Dragon's Tail: The Lucky Country After the China Boom (Quarterly Essay, Volume 54)
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In "Dragon's Tail," Andrew Charlton explores the supercharged rise of China and considers Australia's future as the Chinese dragon stirs and shifts.
China's rise has been perhaps the most significant economic event in two centuries, occurring 100 times more quickly and on a scale 1000 times larger than Britain's Industrial Revolution. Since 2000, Australia has been an essential part of this transformation, providing the raw materials to feed China's frantic manufacture of steel vertebrae for everything from cars and trucks to railways, apartments and office towers. China's appetite for resources has made us richer than ever before, but it has also drained the competitiveness from many parts of our economy, leaving us vulnerable.
In "Dragon's Tail," Andrew Charlton shows that China's growth model is now reaching its limit, and the world's most populous economy faces a challenging transition. Whether China crashes, or crashes through, this will have dramatic implications for Australia, slowing the demand for our resources and forcing us to reassess the foundations of our wealth. Charlton looks at ways to revitalise the Australian economy and secure our prosperity in a changing world.
"Understanding China's growth model helps explain why australia has done so well in the twenty-first century. But it also explains why, at the same time, our economic anxiety is reaching a zenith: why holden is leaving, why the budget is in such an apparent quagmire, why house prices are soaring, why the dollar is so volatile. China's growth has brought us a windfall, but it is a precarious sort of prosperity." - Andrew Charlton, "Dragon's Tail"
Andrew Charlton is the author of "Ozonomics, Fair Trade for All" (written with Nobel laureate Joseph Stiglitz) and Quarterly Essay 44, "Man-Made World," which won the 2012 John Button Prize. From 2008 to 2010 he was senior economic adviser to Prime Minister Kevin Rudd. He previously worked for the London School of Economics and the United Nations and received his doctorate in economics from Oxford University, where he studied as a Rhodes Scholar.
not suitable for people who need to gain access to their savings at short notice. “What makes China’s form of financial repression unique,” says economist Michael Pettis, “is the limited investment alternatives for household savings, a situation reinforced by capital controls.” Many ordinary people have no alternative but to accept very low deposit rates on their savings. Who benefits from China’s low interest rates on savings? Again, the beneficiary is the investment sector. Low deposit rates
Yale professor and former chief economist of Morgan Stanley. “China is going through a critical, once-in-twenty-years transition, to a different model of economic growth that will eventually be more balanced and more stable.” Roach says that with the consumption share of the Chinese economy set to rise from 36 per cent of its GDP to as high as 60 per cent, “China is about to unleash the biggest consumer story that the world has ever seen.” The question is not whether China wants to change –
resources will slow. This will have a significant impact on the prices of our main exports. In the past decade, China’s growth caused demand for iron ore in particular to grow faster than supply, driving up the price. But now iron-ore prices face a double hit: Chinese demand is moderating just as supply increases. The recent high prices caused many new mines to be opened and many existing mines to be expanded. By 2016, it is estimated, new iron-ore supply from Australia will have more than
transformation brought about by China’s boom – for instance, by aiding the massive shift of labour and capital into mining and related industries. We will need more flexibility to adjust to the next phase of China’s economic transformation. As we saw, there is considerable uncertainty over QE54_pages.indd 63 QE 54 2014 63 29/05/14 2:40 PM its future. The only safe bet is that China’s economy will change dramatic ally and force Australia to change as well. Already, commodity prices have
ten-year-old Omid Jafary. He’d watched his father, his uncle and his cousin die around him, sinking beneath the waves as he clung to the flotation device of another passenger. Then he was picked up and returned to Indonesia. Almost 100 died that day. Later that year I spent time with the miracle survivor of another sinking. Habib Ullah had watched his thirty-three shipmates sink into the ocean over the course of about three days, until he was the only one left. And still the boats came. The