What Australia Has That China Needs

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Your editor’s fingers are a little rusty after a full week away from the keyboard. But our hands were not idle! We rediscovered the pleasure of discovering information the old fashioned way last week, analogue style! More on the benefits to your brain of reading books in a moment.

But first, this whole “Asian Century” thing is getting quite complicated, isn’t it? We took a week off following the “After America” conference to ponder what it all meant. Is America done for? Can China liberalise its currency without destroying its banking system? And will former Treasury Secretary Ken Henry include a copy of our DVD in his forthcoming report, “Australia in the Asian Century“?

To be honest, the fact the Australian government has commissioned a white paper on the whole subject makes us nervous. Nothing says “stale and uninteresting idea” like a government white paper. In fact, it leads us to one of the ideas voiced at our conference that there won’t be an Asian century at all. The whole premise might be flawed.

We won’t repeat all the arguments made over two days. You’ve probably read about them already. Or perhaps you’ll watch them in a few weeks when the DVD is finished. But more than one speaker made the point quite clearly that China is in no position – monetarily, economically, or militarily – to assume the role of global hegemon.

America could very well fall from grace as a result of its huge deficits. But no Great Power is waiting in the wings to replace it. There may very well be an Asian Century. But it may not start for another 50 or 100 hundred years. Hmm.

The time off gave us the leisure to think about things in a larger context. We highly recommend it. You don’t realise how much of your conscious thought is occupied with mundane crap until you step away from it. Giving your brain space to breathe…and then reading a few interesting books…is a great way of stirring the neurons a bit.

Speaking of stirring things up, did you see the story in the weekend edition of the Financial Review about the second biggest phone equipment maker in the world being barred from participating in the build-out of the National Broadband Network (NBN)? The company is named Huawei, which sounds pretty Chinese.

Huawei was founded in 1987 by Ren Zhengfei, a member of the People’s Liberation Army. The Australian government didn’t come right out and say it was worried Huawei is an instrument of the Chinese communist party and its involvement in the development of critical IT infrastructure is a security threat. But you can imagine that sort of thing being said when there were no microphones or reporters around.

For the Chinese, it will be another example of how Chinese investment in Australia is treated “unfairly”. And the whole affair highlights how strange things are going to be in the coming years. In this case, Australia doesn’t want to do business with Huawei because it views Huawei as a proxy for the Chinese government and a potential instrument of cyber spying or hacking. But you can’t exactly say that in public about your largest trading partner, can you?

It would probably be a relief to Australian politicians if their conversations with China were only about energy. This was one of the themes at our conference. No matter what happens to the world’s monetary system – and naturally none of the forecasts were terribly positive – the world’s economy (even if it contracts) will still need energy. In fact, the destruction of the underlying capital of the Western banking system makes the race for tangible assets like energy even more urgent. Australia fares well in this context.

Right now there are eight major LNG projects totalling $180 billion worth of investment. Australia is on track to become the world’s largest LNG exporter. This may be complicated somewhat by the victory of the Liberal National party in Queensland’s elections yesterday. But even if coal-seam-gas projects face more scrutiny in Queensland, it’s hard to imagine the new government taking action that would undo billions of dollars in investment.

The energy relationship between Australia and China is pretty clear. Australia has it and China needs it. It’s the geopolitical relationship between the two countries that’s complicated.

Regards,

Dan Denning
for The Daily Reckoning Australia

From the Archives…

Gold Money: A Once-in-a-Generation Buying Opportunity
2012-03-23 – Greg Canavan

A Question Australia Might Have to Answer
2012-03-22 – Joel Bowman

Australian Tax: Running Government at a Profit
2012-03-21 – Nick Hubble

China: Why All Feasts Must Come to An End
2012-03-20 – Satyajit Das

Greg Smith – A Former Goldman Sachs Insider Finally Speaks Out
2012-03-19 – Eric Fry

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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4 Comments on "What Australia Has That China Needs"

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Dave
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I fully support the governments decision of banning huawei from tendering the NBN project..i would regard any view opposing the governments decision on this issue with suspition..What the readers need to remember is that the NBN is not just a simple commercial project..Its construction should not be treated lightly..

Dave
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Correction from previous post “ABN” should be “NBN”.my apolagies…Thank you.

technofreak
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China also wants all our manufacturing and jobs…We are just left with holes.

Garry
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” The energy relationship between Australia and China is pretty clear. Australia has it and China needs it. It’s the geopolitical relationship between the two countries that’s complicated. “”” Not only the energy relationship between Australia, pretty much everything else too. The Pilbara for instance, needs to be shipped offshore in its entirety, yet the hard(and incontestable) data is saying Australia’s Iron Ore will be mostly gone by the year 2036, with the small remainder being very expensive to get at. On natural gas, it’s heading down the same road, yet we have less than 2% of the global resource… Read more »
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