Australia’s services sector may be the largest beneficiary of China’s rebalancing in the future, according to a new research report prepared by the Australian Centre for Financial Studies (ACFS), a centre of Monash Business School.
The report, titled “The Long Boom: What China’s Rebalancing means for Australia’s Future”, was commissioned by the Australia China Business Council and supported by ShineWing Australia.
China is Australia’s largest two-way trading partner by a significant margin. Not only does China claim nearly 25% of Australia’s two-way trade, but the value of this trade is nearly double that of trade with Japan – Australia’s second-largest individual trading partner.
While Chinese demand has helped propel a period of impressive export performance in Australia, China’s headline GDP growth rate is now slowing. The composition of its economy is also changing. The rotation of its economy away from investment-heavy, manufacturing-led growth and toward consumption and services-led growth is commonly referred to as ‘rebalancing’.
To assess the implications of this rebalancing, the report utilises econometric modelling to estimate the impact of three conceivable ‘scenarios’ for Chinese demand on the Australian economy. Under these scenarios, by 2026 China could account for:
• 42-47% of Australia’s healthcare and social assistance export market;
• 36-41% of the educational and training export market;
• 30-35% of the accommodation and food services export market;
• 16-19% of the financial and insurance services export market; and
• 11-13% of the construction export market.
The projections also suggest that Chinese rebalancing may lead to significant employment gains in the education and tourism industries. Furthermore, higher inbound Chinese direct investment could create tens of thousands of new jobs in the local construction industry.
Services already account for around 75% of Australia’s economic output. Given the dominance of the services sector in Australia – and the fact that service industries are typically more labour-intensive than mining – growth in services exports to China offers the potential for broad-based economic gains.
Increased demand from China, however, cannot be taken for granted. The projections are contingent on policy decisions, such as those concerning export finance and foreign investment screening. Tapping into Chinese demand may also require changes to industry practice and thinking.
Professor Rodney Maddock, ACFS Executive Director, said: “The Chinese economy is now so big that, even with lower growth rates, its impact on our economy gets bigger and bigger. The most likely winners are the service industries: tourism, education and health.”
The report was launched by the Hon John Brumby, National President of ACBC, at an event on 7 September 2016. Mr Brumby moderated a panel discussion featuring Professor Maddock and Professor Edward Buckingham, Director of Engagement at Monash Business School.
ACFS would like to thank Dr Janine Dixon, Senior Research Fellow at the Centre of Policy Studies at Victoria University, for her detailed work and advice on computable general equilibrium (CGE) modelling of the Australian economy.