China and the World

Fair dinkum

Australia’s ties with China continue to tighten

Fair dinkum

Not so very long ago if you’d asked an Aussie if he liked Chinese, he’d probably have replied he enjoyed sweet and sour pork. That’s less likely now. Through necessity, the average Australian has a far more sophisticated understanding of the Chinese these days.

Nick Johnstone is a typical example: he’s fast becoming a Sinophile. The Melbourne-based estate agent now views the Chinese as his best clients.

“Australia is the flavour of the month amongst Chinese investors,” Johnstone told the Age newspaper. He estimated that 40% of the luxury homes he sold last year were to China buyers. “We’ve had several buy property sight unseen, just over the internet and the phone. A lady from Shanghai, whose son goes to Wesley College, bought four houses in Brighton from us in two months, worth A$20 million ($17.3 million).”

Late last year Johnstone even made a trip to Shanghai to auction off 30 of Melbourne’s most expensive homes.

But it’s not just property: Australia’s whole economy is becoming increasingly intertwined with China’s. Last week, for example, the governor of the central bank surprised markets when he failed to raise interest rates. As the Wall Street Journal pointed out: “Glenn Stevens has done little to hide how much China’s outlook affects Australian policymaking.”

More than a fifth of the country’s exports go to China and 90% of them are commodities. The demand for these is highly dependent on Beijing’s infrastructure spending – which surged last year in the wake of the financial crisis.

The WSJ noted that Stevens decision to hold off on a rate hike was linked to the fact that China was winding down its economic stimulus – a move that would naturally slow the Aussie economy and trump the need for monetary tightening.

Their interdependence is only going to increase too, especially where commodities are concerned. Take this week’s announcement that Resourcehouse had signed a record $60 billion deal to supply coal to Chinese power stations. According to the framework agreement, the Australian firm will annually provide China Power International Holding with 300 million tonnes for the next 20 years.

Australia is often called the ‘Lucky Country’ and Martin Jacques think its relationship with China is a case in point. The author of When China Rules the World explains: “Australia is one of the relatively few countries in the world that has experienced the double benefit from China’s rise: namely the falling price of manufactured goods and the rising price of commodities.”

Australia can thank China for its long track record of unbroken GDP growth. This, says Jacques is not lost on the nation’s Mandarin-speaking prime minister. In fact, he calls Kevin Rudd “the first Chinese-orientated political leader to be elected in the West”. His big prediction is that Australia’s allegiances will gradually drift from Washington to Beijing – as it prioritises its economic interests over its cultural and historical affinities with the English-speaking world.

While Jacques’ forecast may ultimately prove a correct assessment of Canberra’s realpolitik, Sino-Australian relations have not always been good. Last year’s arrest of Rio Tinto’s Stern Hu (see WiC24) – who was formally charged this week with obtaining commercial secrets – and the acrimonious negotiations between Chinese steelmakers and Australia’s iron ore giants (see WiC28) both soured diplomatic ties.

And while China has had more success buying resources in Australia than elsewhere, it hasn’t always got its way. Last month, for example, Australia’s CSR rejected a $1.4 billion bid from China’s Bright Group to gain control of its sugar business (which accounts for 60% of Australia’s raw sugar output).

Sometimes you can have too much of a good thing too. Estate agent Johnstone may be in raptures about all those Chinese buyers. But some Australians are irked. The Age reports that many Aussies resent being priced out of the market, and dislike the way Chinese buyers mostly leave houses vacant.

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