If China Cracks: Australia's Reckless Gamble on a House of Cards, By James Reed

Beijing's towering smokestacks and endless assembly lines, casts a shadow upon Australia who has hitched its economic wagon to the Dragon's back, exporting iron ore, coal, and natural gas like a one-trick pony at a high-stakes rodeo. As Tarric Brooker's recent Macrobusiness piece starkly warns, our dwindling manufacturing sector shields us from direct global industrial slumps, but leaves us grotesquely exposed to China's whims. With over 30% of our exports funnelled to the Middle Kingdom, iron ore alone accounting for half of that pie, Canberra's strategy smacks of wilful blindness. From a China-critical lens, this isn't prudent diversification; it's economic masochism. China's vaunted "world's factory" facade is cracking under overcapacity, deflationary spirals, and a ballooning debt bomb. What happens when the Dragon doesn't just stumble, but shatters? Australia doesn't just get singed, we get scorched.

Let's cut through the spin: Australia's economy is a China junkie, and withdrawal symptoms are already kicking in. In 2024-2025, China slurped up 82% of our iron ore shipments, propping up a trade surplus that's our fiscal lifeblood. But this isn't symbiotic symbiosis, it's a lopsided trap. Our manufacturing share of GDP? A pathetic 5.3%, the lowest in the OECD, even trailing Luxembourg's tax-haven mirage. We've offshored jobs and skills to chase commodity booms, betting Beijing's appetite never wanes.

Critics in Beijing might crow about "win-win" ties, but the reality is a velvet-gloved chokehold. Recent port bans on Australian barley and wine, lifted only after diplomatic grovelling, exposed the coercion playbook. And with US-China tensions flaring anew in 2025, tariffs biting into global supply chains, Australia's caught in the crossfire. The Albanese government's "stabilisation" talks in July 2025? A Band-Aid on a bullet wound, ignoring how Beijing's state-directed mercantilism weaponises trade. We're not partners; we're suppliers in a system rigged for one-sided dominance.

Peek behind the Great Firewall, and China's "miracle" unravels into a dystopian farce. As the globe's manufacturing behemoth, it hoards a trade surplus exceeding 10% of GDP, unprecedented in history, per CFR's Brad Setser. But this isn't genius; it's a steroid-fuelled bubble. Factories churn out excess steel, EVs, and solar panels, subsidised by a creaking state apparatus drowning in local government debt (now 120% of GDP). Deflation grips the land, producer prices down 2.8% in September 2025, while real estate, that former growth engine, lies in rubble.

The September Caixin PMI? A tepid 49.3, signalling contraction for the sixth straight month, the longest slump since 2019. Xi's "common prosperity" rhetoric masks a desperate pivot: more stimulus, more ghost cities, more coercion of foreign firms to buy the glut. But with global demand cooling, US tariffs at 60% on Chinese EVs, EU probes into dumping, China's factories are idling. Over 20% excess capacity in steel alone, much of it forged from Aussie ore, means a slowdown isn't a dip; it's a deluge.

From a critical vantage, this is CCP hubris incarnate: a command economy blind to market signals, prioritising political control over sustainable growth. Subsidies prop up zombie firms, but when the bill comes due, as in the 2025 factory insolvencies spiking 15% year-on-year, the fallout will be biblical.

So, what if the Dragon snaps? Scenario planning isn't alarmism; it's arithmetic. A "hard landing" in China, growth dipping below 3% in 2026, per Capital Economics, slashes iron ore demand by 20-30%, cratering prices from $100/tonne to sub-$70. Australia's terms of trade evaporate overnight, shaving 1-2% off our GDP. Mining giants like BHP and Rio Tinto? Mass layoffs in the Pilbara, with 50,000 jobs at risk.

The ripple? Construction stalls as Chinese steel demand (30% machinery, 9% transport) withers, starving our LNG and coal exports too. Treasury models a 0.5% hit from every 1% China slowdown; multiply by a full-blown bust, and we're staring at recession, unemployment spiking to 6%, budgets slashed, super funds hammered. Queensland and WA, our resource redoubts, become ghost towns; the east coast's services sector can't plug the gap fast enough.

Worse, the geopolitical dominoes topple. A desperate Beijing, facing youth unemployment at 18% and social unrest, turns aggressive: Taiwan sabre-rattling escalates, South China Sea patrols intensify, cyber jabs at AUKUS partners multiply. Australia's Pine Gap and subs become prime targets, while US protectionism (hello, MAGA 2.0) forces us to choose: decouple from China or get dragged into the storm. As ASPI warns, this "gathering storm" could devastate prosperity "overnight."

Australia's China fixation isn't fate, it's failure of imagination. The RBA's January 2025 bulletin nails it: Beijing's post-pandemic priorities (self-reliance, tech nationalism) spell trouble for commodity junkies like us. Yet diversification dawdles: India absorbs just 5% of our ore, the EU's green steel dreams are years off.

A China-critical wake-up demands action: Triple trade missions to Vietnam and Indonesia; subsidies for domestic manufacturing revival (hello, critical minerals processing); and a "China Risk Premium" baked into budgets, earmark 10% of ore windfalls for a sovereignty fund. Politically? Ditch the kowtow, join the US in WTO dumping suits, amplify Quad supply chains.

If China breaks, and signs scream it might, we won't just hurt; we'll haemorrhage. Tarric Brooker is too polite: this isn't exposure; it's existential folly. Australia, untie the knot before the Dragon drags us under!

https://www.macrobusiness.com.au/2025/10/a-vulnerable-china-leaves-australia-exposed/