Hugh White’s China grovelling is getting tiresome

The nice way of saying it is that Hugh White has painted himself into a corner by declaring China the winner before the game was afoot. At the AFR again:

We should not be surprised that Australia is finding it hard to get our relations with China right, because we have never encountered a country like this before.

China today is a ruthless country determined to use its growing power to expand its influence and reshape our region to suit its interests, with little if any regard for the interests of others. But it is also a country that we must learn to work with, and not just because no other country will offer anything like the same export opportunities in the years and decades ahead.

…Sometimes it won’t be pretty, but that is the way international politics works when you are dealing with great powers.

It is not clear that Scott Morrison has understood this. He seems to think that Australia can set the terms of the relationship unilaterally. Again and again over the past few months, as things have plunged to new lows, he has told Australians that there is simply no choice but to defy Beijing the way he has done. Anything else, he says, would betray Australia’s interests and impugn our sovereignty.

This absurd oversimplification of such a complex and important issue is, frankly, an insult to our intelligence.

OK, so let’s talk absurd oversimplification. Here’s one:

China’s rise is inevitable. China will reshape the region. We must trade with it. Therefore we must give in. By Hugh White.

Come now. China will be one force in the region among several. Not the overwhelming force that Hugh sees because he has no idea about economics. For years he has recycled Treasury modeling about the inevitable rise of the Chinese economy and equated that directly with military might. Yet the truth is China is exiting not entering its high-growth period. It is struggling to do so without crashing because of the debt burden it has accumulated to keep investment-led growth so high. This means that ahead it will grind into a Japanese style stagnation, exacerbated by horrible demographics, that ends its catch-up growth advantage.  Other emerging markets will offer Australia greater opportunities as their catch-up growth periods run for decades. For more on this try an excellent weekend piece by Rowan Callick.

In fact, Hugh White has the wrong end of the tiger entirely. He sees Chinese aggression as a sign of its growing strength when it is the complete opposite. The CCP knows that as growth slows its legitimacy with Chinese peoples will decline. Its answer is to arouse nationalism and direct anger outwards.

More:

The reality is that international relationships, like any other kind, always require a good deal of accommodation and compromise. Our national interests do not all lie on one side of the issue, and we need to balance competing interests that pull us different ways.

It is simply not true to say that doing this undermines our sovereignty or threatens our democracy. It is what we have to do as a sovereign nation to get the best outcome we can in a world where we cannot have everything our own way.

That means we are going to have to make some hard choices and some nuanced judgments. We do need to guard against Chinese interference in our politics, but we might talk less about how we are doing it. We do need to keep an eye on Chinese investments, but we should not exaggerate the risks they pose. And sometimes we will have to accept risks to avoid unacceptable costs.

Those are just weasel words. China’s 14 demands are in black and white:

Compromise any of these while under threat and you egg on Beijing to double down until you’ve compromised all.

More:

This is what our neighbours are doing. Morrison’s trip to Japan last week was designed to show that we can deal with China by teaming up with other regional countries to isolate it. He brandished the low-level defence administrative agreement which he signed as evidence that Tokyo was on board for this.

But that is not so. This week, hard on Morrison’s heels, China’s Foreign Minister went to Tokyo to plan a state visit by President Xi Jinping. That is possible because Japan has been able to build better relations with Beijing without compromising its core interests. That shows how different Japan’s approach to China is from ours, despite the much more serious differences between them.

In a ham-fisted attempt to mend things with Beijing, Morrison in a major speech this week, and in these pages on Wednesday, distanced himself from Washington by saying Australia was not taking America’s side against China. He stressed that Australia does not see China as a strategic rival the way America does.

But he also said that Australia is “absolutely committed” to its alliance with the United States. How can that be so, if we do not share America’s strategic aims? Do we support America against China or not? If not, how can we claim we are committed to the alliance, given that containing China is America’s highest strategic priority – and will remain so under Biden?

More overly simplistic tripe. Hugh White knows there’s a difference between declaratory and actual foreign policy in most if not all nations. Double-speak is exactly what you use to mollify and confuse China while doing whatever is in our interests. If you’d like to read another equally dumb take on ScoMo’s speech then try Kelly Cowards.

As well, it has taken Japan almost ten years of fighting China over the Senkaku Islands to reach a point where they can talk again. This involved much worse boycotting of Japanese goods than Australia is experiencing. It also involved a major scaling up of Chinese naval aggression and Japanese aerial response, in a kind of faux war that is ongoing to this day.

