Mining in Australia for Chinese Economy - MyAssignmenthelp.com

Question: Discus about theMining in Australia for Chinese Economy. Answer: The mining industry is one of the most economically reliable sectors in the Australian industry. It significance is spread all through the economy and so any variation both domestically and the in the international market is likely to attract greater concern particularly in the macroeconomic aspects. In light of this, iron ore as a chief component of the mining sector has undergone a tumultuous time in relation to the fluctuation that resulted into a 5 year low decline which then created economic tensions as reflected in the employment, current account balance, exchange rate and output. However, there were fiscal and monetary policies being employed by the Australian government in response to this occurrence. The purpose of this paper is to analyze the extent at which these policies worked. Recommendations are also given while looking at the likely drawbacks of the policies in question as well. The international mineral prices with regard to Australia have for a long time been determined by China which is the worlds largest producer and consumer of Steel. A slowing growth in the Chinese demand exacerbated the unlikely situation in the world market. Despite the general expectation that the mineral prices in the international market were bound to fall considerably, the resulting occurrence was more than anticipated which was ignited by the reduction in the growth of the Chinese economy in general (Poon et al 2016). A larger than expected increases in the lower-cost supply meant that the Australian economy had to bear the brunt of this happening. However, the increase and rapid expansion of the production and investment in Australia in general created a more compelling case for the significance of the iron ore prices in the Australian economy. As a result, a fall in the international demand chiefly brought by the plummeting demand by China created a hostile environment for the Australias terms of trade. In other words, there was a huge decline in the terms of trade (George 2016). Lesser demand for the products in the international market translates to lower value of the exports. In response to this, the government sought to bring back the economy on track by depreciating the Australian dollar. This move is vital in offsetting the domestic loses. The Australian mining industry is predominantly foreign owned and so a sharp decline in prices of iron ore necessitated a sizeable portion of the profits being flowed to parent countries during this period. As a result, domestic net investments reduced sharply in response to this occurrence. Furthermore, it weighed in on the real GDP and realized through a downward pressure on the national income (Mudd 2007). The effect has consistently revealed through a reduction in the consumption levels. When the profits from mining are not ploughed back into the economy in terms of investments, it deprives the economic growth. A contraction in the net spending on the available goods and services is further enhanced by a lack of initiatives to create other avenue that the citizens can earn income. In this case, two macroeconomic aspects are in play here; unemployment/employment and Real GDP/output. In response to this foreign deprivation, the Australian government adopted a policy that stressed a n investment spending to a tune of $100million (Department of Mining Industry 2017). This was meant to reduce the investment gap that a drop in the international mining prices had on the Australian sector. Furthermore, a shrinking investment base catapulted unemployment as more people working in the mining and other related industries lost their jobs because there was a sudden reduction in the output in a bid to mitigate the ballooning costs. In the same bracket, shrinking investments tends to exacerbate inflation rates because there is more money in the economy for consumers to spend. As a monetary policy, the government sought to cap the interest rates at under 2% according to Yoemans (2016) in order to combat the increasing money supply owing to a reduction in the investments. In the diagram, increasing the interest rates will effectively lower the aggregate demand as consumer disposable income reduces as indicated by a shift from AD1 to AD2. The policies adopted by the Australian government are practically working as indicated by the following aspects. First, through increasing investment in the mining sector, the economy has witnessed a slight rise in the Real GDP. This has then implied that the unemployment rate has slowed down as other sectors of the economy are opened hence creation of jobs. Secondly, a boom in the property market in Australia particularly the cities of Melbourne and Sidney is a case for further investments which is likely to ensure more stability is realized as well (Costello Knights 2013). While the economy marginally looks to recover from the ashes of a decline in the mining sector particularly a slump in the prices of iron ore, it is important that the following recommendations are factored in. first, diversification of the economy is explored extensively. Australia is inherently dependent on mining and a slight crash could have wanton implications on the economy in general. Agriculture, tourism and manufacturing provides other alternatives because mining alone contributing 44% of the GDP is disastrous for any negative eventuality. Secondly, there is need to have more budgetary allocation to further investments in other sectors as well as mining itself to curb this problem (Philips, 2016). In summary, the manner in which the international market is set up means that commodities are prone to market fluctuations and so does mining and specifically iron ore. The reduction in demand for iron ore and other mining products by China contributed greatly to the events that shook the Australian economy. A dismal performance in the Australian dollar worsened the situation. However, a glimmer of hope lie in the government responses in averting the problems. Capping the interest rates was vital in keeping the inflation rates low while at the same further investment cut down on the negative balance of trade and the deficits which eventually prompted an increase in the employment levels. Nonetheless, there is need to have more investment and budgetary allocation to have the problem controlled properly. References Mudd, G. M. 2007. The sustainability of mining in Australia: key production trends and their environmental implications. Department of Civil Engineering, Monash University and Mineral Policy Institute, Melbourne. Poon, A., Raval, S., Banerjee, B. P., Shamsoddini, A. 2015. Detection of Changes in the Wetland Conditions adjacent to a Longwall Mining Area in the Southern Coalfields, New South Wales Using Radar Satellite Data.Journal of Research Projects Review, 35. Costello, C., Knights, P. 2013. Grizzly Modifications at ridgeway deeps Block cave Mine. Mining Education Australia, 11. Department of Mining industry (2017. Australia's Mineral Commodities. Australian Government of Industry, Innovation and Science. Retrieved from: https://industry.gov.au/resource/Mining/Pages/default.aspx Philips, K. 2016. The mining boom that changed Australia. Australia Broadcasting Corporation. Retrieved from: https://www.abc.net.au/radionational/programs/rearvision/the-mining-boom-that-changed-australia/7319586 Yoemans, J. 2016. Australia's mining boom turns to dust as commodity prices collapse. The Telegraph. Retrieved from: https://www.telegraph.co.uk/finance/newsbysector/industry/mining/12142813/Australias-mining-boom-turns-to-dust-as-commodity-prices-collapse.html George, M.W. 2016."Mineral Commodity Summaries 2016"(pdf. Reston, VA: U.S. Geological Survey. pp.7071.