Wayne Swan's misplaced confidence in Australia's recovery

Treasurer Wayne Swan is confident in turning a massive "temporary" deficit into a surplus in just seven years. This confidence appears reliant on consumer spending and investment in major infrastructure upgrades to increase our export capacity and rapid, efficient movement of goods throughout Australia.

In Western Australia, Swan appears to be relying on iron ore and gas to provide the jobs and cut demand for Federal funding. In Queensland and New South Wales, coal appears the saviour. A sudden jump in Queensland coal exports to China offset a slump in demand from Japan and South Korea.

Prime Minister Kevin Rudd also sees huge Chinese demand for our steaming coal.

One can only presume that China's massive coal-fired power generation expansion program is responsible. This comprises 550 new 1GW coal fired power stations, each the equivalent of Wallerawang power station, commissioned roughly every 10 days until 2020, and with very few exceptions, incorporating old technology.

If rising exports of steaming coal to China is to contribute to returning our temporary deficit to a surplus, then Rudd should look more closely at the restructuring of China's short, medium, and long term planning to increase supply and cut the cost of coal for power generation and steel production.

China is receiving praise in legislating to close 1,500 small dangerous, inefficient, low quality coalmines in Shanxi. It also intends to modernise Shanxi's coal mining operations to increase output.

Rapid development of large scale, mechanised open cut coalmines in Inner Mongolia will soon displace Shanxi as China's key coal producer. A dedicated coal railway will transport coal to the massive new Caofeidian steel complex in Hebei.

Further west, Xinjiang is developing a massive new open cut coalmine and constructing a new dedicated rail line on the Lanxin Railway to transport coal eastwards. More large-scale mines are in various stages of development on major coal deposits in the west.

As an example, China Shenhua has just committed US$14.7 billion to develop two new deposits in Inner Mongolia and Shaanxi to produce an added combined 100 million tonnes per year for the domestic market.

Mongolia has been benefiting from aggressive investment by the world's coal majors, emerging as China's future major foreign coal supplier. Dedicated railways operating, under construction, or in the planning stages link the very large scale, mechanised opencut coalmines close to the Chinese border, to major energy and steel bases. They also connect to China's growing integrated coal railway network linking these mines to export ports servicing neighbouring Taiwan, South Korea, and Japan.

Australia will soon be competing with Mongolian and Chinese miners for the China, Japan, Taiwan, and South Korean markets well before Swan's seven-year recovery period is up.

It will be interesting to know how much reliance Swan has placed on coal exports to help lift Australia out of the recession, provide jobs, and return the economy to surplus in seven years.