Monday, April 03, 2006

Australia Continues to Benefit From Chinese Boom

Few countries have gained so much from China's economic boom as Australia. While most countries receives net benefits from China's boom due to the lower prices of finished goods and lower interest rates, these gains are partially (but only partially except for those countries -like Italy- whose main export products compete directly with the Chinese) cancelled out by lower wages and higher costs for commodity imports.

Australia by contrast exports little that competes with Chinese exports, and benefits instead by the lower prices of imported finished goods that China's boom have caused. Moreover do they benefit greatly by the commodity price boom that soaring Chinese demand for the commodities needed for the investments needed to expand Chinese production capacity and the finished goods that China exports. Because of that Chinese growth generates more demand for commodities than growth elsewhere and therefore helps push up commodity prices.

The benefits for Australia from the Chinese boom is evident in two news stories today. First it was reported that the Australian trade deficit fell to its lowest level in 4 years as the value of its commodity exports rose sharply.

Then it was reported that China will agree to buy uranium from Australia to a value of A$100 billion (US$71 billion). Australia with 40% of the world's known uranium reserves stands to benefit greatly from the great expansion in nuclear energy capacity in China and India, as these countries tries to diversify from the unreliable and increasingly expensive energy source of Middle Eastern oil.


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