Australia’s services sector may be the largest beneficiary of China’s rebalancing in the future, according to a new research report prepared by Australian Centre for Financial Studies for the Australia China Business Council and ShineWing Australia.
China is Australia’s largest two-way trading partner, and by a significant margin. Not only does China claim nearly 25% of Australia’s two-way trade, but the value of this trade is nearly double that of trade with Japan – Australia’s second-largest individual trading partner.
While Chinese demand has helped propel a period of impressive export growth in Australia, China’s headline GDP growth rate is now slowing. The composition of Chinese growth is also changing. The rotation of its economy away from investment-heavy, manufacturing-led growth and toward consumption and services-led growth is commonly referred to as ‘rebalancing’.
To assess the implications of China’s shifting patterns of growth, our report utilises econometric modelling to estimate the impact of three conceivable ‘scenarios’ for Chinese demand on the Australian economy. Our findings suggest a largely optimistic future for the Australia-China trade relationship.
By 2026, China could account for:
- 42-47% of Australia’s healthcare and social assistance export market;
- 36-41% of the educational and training export market;
- 30-35% of the accommodation and food services export market;
- 16-19% of the financial and insurance services export market; and
- 11-13% of the construction export market.
Services already account for around 75% of Australia’s economic output. The industries that are sensitive to Chinese demand represent a large proportion of the Australian economy. Given the dominance of the services sector in Australia – and the fact that service industries are typically more labour-intensive than mining – growth in services exports to China offers the potential for broad-based economic gains.