Discuss about the Relationship Between Energy Consumption and Economic Growth.
Australia is the most China-reliant economy in the developed world. According to Su et al. (2013), new data that was gathered from Australian Bureau of Statistics (ABS) suggests that China is not only the country’s most important trade partner but also on the brink of becoming number one investor. On the other hand, it is true that Indonesia is not event in the top ten lists of Australia’s two way trading partners. However, as mentioned in Daily Reckoning, Indonesia is the fourth country in the world that might have the biggest impact on the future of Australia in the next 20 years (Peters 2013). Therefore, it is understandable that if any of those two countries that is China and Indonesia experiences any economy fall down, it will hamper the growth of Australia.
In the year of 2010, China recorded its last second digit growth that was 10.5%. After that the Chinese economy has efficiently decelerated by 30% in the last five years. As mentioned by Peters (2013), the slowdown mostly took place in 2011 and 2012. During that time reported growth of China was 9% and 7% respectively. The People’s Bank of China has cut interest rates and bank reserve requirements so that more credit can be offered. It is said that without this support, China’s GDP growth would have fallen further. However, as mentioned by Su et al. (2013), this slowdown is far from over. It is expected that in next two years, the GDP of China will deteriorate further because of its real estate bubble, huge production overcapacity and the lack of new growth engines. Housing prices in China dropped 4.5 in the past few years and still 60 million apartments await buyers (Su et al. 2013). It is expected that manufacturing organizations and companies of China will not revive unless a huge increase in demand takes place that will consume an extra 10% points of its impending industrial output (Su et al. 2013).
Figure 1: Australian goods exports to China
(Source: Carr 2014)
According to Carr (2014), China is Australia’s biggest export market as in the year of 2014, and was also responsible for Australia’s 34% exports. This clearly indicates that China is Australia’s top export market having a total value of around AUS $98 bn. As mentioned by Hale (2014), Australian Government Department of Foreign Affairs and Trade stated that Australia is also dependable on China in terms of agricultural products and energy products and services. On the other hand, in the past ten years, Australia has experienced the second largest amount of Chinese direct investment. From the year of 2005 to 2015, Australia gained nearly US $80 bn as Chinese overseas direct investment. As mentioned by Larum and Qian (2012), most of the investment that was done by China was in real estate last year. A KPMG report that was gathered by University of Sydney estimates that Chinese real estate investment will be AUD $7 bn in the year of 2015 (He 2012). This investment was mostly focused in one state which is New South Wales. The next industry in Australia that receives most of the investment from China is renewable energy and healthcare. A huge deal was signed between China’s State Power Investments Corporation and Pacific Hydro that made renewable energy the second industry of Australia that gains more attention from Chinese investors. On the other hand, both the countries have also signed a new free-trade agreement that took place in December, 2015. According to the rules and regulations that were decided in the year of 2014, 86% Australian goods could enter China without any duty charges (Peters 2013). This new trade regulation will rise the percentage to 94% and it is expected that by 2029 this percentage will rise up to 96%. Besides, International Institute of Education stated that in the year of 2014 there were more than 80,000 Chinese students studying in Australia. This arrival of students brings massive economic benefits to Australia. Normally it looks like Australia gets benefitted from Chinese students in terms of tuition fees and other related to their study; however, the Deputy Governor of the Reserve Bank of Australia who is Phillip Lowe stated that it goes beyond that. According to Nethery et al. (2013), Chinese students also who are pursuing their education in Australia, help to develop relationship and promote goodwill of the country. It also can help to identify cross-border business opportunities. This in turn helps Australia to develop new and productive business ventures with China.
Figure 2: Chinese goods exports to Australia
(Source: Chatfield 2015)
Therefore, if the economy of China cannot recover, then the amount of investments done by Chinese organizations will be minimized. Not only that, every other help that Australia gets from China will be reduced.
Relationship between Australia and Indonesia can be understood by their inclusive economic partnership agreement. It is also known as IA-CEPA negotiations. This negotiation took place in March of 2016 (Beeso and Lee 2015). This negotiation was an extended part of CEPA launched by the leaders of the two countries in the year of 2010. The goal of this negotiation was to develop on existing multilateral and provincial agreements that also include AANZFTA (Australia and New Zealand Free Trade Area) (Azam et al. 2015). On the other hand, there is also Indonesia-Australia Business Partnership Group. This is a huge opportunity for Australian and Indonesian businesses to come close to discuss joint interests and offer recommendations to both the Governments on the trade relationship. Report on this negotiation is released in the Australian Chamber of Commerce and Industry Website. Negotiations of IA-CEPA in the March were not the end as it continued in Sydney from 23rd to 26th August (Carr 2016). On the other hand, Indonesian tourism industry mostly depends on Australian tourists. According to a report published in 18th May 2016, the amount of Australian tourists in Indonesia has gone up to 30% as compared to previous. Last year, nearly 900,000 Australian visitors came to Bali only. The total number of Australian visitors in Indonesia was 1,130,000 in the last year (Carr 2016).
