June 2013
Australian Exports: Global Demand and the High Exchange Rate
Growth in Australian exports was weaker than had been expected over the past 10 years across all major categories: resources, rural, manufactures and services. While exports of bulk commodities and liquefied natural gas (LNG) grew strongly in response to higher demand from Asia, this was partly offset by declines in exports of oil and processed metals. Non-resource exports have been adversely affected by the appreciation of the exchange rate and the ongoing rise in the share of global production occurring in emerging economies. Looking ahead, the surge in mining-related investment since the mid 2000s is expected to lead to stronger growth in resource exports over the next five years. As incomes grow further in emerging Asia, demand for Australia's exports of food products, high-skilled manufactures and services is also expected to rise.
Macroeconomic Management in China
China's economy has expanded at a rapid pace over the past three decades, underpinned by a range of economic reforms. While many of these reforms have focused on the supply side of the economy, the authorities have employed a range of policies to manage aggregate demand and control the build-up of inflationary pressures and financial risks. The operation of macroeconomic policy in China differs from that typically used in developed economies, reflecting China's particular institutional and economic environment. Macroeconomic policy is implemented in a coordinated manner with authorities using a range of monetary, fiscal and regulatory policy instruments to achieve economic objectives.
Demand for Manufacturing Imports in China
Fluctuations in Chinese imports are often viewed by analysts as containing information about domestic demand in China. However, identifying the extent to which imports of manufactured goods depend on domestic demand is difficult given the integration of Chinese trade in regional manufacturing supply networks. This article analyses Chinese imports of manufactured goods and assesses whether the determinants of manufactured goods imports have changed over the past few years. Over time, imports have declined as a share of Chinese sales of manufactured goods and appear to have become less affected by domestic demand and instead become more sensitive to exports.
Shifts in Production in East Asia
Over the past few decades, manufacturing production has shifted from the higher to the lower income economies in east Asia. This article uses input-output analysis to explore how total value added in manufacturing has shifted around the region. It finds that for most economies, the domestic content of manufacturing production has decreased over time, reflecting the increasing complexity of supply chains and the growth of intra-industry trade in the region. Also, a rising share of the region's production has been taking place in China, and this trend is expected to continue for some time yet.
Banking Fees in Australia
The Reserve Bank has conducted a survey on bank fees each year since 1997. The results of the most recent survey suggest that banks' fee income from households continued to decline in 2012, but fee income from businesses increased substantially.
Mapping the Australian Banking System Network
An important aspect of the banking system is the network of exposures between individual financial institutions. Using regulatory data, this article maps the network of large bilateral exposures between Australian financial institutions and then analyses its basic features using the tools of network theory. Many of the features of the Australian network are consistent with those of financial networks in other countries. In particular, most institutions in the network are only linked to a small number of other institutions, while a few, typically larger, institutions are linked to a large number of other institutions. An understanding of the banking system network can assist in identifying contagion risks and assessing financial stability.
OTC Derivatives Reforms and the Australian Cross-currency Swap Market
Reforms to improve the management of counterparty credit risk in over-the-counter (OTC) derivatives markets are underway globally. A key pillar of the reforms is the migration of these markets to central counterparties (CCPs), while higher capital charges and increased collateralisation will apply to derivatives that remain non-centrally cleared. One class of OTC derivatives that could be significantly affected by these reforms are cross-currency swaps. These instruments are particularly important to the Australian financial system because Australian banks raise a significant proportion of their funding by issuing foreign currency bonds in offshore markets and using cross-currency swaps to hedge the associated foreign exchange (FX) risk. No CCP yet offers a central clearing solution for cross-currency swaps, which means that Australian banks will continue to manage counterparty credit risk in this market on a bilateral basis for the time being. Regardless of whether cross-currency swaps are centrally or non-centrally cleared, it is important when implementing the reforms in this market to examine how market participants will adjust to the new environment.
Developments in Renminbi Internationalisation
The ‘internationalisation’ of the Chinese renminbi (RMB) is proceeding at a measured pace, with a sequence of reforms designed to increase its use in international trade and investment. Over the longer term – as the exchange rate becomes more market determined and as capital account liberalisation progresses – the RMB has the potential to become a major global currency. This article builds on the work of Cockerell and Shoory (2012) by describing developments in the onshore and offshore RMB markets, and the linkages between them, over the past year. In light of China's position as Australia's largest trading partner, the article also discusses the implications of these developments for Australian firms, drawing on the results of a survey conducted for the inaugural Australia-Hong Kong RMB Trade and Investment Dialogue in April 2013.
The graphs in the Bulletin were generated using Mathematica.
ISSN 0725–0320 (Print)
ISSN 1837-7211 (Online)