Australia’s Budget “Made In China”

A looming budget announcement in Australia highlights Canberra’s dependence on raw material exports to China for revenue, according to Reuters:

Australia’s minority government will hand down its first budget next Tuesday, with revenues hit by natural disasters and a high Australian dollar and little room to spend on populist policies to buy back falling support.

What revenues it does have to spend are heavily dependent on China’s insatiable demand for its natural resources ….

Though the economy is in its 20th year of expansion and with a booming resource sector and huge Chinese demand, Treasurer Wayne Swan has promised a tough budget, with a tight rein on spending to ease mounting inflationary pressures and achieve a promised 2012-13 surplus.

Australia’s deficit and debt is small by international comparisons, but its political parties are obsessed with achieving and maintaining a surplus, aware that voters see failure to do so as economic mismanagement.

Australia was the only advanced nation to avoid recession during the global financial crisis, thanks in large part to exports of resources to China ….

“The budget comes with a ‘made in China’ stamp these days,” said Deloitte Access economist Chris Richardson. “If China, and hence commodity prices, stumble, then the budget will take a battering.”

Prime Minister Julia Gillard visited China last month. The Sydney Morning Herald summed up her “dance with the dragon”:

It could have got a bit nasty, given the pressures on Julia Gillard to put her stamp on foreign policy and her inexperience in the field, but the Prime Minister’s visit to Beijing has shown both sides determined to make the best of the fast-expanding relationship between Australia and China.

Gillard has essentially returned Canberra’s handling of the relationship to the patient, pragmatic and optimistic approach that her predecessors have found to be the best, ending the prickly tone in some of the messages of the former prime minister Kevin Rudd. With China becoming Australia’s biggest trade partner two years ago and now taking 25 per cent of our exports, and Australia a crucial source of raw material and energy supply for China, there is every reason to look to the positives and work towards averting negative developments.

On the economic side, there seem few concerns that cannot be worked through. The sudden rush of Chinese investment bids after the 2008 global financial crisis rang alarm bells here, and caused a scramble to refine foreign investment policy in Canberra, particularly about government-controlled corporations and cornering strategic commodities. The strong turnout from China’s biggest corporations and its sovereign investment fund for Gillard, and its professed interest in building infrastructure, suggest Australia is still seen as hospitable.

Australia’s exports to China may soon include kangaroo meat; so far, the prospect appears to have largely avoided controversy like that surrounding Canada’s “imperialistic” foisting of seal meat onto the Chinese market.