Here's something to think about. As bad as the blowback from the U.S. credit fiasco has been for Australian shares, we've had a bulletproof shield: Chinese growth. World financial markets may be closely intertwined. But at the end of the day, investors here know that as long as China keeps on chugging out 10% GDP growth, this resource rich economy can surf in its wake on good times.
True financial panics ensue when markets are sideswiped by something unexpected. In Australia's case, we want to suggest that the local economy could survive the bear market in credit, only to be mauled by an unexpected event in China, which has so far cooperated with everyone's rosy commodity demand forecasts.
"China on Wednesday issued an 'urgent' call for the coal industry, electricity providers and government agencies to ensure adequate coal supplies as a nationwide power crisis loomed," the AFP reports. According to government reports, China has about eight days of coal left. Coal stockpiles are at just 17.7 million tonne, down 40% from last year.
You can't run the world's manufacturing workshop without energy. China is a net importer of coal already (most from Indonesia and Queensland.) It's peak demand season, with thermal coal being used to generate electricity for industrial and household demand.
Chinese coal stockpiles will probably be built back up, if the ports on the Eastern Coast of Australia can ever get their act together. But you see how little margin for error China's economy currently has. It too has been running at full tilt for years. A slowdown, a recession, some nasty banking surprise, or just the booms and busts that go with market cycles are bound to occur sooner or later.
Australian investors, fully tuned into to the American market, had better not take China's growth for granted. If that support is kicked out from the economy, share prices might fall a lot further than they did earlier this week.
Dan Denning
The Daily Reckoning Australia
P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
Related Articles:
- None Found
About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by mike on 25 January 2008:
....if growth in china goes bust for any reason.......can you spell.....REE BO LOO SHIN..... then many pee opo.....will be nee yee ding......bulletproof shee yee dow (that's "shield" o.k....)
Comment by peter Gray on 26 January 2008:
Dear Dan, heres a trick... today the third largest coal producer in Queensland, Macarthur Coal issued a 'force majeure'.It is unable to meet its supply obligations owing to the fact that its coal mines presently resemble a large lake due to the recent major flooding in central Queensland.
Macarthur follows BHP/ mitsubishiJV BMA in the declaration and BHP has stated that it will take a number of months to get its coalfields back to production!!Also RIO ceasd operatipons at its Kestrel Mine near Emerald on Monday as the place had filled up.
Comment by Lawrie on 26 January 2008:
Agree with you Dan. Also, the full effects of the US spending slump hasn't hit China yet. If US property falls further (and it will) then this will cause a futher credit sqeeeze, further impacting US spending.
It has always been US spending that has sustained China's growth. A reduction in China's economic growth will impact Australia's economy by major proportions.