In past decades China’s economy was a minor component of the global picture. That has changed since it began embracing capitalist ways. The government still retains central control but most of its economy is free enterprise based.

China is on track to take over as the world’s largest economy from the US around 2025. Its leaders are educated in economics, finance and international relations. 

China’s currency is the fifth most traded in the world and will soon pass the yen and the pound to rank third behind the US dollar and euro. China is Australia’s biggest export customer. It will have a major effect on our future so we need to understand it.

It has been widely reported that the Chinese economy is slowing down. That is incorrect.

 Those who make the claim lack understanding of basic maths. A decade ago the Chinese economy was growing at 10 per cent per annum. It is now growing at about 7 per cent. 

That is not slowing down. It is still growing much faster than most other economies, just not as fast as it was. Importantly, 7 per cent increase on the current size is more than the 10 per cent increase on the previous smaller size. 

The Chinese economy is becoming more consumer oriented and less a cheap manufacturer as its people’s incomes rise. It may require more finished consumer goods and less raw materials in the future. 

It has also been claimed that China is buying less mineral products from Australia. In fact it depends on how the exports are measured. The ABS has reported that the value of our mineral exports to China has declined significantly, which is a concern for Australia. 

However the tonnages of iron ore and coal, the two biggest exports, shipped to China have increased sharply over the last year, partly offsetting the fall in prices.

The Shanghai stock market rose about 140 per cent in the last financial year. It then fell 30 per cent in July and has had greatly increased volatility in August. The Shanghai market is dominated by small private investors, often trading with borrowed money so it is bound to be volatile. 

It is not the main market in China. Most institutional investors trade on the Hong Kong exchange, which has much stronger corporate governance requirements and transparency. The Shanghai market’s movements are not closely correlated to China’s real economy. 

China’s recent move to devalue its currency shocked speculators, catching them by surprise. In fact it is surprising China didn’t devalue sooner. 

In the last year the euro has devalued 16 per cent against the US dollar and the Australian dollar has fallen 21 per cent. Until recently the yuan had only declined one per cent versus the greenback, but with recent movements it is now down about 6 per cent. 

Major commodities are traded in US dollars so the fall of the Aussie and the small decline in the yuan have boosted the $A prices and revenue we receive for our exports to China.  

Many of China’s leaders are well educated, some at overseas universities. The Premier has degrees in law and economics and the President degrees in chemical engineering and law. They are advised by highly qualified international finance experts.

While their decisions are made to benefit China they also aim to maintain international stability. The modernisation of China is a very long-term project.

It will continue to bring major benefits to Australia despite the inevitable short-term worries and problems that may arise.