Will there be a more important driver of Australian growth over the next decade than Chinese investment? The near-term prognosis for investment is reasonably good but iron-ore producers must be getting nervous as prices decline and demand shows tentative signs of slowing and Chinese authorities look to curb excess capacity.

Investment has been a major driver of China’s economic success story. Real gross fixed capital formation has increased by an average annual rate of 11 per cent since 2000, although this has declined a little in the past couple of years.

Investment accounts for almost half of total Chinese GDP; by comparison, investment in Australia accounts for almost a quarter of economic activity. In fact much of our recent investment has been in response to rising demand for iron ore, which has been necessary to facilitate Chinese infrastructure investment.

As a result, the outlook for Chinese investment is of central concern to not only Australian miners but also the broader Australian economy. Resource export growth will be a key determinant in whether our economy returns to trend growth and whether we can successfully transition away from a growth model that relied disproportionately on mining investment.

It should then be no surprise that the Reserve Bank of Australia published a recent piece on the outlook for Chinese investment in their quarterly bulletin. It presents a fairly bullish picture of investment, noting that “there is still some way to go before China achieves convergence with the provision of infrastructure seen in advanced economies”, including some other developing Asian economies.

The rural-city migration in China will continue to push the demand for greater and improved infrastructure. The government’s urbanisation plan targets an urbanisation rate of 60 per cent by 2020, which is an increase of 6 percentage points on its current level.

According to Chinese Vice Foreign Minister Wang Bao’an, a further 100 million people will migrate from agricultural and rural areas toward the cities by 2020, resulting in investment worth around 74 per cent of Chinese GDP divided over the next six years.