And Then Came 2020… Impact of China Relations on the Aussie Economy
It all began eight years and four prime ministers ago.
Then Prime Minister Julia Gillard said China’s telecommunications company Huawei wasn’t allowed to be part of our NBN infrastructure, under the guise of national security.
Then last year, we got up China’s nose a little more.
We booted China out of building a subsea cable network from the Solomon Islands to Sydney, effectively preventing any Chinese company from landing a subsea internet cable directly to Australian shores.
To top it all off, this year we said that Huawei — once again — was not welcome to be part of Australia’s 5G network.
This was a signal to China.
While we’re happy to sell things to China (like houses and rocks), we don’t want China to build our infrastructure.
In essence, we’ve told the Chinese that we don’t trust them.
We’ve picked a fight with our biggest trading partner without even realising it.
And in turn, it’s given us a whole bunch of new problems to deal with…
Friendship is over
Australia and China have had a chummy relationship for nearly two decades.
You see, we’ve happily spent that time shipping our red rocks through the South China Sea into China’s ports.
And in return, we’ve gladly taken a small portion of their people here to study and work.
Some of these students are from wealthy families. Some are from the new middle class, with parents who sacrificed everything for their kids to get an education in the West.
On top of that, we gladly accept the 1.4 million Chinese tourists and the $10 billion they spend in our economy each year.
And both countries have benefited for some time.
But things are about to change.
Turns out, we may have accidently started a new Cold War…
Global leader for the wrong reasons…
Swapping rocks for yuan has directly linked Australia’s economic fortunes to China.
We sell them our houses and stakes in our agricultural and commodities companies.
Two-way trade has contributed some $183 billion to the Aussie economy.
Basically, we are happy to take China’s yuan, no matter how undervalued it is.
What it appears we won’t do is allow Chinese companies to contribute to our infrastructure.
In 2012, Chinese telco Huawei set up its first-ever international office in Australia. The base was created so Huawei could win a chunk of our NBN business.
However, acting on the advice of our intelligence agencies, then Prime Minister Julia Gillard refused. Gillard told the media that Huawei will be banned from involvement in ‘critical infrastructure’.
That’s although Huawei could probably have built it cheaper than any other competitor.
That was eight years ago.
Being kicked out of the NBN didn’t end our relationship with China. However, our ties to the Middle Kingdom began to unravel in the middle of last year.
Just as China was bidding to be part of Australia’s 5G network, the Aussie government stepped in once more, insisting that Huawei can’t be part of the new infrastructure.
The Australian government went ahead with the ban, despite Huawei having the greatest 5G technology in the world.
Quite frankly, no other provider even comes close to what Huawei is offering, from a 5G technology point of view.
Even though we know this, Chinese-backed firms Huawei and ZTE Corporation have both been booted out from bidding on — and then building — our new 5G infrastructure.
Turns out, we were a global leader.
Towards the end of 2018, Japan, New Zealand, and the US have all banned Huawei from being involved in government infrastructure.
And this pressure is beginning to show in Chinese communications. Back in 2019 a Chinese diplomat made an informal complaint to the World Trade Organization (WTO) in April. As I explained at the time, it’s unlikely to be held up.
The problem is the informal complaint about Australia being anti-international trade may have accidently kick-started a new Cold War.
Then came 2020
And then came 2020.
Australia’s relations with China began showing signs of strain a couple of years ago, but this year is the year it morphs from ‘getting along for the sake of the kids’ to out-and-out name-calling.
This was compounded by initiating an investigation into the coronavirus.
Already we’ve seen the Chinese authorities throw barbs over our meat products, wine, cheese, and even telling Chinese parents to not send their kids back to Australian universities.
The one thing that hasn’t been ditched yet is iron ore. Though I’m sure easing reliance on Australia’s iron ore is only a few years away.
However, while authorities in the Middle Kingdom are simply waging a war of words, the Australian government is set to step this up a notch which will likely further impact Australia’s future growth.
The Foreign Relations Bill hit federal parliament this week.
Its point is to set out guidelines for which states and territories we can do business with…and give the federal government the ability to override any of those regional deals that don’t fit with ‘Australia’s security interests’.
This is no longer about kicking out a telco that might be a security threat.
If this bill passes, it will have serious ramifications for our fraying relationship with China…and for Aussie investors.
Until next time,
Editor, The Daily Reckoning Australia
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