research / Briefing and working papers

Abstract

As Australia’s economic exposure to China has grown, so too has the perception of risk this brings. In turn, this has led to calls for public policy to be used to cut the exposure. This paper begins by clarifying that exposure to China creates three distinct risks for Australia: a Chinese growth shock that comes with a ‘hard landing’, a structural shift towards less import and natural resources-intensive Chinese growth, and the Chinese government disrupting trade ties for coercive purposes. With external demand for Australia’s goods and services largely exogenous, the scope to mitigate these risks by reducing exposure to China without resorting to costly market intervention is limited. At the same time, a review of the available evidence finds that the probability and scale of each risk should not be overstated. Further undercutting the case for an intrusive public policy approach is that effective mitigation mechanisms exist for the Australian economy as a whole, as well as many businesses.

Authors: James Laurenceson, Director, Australia-China Relations Institute, University of Technology Sydney

Notes: UTS:ACRI working papers are research papers in progress. Feedback is welcomed by the author.