Australia's Linkages with China: Prospects and Ramifications of China's Economic Transition
IMF Working Papers, May 22, 2018
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- Australia's Linkages with China: Prospects and Ramifications of China's Economic Transition
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Bibliographic details
- Authors: Philippe D Karam, Dirk V Muir
- Published: May 22, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484357200.001
Summary
- China and Australia have increasingly strong links, especially through trade.
- These links are driven by demand from China for Australian commodities (coal and iron ore) and services (tourism and education).
- These links are influenced by China’s transition to a services-driven, consumer-led economy.
- Using ANZIMF, the Australia-New Zealand Integrated Monetary and Fiscal model, three risks (both upside and downside) to China during this transition process are considered, focusing on their spillovers to Australia.
- One simple takeaway is central to each risk – while the real GDP response to shocks in Australia typically is small, responses in demand components or sectors are usually much larger– along with three further takeaways, all of which help in the analysis of Australia in relation to any risk emanating from China.
Model and Scenarios
- Model used: ANZIMF (Australia-New Zealand Integrated Monetary and Fiscal model).
- Scenario framing: three risks to China during its transition process, including both upside and downside cases, analyzed for spillovers to Australia.
- Emphasis: sectoral and demand-component responses can be much larger than headline real GDP responses in Australia.
Key findings and thematic conclusions
- Trade linkages concentrated in commodities (coal and iron ore) and services (tourism and education) are central channels for China–Australia interactions.
- Structural change in China toward a services-driven, consumer-led economy is a key driver of changes in these linkages.
- Spillover analysis highlights that small aggregate GDP effects in Australia can mask sizable movements in specific demand components or sectors.
- The paper articulates one central takeaway applicable to each risk plus three further takeaways that inform analysis of Australia’s exposure to China-origin risks.
Content in this bundle
- ANZIMF – The Australia-New Zealand Integrated Monetary and Fiscal Model