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China manufacturing declines more than expected 

China’s manufacturing sector has underperformed in relation to its expected growth, with the Purchasing Managers Index falling to the lowest levels in 3.5 years. The global market is concerned that China may devalue their currency (Chinese Yuan (CNY)) to remain competitive. While the manufacturing sector is declining, the services sector and consumption is growing. 

How does this relate to the HSC syllabus?

  • The Chinese government would like to devalue its currency as this would make their currency cheaper to buy. This leads to Chinese goods being relatively cheaper, meaning that China will be more internationally competitive (HSC Topic 2 – Australia’s place in the Global Economy).
  • China has a managed floating exchange rate, meaning that the CNY is allowed to float within a band of 0.5% against a basket of currencies. To devalue the currency, the government would need to sell CNY in the currency market to increase supply (HSC Topic 2 – Australia’s place in the Global Economy). 
  • The government sells CNY by accessing its foreign reserves which are becoming increasingly depleted as the economy tries to maintain a low exchange rate (HSC Topic 2 – Australia’s place in the Global Economy).
  • Devaluation of the currency may suggest that China has not fully adopted a managed floating exchange rate, but is still using a fixed exchange rate. This may further damage its economic ties with trade partners such as the U.S. who have expressed dissatisfaction with this regime. When China is more internationally competitive, producers outside of China suffer from a loss of business and profits given the level of price competition of Chinese goods (HSC Topic 1 – The Global Economy). 
  • Devaluing the currency may impede the intended structural change in the economy (China is trying to move from a manufacturing model to a consumption one) since a depreciated currency would make Chinese exports more competitive. This means that China would be supporting its manufacturing sector which takes the emphasis off consumption and encourages manufacturing to continue growing at higher than desired levels.

Further reading

China Foreign Reserves Head of Record Drop on Yuan

China vows not to embark on a major currency devaluation

What China’s currency devaluation means for the world’s trade deals

The dotted line: trade in the Pacific 

Representatives from a dozen countries including America and Japan, extending to four different continents have signed the Trans-Pacific Partnership (TPP). The agreement may face some challenges in terms of ratification, however, since it has been opposed by anti-globalisation campaigners and lobbies. 

How does this relate to the HSC syllabus?

  • Multilateral free trade agreements such as the TPP facilitate globalisation by lowering trade barriers between participating countries (HSC Topic 1 – The Global Economy). It can be argued that such an agreement may also be an obstacle to globalisation since only participating countries will receive the benefit from lowered trade barriers. 
  • Negotiations for the TPP have been continuing for approximately 7 years. As a multilateral agreement, it is more difficult for the participating countries to all agree to trade conditions than it is to ratify a bilateral trade agreement (HSC Topic 1 – The Global Economy). 

Forming an orderly queue 

Europe is facing ‘the worst refugee crisis in recent times’ as civil war in Syria continues. Some countries have responded by closing its borders and tightening asylum rules. This is because governments are under financial strain given that they use their revenue on resources for migrants such as schools and improving infrastructure to accommodate for them. Thus, European governments are implementing measures such as tightening border controls to make it harder for migrants to enter the country.

How does this relate to the HSC syllabus?

  • Migration represents human capital inflow which can lead to an increase in future productive capacity for the economy (Preliminary Topic 4 – Labour Markets). However, since these immigrants are mostly unskilled, potential output may seems low.
  • For them to become skilled workers, the government would need to invest into educational and training programs, which is a form of microeconomic policy. Implementation of microeconomic policy has a long implementation and impact time lag.
  • Since public resources would be used to fund the program, the government may face short term backlash. As a result, the government would likely be reluctant to implement such strategies under political pressure (Preliminary Topic 6 – Government and the Economy; HSC Topic 4 – Economic Policies and Management). 
  • Closing off the country’s borders may be detrimental to its trade flows. 
    • Implementing stricter passport checks and control over entrants into the country would disturb the country’s tourism flows, therefore damaging export revenues. 
    • Stricter border protection would also damage the flow of goods in and out of the country. The curtailing of these trade flows could amount to an equivalent of 3% tax on trade. The added time it would take for imports or exports to come in and out of the country would be particularly detrimental to traders of perishable goods. Although the increased expenses of imports may be beneficial for local producers since they would have less price competition, European residents face higher prices for their goods which would cause their standard of living to decline and inflation to increase (HSC Topic 1 – The Global Economy). 

Further reading

Putting up barriers

Nigeria asks for $US3.5b in emergency loans

The Nigerian government is negotiating a $US3.5b loan from the World Bank and African Development Bank to finance its budget this year. The government plans to use the funds for specific capital projects. Given that Nigeria is a large oil producer in a declining oil market, Nigeria faces external stability and fiscal challenges. Furthermore, a terror group, Boko Haram, has hurt agricultural revenues by limiting access to transport. 

How does this relate to the HSC syllabus?

  • Countries require growth and income for expenditure on items such as infrastructure and education investment to promote economic development. Given that Nigeria is predominantly an oil exporter and oil prices have been plummeting, its income has been falling. Not only does this mean that it may not generate enough income to repay its existing debts to creditors causing external stability issues (HSC Topic 3 – Economic Issues), but there will not be any income to spend on development. 
  • The World Bank’s role in promoting economic development can be seen here. Nigeria has acknowledged that the loan would be the ‘cheapest possible way to fund a fiscal deficit’ which would alleviate its external stability issues. Furthermore, since the government is using the funds for capital projects, it is expected that the loan would contribute to the economy’s future growth and in turn, economic development (HSC Topic 1 – The Global Economy). 
  • The IMF is not likely to provide a loan, stating that Nigeria was ‘not in immediate need of an IMF program’. This highlights the role of the IMF not as one to actively promote economic development but to maintain financial stability in the world economy (HSC Topic 1 – The Global Economy). 
  • The presence of the terror group in Nigeria not only damages Nigeria’s short term economic growth by disrupting agricultural export flows, but also has a long term effect. Other economies that can potentially invest in Nigeria are deterred by the political instability the group has caused (since production and exporting could be disrupted by unexpected political events), limiting Nigeria’s growth potential (HSC Topic 1 – The Global Economy). 

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Theresa Dang

Theresa Dang is an economics mentor at Keystone Education. She achieved an ATAR of 99.70 in 2012. She is now studying Commerce and Law at the University of Sydney. She has experience in a global technology firm and a mutual fund.


Gary Liang

Gary Liang is the founder and director of Keystone Education. He achieved an ATAR of 99.95 in 2012 and 5 state ranks in Mathematics, Mathematics Ext 1, Mathematics Ext 2, Chemistry and Economics. He is now studying Economics and Science  (Advanced Mathematics) at the UNSW Australia, where he is the recipient of four scholarships.

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