Barley wars: China may not be the economic saviour you’re looking for anyway
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A newly fearful middle class and a shortage of policy levers may mean China is not the same economic powerhouse that fuelled the post-global financial crisis recovery and regardless of future tariffs, Australian exporters will feel any downturn in demand.
Chinese President Xi Jinping is speaking about poverty alleviation rather than making his people wealthier and confidence among the country’s core economic engine, its rising middle class, is shot, said Michael Shoebridge yesterday, the director of the defence, strategy and national security program at The Australian Strategic Policy Institute (ASPI).
He says the $600m figure placed on ‘lost’ exports of Australian barley after China slapped an 80 per cent tariff on Australian exports is not accurate.
Aussie barley, used mainly by Chinese brewers, is likely to be hit by the same consumer pull back on luxury goods as is being felt by Egyptian oranges and Peruvian avocados, Shoebridge says.
China is using trade threats to punish Australia for its ban on Huawei building the country’s 5G mobile network and for its leading role in setting up a WHO-led inquiry into the origins of the COVID-19 pandemic.
Alongside the 80 per cent barley tariff, it has also banned meat imports from four Australian abattoirs on quality concerns, and Bloomberg news reported the Chinese government had a secret ‘hit list’ of Aussie exports including wine, dairy, seafood, oatmeal and fruit.
While Chinese stimulus, mainly in infrastructure spending, was the spur to get Australia’s economy back on track following the global financial crisis, Shoebridge says it wasn’t at the epicentre of that crisis.
“China’s economy and state-driven finance system were in a position to pump-prime their own development and so suck in imports,” Shoebridge said.
“This time it’s different. China is the place where the pandemic began and, for all the triumphalism from Beijing, the Chinese economy is in no way back in business.”
Shoebridge says infrastructure spending and cheap money for banks “don’t make sense this time”.
“More significantly, Chinese consumer confidence is broken,” he says.
So far the Chinese government has not announced a big stimulus program as it did in 2009.
Its actions to date have been to relax foreign investment rules and offer policies around tax breaks for transport, catering and tourism companies, refunds on unemployment insurance premiums, and 2.85 trillion yuan ($625.bn) in low-interest loans for small businesses.
Others are pointing to China’s early economic reopening and reviving the centuries-old reason for having faith in the Chinese market: its enormous population.
“If you’re looking for a market to sell into this year, China is going to be the place,” said Shannon O’Neil, the Nelson and David Rockefeller senior fellow for Latin America studies at the Council on Foreign Relations, during a Foreign Policy webinar last week.
“It’s hard to find alternatives.”
O’Neil’s argument is that China’s base of customers, albeit newly fearful, combined with its first-mover advantage in the COVID-19 pandemic means it will be the only market available this year for countries wanting to sell goods.
While Bubs Australia (ASX:BUB) chief Kristy Carr said in April the goat milk formula company, which will be in the direct firing line if China decides to move against Australian dairy exports, hadn’t seen any signs of a slowdown in demand from its Chinese customers, others say they’re already finding new markets.
Meat grower and exporter Australian Agricultural Co (ASX:AAC) said yesterday in its full-year results that China was its second largest market by a significant margin, behind South Korea.