China needs us more than we need them

China needs us more than we need them.

That might sound silly since for pretty much every export we have – the main buyer is China.

And most times it’s nothing but daylight back to whoever is second or third.

And China’s rapid urbanisation and massive commodity demand has lit a major fire under the Australian economy.

It pretty much saved us from the GFC, and then sent property prices booming.

And it’s all about to happen again.

Hey?

The thing is, China needs us much more than we need them.

Because the Chinese government is pretty much a one-trick pony.

If the economy stalls, build more stuff.

If the financial sector wobbles, build more stuff.

If the stock market stumbles, build more stuff.

Any time and every time the Chinese economy hits a stumbling block, the Chinese government’s response is to throw money at construction. Build more stuff – more buildings, more bridges, more factories, whatever.

Just build it.

The idea is that China is still one of the most authoritarian countries on the planet. The Chinese people seem to be reasonably happy with that, but only so long as the Chinese economy is growing strongly and rapidly making people wealthier.

If that stalled, or heaven forbid, started going backwards, then the Chinese people might start looking at the rest of the world, and the freedoms we enjoy, and wonder why they’re putting up with being modern-day serfs.

It’s the kind of things revolutions are made of.

And so the Chinese government needs the economic miracle to continue.

And the central pin in that miracle, as I’ve said, is building stuff.

And luckily for Australia, we have lots of the stuff that you use to build stuff.

We are underwriting China’s economic miracle.

And so while we need China to maintain our levels of prosperity, the Chinese government needs us for their very survival.

And that puts us in a strange win-win situation.

If the Chinese economy is doing well, they buy lots of our stuff, and our economy booms.

But if the Chinese economy doesn’t do well, then they buy lots of our stuff (though more iron ore than other things), and our economy booms.

Don’t believe me?

Take a look at what’s happening right now. The Chinese economy is facing one of the biggest tests of recent times. Trump has declared a trade war (or is it a cold war?) with China, and jacked up tariffs on Chinese exports.

The Chinese economy is still massively reliant on exports so this will be a major test.

And what has happened to steel futures – the price of steel at some point a little down the track.

It’s launched!

Like, everyone is worried about the Chinese economy stalling, but the steel markets are partying on like it’s the biggest boom in years.

Crazy stuff.

But it’s win win for Australia.

And that means it’s win win for Australian property.

I tell you, this is the lucky country if ever there was one.

Spiro Kladis
Managing Director, Cashflow Capital

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