China Slowdown Shocks, the West and Australia*

Abstract

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, while geopolitical developments have further restricted growth-driving commerce. Our purpose is to review key sources of recent contractionary changes within China and to assess their likely consequences for the West. Modelling scenarios emerge that see future economic losses in China and abroad, with the worst affected group being China's own low-skill workers. Long-term losses in the West are smaller but pervasive, with Australia's economic welfare per capita impaired most. Short-term effects depend on China's monetary policy response, with a freeing up of China's exchange rate likely to minimise harm both in China and abroad.