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Not many people predicted the extent and impact of Australia's mining boom. China's incredibly fast growth and development, Australia's mineral riches and our openness to trade and investment all contributed to a quarter-century of unbroken economic growth, our making it through the Global Financial Crisis without slipping into recession or worse, and the raising of our standard of living to its highest level. But the story is not over yet – in fact, it's only just begun.
These days barely a week goes by without someone lamenting the end of the mining boom and/or the slowdown of the Chinese economy. But if the old mistake was to underestimate China's rise, the new mistake is to overestimate China's "slowdown" and its impact on Australia.
At the Australia China Business Council we've been saying for some time that Australia's trade and investment relationship with China will change. But we think it can change for the better. That's why, in partnership with ShineWing and the Australian Centre for Financial Studies, we have this week released a report entitled The Long Boom: What China's Rebalancing Means for Australia's Future. This is a forward-looking report: we wanted to know what the Australia-China relationship might look like 10 years into the future.
The first thing to note is that while the rate of China's growth is slowing, its base is much, much bigger. The absolute size of the Chinese economy has doubled in the last 10 years. This means a percentage point of growth now represents more than double what it did then. In 2006, when China's growth rate was at its highest at 12.6 per cent, $US460 billion of nominal growth was added to its economy. Last year, when growth had fallen to a "low" of 6.7 per cent, $US552 billion was added. China is creating a new economy the size of New Zealand's every 90 to 100 days. So "slowdown" is a relative term.
But the real story in China today is the rise of the middle class. This is unprecedented in scale and speed. By one conservative estimate there are now 109 million middle class adults in China, and ANZ predicts that by 2030, 93 per cent of China's population will fall into this category.
What does this mean for Australia? It means a growing demand for the goods and especially the services that Australia, if we're smart about it, can supply. As Chinese incomes rise, so does demand for high quality health care and education, protein-rich food, tourism and financial services. We are as rich in these areas as we are in resources – and in fact the benefits of a boom in the service sector will be spread far more evenly throughout our economy than was the case in the mining boom.
Our report suggests that over the next 10 years, under a relatively conservative scenario for Chinese growth, tourism employment in Australia could increase by more than 50 per cent; more than 100,000 new jobs could be created in financial services; more than 200,000 in education and training; and almost half a million in healthcare and social assistance. And we must not forget the construction sector: 177,000 new jobs could be created by 2026 thanks to a growing need for new hotels and tourism infrastructure, new educational facilities, and more – all resulting from new Chinese demand.
But there is no room for complacency. Australia is hugely sensitive to changes in China's growth profile – we're in the top 20 countries worldwide when ranked by export exposure to China. The last nation we were exposed to in this way was Britain in the 1950s. China now accounts for nearly 25 per cent of our two-way trade, which is nearly double that with Japan, our next biggest trading partner. But we can't assume we're ready to take advantage of China's rebalancing.
Governments must make sure their policy settings are right. Our ability to respond to a changing China will depend in part on visa rules, foreign investment screening thresholds, export finance and investment, and the implementation of the China Australia Free Trade Agreement (ChAFTA).
Businesses supplying the China of tomorrow will need to realise that while the old "rocks and crops" trade did not need to adapt much according to its export destination, services are different. Selling to China means understanding China, and businesses need strategies to cater to specific new customer tastes and requirements.
Our report asks a simple question: are we prepared for the day when 25 per cent or more of Australia's services exports will be destined for China? If we get the answer right, one million new jobs can be created in Australia in the next 10 years, and we may find ourselves talking in years to come about another China boom – one that is smarter and cleaner than the last, and with the benefits spread right across Australia.