CommSec Warns Of China Hype

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By Terry Hughes

Some commentators had been predicting that the China-driven resource boom would be a one size fits all cure for all Australia’s economic problems, but CommSec chief equities economist Craig James is warning of the hype surrounding this theory.

Although James expects China to continue to drive global growth over the coming few years, he points out that Australia is still seeing below average economic growth and trade deficits.

While resource exports are clearly benefiting Australia , James points out that the main benefits are being felt in Western Australia.

However, these exports are more than being balanced out by the influx of cheap imports hitting these shores, so in effect "Western Australia (and the Northern Territory) is earning the income for Australia from the resources-boom and NSW is spending it."

As for Victoria, the economist feels it is most at risk from the continued rise of China, due to its manufacturing focus and the continued strength of the Australian dollar.

With Australia having notched up its 49^th straight trade deficit recently, James says it is time we looked to Japan and India as they "offer the best prospects of turning red ink into black."

Australia’s trade surplus with Japan has quadrupled over the past two years, James says, due to higher coal and iron ore revenues and increased demand from Japanese consumers, while the stronger Indian economy has seen Australia’s trade surplus double over the same period.

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