I'm a China optimist: Swan
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Christine St Anne: Speaking at a Financial Services Council breakfast in Sydney, Federal Treasurer, Wayne Swan remained upbeat about the outlook for China despite its slowing growth rates.
Wayne Swan: Yes, it is true that Chinese growth has moderated, but this partly reflects a very deliberate move to more sustainable growth in China and of course it does in part reflect weakness in Europe and the impact of that on Chinese exports. The point is this, Chinese policymakers have got substantial policy flexibility to respond and Iï¿½ve said repeatedly in recent weeks, they will.
And when it comes to Chinaï¿½s growth rate, we really just need to keep things in perspective. China is now 40% bigger than it was in 2008, think about that, 40% bigger. Weï¿½re 11% bigger, they are 40% than they were in 2008. So that means the growth rate can be 20% lower, that is 8% versus 10% back then for them to make the same contribution to global growth. They are much bigger and they certainly have a very big impact.
St Anne: The Treasurer also picked up comments made by RBA Assistant Governor that we are only part of the way in the current mining boom and while commodity prices have eased, there is still scope for investment and export growth, thanks to a long-term trend growth in Asia.
Swan: But it is the industrialization and urbanization of China and the long-term trend there that is very powerful for the region and for the global economy and there is a long way to run when it comes to that story. Although it has already lifted many millions out of poverty, Chinaï¿½s GDP per capita today is still only one-fifth of the average of advanced economies. By 2025, it is projected to still only reach 50%. So China still has enormous capacity for deepening its capital stock through investments in productive infrastructure.
Consider this, the U.S. and China are roughly the same size when it comes to land mass, but Chinaï¿½s rail lines are still only just over one-third the length of those in the United States. According to Reserve Bank, there is also a long way left to run on Chinaï¿½s path to urbanization. Over the next two decades, Chinaï¿½s urban population is expected to increase by 42%, so that by 2030 around seven in ten Chinese will live in urban areas. By 2030, China still wonï¿½t have caught up to Australia with our urbanization rate of nearly 90%. And the peak steel requirement for Chinese residential construction is not expected to be reached until around 2023, that's a decade from now.
St Anne: The Treasurer said Australiaï¿½s role in Asia was not as a passenger, but as a driver. With other sectors of the Australian economy set to benefit from what he describes as the Asian Century.
Swan: It's not just about digging things up and shipping them off. Across the Asia-Pacific, the ranks of the middle class are swelling at something like 110 million people a year. By the end of the decade, there will be more middle class consumers in Asia than in the rest of the world combined. Just think of all of the enormous opportunities this will mean for Australian industry to go up the value-added chain, including in financial services. The capacity to deliver complex consumer durables, services, and so on.
St Anne: Speaking after the event, the Treasurer said his optimism should not be at odds with the perceived lack of confidence in the business community.
Swan: Well, the picture Iï¿½ve painted is consistent with the IMF and consistent with the assessment by Standard and Poorï¿½s earlier in the week. Look, I know that there are people who will go out there like Tony Abbott and talk our economy down and behave in a Tea Party fashion. But the fact is that the fundamentals in the Australian economy are strong.
Yes, there are challenges in the global outlook and I spoke extensively about those this morning and they do flow through to the Australian economy. There is no doubt about that, but we've got to build on these strong fundamentals.
St Anne: He also acknowledged that consumers remained cautious, but this was because of events overseas rather than local pessimism in the Australian economy.
Swan: There are cautious consumers and the cautious consumer is partly a product of events overseas, particularly in Europe. But what Australians can be sure of is that our economic fundamentals are rock solid. We need to build on that as we go forward. We do have uncertainties elsewhere in the global economy, but I'm an optimist about our country and our region. We've got to see the glass as being half full, not half empty.
St Anne: Christine St Anne for Morningstar.
|This report appeared on www.morningstar.com.au||2013 Morningstar Australasia Pty Limited|
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