Wed, Jul 30, 2008 page8

• China turns blowtorch on Australia

  • By Sushil Seth
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  Australian Prime Minister Kevin Rudd will be among the world leaders attending the opening ceremony of the Beijing Olympics next month, but this doesn’t mean that his self-perceived role as Beijing’s interlocutor with the West is coming to fruition.

  Indeed, even Australia’s own relations with China are under strain, entering a tense period marked by some polite acrimony.

  Canberra is rattled by a rash of Chinese investment takeover proposals worth about A$30 billion (US$28.7 billion) targeting Australian mining companies. This has happened within six months of the Rudd government coming to office, leading Australian Treasurer Wayne Swan to invoke national interest in the determination of investment decisions, calling his policy “open, in the national interest.”

  Of course he doesn’t name China, but the thrust is quite clear, with Beijing in such haste to not only control supplies of essential resource material but also to fix prices.

  In an address to the Australia-China Business Council in Melbourne, Swan reportedly said: “Our predisposition is to more carefully consider proposals by consumers [China being the most avid consumer of Australia’s iron ore and other resources] to control existing [Australian] producing firms.”

  And this is important because “we need to ensure that investment is consistent with Australia’s aim of ensuring that decisions continue to be driven by commercial considerations and that Australia remains a reliable supplier in the future to all current and potential trading partners.”

  Australia’s worries are two-fold. First, Canberra is uncomfortable with major investments from China’s state-controlled companies because they are an extension of national policy.

  Second, arising from the first: Australia doesn’t like the prospect of ending up as China’s quarry with Beijing dictating where and to whom Canberra can sell.

  With a new government in power led by Rudd, who is perceived as China’s friend, Beijing is going all out to maximize its interests. Chinese Ambassador to Australia Zhang Junsai (章均賽) is blowing hot and cold on the question of Chinese investments.

  In an interview with the Australian, he urged the Rudd government to encourage “an attitude of welcome” to Chinese companies investing in Australia, and “not the other way around.”

  He is making known Beijing’s annoyance at Canberra’s “discrimination” against Chinese companies wanting to invest in Australia.

  Zhang maintained that, “China is your No.1 trading partner. There should be no discrimination in all of this.”

  He reminded the Rudd government that China had welcomed Australian investments, with 4,000 Australian companies now operating some 8,000 different projects in the country.

  But there is an important difference here. Australian companies operating in China are not state-owned or controlled. Hence, commercial interests guide their operations.

  On the other hand, Chinese companies are an extension of a state apparatus where political and strategic considerations will override commercial interests if required.

  Zhang, however, doesn’t buy this argument, maintaining that the Chinese companies are autonomous enterprises and not “orchestrated by the government.”

  The problem, though, is that even within the interview itself, Zhang was speaking both for his government and the Chinese companies, contradicting the autonomy argument.

  For instance, he seemed to justify the raid on Australian mining companies by Chinese enterprises to prevent a monopoly in the global iron ore market.

  “We don’t want to see a monopoly in the international iron ore market,” he said. “That is not in accordance with globalization.”

  The Chinese companies are acting at the state’s behest.

  He went on to remind Canberra, as reported in the Australian, that the Australian economy had been able to insulate itself from the impact of the US subprime crisis because of its close economic ties with China.

  His message was China is now in a position to invest not only in Australia “but all over the world.”

  He is for a globalized world in which China plays a determining role.

  But in seeking to maximize its economic clout by carving out global markets, China will “transcend the traditional ways for great powers to emerge, as well as the Cold War mentality that defined international relations along ideological lines.”

  In an article he wrote for Foreign Affairs, Zheng Bijian (鄭必堅) said: “China will not follow the path of Germany leading up to World War I or those of Germany and Japan leading up to World War II, when these countries violently plundered resources and pursued hegemony.”

  “Neither will China follow the path of the great powers vying for global domination during the Cold War. Instead, China will transcend ideological differences to strive for peace, development and cooperation with all countries of the world,” he said.

  We have a new emerging superpower that wants “to build a stable society [at home] based on spiritual civilization,” and create a cooperative world without strife and conflict.

  The trouble, though, is that when any powerful country starts believing its own rhetoric to cloak politico-strategic goals, the danger begins.

  With its rising economic power, China is potentially in a position to destabilize the US economy. With its US$1.5 trillion trade surplus (and rising), much of it in US treasury notes, China is today subsidizing the standard of living of US consumers.

  As James Fallows has written in the Atlantic, “Without China’s billion dollars a day [lent to the US], the United States could not keep its economy stable or spare the dollar from collapse.”

  Of course, China is unlikely to destabilize it any time soon because its own economic growth has been fueled in a big way by exports to the US. It is, therefore, not in China’s interest — in the short term, at least — to damage the US economy.

  Besides, any large-scale diversion of its funds from US treasury notes would lead to a sudden slump in the value of the dollar, adversely affecting the value of its own holdings.

  “Americans have drifted into an arrangement [of living on borrowed money, much of it from China] that is comfortable while it lasts, and could last for a while more. But not much longer,” Fallows said.

  The point, though, is not that China will pull the rug out from under the US economy. The point is that China has come to acquire a sense of awesome economic power.

  This is reflected in its dealings with its neighbors, with Australia now experiencing the blowtorch when China’s ambassador in Canberra starts coaching them on the fundamentals of “globalization,” as Beijing sees it.

  One only hopes that President Ma Ying-jeou (馬英九) and his regime are paying close attention before it is too late to retrieve the ground that has been lost to China.

  There is only one caveat here: With its lop-sided economic growth mostly geared to the urban middle class of 250 million to 300 million and the rich with Communist Party patronage, and without a plural political base to mediate and cushion social conflicts, the whole structure seems fragile.

  And there is sometimes a whiff of Indonesia under Suharto, as reflected in what Justin Lin (林毅夫) — the World Bank’s chief economist and an academic from Beijing University — has written in a paper contributed to the book China’s Dilemma.

  He says (as reported in the press), “Providing subsidies to the rich by extracting from the poor will lead to a worsening of income and wealth distribution.”

  And that is not a sound basis for a “harmonious society.”

  Sushil Seth is a writer based in Australia.
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