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Abacus | Evergrande, Sinic, Fantasia: a tidal wave of Chinese debt is about to sink Australia’s economic recovery
- Seemingly impervious to recessions for decades, cracks started to appear in the Australian economy in 2020 and now it is staring into a deep crevasse
- The strategy of digging dirt and selling it to the Chinese to keep the plates spinning needs to be rethought, as the demand from its biggest customer rapidly disappears
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As we know, dirt in Australia is rich in important minerals and there is a lot of it. Early settlers discovered large quantities of iron ore deposits and digging it up to make iron became a meaningful business in the early 1900s. One hundred years or so later, the Australian economy has become more reliant than ever on revenues from iron ore.
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Yet Australia’s mining is not driven by domestic consumption but rather by overseas buyers, with around two-thirds of its total 2020 export revenues coming from minerals shipped overseas.
Australia’s economic growth continued year after year, with no sign of a recession, and money sloshed around all sectors of the economy until the pandemic hit and almost everything slowed to a crawl. I say almost everything because iron kept being dug up at a rapid pace, along with copper ore and coal, to meet strong demand from the Chinese property sector and railway expansion, which also drove a strong upward trend in prices.
In 2020, iron ore alone made up 41 per cent of all exports from Australia by value, at about A$149 billion.
Unfortunately, 2021 has proved to be the year that the merry-go-round stopped and Australia’s mining industry, and indeed its economy, reached a turning point. The era in which China could be trusted to buy an abundance of Australian dirt, and pay good money for it too, has come to an end – and probably for good.
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