How Australia should deal with China

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Terry McCrann often poses the right questions and his latest does so on China:

THERE’S a multi-billion dollar big message for James Packer in the arrest of the Crown Resorts team on the ground in China.

There’s an even bigger message — which over time, will run into the trillions — for Australia in what happened.

It’s a message which we just don’t seem prepared to receive, far less act on.

Both are essentially the same message: maybe 1.4 billion Chinese weren’t put on this earth with the sole purpose of making 24 million Australians rich and one of those 24 million extra super-rich. To give us easy access to their money without us having to work too hard at it.

…We need a much more intelligent, holistic approach, one that starts from the clear understanding that China is going to be the single most important, indeed dominant, player in our future. It is the one big elephant in all our living rooms.

Furthermore, it will have an impact like none other in our history, in terms of size and flavour. What the arrests demonstrated so starkly is that China really is different.

More ominously, they might suggest that China might be starting to take a much tougher approach to dealing with us.

So far, China has basically allowed us to determine the rules — from letting BHP and Rio Tinto set the prices of commodities to accepting what state and federal governments did about investment.

Yes, the move against the Crown staff is very specific — it’s about cracking down on gambling. But it also sits within a bigger story about a crackdown on corruption. And that takes you deep into the heart of China Inc.

We’d better wake up, and fast. We have to become far more informed about what’s going on in China and far more sophisticated in our approach.

We should have started that 10 years ago. We can’t afford to postpone it for another 10.

No Terry, we can’t. But we are going to ignore it for another two at least as the Do-nothing Malcolm Government obsesses over support for property prices.

The answer is, actually, pretty straight forward. If in extremis the risk posed by China to Australia is war between it and our great strategic ally, the United States, then we proceed from that starting pointing in formulating today’s policy. In that event, history suggests that nations do not usually go to war over houses or power grids or ports. They launch invasions generally to secure natural resources to ensure that they can develop their economies. (Of course there is also the rise of mad men and meglomanics but you can’t really prepare policy for that outcome.)

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So, the top priority for China in its dealings with Australia is always going to be access to it as a quarry and farm. This is not an insult, it is simple strategic imperative, especially for a communist regime that has hung its credibility upon improving living standards for the better part of half a century.

The recent surge by China into the South China Sea, and its “hard-edged” soft power move on Australia, has in part these same objectives. Fortifying shipping lanes and undermining the ANZUS alliance is not just about the removal of US influence itself, it is to remove the strategic threat that China could be blockaded from raw materials by sea by the US.

Thus if Australia guarantees such access, China is really not going to give a hoot about much else that we do. The first thing we should do, then, is allow free trade and investment (so long as it is in keeping with the integrity of markets) in raw materials. And to offer a regulatory regime that confirms it in writing. The major challenge to getting this done is the National Party, which resists Chinese ownership of land for it’s own sake.

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But, as Terry points out, China is different. It is an autocracy. If it weren’t, we would very likely not be having this conversation. China would be muscling out as a new and powerful liberal democracy in the region with much lower risks (not zero) of conflict with the regional hegemon.

Thus, if Australia is going to give in to China’s soft power push and let go of ANZUS, it is taking a large punt on what that means for regional security, for regional trade, for regional ideology and regional social movements. Nobody can answer any of these questions with authority. China might evolve into a flourishing democracy and force for progressive ideals. Much more likely it will evolve into a giant and more repressive Singapore. But, it could also evolve into something much less benign, and become outwardly aggressive, especially if it fails to deal with its enormous debt problem and gets caught in a middle income trap that undermines communist party legitimacy at home.

Whichever it is, it would be beyond reckless to not hedge against all outcomes so Australia should therefore resist China’s soft power push and support the ANZUS alliance. How can it do so?

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Chinese influence over policy has to be eliminated. That means that it must be pushed back on three levels:

  • direct political influence;
  • economic and social suasion through direct ownership of strategic assets, and
  • economic and social suasion through wealth.

Each of these can be achieved relatively painlessly by:

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  • banning foreign donations to political parties (what’s happened to that?)
  • banning investment in strategic assets and
  • lowering immigration, reining the “citizenship exports” sectors and policing foreign buying of realty properly.

The last three are actually pretty easy to achieve. In fact, before a few years ago, none even existed as an issue. They have only become so in recent years owing to the rise of an extreme ideology in Canberra that MB calls the McKibbin Doctrine, that it is OK to sell the kitchen sink to China. A decent leadership narrative will push out the real estate interests.

This bifurcated regime for dealing with China won’t last forever. But it is a system that offers clarity and sustainability to our Great and Powerful economic partner, while supporting ANZUS and our Great and Powerful strategic partner, while limiting our dependence upon either.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.