Australia must nudge US, China from the brink – The Australian Financial Review

“All flowers in full blossom make a beautiful spring”, said China’s President Xi Jinping on Monday, opening a festival of trade at the China International Import Expo. Intended as a riposte to Donald Trump’s trade warfare “law of the jungle”, Mr Xi repeated the word “openness” dozens of times through his speech. And springtime was also restored to Sino-Australian relations, with the first official Australian ministerial visits in 14 months, and Foreign Minister Marise Payne set to arrive in Beijing on Thursday, almost three years after the last visit by our chief diplomat.

Beijing put Australia into the freezer in early 2018 after the Turnbull government had rightly set down ground rules, sooner rather than later, on foreign dabbling in Australian politics and policymaking. The Coalition government has also refused telecoms giant Huawei access to Australia’s 5G network, and kept Chinese investors out of AusGrid, for all the same reasons that China keeps Australia out of critical areas of its economy.

Mr Xi has been making flowery declarations of China’s openness for a long time. At a party plenum in 2013, the new leader famously announced that “the market would play a decisive role” in China’s economy, signalling to excited Westerners a second wind for Deng Xiaoping’s original open door reforms. But China remains a closed shop, even while trade has helped make it the second-largest economy on earth. Mr Xi has found that repeating massive doses of domestic fiscal stimulus is a surer way to keep China growing and its citizens content than tricky liberal reforms. That rewards the government-controlled banks and industrial conglomerates that channel the state’s largesse, crowding out China’s private sector and foreign investors. Only China’s shop window of retailing and consumer goods has really been liberalised.

Australia has once again managed to be a standout beneficiary. Investment stimulus has kept the iron ore exports flowing ever faster, and boosting Chinese living standards with imported food was a chief objective of Beijing’s free trade agreement with Australia. But in Washington, China is rightly or wrongly seen as a grand bargain that failed. Though few US corporates expected a truly level playing field, they did expect more access than there is. Where other Asian states have become more liberal and open to policy change as they have grown richer, Mr Xi’s China is using the technology revolution to double down into authoritarianism 2.0, based on digital surveillance and behaviour controls. And Mr Xi’s dictatorial powers mean there is no longer a collective party leadership that had made China so exceptional among autocracies.

Now PresidentĀ Donald Trump has called China out. He has flicked aside the concessions that China refused to the less forceful Obama administration, and is threatening higher duties on all of China’s exports to the US. There is the prospect of an economic cold war between the US and China, as Washington threatens not just tariff barriers but to delink its economy from China’s as far as it can.

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As Chinese-American scholar Minxin Pei has written, a cold war implies splitting into blocs. The world might fragment into trading blocs based on two superpowers, he says, with increasingly separate currency and payment systems, and even separate technology and internet standards. Divided growth would be impoverished growth for everyone.

Restored Australian diplomacy in China can help avoid such a tragedy. Canberra frets that it now depends on opposed security and economic partners. But when China is feeling isolated, and other US allies have baggage with the Trump administration, we have an advantage in connecting with both. Australia and Japan kept the Trans-Pacific Partnership alive, which could still extend into the Regional Comprehensive Economic Partnership including China. Australia plans a leading role in reforming the things that are wrong with the World Trade Organisation. The antagonists, the US and China, must see their friends and partners vigorously keeping the institutions of multilateral global trade alive.

Mr Xi will also have to come off the reform fence at some point. Even with its state-owned banks, China cannot keep running up debts indefinitely and needs new engines of growth. Mr Xi’s supporters wanted him to restore party authority, and to ensure that prosperity underpins it. He has done the former. Now he really needs to fix the latter.

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