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On Saturday, former Chinese Communist Party general secretary Hu Jintao was dramatically removed from the Great Hall of the People in Beijing, as the 20th party congress came to a close. Footage of the closing ceremony, recorded for the world’s media to see, showed two men escorting Hu from his seat as General Secretary Xi Jinping, directly next to him, looked on and offered no assistance.
State media outlet Xinhua claimed that Hu was escorted out because he ‘was not feeling well’. That might be true. But the scenes also might have depicted something more sinister. Hu appeared confused as he was pulled away and tried to sit back down. Other top party leaders appeared surprised too. Previous National People’s Congress chairman Li Zhanshu (a Xi ally who on Saturday, as expected, was left off the CCP Central Committee, a group of 205 top party officials, and is no longer on the Politburo Standing Committee) appeared to try to assist Hu.
But, Wang Huning, a top adviser and ally of Xi, then seemed to tug Li back. Maybe he was encouraging Li not to become involved; maybe he knew something that Li did not. We don’t know. So, analysts should consider all possibilities, including that Xi deliberately orchestrated the incident to publicly humiliate his visibly ageing predecessor.
The CCP, after all, is a brutal organisation. Surviving its politics and accumulating power within it require a person to be particularly cunning; otherwise, their chances of survival are low. And, importantly, a rise to power is never a guarantee of power.
Hu is a member of the network of political alliances known as the Tuanpai (团派), or the (Communist) ‘Youth League Faction’. It consists of members of the party who rose to power with Hu Yaobang as their backer. Xi is China’s first leader from the Red Guard generation. The Youth League faction is a group Xi has continually marginalised as he has sought to solidify his grip on power.
Wei Jingsheng is a US-based human rights activist and former political prisoner in China (from 1979 to 1997, under Deng Xiaoping and Jiang Zemin; he was only briefly released for a few months in 1993). Wei was imprisoned for calling for democratic reform, after realising that the party inflicted famine on its own people, though prior to that he was himself a Red Guard. He personally knows more about power in the CCP than most Western commentators. He reacted on Twitter:
Little Xi really did it, and has unexpectedly put an end to the Youth League Faction by deceit. Hu Jintao lost his temper on the spot, and was kidnapped from the meeting [as a result]. The Youth League Faction are flowers that grew in greenhouses, and there is no way they could win in a struggle against those who were trained in an actual fight that is the Cultural Revolution, where [they learned] that soldiers should never be tired of deceit and cunning in war. Initially, Hu thought a compromise would help the Youth League suppress the Deng/Jiang factions so they leisurely cosied up to the Xi camp. As a result, they were played by Xi, and still seem rather undignified. What? What? They’ve never seen how the world really works, or how a pig is supposed to run [from the Chinese slang term meaning that even if you’re too poor to have pork, you’ve at least seen a pig running somewhere]?
Wei is referring to the fact that Premier Li Keqiang and Vice-Premier Wang Yang were surprisingly left off the CCP Central Committee. It’s a pretty big deal. Li was expected to step down as premier but could have stayed on the standing committee, and Wang was tipped by many to be promoted to premier. Both Li and Wang are also members of the Youth League Faction.
Wei suggests that Xi deceived Hu, and in the moments before didn’t follow through with a political deal Hu thought had been struck, so Hu reacted angrily and was escorted out.
What’s next for Hu is unknown. If he really was just ill, then perhaps we’ll see him in the future, sitting in the front row as expected. But if Hu’s removal plays out to be a theatrical display of Xi’s political power, then perhaps we’ll learn at some point that Hu has been purged. Or maybe it will stop at what we saw on Saturday night, and we’ll never know for sure. In any case, it’s important to remember that political opponents of the CCP often ‘fall ill’ or die in very questionable circumstances. The political environment does nothing to stop the rumour mill.
It shouldn’t be forgotten that Hu has been blamed within the party for enabling a weak environment that allowed corruption to thrive. Xi claims to be dealing with that through his anti-corruption campaign, though corruption accusations are about politics and personal power over and above stamping out graft. Xi’s campaign has come very close to Hu. His former close aide Ling Jihua was sentenced to life in prison in 2016 for corruption.
