Reserve Bank says impact of China’s stimulus ‘could be more modest than in the past’ for Australia

Huge stimulus launched by the Chinese government may only have a “modest” impact on Aussies this time around, the Reserve Bank says.

The world’s second-biggest economy — and Australia’s top export market — has been under severe pressure amid a major slowdown in the property sector and a growing debt bubble.

China’s government announced a $2 trillion stimulus package just days after the RBA’s November meeting, targeting relief for local government debt.

It’s the latest move by the country’s authorities to revive their economy, but the RBA board was unconvinced the impact would be heavily felt Down Under, according to minutes from their most recent meeting.

Australia’s economy was supercharged by Chinese stimulus following the Global Financial Crisis and during the pandemic, driving a terms of trade boom which lifted exports and boosted tax revenue.

Mega resources projects in WA and Queensland worth billions of dollars were built to feed the powerhouse’s growing demand.

The boost may not be as large this time, the RBA board said.

“(The board) concluded that the implications for Australia could be more modest than in the past because the capacity of the mining sector to increase Australia’s volume of mineral exports was limited,” the minutes said.

“Moreover, it was unlikely that the sector would invest as heavily to expand this capacity as it had in the past, and the gains from any rise in the terms of trade were expected for the most part to be saved.”

Yet China’s otherwise bleak outlook was improving, the RBA’s board said.

That meant risks of a downturn were reduced — and had sparked a generally warm reaction from the country’s financial markets.

NAB downgraded its outlook for China last week amid potential tariffs from the incoming Donald Trump administration in the US and “underwhelming” fiscal stimulus.

The Reserve Bank also weighed into the debate about a cap on international students which erupted in the national capital yesterday.

The board was sceptical about the benefits of a cap, a policy intended to slash numbers to a ceiling of 270,000 students.

“The outlook for services exports had been revised down significantly, reflecting the expected impact of tighter international student visa policies,” the board said.

“However, this had not materially affected the staff’s assessment of the gap between aggregate demand and aggregate supply because lower net overseas migration would also reduce the economy’s supply capacity.”

The proposal hit a hurdle on Monday, with the Federal Opposition promising to block passage of the plan.