Chinese economic slowdown afflicts Australian supply chain

Study says Australian suppliers under pressure due to a slow Chinese market and severe weather conditions at home


The Australian supply chain industry has come under pressure as a result of slowdown in China’s economy, a recent study indicates.

Supply chain risk increased for the third consecutive quarter as fears of a global economic slowdown, led by the domestic Chinese market and ever-mounting fears over the liquidity of Australia’s core industries continue to mount, the latest Chartered Institute of Procurement & Supply (CIPS) Risk Index indicates.

The risk, though not limited to Australia, has reached peak levels locally with Asia Pacific accounting for 34 per cent of the global supply chain threat.

Chinese demand for industrial commodities such as steel and coal declined in the fourth quarter of 2015, which is resulting in Australian suppliers having to decrease production.

The report indicates that the prosperity of Australian and New Zealand businesses often depends on "forces which are out of their control", CIPS general manager Mark Lamb says.

Increased industrial production backed by cheap credit has undermined the ability of Chinese state lenders to pay off suppliers on time, which in turn has created a market of uncertainty.

It is this uncertainty that is hitting many Australian producers the hardest, the report suggests.

On the agricultural front, the damaging effects of El Niño weather pattern are inducing an "uncertain impact on suppliers in the region, beyond primary producers".

The resulting drier weather threatens agricultural production in Australia and diary output in New Zealand, with the latter under a much bigger risk.

"Chinese credit risk, global commodity prices and even unforeseen weather changes all filter through supply chains and onto Australian and New Zealand balance sheets," Lamb says.

He suggests a "thorough interrogation" of supply chains for businesses to prepare to deal with the effects or lessen the risks as a result of these factors.

The CIPS Risk Index tracks the impact of economic and political developments on the stability of global supply chains.

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