If you want to see how much China has changed over the past 20 years, you need only look at the Shanghai skyline. In 1990 the peninsula of Lujiazui, now known as the Pudong New Area, was just shanty homes, warehouses and wharfs. Today, it’s China’s answer to Manhattan.

The towering skyscrapers are a lurid expression of China’s new financial power – a physical manifestation of the country’s rejuvenation. They stand directly across from, and now dominate, the old remnants of Western colonialism in the historic Bund, which remains relatively unchanged.

For the Chinese, this represents a profound change in national circumstances. Since Chinese leader Deng Xiaoping began instituting market reforms in the late 1970s, the country has been the fastest-growing economy in the world, with annual GDP growth averaging above 10% for the past three decades. This has increased the size of its economy tenfold. It has also created as many new jobs each year for 20 years as the total number of people employed in Australia.

A model relationship

China’s industrialization is the most significant economic event since Britain’s industrial revolution in the 18th century, which laid a framework for the modern world. And it has occurred 100 times more quickly (and been on a scale 1,000 times larger) than Britain’s.

The transformation has had a profound effect on many nations beyond Chinese borders – and few more than Australia. For three decades Australia and China have come together in a teleological confluence of history and geography, in which China’s vast demand for raw materials was perfectly complemented by Australia’s extraordinary natural endowment. Rivers of iron-rich red dirt have flown inexorably north across the ocean from Australia’s desolate landscapes to China’s teeming new coastal megalopolises. Australia’s resources have helped China industrialize, raising cities from the ground, lifting tens of millions of people out of poverty and allowing the government to build a whole new system of ports, highways, airports, railroads, bridges, buildings and tunnels. As the world’s largest exporter of both iron ore and coal, Australia supplies part of China’s life force, the juice in the machine.

The impact on Australia has been massive. Over the last 20 years, the country’s economic growth has been no less than one-third faster than the United States, twice as fast as Europe and three times faster than Japan. The growth rate – the most reliable barometer of our progress towards a better, or at least richer, future – is faster than any other comparable economy and the longest period of a sustained prosperity by any developed country ever in the modern era.

Changes and opportunities

China’s transition from an investment-led economy to one that is based on services is underway. The change will mean falling prices for Australia’s exports, rising prices for imports and more competition for global capital. As these changes flow through to Australia, they will profoundly change the nation’s economy.

But change brings opportunity. Australia has great strengths beyond its resources, including a well-educated workforce, world-leading institutions, a multicultural community and an open economy. Whereas the country has spent the last 20 years supplying raw materials to build the skyscrapers of Shanghai and many other cities, now it must begin to supply products and services to the businesses and workers who occupy those skyscrapers.

If Australia positions itself to take advantage of the opportunities afforded by China’s changing economy, it can continue to prosper.

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Author: Andrew Charlton is an economist, a director of the economic consultancy AlphaBeta and a World Economic Forum Young Global Leader.

Image: Visitors walk through the Lujiazui Financial Area in Shanghai, August 4, 2010. REUTERS/Aly Song