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Does China have us on the ropes?

It’s official: China’s slowdown, which has over the past year quietly boxed Australia’s economy into a corner and onto the ropes, will hit us square in the jaw in 2013. This from the Reserve Bank of Australia’s November Statement of Monetary Policy (available here), which has revised down the growth forecast for 2013 by half a percentage point to 2.75% on the back of significant drops in mining investment for the coming year.

China’s slowdown in demand for resources like coal and steel, combined with a drop in the price for the commodities, is a double blow for mining companies and has resulted in a mounting number of high profile projects and expansion plans being delayed or scrapped completely.

The latest to suffer such a fate is Western Australia’s Oakajee Port and Rail project — a $5.9 billion project being facilitated by Japan’s Mitsubishi to build shared port and rail facilities to support the extraction of around 13 billion tonnes of magnetite (iron) ore — a project that has been put on hold for the foreseeable future. Mitsubishi cited the drop in iron ore prices, as well as problems negotiating a project partner with China, as the key reasons behind the shelving. This has left associated WA miners, like penny-stock exploration company Padbury Mining Limited (ASX: PDY), pondering their future in the project.

The bigger players in the iron ore game, such as BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO), and Fortescue Metals Group (ASX: FMG) have already taken big steps to prevent being caught out. BHP announced in August it would call time on the company’s planned $32 billion Olympic Dam project, while Rio has announced job losses and halted expansion of new worker accommodation in the Pilbara mining district of WA.

What all this means for the economy is a decrease in spending on construction and machinery to support new projects and the creation of fewer new jobs. The RBA’s announcement suggests there are green shoots starting to emerge in the form of consumer spending and consumption, welcome news for retailers like Harvey Norman (ASX: HVN), but not enough to cushion the blow of the resource slow down.

Foolish Takeaway

Over the last few years, as the economies across the world have languished, the stimulus provided by China’s government has helped to keep Australia’s economy in the fight and even prosper. As the slowdown finally catches up with us and we prepare for the coming economic blow, the one saving grace may be that, as far as the economy goes, Australia at least has a strong chin.

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Motley Fool writer Regan Pearson doesn’t own shares in any companies mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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