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POLITICAL ECONOMY
China slowdown chills Australian surplus hopes
by Staff Writers
Sydney (AFP) March 22, 2012


Australia's mining exports to China saw it all but shrug off the financial crisis, but talk of the Asian giant slowing shook the market this week, casting a pall over Canberra's surplus hopes.

Dubbed the "Wonder from Down Under" for its enviable performance in the global crisis, Australia has been riding the crest of a China-driven commodities boom that has flooded its economy with cash.

It was the only advanced economy to dodge recession during the downturn, quickly rebounding from a brief contraction on bullish demand from Asia to record growth and unemployment said to be the envy of the world.

But BHP Billiton's warning this week that Chinese iron ore demand had plateaued and would soon hit "single digits if it's not already there" sent the commodities-driven Australian dollar and stock market sliding.

Australian forecasts the following day confirmed "moderating growth" in the Asian giant this year and further easing in commodity prices.

The cost of iron ore, Australia's key export to China for steelmaking, was tipped to drop eight percent from the 2011 average, according to the Bureau of Resources and Energy Economics (BREE).

China, the world's largest consumer of raw materials, has targeted growth of 7.5 percent for 2012, well off last year's 9.2 percent and 10.4 percent in 2010.

On top of that, Beijing saw a trade deficit of US$31.48 billion in February, while a closely watched HSBC preliminary index of Chinese manufacturing activity hit a four-month low in March as export growth slumped.

BREE said "a dip in (China's) growth rate in 2012 is expected to moderate demand for some bulk commodities."

This would have "several" implications for Australia, said economist and IMF consultant Tony Makin, who said commodity prices had hit their peak.

"I guess the most important thing is that the (Australian-US dollar) exchange rate will lose some of its strength, which is a good thing for other sectors in the economy," Griffith University's Makin told AFP.

"A lot of tax revenue has been lost from the non-resource sector, so that means company profits are down. Anything apart from mining is pretty well languishing at the moment and that's impacting on revenues."

Though mining accounts for 20 percent of Australia's economy its inflationary impact on the local dollar has seen trade-exposed sectors such as tourism, manufacturing and education struggle.

Australian growth came in at 0.4 percent in the October-December quarter -- half as much as forecast -- as commodity prices eased, leading to a slump in export values against imports for the first time since September 2009.

Treasurer Wayne Swan has warned the slowdown would inevitably hit the government's bottom line while HSBC chief Australia economist Paul Bloxham said Canberra faced a mammoth job in delivering a planned surplus next year.

Makin also said he doubts the government could bring the budget back to surplus by 2012-13, warning further measures to meet the target could hurt foreign investment.

Australia passed a new tax on mining profits this week, having already approved an emissions tax that comes into effect on July 1 and a one-off levy on taxpayers to help rebuilding efforts after last year's floods.

"There's a growing perception of some sovereign risk as a consequence of these new taxes popping up unexpectedly," said Makin.

He said any risk to Australia's economy from its dependence on China was "exaggerated and simplistic" given its strong relationships with other Asian nations including Japan, Korea and India.

Bloxham felt there was a danger in relying so heavily on a single economy but said it was a risk common to most countries as China becomes more economically crucial.

Were there to be a major Chinese downturn Bloxham said Australia was among those best placed to respond, with relatively low government debt and official interest rates at 4.25 percent providing plenty of breathing space.

"Yes we've become more dependent on China but that's almost the most fortunate thing that's happened to us," he said.

"It's a whole lot better than us being highly dependent on the US or any other developed economy in the world at the moment."

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Japan, China, SKorea conclude investment talks
Tokyo (AFP) March 22, 2012 - Japan, China and South Korea have concluded talks on a three-way investment treaty which could pave the way for the negotiation of a wider free trade agreement, Japanese officials said Thursday.

"The talks have effectively come to a settlement," Chief Cabinet Secretary Osamu Fujimura told a news conference, adding it creates the "legal framework for trilateral economic cooperation."

The three countries agreed terms on the investment pact at a "preparatory" meeting in Beijing on Wednesday, the Japanese Ministry of Economy, Trade and Industry said in a statement.

The end of the talks will "give impetus to discussions on a FTA (free trade agreement) between Japan, China and South Korea," the statement said.

Fujimura said the talks have an economic and political significance and will strengthen relations among the three countries.

Japan, China and South Korea agreed to work for an early signing of the pact, the statement said.

Their leaders could sign the pact when they hold an expected three-way summit in Beijing in mid-May, according to Japanese media reports.



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POLITICAL ECONOMY
China manufacturing slows, spurring growth fears
Shanghai (AFP) March 22, 2012
China's manufacturing activity fell to a four-month low in March, HSBC said Thursday, adding fuel to concerns over slowing growth in the world's second largest economy. HSBC's preliminary Purchasing Managers' Index (PMI) fell to 48.1 in March from 49.6 in February, following a sharp slowdown in exports, the British banking giant said in a statement. A reading above 50 means expansion, wh ... read more


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