China play a risky business

Voters tend to presume that Australia’s 27 years of uninterrupted economic growth will continue almost independent of government policy

Neither side in Australia’s election battle really wanted to be distracted by concerns about how we earn our income, or about our persistent failure to understand much about Asia, particularly China.

It’s late in the campaign, but that is changing.

Voters have tended to presume that the 27 years’ uninterrupted economic growth will continue almost independent of government policy, while expressing frustration that wages only grew 2.3 per cent last year.

At the same time, the industries on which we have relied to create our wealth have been taking something of a hammering.

Last year, our $248 billion resources sales provided 72 per cent of Australia’s goods exports, and more than half of all goods and services exported. But the only resource-related thread of the election has been the campaign to halt the Adani coal mine.

Thermal coal sales were $26bn in 2018. They are likely to decline slowly as the big north Asian markets opt for alternative fuels for generation, especially gas — although coal demand is still growing in southeast and south Asia.

The Greens want this trade halted in 11 years. That’s a choice Australian voters can make. But where is national income going to be generated to replace it?

A banker told Melbourne Mining Club last week that his bank’s ethics and responsible business committee now provided tougher hurdles for financing resource projects than the credit committee. Compliance is certainly a growth industry in Australia, but it’s not going to earn us revenue.

Health and aged care is now Australia’s biggest employer, and is driving the greatest jobs growth. That’s fine in many ways. But it’s not helping us pay for that vast range of goods and services we source internationally. And as we’re discovering from the Aged Care Inquiry, we’re not ubiquitously brilliant at that either.

As electricity prices continue to soar, and access to domestic gas sources is curtailed in most states, it’s more likely that we will lose industries that process resources.

International education has grown rapidly as an earner, but as the ABC’s 4 Corners this week underlined, we’re surely reaching saturation point.

The election has focused on taxation and distribution.

Business Council of Australia chief Jennifer Westacott frustratedly told colleague John Durie how she has been seeking from both parties “a clear sense of how they plan to grow the pie”.

One of the most common answers has been: “China.”

Look at the growth graphs. They show a pretty straight line since Deng Xiaoping launched the “reform and opening” era 40 years ago. And many in Australia continue to hope and believe this will continue uninterrupted.

But China had previously suffered 30 years of economic and social catastrophes under Mao Zedong, and before that a civil war following the eight-year Japanese invasion. There was a lot of rapid catching up to do. The People’s Republic has still not reached the wealth levels of its neighbours, but it’s inevitable that its growth would start levelling out, as it has.

The country’s investment capacity is also not what it was. Tom Miller of analysts Gavekal writes: “China’s decade-long orgy of outward direct investment looks spent: flows peaked in 2016, plunged in 2017 and fell again in 2018 … the glory days of Chinese firms gorging on foreign acquisitions are well and truly over.” The current account surplus is rapidly declining. And much of the money available for the middle class to shift offshore, especially into real estate, has already been invested.

The stand-off with Donald Trump will make things harder. If Trump “wins”, China will give greater access to US goods and services, potentially in some areas to our cost. If China’s leader Xi Jinping wins he will double down on his inclination towards strengthening the country’s self-reliance.

It is impossible for the US to gain the reciprocity it is seeking. Australia has scarcely bothered even to press for economic reciprocity, since our major companies have invested little there. Their China expertise is thus often thin and indirect. Our bright sparks in China are chiefly owner-operators of small to medium firms.

Instead, we are subject to frequent pleas from corporate managers who are adroitly enlisted by PRC minders during red-carpet forays into China, or sometimes here at home, to press our politicians to respond more readily to Beijing’s requirements.

Those leaders are expected to keep apologising for questioning of the party-state — which has under Xi rapidly plunged into a remarkable course of ideological purges and renewal, bolted down by control and surveillance. “Government, the military, society and schools, north, south, east and west, the party leads all,” he says.

Obliging Chinese political requests tends to lead only to more, however. Reversing the decision to keep Huawei away from the 5G network would inspire further tests of our friendship.

But holding a distance from enmeshment with party-state institutions is not being “anti-China”, any more than criticising the Liberal or Labor parties means being “anti-Australia”.

The PRC itself is changing radically. China remains a terrific market for us, and a country with a vibrant population with which we are engaged very broadly. Such engagement carries risks, which we need to understand better.

Shadow Treasurer Chris Bowen injected a sane note this week in responding to former PM and China Development Bank advisor Paul Keating’s bizarre outburst calling our intelligence agencies “nutters”.

Bowen urged dialogue between our business and security sectors, which have been prised apart both by Beijing weaponising its economic heft and by our own failure to understand better our region’s opportunities and risks.