Yahoo Finance Treasurer's $6 billion China confession amid 'threat' to iron ore cash cow
Treasurer Jim Chalmers is worried China's economy could have huge flow-on effects for Australia.
Jim Chalmers has warned of the brutal consequences Australia will suffer as a result of China's slowing economy. The Treasurer is paying a visit to the Asian superpower to do a pulse check amid fears that things could soon go from bad to worse.
Yahoo Finance contributor David Llewellyn-Smith said China's economy is in "the throes of a full-blown structural adjustment, from construction to manufacturing". Fellow contributor Stephen Koukoulas also sounded the alarm over China cutting back on Australian exports vital to our economy.
"During the bulk of 2022 and 2023, Australia was running international trade surpluses of around $10 to $15 billion per month with booming export values," Koukoulas said.
"Simply put, Australia was exporting goods worth $10 billion more than we imported – per month.
"Since April 2024, as the China slowdown has bitten, the monthly trade surplus has slumped to around $5 billion."
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Chalmers has co-chaired the first Australia-China Strategic Economic Dialogue since 2017 along with China's National Development and Reform Commission chair Zheng Shanjie.
It's a sign of improved relations between the two countries which have endured simmering tensions in recent years.
$6 billion blackhole warning for Australia
The Treasurer has explained in an article for The Australian just how badly Australia could fare over the coming months if China's economy doesn't pull a 180.
Chalmers revealed China's GDP is expected to grow at less than 5 per cent over the coming three years, which would be the weakest period since the "late 1970s" and have big "consequences for us”. The most recent data shows GDP growth is at 4.7 per cent.
“To put that in perspective, a one-percentage-point drop in China’s GDP growth roughly costs Australia a quarter of a percentage point of our growth, or about $6 billion in lost output," he said.
"Softer demand for iron ore, weighed down by the slowing China economy, is also a threat to the budget bottom line. In one of the Treasury’s scenarios, a faster fall in iron ore and metallurgical coal prices could cost the budget $4.5 billion."
Prior to the visit, the Treasurer said reconnecting with Chinese officials would be a "really important step" in stabilising the economic relationship between the two countries.
“Our relationship with China is full of complexity and it’s full of opportunity," he said before he left.
“We recognise a more stable economic relationship between Australia and China is a good thing for Australian workers, businesses, investors and our country more broadly.”
China's interest rate cut to turn things around
China recently cut interest rates in what was dubbed the "biggest stimulus" effort since the pandemic.
It was the deepest cut on record for the superpower, which lowered the interest rate for one-year loans from 2.3 per cent to 2.0 per cent.
China's central bank hoped the move would ease the mortgage burden of 150 million people across the country.
But Llewellyn isn't convinced it will be the silver bullet to turn China's economy around.
"The cuts are the equivalent of an ant attacking a Tyrannosaurus Rex," he said.
"For Australia, it does not take Albert Einstein to work out the implications. China is already using less coal, gas and iron ore. Even less is ahead."
He predicted China's economy could have a direct impact on what the Reserve Bank of Australia does with its own interest rates and said our central bank will plunge rates "much deeper than anybody expects through the next few years" if things don't improve with our biggest trading partner.
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