Quick Bite – A Closer Look at China

It is no surprise that Australia’s economic fortunes remain deeply linked to China. In this QB, we’ll look at recent economic and financial data out of China, using charts where available to show some key trends.

But before looking at China, we summarise the key financial and trade channels linking its economy to Australian financial markets:

• Export Dependency – China is still Australia’s largest trading partner, buying about one-third of Australian exports, notably iron ore, coal, and agricultural goods.
• Commodity Prices & Mining Profits – China’s slowing growth and strategic shift toward decarbonisation pressures demand for iron ore, leading to headwinds for Australian mining giants. BHP recently reported a 26% fall in annual profit to US $10.2 billion – its lowest since 2020 – largely due to weaker Chinese iron-ore demand.
• Currency and Financial Market Sensitivity – Chinese macroeconomic news has a heightened impact on Australia’s financial markets, especially the AUD, which now reacts more strongly than in earlier decades.
• Financial Stability & Investor Sentiment – Ongoing vulnerabilities in China’s property and financial sectors could spill over into global risk aversion, affecting Australian markets via trade channels and renewed volatility.
• Structural Transition & Strategic Risks – As China reduces its reliance on resource-intensive growth, Australian investors and policymakers face structural pressures to diversify. A drop in Chinese resource demand could expose Australia’s export-dependent sectors and capital markets to risk.

Recent data out of China

Fresh data on China’s economy pointed to a broad-based slowdown last month, adding to pressure on Beijing to do more to improve growth and consumer spending in the face of President Trump’s tariffs.

Annual growth in retail sales and industrial production both slowed in July, an early sign that the second six months of the year are set to prove tougher for China’s economy than a solid first half.

China’s drawn-out housing-market crunch continued to drag on growth, with new figures showing falling property prices and shrinking construction. Unemployment ticked up as millions of new graduates entered a subdued labour market.

China’s Real Estate Market Remains in Deep Trouble

China held back from announcing any significant new stimulus measures in July, a cautious stance that economists say will need to be revisited to keep this year’s 5% growth goal within reach. The economy expanded an annual 5.3% in the January to June period, but keeping that momentum going through the second half will be harder as US tariffs bite into global trade.

Source: GS

Support for Chinese exports from heavy frontloading by US importers trying to get ahead of tariff deadlines will fade now that many of Trump’s levies have taken effect.

Many countries believe that China will be forced into dumping goods overseas which have been unfairly subsidised by the state, with a prime example being electric vehicles.

Source: GS

China’s share of the US import market is on the slide.

US tariffs on Chinese imports have become painfully high and hitting direct trade between the two economies. An August report by Global Trade Alert said US imports from China face a tariff on average of around 43.5%, after accounting for different rates applied to different products and exemptions for certain items.

Source: GS

Higher tariffs across the board will also hurt Chinese exports rerouted through third countries such as Vietnam. As well as the higher tariffs on almost every country’s exports, Trump has vowed to impose additional penalties on Chinese goods US authorities determine have been “trans-shipped” to the US via some other country.

With export growth running out of road, economists say Beijing will need to boost domestic spending to keep growth motoring.

So far, though, they have taken only modest steps, with small efforts to subsidize consumer loans and provide financial support to would-be parents among the policies announced so far.

China’s Politburo last month held back on unleashing bold new stimulus, and pledged instead to double down on policies already in place, including a trade-in program for consumer goods aimed at lifting consumption and financial support for services.

Retail sales in China grew at an annual rate of 3.7% in July, slowing from 4.8% in June. Industrial production rose 5.7% year over year, down from June’s 6.6% increase. Investment in buildings, factories and other fixed assets also slowed. Unemployment in urban areas rose to 5.2% in July from 5.0% in June, as new graduates began searching for jobs.

Australia needs China’s economy to fire up if we are to grow much more than 2% next year. Even that rate of growth could be a big ask if China’s structural issues remain unsolved.