Following the 1984 Sino-British Joint Declaration about Hong Kong, an increasing number of residents of the island moved to Australia, many of them settling in my electorate of Menzies in the eastern suburbs of Melbourne. Over the years, they were joined by immigrants from Taiwan and more recently the Chinese mainland. Others purchased houses in the area for investment. Interestingly, some houses were never occupied or rented, remaining a passive investment. I found this rather strange until I realised that the Chinese property market worked differently to the Australian market.
Whereas our superannuation and savings schemes, together with the pension, provide for retirement, this is not the case in China. Instead, many Chinese invest in property developments, even if the buildings remain unoccupied. Entire high-rise towers, indeed, whole cities, across parts of China are virtually ghost towns. The resulting property bubble, financed by enormous debt, has been growing for years. In cities like Beijing, apartment prices are fifty times average annual income. Real estate loans account for close to 30 per cent of the nation’s outstanding loans and private debt-to-GDP ratio is 220 per cent. Like all Ponzi schemes, it risks an inevitable implosion.
This is the story of Evergrande, the huge Chinese property developer, which has as many as 1.6 million unfinished apartments and billions of dollars of debt on which it has defaulted on interest payments. The debt crisis is not confined to property developers. Huarong, the state-run financial conglomerate is also facing serious liquidity issues, as are many other institutions. Given the impact a collapse would have, the government is likely to intervene, using the People’s Bank of China to transfer debt to other entities, including local governments which are also heavily indebted.
Together with the CCP’s regulatory crackdown on the private sector under Xi Jinping’s ‘common prosperity’ rubric, investing in China is becoming increasingly fraught. Major investors are warning of the risks. The Japanese government, which is strengthening defences near Taiwan and warning the CCP about its aggression, is also taking significant economic measures including subsidising the move of Japanese companies from China and blocking the PRCs entry into the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership. Recently, the Japanese Government Pension Investment Fund stated it will not invest in Chinese government bonds. Concurrently, China is suffering a major energy crisis, with manufacturing heavily hit. Paradoxically, Xi Jinping’s determination to punish nations which question his regime, such as blocking Australian coal imports, are having a serious impact in China, with households suffering electricity shortages and industrial output cut – leading to an easing of the ban. Instead of kowtowing to CCP bullying, many nations are now standing up to the Chinese regime.
The recent Chinese incursions over Taiwan’s ADIZ have led to suggestions that the CCP is about to launch an offensive on the island. Chinese planes have been breaching the zone at the furthest point from Taiwan, not the Republic’s territorial boundaries. Such breaches appear to follow events which anger Beijing, suggesting that they are further warnings in Xi’s psychological war against Taiwan rather than a notice of imminent conflict. Last week Xi moderated his previously aggressive rhetoric. Instead of swallowing China’s propaganda, the West needs to better understand the opaque workings of the CCP.
Former US Speaker Tip O’Neill’s quip that ‘all politics is local’ applies to China. As part of Xi’s ruthless rise, his ongoing quest is to displace the influence of the powerful factions surrounding his predecessors, Hu Jintao and Jiang Zemin. Just as Xi used his anti-corruption campaign to remove members of rival factions, both in the CCP and the PLA, he is deploying his ‘common prosperity’ framework to target influential and popular supporters of his rivals, such as Alibaba founder, Jack Ma, and the movie star, Zhou Wei. Xi’s battle for absolute control of the CCP is far from over. Recently, he warned the PLA, some senior members of which are concerned about his ‘wolf warrior’ rhetoric and their ability to prevail in a military conflict, that ‘the Party commands the gun’. He also replaced several senior military commanders with officers close to him. Xi’s assertion that there is ‘no Iron Cap Prince that cannot be punished’ – an allusion to the powerful princes of the Qing dynasty – was seen also as a thinly veiled threat to his prominent political rivals.
The CCP’s threat to Taiwan is real, but Xi’s immediate goal is to achieve total power internally. His rhetoric is directed at the Chinese people and members of the CCP in the lead-up to the 20th National Party Congress in 2022 where he aims to obtain another five-year term as General Secretary. The medium-term threat to Taiwan and the international rules-based order is why other nations must use this critical time to build formal and informal alliances and to strengthen their defences. There is no time for wishful thinking, sentimentality, or lack of preparedness. Hence AUKUS. The French expressed outrage about the submarine decision, complaining that they had been betrayed by Australia. They were supported by Malcolm Turnbull and Kevin Rudd who attacked the decision in Le Monde, despite the revelation that Australia had not signed on to the next phase of the submarine project, expressly stating so. The French Naval group has been on notice for a long time that the arrangement was increasingly problematic.
Contrast the reaction by the French to AUKUS to another statement by a world leader: ‘[People] must get over their naivety. When we’re under pressure from powers that are sometimes becoming harsher, to react and show that we too have the power and capacity to defend ourselves doesn’t mean giving in to escalation, it merely means ensuring we’re respected… we must, as [People] play our part in our own protection’. Was that the Australian, Japanese or Indian PM, asserting the reality of their responsibility to defend their national interests? No, replace the word people with Europeans. The statement was made by the President of France, Emmanuel Macron, who was outlining French interests in announcing a ‘Strategic Partnership for Cooperation in Defence and Security’ including a deal to build naval ships for Greece in their conflict with Turkey.
Macron added, ‘for just over 10 years now, the United States of America has been focusing a lot on itself and has strategic interests that are being redirected towards China and the Pacific’, and ‘it would also be naive of us – or rather, we’d be making a terrible mistake – if we didn’t seek to learn lessons from it and act accordingly. And so it’s with the same pragmatism, the same clear-sightedness about our independence, that we must, as Europeans, play our part in our own protection.’
Oui, monsieur le président. Just as France should protect its sovereignty and seek the optimal means for peace and stability in Europe, so must Australia in the Indo-Pacific.
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