Why a falling yuan raises economic jitters in Australia

When the yuan hit a six-month low against the US dollar earlier this summer, Australian businesses had more reason than most to sit up and take notice.

China buys almost one-third of Australia’s exports, with a particular appetite for commodities such as iron ore and coal. Chinese visitors, mostly tourists and international students, spend more than A$8 billion (US$5.9 billion) in the country each year, almost five times as much as Americans. In Australia’s red-hot property market, where the average cost of a house in Sydney exceeds A$1.1 million, Chinese are by far the top-spending foreign investors, last year splashing out more than A$15 billion.

All things being equal, the weaker the yuan, the less Chinese consumers have to spend on Australian goods and services.

China: the real reason Australia’s pumping cash into the Pacific?

Since April, the yuan has slid almost 8 per cent against the US dollar amid rumblings of a trade war between Washington and Beijing. Until now, the impact of the depreciation on the Australian economy has been mitigated by falls in the Australian dollar and the pricing of many commodity exports in US dollars. But the factors driving the depreciation, analysts say, point to storm clouds on the horizon.

“The Chinese kind of deny this, but the yuan is pretty tightly managed these days and I doubt that the yuan would be depreciating in the way it has done in the last few weeks if they didn’t want it to,” Saul Eslake, an independent economist based in Tasmania, said.

Although China’s GDP officially grew 6.9 per cent last year, beating Beijing’s target, there is scepticism about the reliability of the government’s figures.

China, Australia kiss and make up but things will never be the same

“A lot of the other indicators – particularly for commodity-intensive sectors like real estate and fixed investment – do suggest a much more marked slowing than the GDP figures would imply,” said Eslake.