* Chinese demand rescues Australian exports, economy
* China Replacing U.S. as driver of A$, Asian markets
By Wayne Cole
SYDNEY, Aug 19 (Reuters) - We're all China experts now.
People everywhere are discovering the Communist superpower looming ever larger over their economic fortunes, and few so much as Australia's 22 million denizens. It was the appetite of 1.3 billion Chinese for Australia's iron ore and coal that essentially rescued the country from global recession. And that is the main reason the Reserve Bank of Australia (RBA) feels confident enough to consider raising interest rates way ahead of other developed nations.
"China has been the difference between growth and recession," said Rory Robertson, interest rate strategist at Macquarie.
"China's dramatic stimulus effort swung that economy from bust to boom in minutes, and that allowed Australia to record the best export performance of pretty well anyone," he added. "It also helped support Australian commodity prices at levels we could barely have hoped for just a few months ago."
China now consumes almost 80 percent of Australia's iron ore exports by volume, up from less than 60 percent a year ago and around 20 percent at the start of the decade. China's share of coking coal exports hit 28 percent in June, up from less than 1 percent in 2008. In all, China took A$39 billion of Australia's goods exports in the year to June, up 45 percent on the previous year.
Central bank assistant governor Phillip Lowe last week was moved enough to call that performance "truly remarkable".
Chinese demand, he said, was the main reason Australian export volumes rose between 3 and 4 percent in the past nine months, when every other developed nation saw exports slide, some by 20 to 30 percent.
His boss, Governor Glenn Stevens, was just as effusive.
"Sceptics about the growth of China so far, I think, may have underestimated the determination of Chinese policymakers to grow their economy and I doubt that determination has lessened," he told lawmakers.
And this relationship is only set to get closer as China looks to secure its future energy and resource needs. On Tuesday, the two countries struck their biggest trade deal ever, a A$50 billion project to supply liqueified natural gas to China.
Trumpeting the deal in Parliament, Treasurer Wayne Swan said the government would reap a tax bonanza worth around A$40 billion from the entire Gorgon gas project in the next 20 to 30 years.
DRIVING THE AUSSIE
One result is that all things China are becoming a major driver of the Australian dollar, with markets hyper-sensitive to any change in Chinese demand, real or imagined.
In July, a routine report that one iron ore shipment from Australia had been cancelled by the Chinese client while at sea, sent the local dollar sliding two U.S. cents.
It quickly became clear this was a one-off event and Chinese demand for Australian iron ore was only getting stronger, but the message was not lost on currency traders who now watch all and any news on iron ore like hawks.
Investors are also becoming increasingly sensitive to swings in the Shanghai share market <.SSEC>.
When the index slid early this week, currencies leveraged to global growth such as the Aussie and New Zealand dollars, slid while safe havens such as the yen and U.S. dollar jumped.
This linkage is not entirely welcomed by analysts given how wild the Shanghai index can be, when compared to old favourites such as the S&P 500.
"Historical volatility in the Shanghai index is substantially higher than the S&P and at times directionally seems to be dependent on Beijing directives that, to put it politely, are far from transparent from a distance," said Alan Ruskin, an international strategist at RBS.
"We have been warned -- this is the very start of a much longer-term trend where Chinese equities will act as an additional variable and a counterweight to take notice of, especially when the signal contradicts that of the S&P." SINOLOGISTS
Markets across Asia now hold their breath for Chinese data, much as they once did for Japan's. That can be a painful process as it is not always clear when the data will be released.
Pretty much all of July's major indicators were released on one day last week, led by industrial production. The 10.8 percent rise in output seemed impressive enough, but it still fell short of the 11.7 percent tipped by analysts and the Australian dollar promptly sold off sharply.
Analysts at HSBC reckon that electricity production is the most reliable measure of the Chinese economy and note that, when charted, the Australian dollar has tracked eerily close to output in the last couple of years.
So important has timely Chinese data become for Australia that the central bank has greatly expanded its research on the country, largely at the expense of the United States. Its latest Statement on Monetary Policy granted a separate section to China alone.
(The statement can be found at: http://www.rba.gov.au/PublicationsAndResearch/StatementsOnMoneta ryPolicy/Statements/statement-on-monetary-0809.pdf) RBA chief Stevens has long been a China bull seeing several decades of boom ahead for the country, much like Japan's re-emergence after World War Two.
The central bank considers this to be an unimaginable boon for Australia, which happens to have all the resources China needs to expand. But there are also challenges. "If we are more integrated into China's expansion, we will be similarly more exposed to the consequences of whatever might go wrong in that country," Stevens said in a recent speech.
"So our understanding of how the Chinese economy works, and of what risks may be accumulating, will need continual work."
As Macquarie's Robertson says: "We are all Sinologists now." (Editing by Tomasz Janowski)