Dear Reader,
Open a page, any page, and there you’ll find an article on China.
What Scott Morrison did say or should have said…
What China’s rogue politician did but shouldn’t have done…
And how this is just bad news for our already tenuous relationship with the Middle Kingdom.
The press attention this week has a Cold War vibe to it.
However, I think we’re reading it all wrong.
I reckon government officials in China just worked out how close they are to losing two decades of investment in Australia…
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Stocks and rocks say it’s fine
Just how serious is this war of words with our biggest trading partner?
So serious that a whole bunch of politicians and diplomats tried to encourage their constituents to drink our wine.
Suddenly the Western world is coming together, in two-minute video clips with a glass of vino — supposedly from one of our thousand-odd vineyards — to say that’s not how we treat our friends.
People we’ve never met that drive more expensive cars then you and me, are declaring public support. The conspiracy theorist in me just wonders if they’re looking for a visa to our almost COVID-free island…
It all feels so serious. However, one look at the market, and stocks and rocks tell us a different story.
Our major Aussie index is rallying.
The S&P/ASX 200 is only a couple hundred points away from its pre-crash high.
In spite of a cutting rates to 0.10% and then introducing our own form of quantitative easing, the Aussie dollar is soaring. Up at 74.39 US cents this morning, I wouldn’t be surprised to see it above 76 US cents before Christmas.
The flying Aussie dollar has a lot to do with iron ore.
In years gone by a strong Aussie dollar could be linked to our interest rates being higher than other countries. But most of the Western world is now in a rate cut race to the bottom.
Which leaves our little old currency chugging along with moves in the red rocks. Most of which we sell to China.
So, you’d think, if this war of words between China and Australia were serious, we’d see the fallout playing in stocks and our currency.
But it’s not.
The iron ore price continues to zoom higher.
That all comes down to China’s insatiable appetite for the stuff once more. Throw in the fact that Vale’s Brazilian mine has downgraded their already downgraded iron ore export forecast for 2020, and our mates over in China are again stuck with buying from us if they want to keep building things.
Quite frankly, if geopolitical tensions were as strained as the press is implying, we’d be seeing it in the market.
But it’s not. Which leads to me to two assumptions…
Hundreds of billions on the line
Perhaps markets have stopped caring about political allies. We have a vaccine — or three! — and stocks don’t need this noise to break our stride…
Given how 2020 has played out, with massive QE coursing through the monetary system and low interest rates, sentiment may very well be only focused on getting into assets other than cash for fear of missing out on where the stimulus may end up.
Short version? The bad news is already priced in for all of 2020 and investors don’t care.
Or — dare I say it — that we’re all following a red herring. The markets know it but the papers don’t.
This flies in the face of all the opinion pieces that continually say how serious this really is, but hear me out…
Tensions between Australia and China are nothing new. They’ve been simmering away since the Gillard government booted out Huawei out of tech infrastructure. There have been tariffs, port entry refusals, and outright bans on certain products from Australia to China.
In turn we’ve started to scrutinise their multibillion-dollar investments in the country.
And this very public Twitter storm from China happens to be coming at exactly the same time we have the Foreign Investment Reform Bill 2020 in parliament.
The kind of Bill that gives the Australian federal government the extraordinary powers to interfere, suspend, or veto any private investment/government partnership around Australia.
I haven’t tallied up the hundreds of billions of yuan in Australia, but I’ll guarantee you that Chinese officials understand two decades of strategic investment could be about to come undone.
Chinese politicians don’t go rogue
The thing is, much of this war of words were blamed on a ‘rogue’ politician.
Chinese officials don’t go rogue. Assuming they want to hold onto their position and progress in their careers, they toe the party lines. At all times regardless of the personal cost to themselves.
I find it impossible to believe in a government that won’t let its one and half billion people see a picture of Tiananmen square, would let this ‘rogue’ tweet slip through its filters. I call bullsh*t.
This one rogue tweet was followed by subsequent cartoons and anti-Australian news articles from the Global Times, a state back Chinese newspaper.
It’s not a lone wolf move. It’s the start of an internal Chinese propaganda campaign to demonise Australia to the Chinese people. China isn’t picking a fight with us. They are undoing their internal work on promoting us to their people.
For two decades they’ve encouraged their citizens to holiday here, invest here, and send their children here for an education. Heck, Chinese officials have allowed millionaires to park their yuan in our property.
Chinese officials aren’t starting a ‘war’ with us. And the bandwagon jumping from other diplomats around the country I feel have missed the point.
There’s a few hundred billion on the line for the Middle Kingdom. And they somehow need their people to see us as undesirable trading partners. A place they don’t want any more billions going to.
Until next time,
 |
Shae Russell,
Editor, The Daily Reckoning Australia
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