Some thoughts on Japan, Australia and then China

It may seem odd for JETRO Sydney, an Australia-Japan business trade organisation, to get concerned about Chinese economic growth. However, we have very natural reasons to be interested in China.
The Australian Government always says that Chinese economic growth is solid and the Australian economy, therefore, is in good shape. This line of thinking is shared by Japanese companies here in Australia.
Japan has been investing in Australia significantly for many years, with ABS figures showing Japan accounting for 10.4% of Australian inward FDI on an accumulation basis at the end of 2010. Japan is Australia’s third largest source of FDI, following the US and UK.

Chinese economic growth is of great interest to Japanese-Australian business. To give a concrete example, Japanese companies here participating in mineral resources exploration with Australian firms, export iron ore, coal and other minerals to China. These exports are, of course, very much influenced by demand in China, which is closely related to China’s economic growth.

The Japanese mass media tends to be pessimistic about Chinese growth as forecasts for 2012 are in the middle 8% range, considerably lower than the double-digit growth of only two years ago, whereas Australian analysts and businesspeople sound more optimistic, pointing out that China is maintaining healthy growth. These contrasting viewpoints may simply come from differences in the Australian and Japanese national character.

We brought Mr. Yoichi Maie, Director of the China and North Asia Division of JETRO’s Overseas Research Department to Australia to present his observations on the Chinese economic outlook. Yoichi is one of JETRO’s premier China watchers, and has been engaged in Chinese economic analysis for over a decade.

He spoke to Japanese business audiences in Sydney and Melbourne in early February, emphasising several thought-provoking points:

- The Chinese economy is forecasted to grow in 2012 at 8.4-9% according to various research institutes.

- The Chinese government has shifted its priorities vis-à-vis economic policy to “maintenance of stable economic growth,” and “acceleration of economic structural adjustment’ from “containing inflation.”

- The Chinese government has studied Japanese economic policies from the bubble period (late 1980s-early 1990s), making good use of lessons learnt, resorting flexibly to such countermeasures as tightening monetary policy when inflation concerns grow and easing when consumer spending and sale of residential real estate slows down.
- It is difficult for China to maintain the double-digit growth it enjoyed in the 2000s. Nevertheless, China will enjoy solid economic growth of at least 7-8% forecasted until 2015 for the time being.

- Key factors for this growth are consumer spending, growth of the service industry sector, and development of the hinterland.

- Chinese policymakers have three major “economic cushions” to protect against any economic instability:

o Official public debt is as low as 20% of GDP. At the same time, its annual tax revenue increases at around 30%. The government can resort to fiscal action, increasing public spending.
o The official lending rate is 6.5% and there is room for monetary policy measures by cutting this rate.
o China is a one-party regime; decision-making and policy implementation is quick because the democratic process of decision-making is avoided.

Mr. Maie’s insights and informal discussions with attendees reaffirmed my view that in order to develop business, one needs global insight.

By Takashi Tsuchiya
Managing Director, JETRO Sydney