A sliding Australian dollar should act as a buffer to any economic downturn in China, the Reserve Bank says.
RBA assistant governor Christopher Kent says China's uncertain outlook leaves Australia exposed to lower commodity prices and a weaker appetite for its resources and services.
"A depreciation of the Australian dollar in response to negative developments in external conditions could be expected to act as a buffer in the way that it has in the past," Dr Kent told an Economic Society of Australia lunch.
China's breakneck pace of growth has slowed in recent years and is projected to ease further, he said.
The Asian giant also faces greater risks of corporate defaults amid high debt, excess capacity and declining profitability.
This could lead to disruption in the financial system.
But Dr Kent's central scenario for the coming years is a gradual moderation of growth in China, with Beijing is prepared for anything worse.
"The authorities will no doubt respond if the economy experiences shocks that might otherwise lead to a so called `hard landing' for the economy as a whole," he said.
"In other words, they are aware of the challenges and have scope to respond if the economy turns out to be much weaker than expected."
Over the longer term, Australia's largest trading partner has lots of room for development, which will provide Australia with many economic opportunities, Dr Kent said.
"We are likely to continue to benefit from rising incomes and the associated demand for high quality food, goods and a wide array of household and business services from China and the region more broadly," he said.
