In the March edition of Export Finance Australia’s World Risk Developments, we focus on Asian markets including China’s reforms and their effect on Australian commodities, infrastructure needs across the region, and the impact of rising Chinese wages on Asia’s manufacturing sector.

Premier Li Keqiang has set China’s 2017 growth target at ‘about 6.5%’. “This is lower than the 6.5% to 7% target in 2016 and acknowledges slower momentum in the economy,” says Export Finance Australia Senior Economist, Cassandra Winzenried.

“This target also allows the government room to lower unsustainable credit growth and emphasise structural reforms, including capacity reduction in the steel and coal industries,” says Winzenried.

“Lower Chinese coal production will prop up the price of Australian thermal coal; however, lower steel output is likely to weigh on iron ore and coking coal prices.”

According to recent Asian Development Bank estimates, developing Asia will need to invest US$22.6 trillion in infrastructure by 2030 to maintain growth momentum. “The estimate is double that made in 2009 with East Asia accounting for 61% of the investment needs,” says Winzenried.

“Attracting finance and executing the projects will be a challenge. India, Indonesia, the Philippines, Vietnam and most Pacific islands have a poor regulatory environment and bond markets remain relatively undeveloped.”

Meanwhile, average wages in China’s manufacturing sector trebled over the decade to 2016.

“At US$3.60 per hour, Chinese factory workers are now much more expensive than their Asian neighbours, according to Euromonitor data,” says Winzenried.

However, Winzenried says Chinese labour productivity increased 40% over 2011 to 2016, compared with 25% in the Philippines, 23% in India and 21% in Indonesia.

Read the full March edition of Export Finance Australia’s World Risk Developments here.

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