Australia accidently starts a cold war

Australia accidently starts a cold war

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.1

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 in spite of the fact that Huawei could probably have built it cheaper than any other competitor.

That was seven 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, in spite of 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.

In the past few months, 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.

A Chinese diplomat recently made an informal complaint to the World Trade Organisation (WTO). Although, as I explained last week, 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. 

Tit for tat

While Australians were getting ready to devour far too many chocolate eggs, The Times in the UK broke a story about Chinese funding.

Turns out, a CIA investigation unearthed proof that Huawei has received funding from various Chinese intelligence branches, with The Times writing:  

American intelligence shown to Britain says that Huawei has taken money from the People’s Liberation Army, China’s National Security Commission and a third branch of the Chinese state intelligence network.2

Is this genuine information from a US-based intelligence service? Or is this an attempt from the US to sway the UK to reduce the number of Huawei contracts in the future?

As Britons were reading about Huawei’s alleged source of funding, the South China Morning Post (SCMP) accused the US of running a propaganda war against Huawei.

According to the SCMP — a Hong Kong-based newspaper promoting mainland ideals — Huawei is beating the US’s ‘propaganda war’ by winning contracts in Southeast Asia; an area bigger international telcos ignored.

Then, of course, there is the attack of legitimate businesses on Chinese turf.

Take this, for example…

With Chinese-owned firms out of the picture, Telstra has decided to go with Swedish-owned Ericsson to build our 5G network.

Huawei is missing out on the chance to bid for Western contracts, and it’s taking the blow personally.

Just last week, Ericsson’s Beijing offices were raided by 20 odd staffers from China’s State Administration for Market Regulation.

The problem is, China isn’t just complaining about losing business.

The Chinese government is effectively launching a full-scale attack on anyone who shuns Chinese business.

Eyeball to eyeball and we can’t blink

What started as an infrastructure ban has escalated into increasing global tensions.

Australia’s decision to boot Chinese firms out of critical telco networks has forced other countries to question Chinese-owned businesses.

The thing investors need to know, however, is that this isn’t contained to a simple international business spat.

Denying Chinese firms the chance to participate in business opportunities affects how much money flows into Australia, as well as out.

The ties between Chinese-owned companies and the government run deep.

This could very well be the catalyst for things to get much worse.

And the Huawei ban is really just the tip of the iceberg…

This isn’t the end of the story, either.

The last cold war ended in 1991.

Australia may have accidently started a new one.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia