Australia–China Relations Must Go Beyond Commodities, Says Top Chinese Economist

In 2013, Credit Suisse’s top Chinese economist, Dong Tao, gave a speech to Brazilian delegates. What he said was so radical and so disliked, that bodyguards had to escort him back to the airport.

Tao told Brazil, a nation built on commodities like Australia, that the commodity super cycle was over. As a result, Brazil’s mining stocks dipped 5%.

Tao gave the same speech in Australia, later that year. However, many of our chief analysts refused to believe him. Of course, we know now that Tao was right.

Commodity Prices & Demand

Commodity prices have never been as high or in such demand, as they were around 2012–13. Take a look at the charts below of the Reserve Bank of Australia’s (RBA) commodity price index alongside the price of iron ore, thermal coal and coking coal:

commodity price index

Source: RBA

Tao is Back in Aus

Tao is now back in Australia this week. And he’s bringing similar bearish views on Chinese demand for iron ore and coal. As reported by The Australian Financial Review:

This time round, the market would be wise to pay more attention. Tao, one of the first to predict the end of the China-driven commodities super cycle, says Australia’s weakness is that it has relied too long on China’s insatiable appetite for steel and is not planning for the Asian nation’s transition to a consumption-led economy…

It is obvious Australians can sell beef and wheat to the Chinese but it can do a hell of a lot more if people do their homework properly…

Supply creates demand. Before Steve Jobs there was no concept of a smartphone. The product iPhone changed people’s consumption. The same thing can be said about the potential of the Australian supply chain to the Chinese market.

I’m here for two days. I love the air, the sunshine, the food and the people here. If I like it, most Chinese will like it. So go and figure out how to tap into the Chinese wallet. It is of critical importance for Australia to figure out what it is going to do.

Aussie Tourism Market Opportunities

Essentially, Tao is telling punters to look for opportunities within the Aussie tourism market. Companies that already experienced huge price climbs include Qantas Airways Ltd [ASX:QAN] and Sydney Airport Holdings Ltd [ASX:SYD]. Both stocks are up more than 90% and 20% respectively, year-to-date.

While China won’t stop using iron ore or coal overnight, the explosive demand is taking place in consumer trends, not commodities. And it could be Aussie investors who might have the best chance to profit from this.


Härje Ronngard,

Junior Analyst, Markets & Money

PS: China loves many things about Australia. In particular, they love Aussie property. As China pulls more citizens out of poverty and into new-found wealth, it could mean more money flooding to Australia, going straight into the hottest property spots.

To find out how you can capitalise on the Aussie property boom, click here.

Harje Ronngard is a Junior Analyst at Markets and Money. With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation. It’s not good enough to be right on average when it comes to investing. The market is volatile and it only takes one bad day to ruin your portfolio. You don’t want to end up like the six foot man that drowned in the river that was five foot deep on average. It’s why Harje is constantly reminding investors of their downside risk here at Markets and Money. He does so by simply asking just two questions.  What is it worth? And how much does it cost? These two questions alone open up a world of investment opportunities which Harje shares with Markets and Money readers. Right now Harje is focused on managing research and investments over at the Legacy Portfolio. An investment publication designed to significantly grow investor’s wealth over time with deeply undervalued businesses. Harje also contributes his insights in Total Income, headed by income specialist Matt Hibbard. Harje loves cash-rich businesses, so he feels right at home amongst Matt’s high yielding income plays.

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