Covid-84

Dan O'Heirity

Australia’s Trade Dependency On China

I have written on many occasions that Australia is overly dependent on its trade relations with China. In this respect, there’s continued talk of Australia needing to break free of its trade dependency on China and in a news article that must win the prize for the understatement of the year, we learn that Nationals Senator Matt Canavan has said that “Communist China’s behaviour has been very disappointing” over the last couple of years. Canavan also says that it has been clear for some time that Australia has needed to diversify its trade. But let’s focus for now on “disappointing”.

China has, on my account of matters, murdered hundreds of thousands of people across 213 countries and territories around the world. I would say that their behavior has been a little more than disappointing. In fact I would suggest that it could quite fairly be said that China has actually acted malevolently by unleashing the virus upon the world. It has also acted unscrupulously in trying to turn the virus to its advantage as it seeks to expand its power and influence around the globe. Given that evil is defined as being, “morally reprehensible” one might quite fairly refer to the Chinese Communist Party as evil.

Thanks to China, the World is Now in an Economic Recession

There’s are a couple of stories about the onset of a recession in Australia – and in other countries around the world. The technical definition of a recession is linked to Gross Domestic Product (GDP) with this story stating that, “Australia will enter into a technical recession when the June quarter GDP data is released, breaking its record of 28 years without one.” More specifically, a recession is defined by two consecutive quarters of GDP contraction, which is now certain to occur in Australia. GDP went into the negative with a figure of -0.3% in the March quarter and is set to go further into the negative in Australia in the June quarter.

However, Australia is faring far better than other countries around the world including, I am pleased to say, China which had a negative growth rate of almost -10% in the March quarter. G7 countries including Italy, France, Germany, Canada and the United Kingdom are also faring far worse than Australia as each of these countries had negative growth rates in the March quarter. To put this into perspective the International Monetary Fund (IMF) has said that, “all G7 nations — Canada, France, Germany, Italy, Japan, the United Kingdom and the United States — had already entered or were entering into a ‘deep recession’ whilst also warning that this will be the worst since the 1930s great depression“.

Apparently the mining sector in Australia is still performing relatively strongly and “GDP data shows mining business investment rose 3.6 per cent in the quarter and 10.3 per cent over the year, as more businesses spend on technological improvements and automation.” I get that GDP isis the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period” and that a strong mining sector can, therefore, contribute to a stronger GDP figure. This is important in terms of government taxation revenue which might then be used to try to kickstart the economy in other areas. However, at the same time, the mining sector can obviously remain strong whilst the rest of the economy is decimated.

For example, other sectors in Australia that have been hit incredibly hard by the CCP virus include the Higher Education sector, the tourism sector and the hospitality sector to name but a few. So, the fact that mining is doing well is not going to mean much, in the short term, to someone whose restaurant has gone bankrupt and it is not going to do much right now for La Trobe University and RMIT University, both of which may be on the verge of bankruptcy. The reason for this is the obvious time lag between the impact of the CCP virus on these sectors and the government response in terms of putting in place a stimulus strategy to get the Australian economy going again.

What is the Australian Government Doing to Kick Start the Economy?

So, what is the government doing to help the economy? Well, “In an attempt to boost construction, it is giving eligible Australians $25,000 to build or substantially renovate their homes.The Guardian offers the opinion that, “Scott Morrison’s bizarre cash grants for home improvements have the conditions and restrictions of a wine club discount voucher where you have to buy more of what you don’t want at a price you can’t afford before the savings kick in at all.” It isn’t really possible to make sense of the “wine club” analogy and so I shall turn to a second story from The Guardian that will help in this respect.

The second story from “The Guardian” reports that, “The Institute of Public Affairs has joined economists and backbench MPs in expressing concern about the $688m homebuilder package.” The problem seems to be that anyone wanting to access the new package has to have $150,000 of their own money available which, according to this story, means that an awful lot of people will extend their mortgages to secure the $150,000. The argument then goes that anyone borrowing $150,000 on top of their mortgage will end up paying more than $25,000 in repaying the mortgage. So, the deal does not work out so well for the homeowners.

Another point made in the second story from the “The Guardian” is that the package is expected to fund 20,000 new home starts and 7,000 renovations. Apparently around 110,000 new homes are built in Australia every year of which 75,000 would be eligible for a grant. However, with only 20,000 grants available, 55,000 eligible home builds would not receive a grant. All things being equal – which they are not – we might say that these 55,000 homes will be built anyway. Assuming that these builds do go ahead, then the argument would be that the government scheme is really not making much of a difference overall in terms of new home builds.

Looking now at renovations, the logistics of renovating a home – securing finance, getting planning permits, employing engineers – means that only renovations ready to go at this point in time would be able to apply for the new loans in time to meet deadlines. Thus, the home improvement scheme will not actually be funding new renovation projects, only those that are already planned. The logic here is, of course, straightforward. Any loans provided for renovation projects are not going to lead to new work for the building sector. Rather, the sector will be working on renovation projects already in the pipeline. The only difference the government grant makes is that the homeowners carrying out the renovations may get a grant.

This story reports that, “more than 8000 have flocked to the Treasury’s website to register interest in the grant that also applies for those building a new home worth less than $750,000“. Apparently there have also been 130,000 queries through the government website which also lists all the other schemes and grants that potential homeowners can access in the different states and territories in Australia. These schemes and grants are so extensive that applicants could get more than double the grant depending on where [they] live.” However, the scheme does come with restrictions. For example, a grant for a renovation cannot be spent on a swimming pool or a tennis court or a sauna. Good to know.

The World Financial Recovery Cannot Include China

The home improvement scheme is obviously not meant as a panacea and the full extent of the Australian government’s recovery package will need to be examined in detail when it is released in July. This package is going to have to achieve a lot including helping the hundreds of thousands of Australians who will find themselves unemployed as a result of the CCP virus in getting back to work. And so I come full circle. The CCP virus has caused economic devastation around the world and governments are going to have to spend billions in order to try to get their countries back on financial track. China, far from being contrite in the face of havoc that it has wreaked, is actually becoming increasingly arrogant and belligerent whilst also trying to bully countries into doing its bidding. Whatever, recovery looks like, it cannot include China.

First Published June 6th, 2020

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