China's growth

Once again, much of the world's focus is on China's dramatic growth and its prospects for 2006. Chinese government statisticians have recently reported their economy to have grown at 9.9% during 2005, and many economists are suspecting it to have been stronger still.

Economic growth reports for 2003 and 2004 have both been initially declared at 9.5% only to be later revised upwards to 10% and 10.1% respectively. This has led to suspicions that Beijing is purposely reporting growth figures below 10% in order to stave off international pressure on its fixed currency policy. China's yuan has been pegged to the US dollar for just over a decade, and most corners agree it to be grossly undervalued, lending an export advantage in the world market. China reported in early January its trade surplus to have tripled in 2005 to $102 billion, and it total foreign trade topping $1.4 trillion. Such a figure has pushed China to number three in the world in foreign trade after the US and Germany, and ahead of Japan.

While the US complains about an undervalued yuan and its effects on the American export market, as well as there being concerns amongst Washington's reputed hawks about China's military modernisation, Australia has enjoyed a China-fed economic boom, particularly in its resource sector.

China is now Australia's second largest export partner, recently overtaking the United States, but remaining behind Japan. There is a definite prospect of an FTA being negotiated soon and Canberra is busy drafting an agreement for a lucrative uranium export deal. All of this points to a closer economic relationship being shared by the two countries. Australia's recently appointed ambassador to the US, Dennis Richardson, used his maiden speech appearance to suggest that America's attitude to China should change from one principally based upon competition and regional threat, to one of partnership and opportunity, just as Australia has done.

Due to these reasons, both Australian and world eyes will once again be focused on the growing dragon in 2006. Economists will eagerly wait to see if the 2005 growth figures will indeed be revised upwards, and whether the yuan's status will move beyond the 2.5% correction of June last year. If not, will Washington go so far as to label China a currency manipulator as it has threatened, and how will consequent Sino-American relations affect Australia's relationships with both countries, particularly in the case of a uranium trade deal being signed. On top of all of this is the anticipation of the Chinese economy's 2006 performance, as we wait to see whether it indeed breaks through the 10 percent growth range.

Author: Luke Easey, Research Institute for Asia and the Pacific, University of Sydney

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