Korea has spent three years warring with Bejing over its THAAD deployment which included cutting off tourism and all kinds of underhanded boycotts. Canada is fighting a hostage war with Bejing right now. India has been fighting a real war with Beijing including tit-for-tat economic boycotts. The Phillippines has recently swung back to the US military and is caught in a daily game of military cat and mouse over South China Sea oil. China is threatening the UK over HK and other points. The US has decisively swung away from China and its supply chains are diversifying. Australia is neither isolated nor particularly worse off than a whole range of nations on the receiving end of a Chinese jackboot.

Did any of these nations reach happier times by giving up their own systems of government? No. Japan defended its interests and eventually thawed into the “tactical detente” of today as Donald Trump scared the Bejesus out of both in 2018. Korea still has THAAD and its affected businesses have diversified away from Chinese influence. The Phillippines tried grovelling to Beijing only to find that being shat upon wasn’t much fun and scurried back to the US. The other conflicts appear to be worsening by the day.

We might ask ourselves why Hugh White misrepresents Australia as isolated when in actuality we are only the latest case in a pattern of escalating Chinese aggression. That is not to say that we are blameless in today’s conflict. But it does mean that it was inevitable so we might as well get it over with before we are irretrievably enmeshed, which we ARE NOT. As I’ve noted many time, the damage to date is far from macro econmmic in scale, via Citi:

Our baseline scenario currently points to a 10 per cent drop in total exports to China over the next 12 months, without any restrictions on iron ore shipments. This would leave growth only minus 0.33 per cent lower as a percentage of nominal GDP.

While China is a major export destination for the products that are exposed to China’s trade sanctions, their overall contribution to export suggests that the damage is manageable.

Our modelling suggests that there would be an undeniable hit to the Australian dollar export earnings, income and growth under a worst-case scenario which includes restrictions on iron-ore.

This would cause Australia’s total merchandise exports to decline by 20 per cent, leading to a $76 billion loss in export earnings, causing a sizeable 3.8 per cent hit to nominal GDP.

Our modelling suggests that in this scenario, the Australian dollar would be around 16¢ lower compared to baseline over the next 12 months.

Which would repair the damage quickly anyway by shifting trade to other nations which we need to do anyway because iron ore is going crash as China slows regardless.

The irony is that, as Hugh White preaches hedging, he has personally gone so long CCP omnipotence that he seems no longer able to maneuver in a forum of fact.

Australia should not make his mistake.

David Llewellyn-Smith
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Comments

  1. GunnamattaMEMBER

    Scott Morrison demands apology from China over ‘repugnant’ fake tweet showing Australian soldier murdering child

    https://www.abc.net.au/news/2020-11-30/china-fake-image-australian-war-crimes-afghanistan-tensions/12934538?utm_source=abc_news_web&utm_medium=content_shared&utm_content=mail&utm_campaign=abc_news_web

    China blocks Australian copper imports – but demand for it is soaring

    https://www.scmp.com/week-asia/opinion/article/3111723/china-blocks-australian-copper-imports-solar-cells-beating-covid?utm_source=email&utm_medium=share_widget&utm_campaign=3111723

    They really seem to want to make an example of Australia here.  I think we should abrogate the FTA and recognise Taiwan, and offer asylum to anyone making it out of Hong Kong Tibet or Xinjiang……

    And announce a Royal Commission into the integrity of funds used by Chinese nationals to buy Australian real estate post 2010

    • reusachtigeMEMBER

      Those guilty soldiers need to be made an example of for creating this weakness that China has exploited to our shame. Life without parole.

    • I think China can’t back out of this confrontation without losing enormous face at this point. Problem is, they can’t win either. So they just continue to double down.

    • Nazi china is living up to expectations as the foul country it is.
      I was worried Scummo and co was going to back down because of all the publicity generated by the corrupted and owned media pundits and the shrill harpy like rantings from the crawling left.
      But just when you think it cant get better here comes Nazi china to the rescue.
      Lets see how the media pundits and crawling left feel now after public reaction to this taunting.

      I think we should abrogate the FTA => yes
      and recognize Taiwan, => yes
      and offer asylum to anyone making it out of Hong Kong Tibet or Xinjiang…… => NO

    • The problem with offering asylum is that many – maybe even the majority – would either be CCP loyalists from day 1, or later be pressured into it when the CCP makes threats against their family at home.

      Clive Hamilton’s “Silent Invasion” explores this in detail.

    • Can bulk commodities be repriced so the price paid is upfront from the Australian port. i.e. put liability on the Chinese importer or buyer to clear customs etc etc. At least it will make the trade dispute explicit, and whos knows the Chinese are masters at getting around their own govts laws. Probably find 1000s of fishing boats will start smuggling coal.
      Only half joking here.

