How Important Is China?

Today I attended a presentation by TD Securities global strategist Stephen Koukoulas. While exploring the “green shoots” of recovery, Koukoulas made an interesting observation about China. Many observers of the Australian economy, Reserve Bank governor Glenn Stevens included, place great weight on the importance of China for Australia’s economy. But Koukoulas pointed out that, while exports to the US make up over 20% of Canada’s GDP, Australia’s exports to China only contribute 3% of GDP. In fact, the Australian Capital Territory (ACT) contributes more to GDP than China does.

As soon as I got back to my desk, I went straight to the Australian Bureau of Statistics to confirm these figures. Sure enough, merchandise exports to China for the 12 months to March 2009 were 3.1% of seasonally adjusted GDP, while the contribution of the ACT to GDP was 3.2%. So far, so good, but a historical perspective is revealing.China GDP

Australian Annual Exports to China

While the contribution of Chinese exports is still relatively small, it has been accelerating over the last few years. Over the 12 months to March 2009, Chinese exports grew by 0.8%, so they were a significant contributor to economic growth, despite the low base. Not surprisingly, China has been taking a growing share of total Australian exports over this period.

China Exports Share

China’s Share of Total Australian Exports

As for the nation’s capital (and surrounds), on current trends, it will not exceed China for very much longer.

ACT China GDP (III) ACT versus Exports to China

Of course, these figures do not disentangle volume and price effects and whether or not China’s own growth will remain strong enough to keep pushing our exports up is an interesting question. But, based on these charts, I can understand why Glenn Stevens considers China so important for an economic recovery.

Note: the code used to produce these charts is available on github.

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