ASIA

Does Asia dominate Australia's economic future? How will Australia navigate a global economy where China, India and the ASEAN states play a key role, along with the United States, Japan and Europe? Is Australia an 'honest broker' in working with Latin America, Europe and the US, and their Asian economic links? What does this mean for Australia's trade and investment landscape in the future? The Airport Economist investigates some key Asian economies to see what our economic future may look like.

The importance of the Hawke–Keating–Kelty reforms couldn't have been more apparent than in the dark days of the global financial crisis (GFC), where internal reforms (float of the dollar, reduction of tariffs, financial reforms, introduction of the social wage through Medicare, super-annuation, education and skills reform) enabled Australia to avoid the high unemployment and banking collapses of our counterparts in the northern hemisphere. In addition, our trade and investment links have been consolidated in Asia and the emerging markets, making us less reliant on our traditional links with the United Kingdom, Europe and the US. This would not have been possible had we not forged strong ties with Japan, Korea and the 'newly industrialising economies' (NIEs), and now China, India, ASEAN and the emerging economies of the region. And Andrew Robb, the Trade and Investment Minister in the Abbott government, hasn't wasted any time in pursuing his free trade hat trick with South Korea, Japan and China.

Furthermore, as well as selling rocks and crops from Australia's shores, our exporters and investors are increasingly engaged, at both at the coalface and the chalkface, in a myriad of industries on the ground in various Asian economies. In the Airport Economist's journey around the Asian region, whole multitudes of export opportunities were witnessed as well as some investments in new industries, particularly relating to the challenges of climate change. In short, when it comes to Australia's economic engagement with Asia, you ain't seen nothin' yet!

NORTH - EAST ASIA

CHINA: SINO THE TIMES

How important is China to Australia economically? And to the global economy? Is China just for big business or can a small enterprise make a quid there too? And what about the workers – how do they fare in the labour market of the new China? The Airport Economist investigates the world's emerging economic superpower.

CHINA FAST FACTS

CAPITAL
Beijing

POPULATION
1360 million

GDP
US$10 027.6 billion

PPP
US$14 625.2 billion

GDP PER CAPITA
US$7333

REAL GDP GROWTH
7.5%

EXPORTS TO CHINA
$94 709 million (1st)

IMPORTS FROM CHINA
$47 238 million (1st)

NUMBER OF EXPORTERS
5638 (2012–13)

THE Airport Economist first visited China as a trade union official some years ago. The Australian trade union delegation, of which I was a member, was taken to a factory making watch components. While on the tour, I asked our hosts 'Do you have workers' compensation in China?' After much deliberation, the translator replied, 'No. If the workers break anything, they don't have to compensate us ... straight away.'

I'm not sure what was lost in translation, but our host's reaction was not surprising given that at the time China had almost an endless reserve army of labour as unskilled migrants from rural areas flocked to the big cities and the new industrial zones. The factory job was, and is, a much better alternative to rural poverty. And there was no concept of workers' compensation or social welfare, as we are used to in the Australian labour market.

Arthur Kroeber, who produces the well-respected newsletter on the Chinese economy Dragonomics, explains China's labour market this way.

As it has modernised its economy, China has experienced a virtual 'tsunami' of labour supply. Much of it has consisted of young Chinese women between eighteen and twenty-two, with not much bargaining power. As a result, China, for a long time, could run its economy at 12 per cent growth, with little pressure on wage and price inflation or the exchange rate.

In Kroeber's analysis, the millions of Chinese workers going to toil in factories from the countryside were hardly in a position to demand improvements in working conditions such as workers' compensation, and there was no resulting pressure on wages as China grew. This enabled more workers to be absorbed without pressure on wages and therefore prices (or what economists call 'cost-push' inflation, which ravaged industrialised countries like Australia during the stagflation period of the 1970s).

But according to Kroeber, the labour market tide is turning. In fact, he thinks that the demographic trends that have helped China's economic progress to date will change in, or just after, 2020, when the ageing of the population and the gender balance will produce significant headwinds. He explains:

In the future, we'll see a tighter labour market in China, so the authorities will either have to accept a higher exchange rate or a higher rate of inflation. This will occur as China shifts from its reliance on exportled development and investment to consumption by increasing its efficiency of investment. Inflation tolerance ought to be higher than it is now. Beijing must let inflation take some of the burden.

This is mainly because of a structural imbalance in the global economy...