Figure 3: Australian goods imports from Indonesia
(Source: Beeson and Lee 2015)
Business relationship between Australian and Indonesia means a lot to Australian businesses. It is evident that the two way trade between Australia and Indonesia was worth $ 14.9 bn in the year of 2011-12. The main goods that are exported to Indonesia from Australia are wheat, livestock, aluminium and cotton. Indonesia’s major exports are crude and refined petroleum, steel, gold and iron. More than 15,000 students are doing their education in Australia that is contributing nearly $400 million to the Australian economy (Chatfield et al. 2015). Australia is also responsible for sending aids worth $540 million to Indonesia in the year of 2013 which is expected to grow slowly but steadily in the next few years. However, the biggest economic relationship among Indonesia and Australia is seen in the Tourism sector. Indonesia is the country’s second most popular tourism destination. In the year of 2012, it is recorded that nearly 2,000,000 passengers travelled between Australia and Indonesia (Chatfield et al. 2015).
Figure 4: Australian goods exports to Indonesia
(Source: Chatfield et al. 2015)
From the above discussion it is clear that Australian businesses are highly depended on Indonesia because manufacturing organizations of Australia are nothing unless they receive natural resources from Indonesia. On the other hand, just like China, Australia is getting a huge amount of revenue from the students of Indonesia who are studying the country. If the economy of Indonesia gets hampered, then it is obvious that those things will be minimising also. Therefore, in that situation, Australia will face major issues. In that situation, Australia will have to look for help from any other country which will allow that country to negotiate terms as per their requirements. Not only is that, sporting ties between these two countries has also a good opportunity for the businesses of Australia. Even in case of migration, nearly 64,000 people of Australia are listed their country of birth as Indonesia and among them 39% were Australian citizen (Nethery et al. 2013). This also helps the businesses in Australia to recruit workers as per their requirements.
It can be observed from the above article that Australia will comparatively suffer more from the collapse of China’s economy in comparison with Indonesia. It can be observed that Australia greatly relies on China in terms of trade, energy, agriculture as well as education. China is one of the major trade partners of Australia. According to the latest report maximum goods of Australia can enter the Chinese market under the policy of free trade between two countries. Moreover, the nation is also assisted by China in the form of agricultural products as well as energy industry oriented product. It has been also noticed that more number of Australian students are studying in China that in Indonesia. Therefore, it can be easily concluded that collapse of Chinese economy will more affect the Australian economy than collapse of Indonesian economy.
Azam, M., Khan, A.Q., Bakhtyar, B. and Emirullah, C., 2015. The causal relationship between energy consumption and economic growth in the ASEAN-5 countries. Renewable and Sustainable Energy Reviews, 47, pp.732-745.
Beeson, M. and Lee, W., 2015. The Middle Power Moment: A New Basis for Cooperation between Indonesia and Australia?. In Indonesia’s Ascent (pp. 224-243). Palgrave Macmillan UK.
Carr, A., 2014. Australia-China Relations Post 1949: Sixty Years of Trade and Politics. Pacific Affairs, 87(3), pp.563-565.
Carr, A., 2016. The Engagement Pendulum: Australia’s Alternating Approach to Irregular Migration. Journal of Australian Studies, 40(3), pp.319-336.
Chatfield, A.T., Reddick, C.G. and Brajawidagda, U., 2015. Government surveillance disclosures, bilateral trust and Indonesia–Australia cross-border security cooperation: Social network analysis of Twitter data. Government Information Quarterly, 32(2), pp.118-128.
Hale, D., 2014. China's new dream: how will Australia and the world cope with the re-emergence of China as a great power.
He, B., 2012. Politics of Accommodation of the Rise of China: the case of Australia. Journal of Contemporary China, 21(73), pp.53-70.
Larum, J. and Qian, J., 2012. A Long March: The Australia-China Investment Relationship. Sydney: Australia China Business Council.
Nethery, A., Rafferty-Brown, B. and Taylor, S., 2013. Exporting detention: Australia-funded immigration detention in Indonesia. Journal of Refugee Studies, 26(1), pp.88-109.
Peters, E.D., 2013. Recent China-LAC Trade Relations: Implications for Inequality?. Geopolitics, History and International Relations, 5(2), p.44.
Su, B., Heshmati, A., Geng, Y. and Yu, X., 2013. A review of the circular economy in China: moving from rhetoric to implementation. Journal of Cleaner Production, 42, pp.215-227.
Wu, H.Q., Shi, Y., Xia, Q. and Zhu, W.D., 2014. Effectiveness of the policy of circular economy in China: A DEA-based analysis for the period of 11th five-year-plan. Resources, Conservation and Recycling, 83, pp.163-175.