Will China’s economic lifeline save Australia for a third time?

China has rescued Australian budgets – state and federal – from extreme red ink, twice in barely a decade. Will it do it a third time?

Twice in barely a decade China has rescued Australian budgets – state and federal – from extreme red ink, and indeed Australia itself from 1930s-style Great Depression economic and social Armageddon.

Will it do it a third time?

Back in 2010 through 2011, when the world was reeling from the Global Financial Crisis, China went on the mother-of-all concrete-pouring infrastructure spending sprees. Maybe that’s where and when – just musing – a young, wannabe Chairman Dan, more generously known now as Victorian premier Dan Andrews, got his ‘Big Build’, bankrupt-a-state, one ‘Big Idea’.

What did they, China, want?

Iron ore and coal – both met and energy, to make steel and to feed into more and more coal-fired power stations.

Where did they get it? From WA’s Pilbara and the Queensland and NSW coalfields. The single best metric of how this poured tens of billions of dollars into Australian budgets and Australia more broadly was the profit of Australia’s biggest resource group and our single most globally significant company, BHP. In the 2010-11 year BHP earned a staggering, mouth-watering, $US24bn. At today’s exchange rate that’s equal to $36bn. And note, that was after both company taxes, paid to Canberra, and royalties paid to state (mostly WA) governments. More illustratively it equalled the combined profits of all four big banks.

Just think about it.

China has been hungry for Australian iron ore.

What BHP earned from digging up dirt and just shipping it off, mostly, to China – without actually having to process it; just good old-fashioned dirt - equalled all the profits the banks earned from hundreds of billions of dollars of loans, and the efforts of their hundreds of thousands of employees. Well, last year, and continuing into this financial year, BHP – and China – did it again; coming out of the global Covid recession which made the GFC look a bit like a placid tea party. In the 2021-22 year BHP posted a bottom line profit of $US31bn – nearly $50bn at current exchange rates. Again, that actually far exceeded the profits of all four big banks combined.

As discussed yesterday, this transformed budgets – WA’s and the Federal budget in particular. Without the huge company tax revenues and the royalty billions, every state budget would have looked like Victoria’s; and the Federal budget would have been deep, deep in deficit, now and as far as the fiscal eye could see.

This time, the ‘China rescue’ was importantly different.

China hadn’t gone on a particular infrastructure super-spending spree.

Yes, it continued to buy close to a billion tonnes of Pilbara dirt; and, if indirectly, both met coal to go with it, and even more energy coal for those vastly increased number of coal-fired power stations.

But this time, also gas; again, for power stations that actually work. So what happens ‘next time’? The next time, our economy – and budgets – desperately needs a Santa Claus with a big wallet?

The answer has two components. What will this ‘future China’ want from us?

Unfortunately, it has to be China; even in ten years India is still not going to be big enough. And what will we be willing and indeed able to sell north?