Amid AUKUS, Albo’s pivot to China is stark, raving mad

The Albanese Government talks tough on China:

Anthony Albanese says it is likely he would have pursued the Aukus agreement had Labor been in power during the Morrison era because the bonds between the three nations are enduring, and defence officials would have supplied the same advice.

The upbeat assessment during an interview with the Guardian’s Australian Politics podcast pits Albanese against Paul Keating, who has urged Labor to walk away from the controversial agreement with the US and Britain.

More:

Prime Minister Anthony Albanese and his UK counterpart Rishi Sunak are planning to go to Washington in mid-March potentially to unveil a proposal for Australia’s nuclear submarine project, according to a person familiar with the matter.

But, while Labor has carried through on these legacy Coalition strategic deals, it is also busy re-engaging with China, gleefully embracing that nation’s backdown from trade blockades, rebooting Chinese mass immigration, hosing down resistance to Chinese moves in South Pacific, and encouraging businesses to invest:

Australian CEOs, investors and university bosses are flocking to China for the first time in three years as Xi Jinping’s promise to reboot the economy and end the diplomatic deep freeze with Canberra revives hopes for a flurry of corporate activity this year.

Business leaders including Fortescue Metals executive chairman Andrew Forrest, Treasury Wine Estates chief Tim Ford, and Rio Tinto chief Jakob Stausholm are preparing to visit mainland China in the next two months. The heads of all eight Group of Eight (G08) universities are also planning to visit China before July.

Meanwhile, a US-led coalition of global liberal nations is going 180 degrees the other way:

The governments of Japan and the Netherlands, both of which are home to advanced semiconductor equipment manufacturers, have reportedly agreed to toughen restrictions on the exports of advanced-semiconductor production equipment (SPE) to Chinese companies.

While there has been no official announcement, the move follows the US decision in October last year to impose export restrictions on advanced chips and equipment. This latest tightening in tech-export regulations was reported on 27 January1 is being viewed as another step to limit China’s ability to manufacture advanced semiconductors, given that Japan, the US and the Netherlands are the top suppliers of (advanced) SPE imports to China (Figure 1).

While near-term impact is likely to be limited for NJA, we believe the risks posed by escalation scenarios are likely to encourage corporates to keep investing outside of China. Along with the US initiative to grow domestic production capacity for semiconductors, we see diversification for the tech supply chain accelerating to Asean as well as India. For example, TSMC recently communicated it expects around 20% of its production capacity in the overseas and Samsung Electronics also revealed that thorough review of additional production sites are under review.

Only Korea is the holdout and it will likely fold before very long. China has invaded Korea nine times in the last 1500 years and today explicitly supports the nutjob DPRK to menace the south.

The chip war must be seen in a broader context to understand its significance. It is the first real shot in the US endeavour to contain global Chinese ambitions. It is much more significant economically than the Trump tariffs, completely consistent with them, and much more successful diplomatically as they fold in the full US alliance network.

Beijing knows that its historical catch-up growth phase is exhausted. It was supercharged by favourable demographics, urbanistion and modernisation of cities. This is all but over as a growth driver.

The last Five Year Plan explicitly recognised this impasse and focused entirely on “quality” growth over “quantity”. Beijing wants to restore capital efficiency lost in misallocated over-building, to drive a new phase of productivity and income growth to lift living standards.

This means moving the economy up the production value chain via capital deepening, innovation, and technological advancement. Just as Japan and Korea did before it in the twentieth century.

The key to this is chips. So the US has literally cut China off at the pass from the next phase of its development and rising living standards. China already had enough trouble with the innovation component of the transition. Without key technologies, it is hopelessly stuck in the “middle-income trap”.

Stalling living standards means just one thing to the Communist Party. Failing legitimacy. So the CCP must write a new social contract.

We already know what it is: nationalism. We have seen this through years of intensifying wolf warrior diplomacy, culminating in the 14 conditions to end democracy. For the time being, the hawkishness is in tactical retreat but it will return before long and in force because the life of the CCP will depend upon it.

So, the chip war makes Chinese aggression more not less likely. As its economy and living standards stagnate, the CCP will ramp up its attacks on its neighbours and Taiwan especially. Eventually, when its economy stalls enough, it will invade.

Whether the US alliance network chooses to fight that kinetic war is beside the point. What is much more certain is that the moment any Chinese annexation of Taiwan begins, so will a US-led global sanctions regime so vast that it will make the Russian version look like a Bamby.

It will include monetary, financial, naval, commodity, goods and people blockades that effectively excise China from the global economy. Other than trade with Russia, Iran, and a few select South American and African dictatorships, China will be an isolated economic leper.

Australia will be 100% a part of it. This was always likely but after years of wolf warriors it is certain. AUKUS makes it structural and bipartisan.

This is why the Albanese Government’s pivot back to China in other ways is so baffling:

• In trade, we should be doing everything in our power to diversify but we’re not.
• In people, we’ve resumed the development of a fifth-column Chinese diaspora beholden to Beijing, the containment of which will violate every claim to progressive principle we possess when the time comes.
• In education, we are still debasing our tertiary systems mercilessly via the race to the bottom for international (Chinese) students.
• In energy, the east coast is still being shocked and industry hollowed out by price rises directly linked to 71% of export volumes of gas going to China. We have no plan for oil security.
• In industry, we are doing nothing to revive local production despite the clear and escalating need to have a rich ecosystem of manufacturing with which to defend ourselves.

Only strategy and defence procurement has made the switch to the containment of China. Yet every other dimension of the bilateral relationship is now growing again. Our only effort to balance the two? Send Kevin Rudd to Washington to talk the US out of its war. Let’s hope his guaranteed failure does not do too much harm to the national interest.

This is all stark, raving mad. How can the Albanese Government ignore the last eight years like it was a passing fad?

In part, it is because the two economies are so naturally complementary and greed can always reassert itself. The vested interests are a related factor.

But that is no excuse. It only makes counter-cyclical policy critical.

Most importantly, it appears the ALP is still beholden to China. It is only a couple of years since every ALP leader in the country demanded we give in to the 14 conditions to end democracy to save “jobs”. How that moment has passed with all leaders unscathed is a question you might ask of your fellow Australian.

Albo is happy to buy weapons to look like we’re part of the US alliance network but in its heart, the ALP is clearly still sympathetic to comradeship with China. The party is still steeped in the Whitlam mythologies and groomed by Beijing.

Making matters much worse, just about the only lesson that the LNP learned at the last election is that the fifth-column Chinese diaspora is already an electoral force so it has backed off as well, leaving Labor to pivot all over the national interest.

Make no mistake, Australia is a part of the liberal containment of China. The nation’s people will overwhelmingly and viscerally demand it. And, frankly, we are so well placed to blockade China’s commodity needs and southern naval approaches that the US will use us whether we like it or not.

Where’s the economic plan for it?