China’s Covid blast hits Australia with shortages of critical items and chemicals

China’s huge spike in coronavirus cases since ending its zero-Covid policy is likely to have a “significant impact” on Australia, Treasurer Jim Chalmers has warned.

The Covid blast in China – Australia’s biggest trading partner – could cause shortages of personal protective equipment (PPE), chemicals and mining machinery.

“If you have a Covid wave like we’re seeing in China… there are obvious consequences for the Chinese workforce and for supply chains around the world,” Mr Chalmers said.

The Treasurer said the knock-on effect of Covid on China is one of the “key risks” for the economy in 2023 as Australia relies on its markets and workforce.

China’s huge spike in Covid cases since ending its zero Covid policy target is likely to have a “significant impact” on Australia, Treasurer Jim Chalmers said. Pictured are people wearing PPE, one of the most affected items

In the most recent fiscal year ended June 30, 2022, Australia imported US$103 billion worth of goods and services from China – 23 percent of the total US$450 billion worth of imports.

However, the chief economist at Australian investment firm BetaShares said his analysis showed the situation will not be as bad as Mr Chalmers fears.

David Bassanese argues that the Chinese imports most likely to be affected “represent a relatively small proportion of our economy” and that supplies from other countries are available.

“We are facing different conditions than earlier in the Covid-19 crisis, with lower global demand for goods and better delivery capacity in other countries that have already ‘learned to live with Covid,'” Mr Bassanese told The Australian .

Previous analysis by the Productivity Commission found that just 7 per cent of Australia’s imports come from sources where it would be difficult to find good alternatives.

However, Mr Bassanese acknowledged that China currently supplies two-thirds of those most vulnerable imports to Australia.

“When applied to the latest trade data, it means that about 3.5 percent by value of total imports could be considered vulnerable if there are disruptions in China’s supply, which accounts for about 0.7 percent of GDP,” he said.

Australia relies on Chinese imports for many of its mining equipment. Shown is an image of coal mining equipment

The list of endangered items includes drilling and transport equipment for the mining sector, as well as computers.

The Productivity Commission said disruptions in supplies of such goods “are not likely to cause severe losses in the short term as Australia has a stock of machinery such as trucks and the ability to repair them or buy them on the second-hand market”.

Mr Bassanese said other potentially critical areas that could be affected are chemicals used in water treatment and the manufacture of certain medicines and PPE.

But overall, Australia faces less risk from a slowdown in Chinese production than in the past.

“As more parts of the rest of the world have come out of lockdown, it should be easier to source supplies from alternative countries when needed,” Mr Bassanese said.

There could also be shortages of non-critical Chinese imports like swimwear and toys in the coming months.

Treasurer Jim Chalmers (pictured) said the fallout from Covid on China was one of the “key risks” to the economy in 2023 as Australia relied on its markets and workforce