Reserve Bank governor Philip Lowe, in evidence to a House of Representatives committee on Friday, noted there were already signs that local businesses would be affected as they struggled to replenish their inventories from Chinese warehouses and factory floors.
The RBA, along with many private sector economists and the federal Treasury, have looked at the impact of the SARS outbreak of 2003 on China and Australia to try to get an idea of what the coronavirus impact may mean to the local economy.
That disease scare trimmed Australian GDP by just 0.07 per cent. That number, however, was over a full year. Its initial impact was larger, closer to 0.2 per cent, before there was a quick recovery as China maintained its drive to elevate tens of millions of people out of poverty.
The Australia-China economic links of 2003, however, are far different and much deeper.
Australia’s single largest export to China is iron ore. In 2003, Australian miners shipped $1.7 billion of iron ore to China, accounting for a third of the nation’s total iron ore exports.
By 2018, Australia’s iron ore exports to China had reached $51.4 billion. China now takes more than four-fifths of Australia’s total iron ore shipments.
A major concern domestically is how coronavirus will affect Australia’s tourism sector with forecasts it may cost the local economy $1 billion a month.
This is due to the explosion in Chinese visitors. In 2003, Australia welcomed 173,800 visitors from China. By 2018 this had reached 1.5 million.
Apart from being the most numerous, Chinese tourists are also the most likely to open their wallets. Moody’s ratings agency says while they account for about 16 per cent of all foreign visitors they make up 27 per cent of total tourist spending.
Other parts of the Australian economy, however, are just as exposed as tourism.
In 2003, the nation’s fishers sent just $7 million worth of produce such as crabs and coral trout to China. By 2018, the Chinese market was worth $761 million, accounting for three-quarters of total Australian seafood exports.
The WA rock lobster industry has been hardest hit with up to 98 per cent of its produce usually headed to the banquet tables of China. Instead, exporters have told fishers to draw in their pots as they cannot fly the product into centres such as Shanghai.
Vegetables, cereal grains, meat and dairy producers have all become much more dependent on the Chinese market since the SARS outbreak. Australia’s universities are heavily reliant on the tens of thousands of Chinese students who come to this country every year for education.
LNG exports to China were worth just $133 million in 2013. By 2018, this had reached $13.8 billion.
On Friday, China’s third largest petroleum and gas company asked LNG deliveries to be delayed because of problems caused by the virus at its ports. Australia supplies 44 per cent of China’s LNG.
Dr Lowe said while the SARS episode was a starting point for understanding the possible economic impact of the coronavirus, the way Australia’s relationship with China had deepened over the past 17 years made it even more difficult to determine.
“The potential risk to the Australian economy I think is bigger than SARS and the truth is really none of us know how this is going to play out,” he said.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.