December 26th 2009

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Articles from this issue:

EDITORIAL: A reflection on Christmas

CANBERRA OBSERVED: The new Opposition team

ENVIRONMENT: Copenhagen summit ignores 'Climategate' scandal

FINANCIAL CRISIS: Can the world expect a sustainable recovery?

FOREIGN AFFAIRS: The challenge of China

HUMAN RIGHTS: Commonwealth's double standards over Sri Lanka, Fiji

CULTURE: The sexualisation of girlhood

IDEOLOGIES: Radical environmentalism: the new socialism

CIVILISATION: What now after the cultural revolution?

MEDIA: Why America's newspapers are dying

IDEAS: Why haven't more people heard of G.K. Chesterton?

OPINION: Paid maternity leave and the war against women

A new name for News Weekly? (letter)

Why the democracies should support Taiwan (letter)

BOOK REVIEW: BLOODY VICTORY: The Sacrifice on the Somme and the making of the Twentieth Century, by William Philpott

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The challenge of China

by Peter Westmore

News Weekly, December 26, 2009
This year marks the 60th anniversary of Mao Zedong's conquest of China, when the Chinese Communist Party captured Beijing and cemented its control over the nation with the world's largest population. It affords an occasion to reflect on the significance of this event, and what it portends for China and the world.

Given China's increasing economic power and its growing prominence in the world, the celebrations could have been a celebration of China's coming-of-age as a global power and an opportunity to project an image of China as a peace-loving people's republic.

In fact, it featured China's military might and a spectacular fireworks display by the man who choreographed the corresponding event at the Beijing Olympics just over a year ago. The Chinese people, who might have been expected to celebrate the event, were excluded - having been told to stay home and watch the event on television.

Sixty thousand hand-picked guests watched 180,000 troops of the People's Liberation Army parade through Tiananmen Square, where 20 years ago, hundreds of pro-democracy students were brutally killed in a military crackdown.

Thousands of extra police were on duty in Beijing; all residents whose houses adjoin the parade route were instructed to stay indoors, to keep their windows closed and not to go out on their balconies.

Before the 60th anniversary celebrations began, the arrests of Tibetans, Falun Gong practitioners, human rights activists and anyone else who was deemed to be a threat, betrayed the paranoia of a regime built on the premise that "political power grows out of the barrel of a gun", as Chairman Mao Zedong said to his communist colleagues in his work, Problems of War and Strategy (1938).

Recent history

Despite the economic improvements of the past 30 years, China's history over the past 60 years has been saturated in blood.

Even before the Maoist takeover, millions died during the civil war that engulfed China from the 1920s to 1949, and the massacres of the Japanese occupation were followed by retribution against the defeated Nationalists after 1949.

After Mao consolidated power, he provoked the Korean War, assisted the Viet Minh and later the Viet Cong and the Khmer Rouge in Indo-China, supported the Malayan Communist Party's 20-year insurgency, and sponsored the formation of communist parties in many countries, including Australia.

Inside China, Mao's rule was characterised by unrelenting political struggles, first against his enemies and then against his co-revolutionaries, including Liu Shaoqi, Lin Piao and Deng Xiaoping. An estimated 20-40 million people starved to death during the "Great Leap Forward" of the late 1950s, and millions more died during the so-called "Great Proletarian Cultural Revolution" which Mao launched in 1966. Mao's reign of terror ended only when he died in 1976.

While the breathtaking scale of Mao's savagery has not been emulated by his successors, they have been forged on the same anvil. Pro-democracy student demonstrators in Beijing were massacred in Tiananmen Square in 1989, and, a decade later, a brutal campaign of suppression was launched against Falun Gong.

The suppression of Falun Gong arose because the then leader of the Chinese Communist Party, Jiang Zemin, could not tolerate meditational practices which preach the virtues of truth, forbearance and compassion.

Hundreds of thousands were imprisoned, and an unknown number - at least in the thousands, perhaps tens of thousands - were murdered and their internal organs harvested so that they could be sold to wealthy foreigners.

The Beijing regime today is the principal supporter of such tyrannical regimes as Robert Mugabe's in Zimbabwe, Kim Jong-il's in North Korea, the Islamist fanatics in Sudan, and the military junta in Burma.

Forced labour

Even the impressive economic achievements of the past 30 years, begun by Mao's successor Deng Xiaoping in 1978, have been built on the forced labour of hundreds of millions of Chinese people, and have made the Communist Party elite extremely rich.

China's economic growth reflects the extraordinary work ethic of the Chinese people, rather than the ideology of the regime.

