Via the AFR:
A business leader blueprint for the Morrison government to repair the fractured relationship with China includes lifting investment barriers, tuning out to overly hawkish advisers, and wooing Xi Jinping with all its might.
…Mr Bradley said the government should wind back Foreign Investment Review Board changes made in the early stages of the pandemic and consider giving China most favoured nation status after bungling the crucial relationship.
“I don’t know any business leader who thinks the Australian government has handled the China relationship well over the last, I would say four years, going back to the Turnbull period,” he said.
Let’s call the Business Council what it is. An anti-democratic, greedy, oligarchic and fascistic organisation that is entirely happy to yoke itself to the world’s greatest tyranny for profit, as well as slam the door shut on the very liberalism that lifted its members to power.
Here’s another one of the same ilk, Ray Dalio at Bloomie:
“Simultaneously there’s the rapid development of the Chinese capital markets, the opening up of the markets to foreign investors, the relative attractiveness of them, and the underweightedness of global investors in them,” he said. “This is happening when the fundamentals of the U.S. and U.S. dollar are becoming more challenging, making it a relatively competitive place to move one’s capital.”
I don’t want to rain on Dalio’s China cheerleading parade but China’s magic moment is very small so far:
I would go so far as to say that between the Western awakening and the CCP heavy hand (see ANT etc), means that the only ones pouring into China are hot money, hot heads.
To make it a certainty, Western Governments should apply a Pigouvian tax sufficient to dissuade Dalio and anybody else that invests into Chinese capital markets until it liberalises its political system. That is if the threat of it does not prove to be enough.
Dennis Richardson appears at Asis Times to egg it on:
Another call for cooling the China debate came from Dennis Richardson, a former ASIO chief and head of the Defence and Foreign Affairs departments after a long diplomatic career. It was China’s fault the relationship has deteriorated since 2017, he said.
“It was China that militarized the South China Sea when it said it wouldn’t do so. It was China that broke an international commitment with respect to Hong Kong and it has been China that overstepped the mark in terms of foreign interference.”
But the political debate in Australia was not helping the situation, Richardson said. “I think at the moment, the Australia-China relationship has got too caught up with domestic politics in Australia, both inside of the Labor Party and inside the Liberal Party.”
Speaking at the launch of a new report by the Minerals Council of Australia, a mining industry lobby, about the prospects of diversifying exports away into Southeast Asian countries, Richardson also said business leaders should not be cowed by critics saying they were selling out the national interest to make profits.
“I think they should come back and say ‘too damn right I’m talking about my profits’, because profits mean jobs,” he said. “The business community should be far more robust in articulating publicly its own interest in this in a more coherent way in what they do at the moment.”
Does Dennis need a new job or something? The last thing that Western democracies need is an army of hypocritical businessmen fighting on behalf of Beijing.
As Richardson says, China brought the relationship to its knees through its imperial project in the Pacific. There is no point holding a grudge about that. But, equally, it’s insane to do any deal that brings it back or encourages it.
That is what is at stake here. The CCP imperial project has only just started not finished. Only a few weeks ago, economics and economic relationships were elevated to “Xi Jinping thought” at the Fifth Plenum. As everybody knows, “Xi Jinping thought” is all about CCP security, all of the time. The deal on offer to Australia if it breaks in this standoff is an endless series of concessions that will render it the next Hong Kong.
No Australian Government with any regard for its history, values and people can accept that (except perhaps a Labor one as it is currently constituted).
What these various CCP apologists need to prepare for is not “peace in our time”, it is war in our time. Via Gavekal:
Millennia of evolution have biased humans to focus disproportionately on scary experiences, and to remember them far more acutely than less frightening events. No doubt this bias goes back to the days when every time we left our caves, we risked being eaten by a saber-toothed tiger (or being clubbed over the head by a hostile neanderthal).
Today, such risks are remote. Nevertheless, when traumatic events happen they still leave deep scars on our collective psyche. For example, ask any investor what was the most important event of 2001, and the answer is likely to be the terrorist attacks on the World Trade Center and Pentagon. Yet with hindsight, the key event of 2001 for investors was China’s entry into the WTO.
Similarly, investors today are overwhelmingly focused on the economic impact of the Covid pandemic and the possible effects of the US presidential election. Yet something happened over the summer that although not at all traumatic by comparison, may end up having much more far-reaching consequences for world geopolitics. Yet few seemed to comment or care.
