The prospects for a pick up in China's economy are getting better by the week,with more signs that 2013 could be a strong year.It is good news for the Australian economy,which has slowed in the past year in the wake of a sharp fall in the terms of trade and faltering national income growth.
Chinese stock prices are up sharply with gains of over 10%in the last two weeks.Iron ore prices,having slumped to early October,have recovered a thumping 50%in the last 10 weeks.If these sorts of trends are sustained,they would present further hard evidence that the Chinese economy is set to surge in 2013.
These market trends fit with news in the last two months that the economy has turned higher.China's retail sales,industrial production and fixed asset investment have picked up and while inflation is still very low,it too appears to be bottoming out.
The meeting of China's Central Economic Working Conference has also delivered a positive tone.The CEWC meets annually and sets the economic policy framework for the year ahead.The key strategies laid out for 2013 are a focus on domestic demand growth,driven by consumption and capital expenditure.This continues a trend in recent years for China to rebalance its drivers of economic growth away from exports,which remain volatile and problematic given the weakness in the euro zone and the US markets,and move the source of growth more towards domestic demand.
The critical aspect of the CEWC plan to foster growth in domestic demand is further urbanization.The plan is to have 70%of the population living in cities by 2030 from current levels around 50%.Not only will this provide the labor needed for the higher value added sectors of the economy,it will mean an ongoing requirement for infrastructure spending on housing,roads,electricity generation,schools,shops,factories,office blocks and the like.In other words,there will be a huge and ongoing demand for raw materials to feed into the production process.
This is where the benefit to Australia is so clearly apparent.
China accounts for almost 30%of Australia's merchandise exports to be far and away the largest export market.Around 55%of those exports are iron ore which is why the recent focus on the swings in the iron ore price have been so intense.Iron ore prices fell to around USD 85 tonne in early October amid fears of a slump in demand,excess stockpiles or a surge in production or some mix of all three factors.
The rebound to over USD 130 tonne this morning suggests the price fall a few months ago was a blip and that the demand for iron ore from China remains unrelentingly strong.It could even be strong enough to stem the decline in Australia's terms of trade which would underpin stronger in national income growth and,from the government's perspective,provide an unexpected boost to tax revenue.
Meanwhile there were a range of other key issues from China's CEWC which will be closely watched in the year ahead.