Xi’s report at the beginning of the party congress was highly critical of Hu’s leadership, though with the corruption campaign that has been a persistent theme under Xi. Still, the language in the work report seems particularly condemning and direct, and blames a situation that was inherited, specifically in the section outlining the situation when Xi took office a decade ago. Here, the report says: ‘Some party members and officials were wavering in their political conviction. Despite repeated warnings, pointless formalities, bureaucratism, hedonism and extravagance persisted in some localities and departments. Privilege-seeking mindsets and practices posed a serious problem, and some deeply shocking cases of corruption had been uncovered.’ Xi’s 2017 report at the 19th party congress used some similar language, but those comments were contextualised more around what he had done to confront the issues in the previous five years.
Through his leadership and political decisions, including the corruption campaign, Xi has generated a lot of discontent among elite families of the CCP. It’s an area in which even recently it has appeared that he hasn’t fully neutralised opposition. In September, just before the congress, there were rumours of a coup attempt against Xi. He appeared publicly soon after, but the idea that his grip on power might have been more precarious than had been assumed was still worth taking seriously.
Under these circumstances, Xi could have used Hu to send a chilling statement to any opponents. We know that Xi has effectively silenced a lot of opposition, but his actions show that he still perceives threat. If Hu’s removal was political and not health related, it may lend more credence to this idea. Such a public display could be interpreted as a forceful assertion of blunt power against those in the party who oppose Xi. After all, the greatest crises acutely threatening the CCP’s power have come from inside the party itself. And, as Xi must know personally, the threat isn’t usually imagined.
In fact, this wasn’t the first time we’d heard about an alleged attempt to disrupt Xi’s power. Zhou Yongkang was responsible for the massive expansion of the electronic surveillance that has continued under Xi. Even though those Hu-era efforts persist, Zhou and his allies were among the ‘tigers’ taken down in Xi’s anti-corruption campaign. A 2016 book accused Zhou and other tigers of being orchestrators of ‘political plot activities’ aimed at ‘wrecking and splitting the party’. A similar December 2016 Seeking Truth article accused them of having ‘inflated political ambition’, which led to political conspiracy and ‘undermined the party’s organisation’ and unity. Something happened, even though we may never know exactly what.
Even amid the tight security of the party congress, there have been reports that people in China have been receiving iPhone AirDrop messages denouncing Xi. It’s hard to say what the source of those might be, but whether or not something like this is organised from outside or inside China, opposition is real. A few small protests were also reported, successful incidents for their organisers in a time of massively increased public security measures designed to prevent such demonstrations from taking place at all.
The scariest thing is that if Xi perceives an acute threat to his power, it might be from this that he draws the most strength. And this might be the underlying explanation for Hu’s ejection, even if the logic doesn’t quite compute for analysts of China who realise just how unusual the publicness of the incident feels in recent party history.
Xi’s new Politburo Standing Committee is more packed with loyalists than before. They collectively don’t have the bureaucratic experience of previous members. But, for Xi, loyalty is more important than any relevant experience. With added confidence coupled with any perception of threat, Xi might just be bold enough to take other shocking actions in the political domain. On these grounds it’s fair to say Xi’s corruption campaign will probably continue strongly, and possibly become even more brazen in his third term, with or without Hu being purged.
This confidence and perception of threat, which was also clear in Xi’s party congress report, doesn’t bode well for the world’s security. A person drunk on power often makes catastrophic decisions. When that person is in charge of a country that isn’t afraid to be openly adversarial with the rest of the world, these events may portend a dangerous moment. Xi is a person who clearly will do whatever it takes to expand his power, and he has shown no caution in exhibiting this character both inside and outside of China’s borders.
The party congress report is a highly official statement of the Chinese Communist Party, and General Secretary Xi Jinping delivered a lengthy version this week to the 20th national congress in Beijing.
