So Long As China Keeps Getting Urbanised, Australia Will Be OK

So long as China keeps getting urbanised and demands steel and iron ore to fuel that very purpose, Australia's economy will remain OK.

This is the latest assessment of the RBA Economics Group on the Chinese economy and the world's largest consumer of metals amd Australia's biggest trading partner.

Researchers from the Reserve Bank of Australia (RBA) believed that as China's population keeps growing, the country would need to double time to keep at par with the requirements of its rapid urbanization. China's urban population is seen to escalate 42 per cent over the next two decades, representing about 70 per cent of the total population by 2030.

Thus, China would need to continue constructing structures. To construct, it would need steel. To make steel, it would need iron ore. And Australia has lots of iron ore.

In its September Quarter Bulletin released on Thursday, RBA researchers Leon Berkelmans and Hao Wang forecast China's steel demand will reach its zenith later this decade, and start moderating from then.

"Residential construction is projected to remain at a high level for the next couple of decades. Steel consumption in this sector is expected to be boosted further by demand for higher quality buildings," Messrs. Berkelmans and Wang said in the article.

The RBA researchers calculate China's peak steel requirement will occur in 2023, up by about 30 per cent over current levels.

"The level of urban residential construction is expected to peak by the end of this decade at a level that is about 12 per cent higher than in 2011," RBA said in its report.

In replace of urban residential construction, increased car ownership in China would promote demand for steel and consequently, Australia's iron ore.

What's more, Chinese steelmakers will be forced to improve the quality of their products, a term called 'steel intensity', the research said.

"A sizeable increase in automobile ownership in the coming years is likely to stimulate demand for buildings with underground car parking, which also requires more steel to be used per square metre of living space," RBA said.

"For these reasons, even though growth in residential construction is likely to decline over the coming decades, the growth of steel demand is not likely to decline to the same extent. Indeed, average steel intensity has increased steadily over the past 30 years."