Has Australian economy’s luck run out: When China Sneezes, Australia catches a cold?

Carl Bildt has a nice piece in Proj Syndicate. He argues how China and climate change are posing challenges to Australian economy which has grown without a recession for 30 years!

By any reasonable standard, Australia is a long way off from most other countries. Sydney is closer to the South Pole than it is to Singapore. Direct flights from Washington, DC, or Brussels to Canberra remain beyond our technical capabilities; there is always a layover somewhere.

Still, for better and worse, geography is less important than it used to be. Australia may be remote, but it is very much of this world. In fact, it is already on the frontline of two global challenges that will shape the international agenda in the decades ahead. Spend a few days in the country and you will quickly realize that its politics are all about China and climate change – and sometimes a combination of the two. Pretty soon, the same will hold true for many other countries around the world.

Among the world’s democracies, Australia is perhaps the most dependent on China economically. It is the world’s largest net coal exporter, and its biggest customer is China. It is thus also more dependent on fossil-fuel exports than many other countries; and yet it stands to lose more than others as the real-world costs of climate change come due.

Still, the Australian economy is unique among industrialized countries in that it has grown continuously for almost three decades without a recession. Australian governments implemented reforms to open up the economy just when China was embarking on its meteoric rise. For 30 years, Australia, with its abundant supply of energy and other resources, has been able to surf on a growing wave of Chinese demand.

This arrangement was nothing if not convenient. Given the two countries’ relative proximity, Chinese tourists and immigrants started to flock to Australia. Chinese students became mainstays at its universities. The money just kept rolling in, and Australian property prices duly rose.

But then China became more assertive in its economic and foreign policies. Journalists started to expose what looked like attempts by Chinese actors to  in Australia. And these revelations led to questions over whether Australian university curricula are avoiding topics that could irritate China (and Chinese students).

Australia for long has been a coal exporter:

Complicating matters further is the climate-policy challenge. Whereas previous Australian prime ministers fell on their swords in an effort to develop a realistic energy and climate agenda, the current Australian government has been  of dragging its feet on the issue. Indeed, Prime Minister Scott Morrison famously waved around a lump of coal in Parliament to show that it was nothing to be afraid of. After a long “Black Summer” of unprecedented bushfires, he is unlikely to repeat that stunt.

Just as Australia must address its dangerous dependence on China, so must it start taking climate change seriously. Neither problem admits of easy policy solutions, and other Western democracies that depend on China economically will not be spared similar dilemmas.

Australia’s experience – both good and bad – offers valuable lessons for us all. It is the proverbial canary in the coal mine. Policymakers and political leaders everywhere need to engage in an honest assessment of the risks posed by a rising China and a warming planet; and we all must start phasing out fossil fuels. Australia now finds itself on the frontline of these two major issues. The rest of us will join it there soon enough.

Australia was dancing while the music was on…

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