Australia's ride on China's coat-tails may be overbusiness.the...

Australia's ride on China's coat-tails may be over

business.the age

"Australia's economy has boomed on the back of Chinese demand. But the good times may be coming to an end

For five years China has been the saviour of the Australian economy. Its massive urbanisation has pumped up the prices of Australian resources and began to fill the economy with cash when it was needed after the housing bubble earlier this decade. Now, with the world rocked by the financial crisis, if China can no longer afford to pay inflated prices for commodities then the Australian economy is in deep trouble.

The China-driven resources boom shifted the "terms of trade" massively in Australia's favour. It made Australians about 13% richer without having to do a thing. While Australia's volume of economic output, or GDP, has risen 19% in five years, higher export prices have meant Australia's gross domestic income has soared 32%. So the country voted for tax cuts, bought new cars, rebuilt homes and piled on more debts as if the China-driven resources boom would last forever.

Commodities traders had piled up stocks expecting China's construction and heavy industry to burst back to life after the Olympics. Instead, the financial crisis reverberated around the world, stock piles were liquidated, and the five-year resources boom quickly turned to bust.Copper has fallen more gradually, by one-half, and nickel by three-fifths. "