Australia faces 'downside risks' from slowing Chinese economy

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China's slowing construction sector and falling demand for iron ore presents big challenges for Australia's economy, Treasurer Josh Frydenberg has warned.

He spoke with Today after new figures showed output from Chinese factories during October fell more than forecast.

"The Chinese economy is starting to slow for both cyclical and structural reasons and the housing sector, which is a large part of their economy, has seen a bit of a slow down as well," Mr Frydenberg said.

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An iron ore truck stirs up the dirt as it drives through Eastern Ridge mine (Ethel Gorge) in Newman, Western Australia.

He told the Australian Financial Review yesterday China's slowing economy brought "downside risks" for Australia.

"Coal supply constraints saw price spikes, energy rationing in some provinces and a slowdown in industrial production," Mr Frydenberg said.

"Chinese government limits on steel production have also contributed to lower levels of activity."

But Mr Frydenberg also said the falling price for iron ore - a vital mineral for steel making - was a major concern for Australia.

The iron ore export market was last year worth $125 billion to the Australian economy, with China buying about 70 per cent for its steel mills.

But Beijing wants to clean up its carbon footprint, and that involves cutting back on steel production.

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An iron ore stacker loads one of the holds of the cargo ship 'Bulk Integrity' at one of Rio Tinto's four dedicated port sites on the Burrup Peninsula in the Pilbara Region of Western Australia.

This year prices peaked at record highs of $233 on May 12, but since then the price has dropped to about $100.

Mr Frydenberg told Today that the Federal Government was preparing for that price to drop even further by next March.

"We've got a pretty conservative estimate mat of the iron ore price in our budget at $55 a tonne. So we've actually built in some buffers there."

Declining residential construction projects in China will mean a fall-off in demand for infrastructure such as bridges, shopping malls and roads.

Meanwhile, Botswana's first iron ore mine has started production and delivered its maiden exports to China, Reuters reports.

The first exports from the Ikongwe mine reached China last month.



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