    • All really good ideas.
      Surely authorities would be within their rights to take ownership of assets in Australia bought with black money? Given that the PLA is a significant participant in the Chinese economy, this action might be pause for a bit of a re-think about the great southern province!

      • GunnamattaMEMBER

        I doubt if any of it will happen, but while I was fulminating on what should happen I thought I’d give reality the extra nudge vis RE.

  2. Appeasement is the equivalent of cutting off one’s own limbs to feed the wolfpack in the hope they will leave you alone.
    In 1941 USSR bullied the Baltic states and then a few days later annexed them anyway … a few months before Operation Barbarossa began. Similarly Japan demanded military bases near Hanoi from the Vichy French and Burma Rd closure from the British, justified with their continuing invasion of China at the time. And then they invaded Indochina, Malaya, Singapore, Dutch East Indies, Burma from Dec 41 and early 42.
    China is making it very clear that it has and wants no friends, only serfs. We are neither serf or smurf. We are prepared to not be a friend if that is their preference. I think we can manage our end of the adjustment. And I am sure that other mid sized countries will agree and band together given the appalling Chinese behaviour.

  3. I think your astute observation “He sees Chinese aggression as a sign of its growing strength when it is the complete opposite.”, something that you have mentioned a couple of times today, really clarifies what is going on and something that has gone unnoticed by almost everyone else in this debate.

  4. China overstepped the mark today. This won’t be forgotten by Australians or forgiven.

    It is now time for Australia to show some self-respect and respond where it really hurts China and impose a 30 day moratorium on exports of iron ore and metallurgical coal while bringing in a tariff on both that has a sliding scale to offset any punitive measures on Australian exports elsewhere.

    • TailorTrashMEMBER

      Problem is straya has the dirt but China has the steel
      …..this is shaping up to be a defining moment for the lucky country

  5. On the agriculture front plenty of hungry mouths to feed in the world. Look at NZ in the late 80s that was 90%+ dependant on the UK market, which then closed as they joined the EU. So there is certainly opportunity. Would be tempting to retaliate by stopping all the Chinese companies who have invested in exporting baby milk formula back to China from doing so. As well as stopping land purchases.

  6. Part of China’s strategy – which comes back to their military classics – is to create a sense of inevitability and to demoralise the opposition and simply wear them down. The goal being to bend them to your will without having to go through the expense and risk of a military option.

    But China is fundamentally a weak country, not least because of its brittle institutions, it’s over-leveraged financial system and most importantly because of its horrendous demographics. The CCP like to claim they’re the largest country in the world by population, but this is transient. Their population is set to collapse, in no small part because of the CCP’s actions.

    https://www.visualcapitalist.com/world-population-2100-country/

    To defeat them, we simply need to hold our nerve and harden our domestic political system to their attacks. But I think a smack on the nose with an iron ore quota or tariff would certainly go a long way to making them realise we are tougher than they think and to remind them of the limits of their power and influence. Their shrill behaviour, in an Asian context, is a sign of weakness, not strength. Now is the time for Scott to act…

    • Its like Australia has Iron Ore on the brain. In the long run it is untenable to be providing the raw material for them to build a navy that is inevitably going to be used to harass. Sure they can go elsewhere but then even these countries might start having second thoughts.
      Time to cut back smoking the Chinese durries.

  7. Luca BiasonMEMBER

    The purpose of an extreme tweet of that kind is quite clear: create an even deeper spilt in the Australian society and polarise opinions even further. A divided country is a weak country, and that’s part of the strategy they are following (along with economic coercion, IP theft, espionage and interference) to ultimately cow Australia into submission. ‘If you mess with us that’s what you get: all round grief. Much better to become our quiet vassal state and take our bribes in return’. They feel untouchable and invincible, and on top of the exploitation of all weaknesses inherent in an ever developing democratic system and an open society. It’s what Xi’s vision and his CCP are: in equal measure totalitarian, ruthless, vicious, amoral and pathetic.

    • Luca BiasonMEMBER

      you can already see it in action also in the comment sections of a number of news articles and tweets, the perception of a great divide being manufactured by the wumao army in full swing.

  8. I think DLS you dismiss Hugh White’s view far too blithely. You assert that China’s demographic headwinds will drag it back, but that’s just speculation. Maybe check out this Real Vision interview with Louis Vincent Gave that highlights China’s big finance play. This is far bigger than the picture you’ve been painting so far. https://youtu.be/CFJmUgyrW50