China Slowdown Shocks, the West and Australia

Western economies, including Australia, have benefited from several decades of extraordinary Chinese expansion. Yet, in recent years, slowing growth and demographic decline has diminished these gains and geopolitics between China and the Western democracies has restricted some international commerce. We review key sources of recent change within China and use a global economic model to assess the consequences for the West of further negative shocks. Most scenarios see major economic losses, with the worst affected group within China being low-skill workers. Long term losses in the West are smaller but pervasive, with Australia’s economic welfare per capita impaired most, while short term effects depend on China’s monetary policy response, with a departure from the approximate US$ peg likely to minimise harm both in China and abroad.