Australia – On a razors edge.

Definitely not but both those sectors are problematic as well. Manufacturing has been contracting on a steady basis for some time and that trend seems set to continue for some time at least.

Food will be challenging as we move forward. Right now we're up against the water barrier and right after that is energy and right behind that are fertilisers. Given all our smarts, all our new beaut technology we still haven't managed to push food production up over the last 20 years. In fact we're loosing the battle some would say. Globally we need to double food production by 2050. That's only 40 years away!!

It's likely we'll have problems just trying to maintain production levels as our own population increases. We currently export something like half our production. Those export levels aren't like to increase.

They wouldn't be the ones going broke would they. The price of iron ore alone shifted our Terms of Trade (ToT) from positive negative. That's without anything else

There's no problems there. Where the problem lies is in the manipulation of the price of PM's to keep them down (long story). What that does is suppress mining and consequently,  jobs, capex, exploration, investment etc

The problem with resources is they make up such a large portion of our export market. 

This is how it works; Over the last 20 years the world has gone ballistic on a credit frenzy unparalleled in history. That enabled countries like China to climb of the floor and fairly quickly become the worlds manufacturing center for cheap mass produced goods. That in turn meant increased wealth for the Chinese and consequently a spending spree on infrastructure to bring themselves out of the dark ages so to speak and be able to foot it with the rest of the world. That in turn saw a massive increase in demand for our raw materials. that made us kinda rich. Well so we thought. Trouble is our debt levels after this boom don't look too crash hot either.

Now the problems is that the global economy is running off a cliff so what happens to China. It slows down we slow down. To date its been pumping massive amounts of stimulus into its economy to stop it from tanking. That's led them to a debt situation as bad as the US and a few others. In fact it's probably worse. 

Resources only have to pull back 10% and we're in trouble.

Don't need to. When  I was a lad, late 50's early 60's, we lived on the proverbial 1/4 acres section except ours was 1/3 of an acre. The old man had the whole thing planted in vege's initially. Later on it slowly reduced in size and some parts became chicken coups and sheds while others where reserved for larger animals like a sheep with lamb, white ducks (5 breeding pair) a bobby calf for a while until it went to a rural paddock and a couple of weaner pigs. It was a real McDonalds farm there during my formative years. Later on fruit trees and bushes like various berry bushes went in etc. There wasn't much he didn't grow. Old Ma spent many an afternoon bottling fruit, making james and preserving stuff. That place kept us feed, half the street and various relatives and friends. 

Old man's 80 now and still maintains a garden and glass houses. Still grows more than he needs by a long shot and still makes jams and other condiments. 

The generation that lived like that are all but gone. It'll be interesting if those skills and the effort required re-emerge if things get tough. I suspect they will to some degree. Necessity being the mother of all invention.

I believe guerilla gardening is becoming fashionable.

Most I think understand how important China's resource imports are to AU. Most don't realise that AU imports mainly consist of resources (majority), tourism and education. In 20 years this dynamic has barely changed. If anything we've only managed to add tourism (by default) and education (again by default).

Few are probably aware of how precarious China's position is.

http://www.zerohedge.com/news/2013-03-09/chinas-economy-weakest-start-2009

For what it’s worth, there has been plenty of open criticism of the GDP at-all-costs model and some frank recognition of the scale of the malinvestment already in place. For example, NDRC chairman Zhang Ping candidly admitted that ‘a rising number’ of heavy industries were making losses and ‘lamented’ the overcapacity in steel, aluminium, cement, glass making and coking coal.

Plants in these sectors, he said, were running at just 70-75% of capacity, while the once booming solar industry was at just 60%. To address their ‘huge difficulties’, Zhang said he was pushing to increase the pace of mergers in these sectors, but also confessed that such an approach has had ‘little success’ in recent years.

The financial flip side to this was made plain by Li Yining, professor at Beijing University, who warned a CPPCC press conference of nothing less than ‘a possible financial collapse caused by overinvestment amid the country’s new urbanization wave.’ ? you know, the same ’wave’ on which all the CCP’s hopes are being pinned for the coming years?

In the midst of this, we were treated to the release of the Chinese trade numbers for February which, for reasons of LNY calendar variability, are best combined with those for January when we attempt to gauge the state of play. Intriguingly, imports— not the least imports for number of key commodities, such as copper, iron ore, and oil—were relatively subdued and hence, in keeping with anemic showing of neighboring Korea and Taiwan. But, despite this, exports took a major jump, rising by almost a quarter on the same two months of 2012.

How did that happen? Has China suddenly and dramatically reduced the contribution of foreign inputs to its output? Was this a staggered liquidation of product built up in QIV’s hot-housed burst of activity? Or was it perhaps an exercise in good, old fashioned, tax and subsidy arbitrage and/or chicanery aimed at evading the current account restrictions?

We ask this because, although they, too, rose in absolute terms, exports bound for the United States—after all, the fastest growing of all the large, net-deficit  economies—fell to a modern-era record low share while those to Hong Kong soared 60% to a new outright and relative share high. At the same time, the country saw record foreign exchange inflows of more than $100 billion— a marked contrast to last year’s hefty drain of hot money. Not coincidentally, this was a period in which the traditional speculative vehicles, the markets for stock and property, both, were on a violent upward tear.

Were exports—possibly over invoiced—again being used to wash funds through the somewhat porous capital account barrier, picking up tax rebates, with notional ownership about to change to something ostensibly foreign?owned and based in a foreign tax haven when and if they are subsequently re?imported in the coming months?

Was this a means to exploit the yen’s twice-in-a-lifetime rate of decline by clandestinely borrowing some of that excess valuation in Abe-san’s fast depreciating currency?

We have no way of knowing, of course, but we remain duly suspicious.

For over two years now I've been saying the Chinese gravy train is on a one way trip off a cliff and that our growing dependency would be a disaster in the making. I've never believed the 8%GDP growth story and less in the last two years.

Jun last year I made the comment "Did China just crash?", when for no apparent reason electricity production just plummeted. It was a lone outlyer that suggested production had simply crashed. Later it was shown that inventories where going through the roof, China was producing but orders had been slowing for months.

I've always believed growth was closer to a 3-5% range than the hyped and manufactured figures we see pumped throughout the MSM. 

China still has considerably more capacity for malinvestment. The question is will it continue or will the new leadership reign it in and if yes how much and how fast? Whatever way they choose we have little choice but to bite the bullet. We can only hope its a slow orderly correction that enables our economy to adjust progressively. My gut tells me they'll run for a while yet. This isn't going to get fixed in 5 minutes that's for sure.