China Share Meltdown Shows Folly of Too Many Eggs in One Basket

China is our largest trading partner – our largest export market and our largest source of imports. Last week there was a hearing of the Joint Standing Committee on Treaties on the China Free Trade Agreement. At that Hearing I asked a Department of Foreign Affairs Deputy Secretary whether such a great reliance on China made Australia vulnerable to their economic fortunes, and asked whether Australia might be better served by trying to diversify, or become more self-reliant.

The Deputy Secretary's reply expressed puzzlement at my describing our trade relationship with China as making us potentially vulnerable. She was clearly of the view that the more trade the better, and that we could not possibly have too much of this good thing.

But I think the dramatic events on global share markets in the past week have borne out my concern. Commentators have regularly mentioned how dependent Australia is on China, using expressions such as "If China sneezes, Australia catches a cold". We are referred to as one of the commodity exporting countries at risk if China's growth is less than expected.

The fact is that we have put a lot of eggs in the China basket. For the past thirty years we have engaged in an experiment, putting our faith in globalisation and free trade. We have allowed our manufacturing industries to go to the wall and have allowed our economic base to narrow. As a result we are less self-sufficient and more vulnerable than we used to be more vulnerable than is good for us.

This is one of the reasons for my concern about the China Free Trade Agreement. I hope the Department of Foreign Affairs and Trade and the Australian Government will take a good hard look at what has been happening in the past few months, and rethink a strategy that is all about commodities and to hell with manufacturing. Australia needs to be more independent, self-sufficient and self-reliant than the policies of the past thirty years have left us.