Size Matters for China and Aussie Property

Lately, I have been helping a friend of mine to look for properties in Sydney. He is a Beijinger like me, and the same age as well, 30 years old. Over the last few years, he has built up quite a property portfolio in Australia, on the Gold Coast and now in Sydney. He is undoubtedly part of the so-called ‘Chinese invasion’ — Chinese investors throwing their money at Australian properties in the belief that they will gain in value substantially.

Now, isn’t that just typical of the last few years — foreign money finding its way to Australia and helping the government to engineer an unsustainable construction boom. Australia is getting more comfortable with China these days. From agricultural exports to education exports, from selling properties to selling iron ore and natural gas, Australia seems to have an abundant amount of resources to feed the mammoth appetite of China.

But all this wonderful free trade have come at a cost. A structural cost of overreliance, and an economic cost of spill-over. Let me elaborate…

Scouting out the suburbs of Sydney mades me realise just how much China has changed Australia. China is 8.1 times bigger than Australia in terms of GDP. In fact, China’s GDP can create the entire Australian economy every two years at its current rate of GDP growth. It is totally conceivable that a tiny amount of outflow can distort the Australian economy, or its property market.

No, I am not implying free trade is a bad idea. I think it is a good idea for Australia, which has adapted well in the face of change. However, what we need to acknowledge is that ‘size matters’. When an economy the size of China grows, creates opportunities or makes mistakes, they will be felt by those smaller economies close to it, like Australia. You can easily see this chain effect in motion in the Australian property market. Thanks to the whole affair, Australia now has the highest household debt to GDP ratio in the world. Australia is one of the most unaffordable places to live, and it has some of the most expensive property markets.

A lot of economists cite low interest rates and money printing as the core cause of asset price inflation. That is only partially true. Another side of the story is the tectonic shift in wealth and influence from the West to the East, from the developed to the developing. In China’s case, it has the power to make or break Australian industries, distort prices and influence foreign policies.

Size matters, and adaptability is king. Australia has adapted too well to this ongoing shift in power. Australia is structurally locked in by China. Frankly, I see no way out for Australia…

The Age of Defiance

You have probably seen the Hague ruling about China’s territorial ambitions in the Pacific, and you have seen the reaction from China.

No, I am not talking about China’s disapproval of the ruling (of course she would disapprove); I am talking about people taking to the streets in China to protest against the ruling. They call for a boycott of American goods and services, because the Chinese government has accused the US of being the master-manipulator behind the whole deal.

Make no mistake, this is the ‘Age of Defiance’ for China, and that will create more chances for confrontation. The Age of Defiance will see China struggle for more power on the international stage. She will seek supremacy in economics and finance, military power, technological power and political power.

This will come head to head with rising protectionism around the world. It will not be a problem for smaller countries such as Australia, but it will be a problem for big players like the US, Japan, Russia and Europe.

10 years from now, we should see the result of this huge shift in power. Will China cast a shadow on the waning US supremacy? Or will she fail? Only time will tell.

But one thing is for sure, there are enormous opportunities in this ongoing shift. The size of China’s market alone will create dazzling wealth, massive business opportunities and incredible technologies. I know where I will be during all of these; capitalising on every opportunity I can find in the Middle Kingdom.

Cheers,

Ken Wangdong,
Analyst, Emerging Trend Trader

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