The Australia-China Free Trade Agreement continues to attract local controversy. I haven't commented on the latest discussion because, lacking knowledge of the detail, I have no value to add. My view is that we are locked into the agreement and, bar any tinkering at the margin that might be possible, let's just get on with it.
On Tuesday 1 September, the Australian Bureau of Statistics released the latest Australian Balance of Payments data. Associated with the release was a discussion paper on the interactions between the Australian and Chinese economies. It's worth a quick browse for those interested. Understandably, most of the discussion on the Australian-Chinese economic relationship has focused on Australia's resource exports. I think that's a mistake. The most vulnerable sector is education, now worth around $A4.4 billion per annum so far as the Chinese marketplace is concerned.
If, as seems likely, the rate of growth in the Chinese economy continues to decline, Australia as a low cost producer will continue to sell resources if at lower prices. However, Australia is not a low cost education provider. There is a significant risk that those institutions most dependent on Chinese students will suddenly find themselves forced to contract. That is one of the reasons why certain leading universities have been arguing so strongly for deregulation of university fees. If their international and especially Chinese student numbers drop sharply and they cannot increase income in other ways, their cost structures will become instantly unbalanced.
Let me tell you a little story. In the middle of 1987, we created Aymever as a consulting, training and information services company specialising in the electronics, aerospace and information industries.
We were on a high growth trajectory, growing fees from zero to $75,000 per months over eighteen months. At that level we were profitable, ploughing everything back into business development. To maximise capital usage, we leased furniture and equipment. It seemed sensible. Then came Mr Keating's recession. This hit professional services first. In just three months, our monthly fees dropped by two thirds. Financing costs that had been comfortable suddenly became crippling.
As it does, the financing strains on enterprises and governments at all levels escalates. National governments have somewhat more flexibility than start-ups, but the reverse leverage effects are still the same. As firms are forced to contract, so does the economy.
The photo shows practice for Chinese celebrations marking the end of the Second World War. We all hope that that China works its way through current economic difficulties. We need the stability. But in the meantime, I wouldn't buy any shares in Australia's G8 universities. What goes up, does have a tendency to come down.