Dear Reader,
The war of words continues to rage in the press.
Our government says this, Chinese state-owned media says that.
Politicians of old come out and talk their book.
Others — perhaps those keen to keep their friends in high places — are telling us that perhaps we should change how we speak publicly towards the Middle Kingdom.
Tariffs are being applied and documents of power are being drawn.
Australia, our Cold War has begun.
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Sides are being taken
The fight really began when we booted Chinese-owned companies out of our technical infrastructure future.
In the eight years since we said no to Huawei, things have heated up.
Around 18 months ago Chinese authorities sent out a warning that they would be slapping a 75% tariff on Aussie barley products.
This kind warning meant farmers at the time practically stopped mid-sow and changed to wheat. Our nimble agriculture means farmers reduced the likelihood of being hit by the tariffs.
What was a quiet exchange among certain groups, moved into a higher gear at the start of this year.
The lack of transparency from Beijing regarding the coronavirus early this year no doubt spurred our Aussie government to have even less regard for the relationship.
Two long months after the ‘rona found its way to us, Prime Minister Scott Morrison then pushed for an independent inquiry into where the disease came from.
It really came as no surprise that the Chinese government announced that perhaps they didn’t want our wine and cheese anymore.
With the Chinese Communist Party (CCP) even warning their citizens that perhaps they should rethink sending their children to Australian universities for their studies.
There’s been a flurry of words and barbs thrown from the Aussie government and the state-backed CCP press.
Most of it was easy to ignore.
Though things changed a couple of weeks ago…
On 3 September the Australian government introduced the Foreign Relations Bill. The bill essentially allows the federal government the chance to ‘veto’ any private or public arrangement with a foreign company the federal government doesn’t believes fits with national security.
A week later, two Aussie journalists were booted out of China. Granted these were near weeklong high-level discussions.
It’s unlikely the two events are correlated, however it’s the increasing frequency of retaliation between the two countries that investors should take note of.
More to the point, while the federal government is making structural changes to partnerships, Aussies are coming out and ‘warning’ the Australian government should change its tone towards our biggest trading partner.
And it’s clear sides are being taken.
Take this latest statement from former Prime Minister, Kevin Rudd:
‘What I find puzzling is the Australian Government’s predisposition to take out the megaphone in every conceivable opportunity to take the existing structural difficulties in the Australia-China relationship and magnify them even further.’
Of course, it’s no surprise to see Rudd talking his book. Given that he is the president of the Asia Society Policy Institute and has always made sure he is welcome in Beijing.
But there are others wading into the discussions publicly too. Andrew Liveris, the former chief executive of The Dow Chemical Company, warned at Canberra’s National Press Club this week Australia should ‘speak privately’ with CCP delegated parties:
‘We need to keep the diplomatic channels wide open, to speak frankly and to speak our mind in private with China’s government about what we believe, what our standards are, what our values are.’
Quite frankly, given that much of the deals between Australia and China have been private, I’d wager that these discussions have been private and diplomacy failed. Perhaps speaking quietly about such things no longer benefits Australian interests.
The end of tiptoeing around Chinese relations between Australia is here.
China Relations, What it Means for Investors
In Australia it’s our government making moves behind the scenes that seem to antagonise China. In China, the CCP is using the press to ‘send its message’.
Investors would be foolish to think the war of words is background noise.
Australia is actively looking at ways to force states, cities, and large corporations in Australia to toe the line with federal thinking.
There are significant chunks of the Aussie economy that look increasingly weak without their biggest buyer.
Cities all around Australia have relied on private deals with questionable Chinese companies to keep growth.
There’s the highly questionable 99-year Darwin port lease that the Chinese-owned Landbridge entered into with the Northern Territory state government a few years ago.
Equally ill thought out is the Victorian government’s memorandum of understanding with the CCP and the Belt and Road Initiative.
To boot, Australia’s entire university sector relies on the $8 billion a year it gets from international students, largely who come here from China.
The Cold War feels between us and the Middle Kingdom will only increase over the next decade.
The days of ‘city diplomacy’ are coming to an end.
With cities and states likely to be forced into making decisions that aren’t just about the good of the state, but rather if it’s good for the country.
Our economic growth and prosperity has relied on yuan flowing into the country to buy everything below ground. Or accepting their students and then selling them our disappointing apartments that are an eyesore on the city.
These have been important contributors to Australia’s past economic growth and undoing these deals and arrangements would be messy if the Bill is passed.
Replacing this customer is no mean feat either and it’s likely we’ll see an increasing rise in economic nationalism in the next couple of years. We’ll delve into that next week.
In the meantime, the Cold War tone between Australia and China is going to get frostier.
Until next time,
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Shae Russell,
Editor, The Daily Reckoning Australia
PS: Free report reveals why Australia is set to become the next ‘gold epicentre’ — which could result in a HUGE spike in Aussie gold stock prices. Click here to learn more.
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