Behind the fancy banquets, Xi’s China is in real economic trouble

Anthony Albanese may be looking for closer economic ties with Beijing just as China is suffering from severe overcapacity, unemployment, and bank failures, writes Maurice Newman.

Prime Minister Anthony Albanese’s recent six day visit to China was important. China is Australia’s largest trading partner.

From Beijing’s perspective it was certainly a success.

As the Communist Party’s propaganda sheet, The Global Times, observed, the relationship is now “flying in the stratosphere” after years of strained ties under the previous Morrison government.

This hyperbole no doubt reflects belief within the Forbidden City that their goal of establishing a master-servant relationship with Australia has been achieved.

Even before Mr Albanese set foot in China, the Chinese ambassador, Xiao Qian, penned a timely op-ed in The Australian, laying down the rules of engagement.

People attend a job fair in China's southwestern city of Chongqing on April 11, 2023. Picture: AFP

He insisted China and Australia are friends, not foes, writing, “China has been always developing bilateral friendship and co-operation with the utmost sincerity and patience, and we hope Australia will work with us in the same direction”.

In other words, Mr Albanese, please don’t mention the recent unannounced circumnavigation of the continent by live-firing, Chinese warships. After all, everyone does it.

Chinese President Xi Jinping shakes hands with Australian Prime Minister Anthony Albanese. Picture: Huang Jingwen/Xinhua via AP

Suitably coached an obedient Mr Albanese, like a ruler from a vassal state, dutifully tugged his forelock to Emperor Xi, speaking mostly in vague terms lest he should give offence. In return he was lauded in the Chinese media and treated to lunch with the president.

Of course, only racists and opportunists would accuse the shrewd Chinese President of exploiting the Prime Minister’s awkward avoidance of a meeting with President Trump or for wanting to drive a wedge between Canberra’s obligations under the ANZUS pact and its responsibilities to a benign China.

And what about the ‘Quad’ agreement with India, the US and Japan?

China sees this as presenting a consequential challenge to its regional hegemony. Was it raised with the prime minister? Indeed, was Australia’s deepening relationship with India, Asia’s newly emerging superpower and a serious economic and strategic competitor, discussed? After all, China’s active involvement in India’s recent conflict with Pakistan, may demand Australia moderates its engagement with India.

An aerial view shows Chinese-made cars parked at a port in Nanjing, in China’s eastern Jiangsu province. Picture: AFP

The six day visit gave the Chinese ample opportunity to elevate concerns about President Donald Trump’s unpredictable tariff regime and for Premier Li Qian, to promote China as a reliable economic partner and a champion of free trade. Naturally, Beijing’s imposition of brutal trade sanctions on Australia after Canberra dared to call for an inquiry into the origins of Covid-19 were, like the Tiananmen Square protests and massacre, airbrushed from history.

But then the Chinese feel they are on safe ground. They are aware that the Prime Minister and, Foreign Minister Penny Wong, by words and actions, have demonstrated Australia’s willingness to completely change direction on foreign policy. Its clear pivot from the United States’ orbit towards the Communist and theocratic powers, is reminiscent of the road travelled by Prime Minister Gough Whitlam in the seventies.

Luckily for Australia then, Deng Xiaoping came to power in 1978 and began the modernisation of the Chinese economy by adopting market-based reforms. Australia benefited from the resulting economic boom. But Canberra won’t be so lucky this time. Blinded by ideology the Albanese government seems to be ignorant of the worsening social and economic conditions currently facing Beijing.

For a start, Chinese demographics have changed dramatically since 1978. The population is ageing rapidly and actually declining. Despite the current three child policy, China’s fertility rate is lower than Japan’s.

Steel workers gather outside the head office of the Guofeng Steel Company in Tangshan, in China's northern Hebei province. Picture: Greg Baker/AFP

Yet youth unemployment is running at 16.5 per cent and, according to the BBC, China is now a country where a high-school handyman has a master’s degree in physics; a cleaner is qualified in environmental planning; a delivery driver studied philosophy; and a PhD graduate from the prestigious Tsinghua University must apply to become an auxiliary police officer.

Factory closures and unpaid wages have resulted in an upsurge of protests and previously unheard of random street crimes. Locals have dubbed them ‘revenge against society’.

Adding to China’s woes is the sudden cancellation of orders and the decline in exports due to supply chain reordering and President Trump’s punitive tariffs. This is an ominous sign for Beijing. According to consultancy firm Omdia, iPhones shipped from India to the US in April reached roughly 3,000,000, in stark contrast to shipments from China of 900,000.

Clearly China is suffering from severe overcapacity, particularly in sectors like infrastructure, steel, aluminium, residential property, solar panels and electric vehicles.

Predictably bank failures are on the rise. A staggering 80 per cent of Chinese banks have seen their interest margins fall below the industry threshold for profitability. To forestall contagion, small and medium sized banks are being acquired by major state-owned banks and, while immediate collapse may have been averted, the pain has simply been postponed.

Indeed, Xi’s ruthless central control means institutional rigidities have interrupted normal market adjustment and will demand increasing intervention to forestall further social and economic distress.

Still, having exploited the prime minister’s naivety and inexperience and, having treated him to the wonders of the Great Wall, Shanghai’s Bund and Chengdu’s pandas, Beijing can be satisfied that Australia now knows its place.

In any case, while the PM was taking pictures of those memorable sights, their secret weapon, Energy Minister Chris Bowen, was hard at work relieving their oversupply of solar panels, wind turbines and electricity grid transformers, blissfully handing control of Australia’s electricity supply and national security to Beijing.

That certainly deserves a few hyperbolic paragraphs in the Global Times.