One of the key questions concerning Australia's future growth is the extent to which China's once-torrid pace of growth continues to slow. After all, China is Australia's largest trading partner, absorbing more than a third of the country's exports.
In 2013, for instance, China accounted for 27.4 percent, or USD141.6 billion, of Australia's total international trade, swallowing up 35.2 percent, or USD91.6 billion, of the country's exports.
And while Australia may be comparatively tiny in terms of population, at just 23.5 million people, the country's resource riches mean that it's also regarded as an important trading partner from China's standpoint. In fact, last year Australia ranked sixth among China's trading partners.
According to the World Bank, Australia's exports of goods and services accounted for 21 percent of gross domestic product (GDP) in 2012. By comparison, exports only accounted for 14 percent of US GDP that year.
Fortunately, the Reserve Bank of Australia (RBA) believes China's growth in infrastructure investment is likely to remain strong for the foreseeable future, given Chinese policymakers' plans to facilitate further urbanization.
The Chinese government is targeting an urbanization rate of 60 percent by 2020, an increase of 6 percentage points from the current level. The RBA says this would mean an additional 100 million people migrating from agricultural and rural areas to the cities, and an estimated CNY42 trillion (USD6.7 trillion) of investment, equivalent to 74 percent of one year's worth of GDP, spread out over the next six years.
And since so much of this investment is dependent upon the commodities that are naturally abundant in Australia, that bodes well for the country's exports over the medium term, even if prices of raw materials such as iron ore and coking coal are slumping in the near term.
In the central bank's ! quarterly Bulletin, the RBA observed that even with the significant rise in China's infrastructure investment in recent decades, the level of infrastructure is still below that of developed-world countries.
In particular, the bank cites Chinese cities' relative lack of urban rail transit infrastructure compared to countries in the West. For example, Beijing's rail system is just slightly more than one-third the size of Tokyo's transit system and just 13.5 percent the size of London's transit system, based on kilometers of rail per million people.
Investment in rail infrastructure, which is one of the most dependable modes of transportation in China, given the country's vast space and varied terrain, should benefit Australia, which is the world's largest iron ore exporter, because rail construction is so steel intensive.
Beyond fulfilling cities' needs for greater transport infrastructure, such as rail and paved roads, the Chinese government is also emphasizing municipal infrastructure, particularly pipes, sewage works, and flood control systems.
While infrastructure spending will help foster the country's rapid urbanization, it can also be used to bolster the economy amid periods of uncertainty. As the RBA notes, "In addition to being employed to advance the longer-term development of the Chinese economy, infrastructure investment has also been used as a countercyclical policy tool to stimulate economic activity."
During the Global Financial Crisis, for example, the Chinese government rapidly implemented a stimulus program targeted at infrastructure to help support the country's economy. So should China's economy surprise to the downside or the global economy hit the skids, then that could spur additional spending in this area.
While commodities prices have fallen substantially from their recent highs, it's possible that higher production volumes could offset these declines, as a number of mining projects that attracted investment during th! e resourc! e boom are finally coming on line.
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