I consider that the economic advances of the past 30 years occurred despite, not because of, the Chinese Communist Party. On a per capita basis, the mainland still falls far behind Hong Kong, Taiwan and Singapore, all of which have built prosperous societies which respect the rule of law on the foundations of traditional Chinese culture.

It is vitally important for the future of the world that China should emerge from the shadows of totalitarianism, and here the lessons of the collapse of the Soviet Union are instructive.

Many people, myself included, did not believe we would live to see the collapse of Soviet communism. Scarcely anyone predicted it. And yet it did happen, and it happened suddenly.

Ultimately, the Soviet empire disintegrated under its own internal contradictions, because there were heroic figures such as Alexander Solzhenitsyn, Lech Walesa, Andrei Sakharov, Vaclav Havel and many others who defended truth and endured persecution to free people from the bondage of Marxism-Leninism.

There are many men and women in China today who have taken a similar stand on principle, in defending freedom of speech, conscience and belief. These are the positive virtues which the Chinese Communist Party cannot tolerate and attempts to destroy. It is our duty to stand alongside these individuals, to support them and to help them effect the peaceful transformation of China.

How does the emergence of China as a superpower affect Australia? At the core of Australia's relationship with China today is trade. Data released by the Department of Foreign Affairs and Trade (DFAT) in November show that, in the last financial year, China was Australia's largest trading partner, with bilateral trade amounting to $83 billion, compared to Japan ($75 billion) and the United States ($53 billion). China imported over $44 billion worth of coal, iron ore, natural gas, wool and a range of other commodities from Australia, and exported $39 billion in manufactured goods to Australia. (Australia's Composition of Trade, DFAT, November 2009).

The growth in Australia's exports to China has been phenomenal. Despite the global financial crisis, exports to China in 2008-9 rose by over 41 per cent, while imports also rose very substantially, but by less that 20 per cent.

What is of particular concern is not trade with China, which has clearly been of benefit to both countries, but rather, the fact that Australia's foreign debt is steadily increasing, while China's economic power is giving it the capacity to buy key Australian assets and to make Australia dependent on China by bankrolling Australia's foreign debt.

The latest figure for Australia's net foreign debt is $630 billion in June 2009, up from $600 billion a year earlier. This compares with the net foreign debt back in 1976 of just $8 billion.

The massive growth in Australia's net foreign debt has historically been funded by the UK, the United States and Japan; but with the shift in international trade away from the United States towards China, it is inevitable that China will become a large provider of debt capital to Australia, as it is to the United States. I was unable to find on the Australian Bureau of Statistics website any information on the current level of Chinese lending to Australia.

Another cause for concern is the term of current loans to Australia. A recent paper by the Commonwealth Parliamentary Library, Australia's foreign debt - data and trends (May 2009), indicated that in relation to Australia's gross foreign debt, around 40 per cent of it (about $400 billion) falls due within 90 days, and a further 10 per cent falls due within a year.

This makes Australia acutely vulnerable to shifts in global financial sentiment. At a time when the international financial crisis has made Australia a safe haven for foreign capital, this vulnerability is obscured by problems in the rest of the world, but the issue remains unresolved.

Reliance on foreign capital

How does this affect Australia's relations with China? Continued reliance on foreign investment and foreign borrowing put this nation at risk of losing its sovereignty, not by military takeover, but to economic colonisation by China which is ruled by a one-party dictatorship and has global strategic ambitions.

Rapid economic growth is vital for the Communist Party to retain its legitimacy. Hence, rather than helping China move towards democracy, raw, unbridled, capitalist economic growth has helped entrench the communist political system and the drive to restore China to its middle kingdom status.

Australians have not awoken either to the aggressive nature of mercantilist Chinese capitalism and the global power shift that this is creating, or to the strategic challenges it poses to this nation's security.

Both the rapid growth of our foreign debt and the heavy dependence on foreign investment in mining and other industries threaten to make Australia vulnerable to a major economic downturn. In current circumstances, they put Australia's economic sovereignty at risk.

Some years ago, Warren E. Buffett, the famous American investor and economic commentator, warned in Fortune magazine that the world faces a new form of strategic dominance.

He cautioned that any country that excessively depends on foreign borrowing would become a nation of wage-earners rather than property-owners. Such a nation risks losing its sovereignty, being "colonised by purchase rather than conquest".

At the same time as our foreign debt has been mounting, Australia has also been heavily relying on foreign investment to develop the resource industries that are supplying the new global powers like China and India.

Under Beijing's "Go Abroad" policy - aimed at securing access to important raw materials, advanced technology and brand names - Australia has suddenly become a major target for Chinese investment.

