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An economic expert has issued a dire warning that Australia’s hopelessly Chinese-dependent economy faces a series of potentially devastating headwinds as the impact of single market dependency, declining productivity and complexity, and holistic economic shallowing is beginning to bite.
For much of the past half century, the story of Australia’s economic rise has been entwined with the astonishing transformation of China. What began in the 1970s as a cautious diplomatic opening under the Whitlam government evolved into one of the most consequential economic relationships in modern Australian history.
This partnership has fuelled prosperity, reshaped industry and redefined national strategy. Yet as the balance of power in the Indo-Pacific shifts and China’s own growth model matures, the once straightforward narrative of opportunity has given way to a more complex tale of dependency, vulnerability and the urgent search for economic renewal.
In the decades following China’s market reforms under Deng Xiaoping, Australian policymakers and business leaders seized the moment. The demand for iron ore, coal, natural gas and education services propelled Australia through the Asian century, transforming it into a high-income economy resilient to global shocks.
By the early 2010s, China had become Australia’s largest trading partner by a wide margin, absorbing nearly one-third of exports and underpinning a generation of economic stability.
For many, this was evidence of Australia’s good fortune: a resource-rich, English-speaking democracy prospering at the edge of the world’s fastest-growing region.
But beneath the headline figures lay a subtler and far darker, more complex structural shift.
The extraordinary concentration of trade in a single market and within a handful of resource sectors exposed a fragility that only became clear as strategic competition intensified.
When Beijing imposed a wave of informal trade sanctions in 2020, targeting Australian barley, wine and coal, it revealed the extent of Australia’s economic dependency and the risks of limited diversification. Entire industries found themselves caught between the gravitational pull of China’s economy and the geopolitical demands of sovereignty and security.
This dependency has also shaped the very structure of Australia’s economy. The long mining boom reinforced a pattern of comparative advantage rooted in resource extraction rather than innovation, manufacturing or value-added services.
While national income surged, economic complexity stagnated, ranking Australia well below other advanced economies in measures of technological sophistication and export diversity.
The result is a paradox: a wealthy, stable nation increasingly reliant on a narrow economic base, vulnerable to price shocks, and struggling to compete in emerging high-tech and green industries.
Today, as global supply chains fragment and the energy transition accelerates, Australia faces a moment of reckoning. The challenge is no longer simply about maintaining prosperity through trade but about rebuilding economic sovereignty through complexity, resilience and diversification.
The evolution of the Australia–China economic relationship, once a story of opportunity, now stands as a lesson in balance between openness and independence, prosperity and security – the past that built Australia’s wealth and the future that will determine its place in the world.
Highlighting this is economist Michael Pettis, speaking at the UBS Australasia Conference in Sydney, has issued a stark warning for both the Australian policymakers and the public over the vulnerabilities and dependency of the national economy upon a slowing Chinese economy in the face of an increasingly assertive Chinese government.
A perfect storm unfolding
Front and centre of this issue is the structural challenges facing the Chinese economy, particularly its total levels of debt-to-GDP ratio, which is expected to hit 289 per cent, according to analysis by the International Monetary Fund, which would ultimately have significant effects on the levels of Chinese investment in Australia’s economy.
This is particularly troublesome given the nation’s overwhelming dependence on resources, agriculture and real estate, all attractive investment prospects for Chinese and other foreign investors eager to capitalise on the stability of the Australian economy, governance and regulatory environments and growth in these assets.
Pettis highlighted this, saying, “China has run huge trade surpluses, so it has had to balance them by acquiring foreign assets ... Historically, countries that acquire foreign assets tend to prefer to acquire them in the Anglophone economies like the US, Canada, England and Australia.”
“One consequence is that foreigners have been buying heavily into Australian markets, and that’s caused asset prices to go up, including, most notoriously, real estate ... The other more important reason is commodity prices. Because Chinese growth is so heavily dependent on investment, particularly investment in infrastructure and property, China has been a huge buyer of industrial commodities,” Pettis added.
This presents a serious challenge for the already fragile Australian economy, particularly given Australia’s prevailing economic policy being one of “hope” and “prayer” that as China’s demand and investment rates decline, India will step in to fill that gap.
It goes without saying that such irresponsible economic policy and planning (in the policy sense) could potentially have truly devastating effects on the national economy, both points identified by Pettis who said, “The problem is that China can no longer maintain these investment levels, and has to bring them down. Now, I’m sure in Australia, you’re hoping that as Chinese demand drops, Indian demand will replace it, but that’s very unlikely.”
“Eventually, when this model ends, we should see demand for industrial commodities drop very sharply, and that will affect the Australian economy,” Pettis added.
Driving this is the long-term, centrally planned investment strategy taken by Beijing which has seen vast amounts of stimulus being “systematically overinvesting” in property, infrastructure and concerningly at the national security capacity, manufacturing and particularly, excess manufacturing capacity.
While at the same time, China has embarked on a massive increase in debt that is now rising faster than the economy is growing, presenting significant and inescapable structural issues, something that Pettis clearly articulated, saying, “If you bring investment down, then GDP growth drops, which they’re politically not willing to accept yet ... But if you don’t have infinite debt capacity, you can’t maintain that role forever.”
Ultimately, this will have a dramatic and potentially calamitous impact on the nation, with the nation’s policymakers and public appearing to be doing little more than fiddling while Rome burns despite the repeated warnings that we live “in the most complex strategic environment since the Second World War”.
Final thoughts
Building Australia’s strength as an independent power with the economic weight, diplomatic influence and military punch of a great power isn’t just an ambition, it is an increasingly important and necessary assertion of sovereignty.
It signals an Australia ready to take full responsibility for its own security and to lead in shaping a stable, prosperous Indo-Pacific.
For too long, we’ve been boxed in, tied to China’s markets and America’s alliance, caught in someone else’s contest for power. It doesn’t have to stay that way. In a world dividing between autocracy and democracy, Australians deserve an honest conversation about where we stand and where we’re headed.
That conversation must include the Australian people, those who’ll pay the price, shoulder the burden and defend the choices made in their name.
Real success depends on transparency, collaboration and trust between government, industry and the public. It means rekindling belief in a shared national project, one that strengthens our economy, secures critical industries and builds resilience against economic coercion.
A strong, diverse and self-reliant economy is the fundamental foundation of national power and our best defence against external pressure and coercion, regardless the source.
Equally, we need a clear-eyed reckoning with our ambitions. Are we content to be a declining “middle power” or ready to step up as a genuine regional leader, becoming a nation that shapes events, not just reacts to them?
As historian and author Arthur Herman once wrote of the United States, “whether we call it industrial policy or something else, we urgently need a new paradigm ... because the development of advanced technologies can rapidly transform economies of scale and determine the course of future innovation”.
The same goes for Australia.
Because without bold investment in capability, innovation and self-reliance, we risk stagnation and an acceleration of our “managed decline” and with it, the slow erosion of our power, prosperity and independence.
Get involved with the discussion and let us know your thoughts on Australia’s future role and position in the Indo-Pacific region and what you would like to see from Australia’s political leaders in terms of partisan and bipartisan agenda setting in the comments section below, or get in touch at
Stephen Kuper
Steve has an extensive career across government, defence industry and advocacy, having previously worked for cabinet ministers at both Federal and State levels.
