Consumption-led growth in China: what does it mean for Australia?

Panellists from the Economic Society of Australia-Monash Forum (ESA-Monash Forum) weigh in on the potential benefits for Australia of China moving to consumption-led growth.

News story 14th Apr 2016

The ‘biggest ever’ Australian business delegation is in China this week, sparking the interest of economists nationwide.

Panellists from the Economic Society of Australia-Monash Forum (ESA-Monash Forum) have weighed in on the potential benefits for Australia of China moving to consumption-led growth.

As the Chinese economy makes its transition from investment-led to consumption-led growth, the Australian service sector which currently accounts for around 20 per cent of total exports, will produce a second 'Chinese economic windfall' for Australians.

Consumption-led growth in China

Over 60 per cent of ESA-Monash Forum panel members agreed with this statement, of which more than 12 per cent were in strong agreement.

Panel member John Quiggin, Professor of Economics at the University of Queensland, is one of the economists in strong agreement, emphasising we can expect continued growth in services export to China and Asia in general.

“The impact on gross domestic product may be less than for the mining boom, but the benefit actually flowing to Australians in general (which was very limited in the mining boom) may be greater,” he said.

Monash Business School Adjunct Professor, Rodney Maddock, also agreed with the statement, but noted it may not be that easy across the board.

“It seems certain that China is making the transition and consumption levels are rising. Some Australian sectors have natural advantages (education and tourism), but for the rest of our services industry there will be significant challenges in taking advantage of the opportunity,” Professor Maddock said.

Professor Stephen King, Monash Business School, also had some reservations and was uncertain about a windfall for Australians.

Undoubtedly, some areas of Australia’s service export (such as higher education) will be well placed to benefit. So the key issue is whether China will continue to grow – which has more to do with politics than economics.

Professor Stephen King

Emeritus Professor Margaret Nowak, Curtin Business School, points to the fact that the resources boom was an entirely different phenomenon from any potential upside for Australia as a result of consumption-led growth in China.

“In the case of consumption led growth in China, there will be opportunities for Australian services providers in many fields, such as education, health and tourism. However, Australia does not have the obvious comparative advantage in these sectors that it had in the resources sector,” she said.

“Australian service providers will need to be competitive with other developed economies, including newer developed economies in our region such as Singapore. Australian suppliers will need to work hard and smart to be competitive in this market,” she concluded.

In short, the majority of the ESA-Monash Forum panellists believe there will be an advantage for Australia in China’s transition to consumption-led growth. However, the size of the potential windfall depends on how the Australian services industry responds to the opportunity on offer.

For the complete panel results, please visit the ESA-Monash Forum pages.

The ESA-Monash Forum is a joint initiative between Monash Business School and the Economics Society of Australia (ESA). It is designed to explore the extent to which Australian economists agree or disagree on key national and global public policy issues.