There is value in looking at the key words in the party report, though interpretation is needed. One way to make sense of it is to reflect on the context in which the CCP has used this language in the past.
The overall tone of the 20th congress report clearly expressed the party leadership’s sense of crisis over the deteriorating international environment—for instance, the reference to ‘external attempts to suppress and contain China’ that ‘may escalate at any time’. While Xi didn’t name countries, he was clearly referring to the West, particularly the United States. He stressed strengthening ‘mechanisms for countering foreign sanctions, interference and long-arm jurisdiction’, seemingly with long-term strategic competition with the US in mind.
However, along with a sense of crisis, Xi also sees strategic opportunities in the area of technology—and made it clear in the report that he means for China to seize those opportunities by achieving dominance in key sectors. ‘At present, momentous changes of a like not seen in a century are accelerating across the world,’ he said. ‘A new round of scientific and technological revolution and industrial transformation is well underway, and a significant shift is taking place in the international balance of power, presenting China with new strategic opportunities in pursuing development.’
He named seven sectors as ‘emerging strategic industries’ that are central to this opportunity. Those are next-generation information technology; artificial intelligence; biotechnology; new energy; new materials; high-end equipment; and green industry.
On defence, the previous party congress report in 2017 laid out plans for reform and modernisation of the military by 2035. The military section of this week’s report, however, was more of a stocktake, providing a review of reform measures implemented over the past decade. The emphasis is on continuity rather than change.
That said, Xi pointedly articulated goals set to be reached by the centenary of the People’s Liberation Army in 2027. The report didn’t specify what those are, but a reasonable interpretation, which matches the reported conclusions of US intelligence agencies, is that Xi intends for the PLA to have the capability to take control of Taiwan by force by then.
Regarding military strategy, Xi this week called for implementation of a ‘military strategy for the new era’ (新时代军事战略方针). Military strategy for the new era is something China has been laying out since January 2019. It defines the overall war principles in the medium to long term. In the defence white paper released in 2019, the Chinese government demonstrated its recognition of the rapid evolution of warfare, saying that intelligentised warfare (智能化战争) is on the horizon. The report of the 20th congress was much more specific about particular key trends such as the development of unmanned intelligentised operational capabilities (无人智能作战力量). This aligns with the Chinese government’s significant efforts to train drone pilots, and may reflect the fact that the PLA’s leadership is determined to expand the use of drones in waging war. On the other hand, the report proposes studying the characteristics of informatised and intelligentised warfare and innovating ‘military strategic guidance’ (军事战略指导). This suggests that despite the enthusiasm for drones as platforms of the future, the military leadership has yet to set an operational doctrine for waging intelligentised warfare.
Indeed, another interesting point is that the reference to accelerating the development of military intelligentisation in the 19th congress has changed to a somewhat more moderate statement in the current report. This time it refers to the continued integrated development of military mechanisation, informatisation and intelligentisation (机械化信息化智能化融合发展). This is curious given that mechanisation was supposed to be completed by 2020. The new language suggests that some in the PLA are still cautious about intelligentisation and feel that it shouldn’t get ahead of the need to consolidate mechanisation and informatisation. Alternatively, this might simply be related to the politics of competing interests in the allocation of defence spending.
The report also suggests that China continue to expand the role of the PLA. It mentions not only defending national sovereignty and security, but also securing ‘development interests’ (发展利益) as among the PLA’s missions and tasks. As China’s economic power and weight have grown, its companies and their employees have expanded across the world. During the Libyan civil war in 2011 and the Yemeni civil war in 2015, the PLA conducted large-scale convoy operations to rescue Chinese expatriates. These conflicts were wake-up calls for China’s leadership to recognise the importance of the PLA’s overseas deployment to support Chinese workers abroad. As one of the lessons from these conflicts, the PLA has had personnel permanently stationed at its naval base in Djibouti since August 2017. This week’s report indicates that the PLA will continue to expand its global reach.