Chinese government-controlled investments in Australia have jumped from a trickle three years ago, to $6.8 billion in 2007, and were estimated to potentially reach $30 billion in 2008. The proposed 2009 investment in Rio Tinto was $30 billion alone.

While no single investment in Australia poses any threat to our sovereignty, a flood of major investments over time could see the Chinese regime become a major player in Australia, with profound political and strategic ramifications. As Robert Gottliebsen has noted, "in a decade or two [China] may emerge as our ‘protector' because they need to safeguard their raw material supply lines and because the US appears to be in decline".

China has amassed an estimated US$1.3 trillion in foreign reserves, while ordinary Chinese have another US$2 trillion sitting in savings accounts earning negative interest. These funds are now being directed through the new State Investment Company, which is modelled on Singapore's Tamasek Holdings, to investment abroad.

World-wide, government-controlled sovereign wealth funds (SWFs) - state-controlled funds of big exporting nations, particularly oil exporters - are expected to grow from US$3.85 trillion to as much as US$15 trillion by 2015, according to the International Monetary Fund.

Herein lies the emerging risk to Australia. The more the Beijing regime has invested in Australia at the moment of a major economic crisis, the greater the likelihood that China could literally buy out Australia using its massive savings pool, foreign reserves and sovereign wealth funds. It has the potential to bail out Australia's foreign debt, but the price could be China taking effective control of key national assets - minerals, energy, possibly banks and the retail sectors.

If this were to happen, Australia would have lost its sovereignty. Decisions affecting Australia's future would not be made in Australia's national interest, but in Beijing in the interests of China. History has shown that foreign debt crises can develop rapidly, with little warning, as the current financial crisis gripping the US demonstrates. Similarly, a crisis threatening Australia's sovereignty could also develop rapidly.

Strategically, Beijing would find drawing Australia into its orbit, and away from the US, utterly irresistible. One of Beijing's deepest fears is the US policy of soft encirclement and containment of China, using economic, diplomatic and military means. Currently, the Beijing regime is expanding its political influence all the way to the Persian Gulf, and is seeking port facilities along that route. It is also developing an increasingly sophisticated military, particularly its naval power.

Risk to Australia

The risk to Australia's national interest of our growing foreign debt, under current circumstances, has to be confronted. Three years ago, Chris Richardson, director of Access Economics, warned about the foreign debt risk. He said: "OK, it's panic-button time. … It will take longer than markets realise to rein in a current account deficit in the ‘banana republic' range." Even Prime Minister Rudd has asked, numerous times, what will happen to the economy after the end of the mining boom? No boom lasts forever.

In particular, Australia has to wake up to the potential threat of the People's Republic of China. Beijing has its own strategic ambitions, using ownership and control of vital resource supplies around the globe to enhance its strategic power vis-à-vis the US and its allies.

The degree of threat is proportional to Australia's structural economic weaknesses and imbalances, and to the extent Beijing is allowed to gain ownership and control in Australian industries. Australia can mitigate this risk through policies that allow more of its investment to be financed from its own savings and by putting appropriate conditions on foreign investment.

Importantly, in dealing with China, Australian policy-makers need to draw a distinction between the Chinese people, who aspire to a way of life similar to Westerners, and the Chinese Communist Party, which has an appalling history of oppressing its people and a record of support for the most authoritarian regimes in the world.

To achieve these ends, Australia must develop and pursue a strategy with integrated economic, foreign affairs, defence and social policies.

In particular, Australia's foreign investment rules should be tightened regarding investment in Australian companies by foreign government-owned sovereign wealth funds, and by foreign government-owned businesses. New rules should include:

• Declaring a wider range of strategic industries in which foreign investment is limited or prohibited.

• In the most important strategic industries, acquisitions should be prohibited.

• In other important industries, foreign ownership by commercial companies should be restricted to 49 per cent.

• In important industries where sovereign wealth funds and foreign government-owned corporations are seeking a stake, investment should be limited to say 14 per cent.

• Investment in the resource sector should be as joint ventures in new projects, not hostile takeovers of existing companies.

Australia should not regard China as an enemy but as an emerging nation that has a very long way to advance before achieving democracy. To this end, policies are required that strengthen the Australian economy so that it can survive the global economic and strategic power shifts underway, and that engage and trade with China on Australia's own terms - from a position of economic strength and stability - not on Beijing's terms.

Peter Westmore is national president of the National Civic Council. This article is based on a speech he delivered at the NCC's South Australian state conference, held in Adelaide on December 5.

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