China’s economy has prospered under strong economic growth for decades.  

The recent contraction of the Chinese economy post-pandemic has stoked domestic concern for the Australian economy, derived from Australian reliance on Chinese purchasing power. Chinese GDP growth currently sits at 5.3%.  

Further decline in China’s economic growth is projected over the next 5 years.  

How would Australia be impacted by a decline is Chinese GDP growth? 

Post pandemic, China has both created and encountered significant hurdles in its path towards economic recovery. Falling wages, an ageing population, large scale layoffs, large debt, real estate downturn and stagnating domestic and external demand are all contributing to falling GDP.  

In isolation, these factors paint a somewhat bleak picture for the Chinese economic outlook, and consequentially, raise valid concern for Australia’s own economic future.  Iron ore prices remain a key point of tension, as China struggles with a stagnating housing market and sluggish domestic construction.  

Chinese iron ore demand likely to decline in the long term 

Whilst the short-term changes in iron ore prices are hard to predict, a long-term decline in Chinese steel production (and consequentially iron ore demand) is largely inevitable.  Consequentially, Australian federal and state government revenue generated through iron ore royalties and tax will also eventually slow. 

China accounts for around 26% of Australia’s total world trade in goods and services. Iron ore, albeit the heavyweight champion of Australian GDP, is not the only economic superstar. Petroleum gas, coal, copper, lithium, gold, meat, precious stones and other minerals are just some of Australia’s biggest exports to China. The diversification of Australian exports would cushion a drop in Chinese iron ore demand.   

Australian iron ore prices will fall, and government iron ore revenue will follow. The extent and duration of the fall in demand and price remains the key unknown issue. Even if China’s economy notably contracts, economists have modeled the overall impact on Australia’s GDP to be relatively minor.  

The takeaway 

The complexities of geopolitical tensions make future statements of fact an impossibility, but for now, Australia’s economy is in a strong position to weather downturn in China.