) clearly charts this growth over that period.
When analysing this chart the economic growth performance of China from 1997 to 2017, it is easy to see that until 2007 China was having a positive and growing rate of GDP.
After 2007chinas GDP began to decline.
Figure 1 – China’s GDP annual growth rate:
The incredible growth of China’s economy is one of the most noticeable features of the east Asian economies. China, over the last couple of decades has persistently been
A very strong performer as against all world economies, not the least being the growing east Asian group of countries.
The World Bank GDP data analysis shows China having an average rate of growth of just under 10% per annum across this period.
Some say this data is not measured correctly, but regardless it is evident that China has great importance in the global economy as well as to international trade. China’s share in world trade roughly doubled, to just under 5 per cent and Australia is placed perfectly to gain some benefits of these trends.
As noted below, from a review of Australia’s export destinations, we find China is amongst the mix a lot.
Chinas’ opening up to foreign trade and investments and implementing a broad range of free-market reforms, since 1979 has considerably helped this growth, and from this time China has been one of the fastest growing economies of the region.
China has achieved an annual gross domestic product (GDP) growth, averaging at about 10%, a pa, a pace described by the World Bank as “the fastest sustained expansion by a major economy in history.” (2)
Such growth has enabled China, on average, to double its GDP every eight or so years and helped raise an estimated 800 million people out of poverty.
China has become the world’s largest economy (on a purchasing power basis), manufacturer, merchandise trader, and holder of foreign exchange reserves. This in turn has made China a major commercial partner of its many trading partners, (including Australia).
Over the most recent decade (2007 to 2017), as China’s economy has matured, its real GDP growth has slowed significantly, from 14.2% in 2007 to 6.9% in 2017, and that this growth is projected to fall, to about 5.8 %, by the year 2022, by the IMF (International Monetary Fund).
The Chinese government appears to now have embraced slower economic growth, referring to it as their “new normal” and acknowledging the need for China to embrace a new growth model that relies less on fixed investment and exporting, and more on private consumption, services, and innovation to drive their ongoing economic growth.
This type of reform is needed to prevent China from falling into what is known as the “middle income trap”. This is when countries’ economies grow to a certain level but their growth rate slows due to their inability to adopt changing sources of continued economic.
Internationally innovation has been identified as a key driver for redirecting the social and economic standards of a country.
The Chinese government has recently made ‘innovation’ a high priority for its economic planning through a number of high-profile initiatives, such as the “Made in China 2025,” a plan announced in 2015 to upgrade and modernize China’s manufacturing industries in 10 key sectors through extensive government assistance in order to assist China remain a major global player in these sectors.
c. The economy of Australia
Again, taking reference from a presentation by the governor of the Reserve Bank (3) he notes that following the recession in the early 1990s, the Australian economy began to grow. Since that period, the economy has grown in every quarter, except for three.
From the RBs’ data reports, it can be seen that there were a couple of periods when economic growth slowed noticeably, but at no time did year-ended growth turn negative.
Figure 2 – Australia’s GDP annual growth rate
The lowest rate that year-ended growth fell to was 0.7 per cent. That was in the year to the March quarter 2009. The other slowdown was in 2000–2001, when growth slowed to 1.4 per cent.
Australia’s economic growth has been quite unprecedented. No other developed economy has experienced continued and uninterrupted growth over the past 20 years. In fact, many developed economies have experienced two episodes of negative growth during that period: one in 2001 following the collapse of the dot-com bubble; and one in 2008 following the collapse of the US sub-prime housing bubble, even in a surge of fast growing economies an extended period of growth is quite rare.
The growth of the Australian economy has come about from a wide variety of origins, partially from the fact that the Australian population has grown considerably over the period shown in the below chart, and mainly in the more recent years.
A further fact helping the Australian economy grow is its placement on the map. It is also well placed in terms of the economic growth of the countries surrounding it and has been able to take advantage of the strong economic growth of China in particular.
In relation to the future and ongoing growth of Australia’s economy, it is very likely that it will continue to be able to take advantage of the further general growth of the southeast Asian economy as well as the ongoing maturation of the Chinese economy, which while slowing is still predicted to remain stable at about 5-7% annual growth.