Another key passage is Xi’s remark that China will become ‘more adept at deploying our military forces on a regular basis and in diversified ways and our military will remain both steadfast and flexible as it carries out its operations’. This language was not used at the 19th congress, and Xi’s use of it this week might point to China’s growing awareness of the potency of hybrid warfare. The 2013 defence white paper, which detailed the diversified operation of the armed forces, emphasised the use of paramilitary forces such as armed police and militia. In light of this, the word ‘diversification’ (多样化) can be seen to indicate a policy of actively using paramilitary as military forces.
On top of this, ‘regularisation’ (常态化) indicates a policy of applying pressure on other countries to progressively expand China’s claims—including territorial claims—without provoking a response that might lead to war. We can expect the PLA to continue to use military police and militia for operations in ‘grey zone’ situations on a regular basis.
Xi didn’t mention military–civil fusion in his speech. However, that doesn’t mean it has been downgraded as a strategy. The CCP leadership has promoted military–civil fusion as a national strategy since 2015 but stopped mentioning it in official documents in 2019 because of the international backlash.
To understand what’s going on, it’s helpful to look back to the report of 19th congress, which referred to both military–civil fusion and an ‘integrated national strategic system and capacity’ (一体化国家战略体系和能力). These are actually similar concepts in that they both seek to remove barriers between the commercial and defence industrial sectors. Xi continues to mention the latter—as he did in this week’s report—and also continues to promote the sharing of resources and production between the military and civilian sectors, as well as to champion the transformation of science and technology into combat capabilities. This indicates that China is continuing with the development of the military–civil fusion strategy—just without using the name.
The 20th congress report suggests a major trend towards military intelligentisation as a pathway to developing the PLA into a world-class military. That pathway may also lead to new friction with China’s neighbours and other countries across the region.
Last Sunday, the head of the Chinese Communist Party, Xi Jinping, addressed the party’s 20th national congress in Beijing. In dense jargon, Xi spoke for two hours on the party’s achievements and its challenges in building the ‘new China’. He said, ‘We have fully and faithfully applied the new development philosophy on all fronts, focused on promoting high-quality development, and worked to create a new pattern of development.’
He described a China in crisis at the start of his term as chairman in 2012, with ‘misguided patterns of thinking such as money worship, hedonism, egocentricity and historical nihilism’ and in which ‘systems for safeguarding national security were inadequate’. And he talked about how the party has addressed these issues: ‘We have adopted the Five-Sphere Integrated Plan and the Four-Pronged Comprehensive Strategy as well as the general principle of pursuing progress while ensuring stability, and we have worked to both pursue development and safeguard security.’
Xi’s speech at the congress functioned as the most fundamental assertion of power in China’s party-state system. Its stupefying and arcane phraseology, or tifa (提法), all referencing earlier phraseology going back through the history of the party, constructs a closed, deterministic cosmology, informed by a version of Marxist theory, in which history moves ineluctably forward through the resolution of contradictions guided in theory and in practice by the party. Xi’s speech was a representation of the party-state’s system for the realisation of socialism and China’s ‘great rejuvenation’, and, in the party’s terms, advancing human civilisation to eclipse the liberal capitalist democratic world era represented by the United States.
On Taiwan, Xi accordingly built on established formulations that appeared in his 2019 speech, in the new Taiwan white paper, and earlier. He said, ‘Resolving the Taiwan question and realising China’s complete reunification is, for the party, a historic mission and an unshakable commitment.’ He said unification is a historical inevitability: ‘The wheels of history are rolling on toward China’s reunification and the rejuvenation of the Chinese nation.’ He claimed the party is committed to peaceful unification under the ‘one country, two systems’ model, which provides an intermediate stage before Taiwan is fully absorbed into the party’s vision of China, but the party needs to struggle, potentially with military force, against the separatists and foreign forces that hold back those wheels of history.
The ideological construction of Taiwan by the party justifies and requires escalating threats against Taiwan, but for a military invasion and occupation the party will need to claim that Taiwan’s de facto sovereignty is an existential threat to its revolutionary project. This is flagged by Xi’s use of the phrase ‘all necessary measures’ to achieve unification.