The event was a contrasting pair of corporate announcements. In July Intel, the US company that was once the unchallenged global leader in semiconductor manufacturing, announced that it will not be able to mass produce 7nm chips until 2023, some 18 months later than its original guidance. Then just weeks later, Taiwan’s TSMC, which is already producing at 7nm, confirmed that it will begin mass producing 3nm chips in 2022.
In a nutshell, this means that the once-dominant Intel has lost its technological edge over TSMC, and is unlikely to regain it before 2025 at the earliest—if ever. And if you are tempted to dismiss this as hyperbole, take a look at the left-hand chart overleaf, which shows the market capitalizations of both Intel and TSMC, and drives home the pronounced divergence that took place between them over the summer.
On the topic of divergences in market cap, the right-hand chart above compares the market capitalization of the global semiconductor sector with the market cap of the global energy sector. In essence, this weighs the key commodity of the information age against the vital commodity of the industrial age; for the first time in history, the global semiconductor industry is now larger—and meaningfully larger—than the global energy industry.
Any geopolitical analyst contemplating these two charts will be compelled to ask two key questions. Will the unstable geopolitical faultlines of the future still run through the Middle East, as they have since the 1973 oil crisis and the fall six years later of the Shah of Iran? Or will the critical global geostrategic faultline of the future instead shift dramatically to the Taiwan Strait?
Of course, Taiwan has long figured as a source of potential instability in the relationship between the United States and China. But that was at a time (i) when the US and China got along, firstly in the Henry Kissinger-Zhou Enlai era as allies arrayed against the Soviet Union, then as economic partners in the “Chimerica” era; and (ii) when in the grand scheme of things, Taiwan was nowhere near as central to the global supply chain as it is today.
But if you accept—as the market clearly does—that in the world of today, and even so more in the world of tomorrow, semiconductors matter more than oil, then it is logical to conclude that in geopolitical terms, Taiwan is now more important than Saudi Arabia.
What’s more, Taiwan threatens to be even more problematic than Saudi, given the recent deterioration in the US-China relationship and Beijing’s insistence that Taiwan not a separate country, but an integral—if wayward—part of the motherland.
Putting all this together, the “passing of the baton” of technological leadership from Intel to TSMC could hardly have happened at a worse time. The US response to this development is likely to be more weapon sales to Taiwan— indeed these are already promised—and possibly even the promise of military protection. And this, coming on top of the US restrictions on technology sales to Chinese companies including Huawei, ZTE and SMIC, will inevitably go down like a lead balloon in Beijing.
So how will China respond? The first order of business is for Beijing to continue to invest in its semiconductor industry in a bid to close the technology gap.
My colleagues Dan Wang of Gavekal Dragonomics and Matt Forney of Gavekal Fathom China have researched this in detail over the past year, and there are no reasons to believe the trend will do anything but accelerate.
The second order of business for China will be to keep on investing in its military. On this note, there are solid historical correlations between strong militaries and strong tech sectors. In today’s world, you find strong tech sectors in the US, which has the biggest defense budget in the world; in China, with the second biggest military budget; in Japan, which for years boasted the highest defense spending in Asia; and in Israel, South Korea and in Taiwan, all of which have large defense budgets relative to GDP. In contrast, countries that use to spend on their military but no longer do, such as France and the UK, have seen typically seen their tech sectors shrivel and die, with the eclipse of once proud national tech champions like Alcatel and Marconi.
The third order of business for China will be to ratchet up its cross-straits rhetoric—with the obvious consequence that companies and individuals will begin to think twice before investing more in Taiwan, and may even reassess their dependence on Taiwanese-made components.
And at the very least, these developments will mean that a generation of geopolitical analysts who have spent their entire careers scrutinizing every tiny shift in the sands of the greater Persian Gulf region will now have to refocus their telescopes on the Taiwan Strait instead.
Ahead is total proxy war. There won’t be a direct armed conflict between the US and China, with nukes sitting in the background. Instead, there will be outright strategic competition, with no part of society exempt. This will include politics, business links, personal links, trade, markets, strategic settings, technology and culture. China launched this war long ago. It is steadily turning up the heat in it. The US is equally steadily responding.
Total proxy war will be entirely hegemonic, at once everywhere and nowhere. Louis-Vincent Gave is right. The Pacific US empire is the new Middle East. It should be thought of as a network of freedom-loving stationary aircraft carriers that will have to fight for their values with US endorsement, coordination and material, not open military support.
As the Business Council of Australia makes clear, truth is already this war’s first casualty.