Australia’s central bank boss has warned that China’s mounting debt poses a grave economic threat, with broadening trade ties between the two nations exposing more industries to the risk.
Total debt has ballooned in China from 100 percent of GDP in the late 1990s to about 260 percent, with authorities seeking to boost credit and stimulate the economy since exports slowed during the global financial crisis.
China is Australia’s largest trading partner, accounting for nearly a third of its exports and about one-fifth of imports, and Reserve Bank of Australia Governor Philip Lowe is worried.
“Among the largest economic risks that Australia faces is something going wrong in China,” he said on Wednesday evening in a speech in Sydney. “And perhaps the single biggest risk to the Chinese economy at the moment lies in the financial sector and the big run-up in debt there over the past decade.”
Economic ties with China run much deeper today than simply resource exports, with tourism, education and agricultural shipments accounting for an increasing share of trade, Lowe said.
“In many individual categories, we now export more to China than any single other destination,” he said. “So what happens in China is now directly relevant to a broad spectrum of Australian industries.”
Australia welcomed about 1.4 million Chinese visitors last year, up from about 400,000 in 2007.
Nearly 200,000 Chinese students are studying in universities Down Under, making up one-third of the nation’s education exports.
Although Chinese money accounts for just 3 percent of foreign investment in Australia, Lowe said it was becoming increasingly diversified as mining trails off.
Wine and dairy exports to China’s middle class are on the rise, as are vitamins and pharmaceuticals.
“What happens in China is important to Australia and to the broader global community,” Lowe said.
“We will, of course, have differences from time to time, but we will surely be better placed to deal with these if we understand one another well,” he said. “Building strong connections across business, finance, politics, academia and the community more generally is important to deepening this understanding.”
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