The truth is that Taiwan really is an existential threat to the party’s project. Taiwan has been on its own path of post-imperial development for more than a century, since the end of the Qing dynasty, through Japanese colonial rule, authoritarianism and to democracy. Taiwan’s sovereignty and modernisation have come to represent the party’s failure, both in theory and in practice. Taiwan has been very successful, too—this year its per capita GDP passed Japan’s for the first time and is far higher than that of any province in China.
Like other ideological constructs, such as GDP growth targets, the CCP’s version of Taiwan is not a policy response to Taiwan’s objective reality. As Xi showed in his speech, Beijing brooks no history other than the party’s history, and it has no practical roadmap to achieve unification that addresses objective questions like the future of the Taiwanese military or the security of Taiwan’s place at the centre of global technology supply chains. Instead, Xi offers a set of declarations about Taiwan’s place in the party’s future.
Xi’s speech has been subject to forensic analysis, down to counting phrases and terms. A particular focus is looking for a sign in Xi’s word usage or tone of a timeline or deadline for annexing Taiwan. But the practice of parsing the language of Xi’s speeches for such signs can concede to the party the power to control the geopolitical discourse about Taiwan. Rather than directly confronting the reality of annexation under whatever circumstances or timeline—that is, China launching a war against Taiwan and a military occupation that will permanently destabilise the international system—the practice of divining Xi’s intent places analysis within the party’s closed worldview.
Unlike some economic and financial analysis, foreign policy analysis struggles with the issue of how to develop a systematic critique of the Chinese party-state system, its policy choices and its ideology. Foreign policy analysis is by inclination wary of critiques of power, and when it does adopt a stance of critique towards power in the international system, it generally arrives at a view of China as a challenge to the dominance of the US. This can be a fruitful, sometimes righteous line of inquiry, but it attenuates the specifics of China’s system, occludes the people of Taiwan and can locate a critique of Beijing’s Taiwan policy within pro-US politics.
Yet, a critique of Beijing’s Taiwan policy and ideology has become a necessary step. Reducing the future of Taiwan to great-power competition makes it harder to see that Beijing’s Taiwan policy is an ideologically fixated assertion of party power that is disconnected from reality and points China towards potential catastrophe. China is certainly not the first great power to set itself on such a path and there are no easy options for the international community in response, but a clear focus on Beijing’s agency must be the starting point.
Last week, US President Joe Biden released his administration’s long-delayed national security strategy. It opens with a sense of urgency, declaring this a ‘decisive decade for America and the world’ to outmanoeuvre global competitors and address the shared threats of climate change, pandemics, food security and terrorism.
The challenge is stark, the White House declares, as basic norms governing international relations are under attack, the risk of war between the world’s major powers is growing, a contest between democratic and autocratic systems is spreading, competition for developing foundational technologies is accelerating, and all of this is occurring in the midst of fraying global cooperation.
The document articulates a strategy of investing in America’s core strengths to enhance national resilience; aligning US efforts with those of other like-minded nations to build the broadest coalitions possible focused on supporting a free and open world; and modernising the US military forces in order to compete with a more assertive set of actors, led by China and Russia. Working with other nations to tackle the shared global problem of climate change is also highlighted, as is Washington’s desire to shape the rules for emerging technology, cyberspace and trade.
Nevertheless, competition, and more specifically competition with China, is the central theme of this document. While Russia’s invasion of Ukraine and the global pushback are given much space, the recurrent message that runs through the document is prioritising dealing with a more assertive China and maintaining an enduring edge to do so.
While the document is the product of an effort to coordinate input from across the entire US government, it can’t be called a comprehensive strategic document given that it’s an unclassified version and doesn’t attach resources to efforts. Still, it an important document for what it says about the Biden administration’s understanding of the world, how it defines American interests, and what it designates as its foreign-policy priorities. A close reading also reveals several important takeaways for Australia.
