Gotti advises Xi on how to occupy Australia


Via Gottiboff:

First, Australia needs to recognise that it is not all China’s fault. In past years we have behaved badly and contributed to the current situation. At the same time China is now a different country and is ruled by a strongarmed dictator plus the Communist Party. Not surprisingly “The Art of War” offers suggestions: “Build your opponent a golden bridge to retreat across” . . Both China and Australia can apply this advice.

On the Australian side, businessman Trevor Rowe says: “Australia needs to be more patient and cautious in its comments on China — we have to learn quiet diplomacy”. Maybe we could work with China to make 6G mobile systems secure.

On the China side, China might really help the World Health Organisation get to the bottom of the origins of COVID-19. Maybe the coking coal ships can be let sail.

Such small steps will only work if the Australian trade war is simply about Australia. My fear is that it is the prelude to an invasion of Taiwan in the belief that Joe Biden will be a weak president.

Nah. Keep up the bashing, Mr Xi. The accelerated decoupling is definitely in Australian interests.

As for it all being a prelude to invading Taiwan, it certainly is. Though it depends on what you mean by “prelude”. It’s still a decade or two away, in my view. Xi must first absorb and utterly repress Hong Kong.


Why would the CCP do it at all? This:

Development economics understands China well. For decades it has traversed the classic catch-up growth phase followed by many emerging economies. This period keeps labour costs low to develop export markets and investment levels high because there are so many excellent opportunities.

At a certain moment, this model starts to stutter as labour costs increase and investment opportunities fade. This is called the Lewis Turning Point. China has been passing through it now for the better part of a decade.

Beyond that, the classic development path is a period of accelerating growth in wages and rising consumption, as well as a move up the export value chain. These offset declines in low-end exports, as well as investment. See the history of South Korea and Japan.

These processes are all well understood by development economists. Indeed, they were accurately described by Xi Jinping when he rose to power in 2011 as he began a giant “structural rebalancing” of Chinese growth away from investment and towards consumption.

Alas, the good tyrant discovered that it is not so easy when you have too large an economy to support global export dominance, an under-developed social safety net plus a rapidly aging population to support consumption, and investment structures hugely dependent upon public sponsorship and cheap credit.

Following Xi’s reform efforts, growth cratered, perhaps most eloquently expressed in a $38 iron ore price, and he was forced to backtrack just as quickly. Ever since, China has thrown one stimulus Hail Mary after another to keep its growth level elevated lest the slowing jeopardise CCP power.

But this is not a success, it is kicking the can. Do that too much and you fail to lift export sophistication enough, wages and consumption stagnate, and debt ratios plus servicing costs keep mushrooming as malinvestment piles up.

China is well down that path now. Which is also well understood. The path ends with Japanifcation and low growth permanently, made even more certain by China’s similar demographics. The sliding Chinese GDP chart says it all:

There doesn’t need to be a bust, indeed, almost certainly won’t be given China owns its banks. But by 2030, it will still stagnate to Western levels of growth and, when we throw in that it calculates its GDP differently, never writing down its bad investments, in real terms it will be struggling to grow at all.

Rather, what we can expect is that as CCP economic legitimacy fades it will turn increasingly to tyranny, nationalism and eternal hostility to fill the gap.

The CCP war on Australia is a sign of weakness not strength.

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.