The document, rumoured to be ready for publication last year, had to be delayed and then rewritten due to Russia’s invasion of Ukraine. In fact, what we saw this year was an inversion of the normal order of American national security processes. The national security strategy is supposed to articulate a broad national strategy, which then informs more focused documents such as the national defence strategy, and more specific regional articulations such as the Indo-Pacific strategy.
This year, however, the order was reversed due to the rush of real-world events and bureaucratic wrangling. The national security strategy was held because it made no sense to put it out before Washington had some sense of the trajectory of the war in Ukraine. The Indo-Pacific strategy, by contrast, came out while Secretary of State Antony Blinken was in Australia in February precisely to underscore that the US could, so the saying went, walk and chew gum at the same time. That is, it could focus on responding to the first territorial war of conquest in Europe in 75 years while still prioritising its efforts in the Indo-Pacific region.
Australia should take several important messages from this document—some of which are spelled out, but the majority of which are implicit and rest on factors outside of the document.
The first of these is that, important as this document is, it should not be read in isolation, but rather alongside the administration’s slew of other national security documents—the Indo-Pacific strategy, the first-ever Pacific partnership strategy, the Indo-Pacific Economic Framework for Prosperity, the global posture review and the national defence strategy. Taken together, these documents, which are intended to be internally consistent, offer a more comprehensive sense of what Washington aims to do in the region and with Australia.
While these documents are statements of strategic intent, it will be as important to look to Congress to see what actions it takes in support of these intentions. Congress has legislation passed or pending to fund the US semiconductor industry, authorise US$280 billion for investments in critical and emerging technologies, invest in clean energy, push for significant military sales to Taiwan, and intensify screening of outbound investment. The passage and implementation of all of this legislation—most of which is bipartisan—would demonstrate that this strategy is real, not just aspirational.
The strategist Bernard Brodie once wrote, ‘Strategy wears a dollar sign.’ If, as Biden declared, we are entering a ‘decisive decade’, a useful metric by which to judge America’s articulated strategy is the resources it is able and willing to offer in support of its desire to retain, with its allies, an enduring edge.
Significantly, the strategy places heavy emphasis on the role of allies and partners as a US advantage. AUKUS, the security partnership between Canberra, London and Washington, represents a major, if still unrealised, attempt to enable and empower America’s closest allies, enhance their defence collaboration and accelerate their integration. The strategy specifically, if elusively, underlines that effort by stressing the importance of ‘removing barriers to deeper collaboration … to include joint capability development and production’. That is easier said than done, and will take sustained political and legislative pressure to force a change in how America thinks of defence collaboration on its most sensitive technologies.
While Biden’s national security strategy shares the theme of competition with his predecessor Donald Trump’s, this is anything but an ‘America first’ document. Placing allies, and coalition building, at the heart of American strategy is a rejection of the more unilateral approach taken by the Trump administration. What’s unclear, with American midterm elections looming in November and the 2024 presidential contest around the corner, is how long such a feeling will last in Washington.
It is clear, though, that Australia has assumed a significantly more important role in Washington’s strategic calculations than it has in the past. Some will look to the number of times Australia is mentioned in the document, but a better marker of the change in Washington’s thinking is that Australia, and efforts in which Australia plays a leading role such as AUKUS and the Quad, are now much more central to US national security efforts. Those are likely to persist regardless of who occupies the White House.
Finally, the increasing efforts of the US to block China from acquiring key technologies; the defence of Taiwan becoming a preoccupation of American planning; and the end drawing near of the 18-month effort to determine how best, and most quickly, to proceed with AUKUS all make clear that we have entered a more competitive phase of American strategy towards China. If strategy is equal parts conception and execution, it’s clear that Washington’s focus is about to shift to working more closely with Australia in pursuit of these ends.
As Cambodia, Indonesia and Thailand gear up to host major world summits next month, the 55-year-old Association of Southeast Asian Nations is facing an existential crisis, owing to severe internal splits over Russia’s invasion of Ukraine, Myanmar’s military coup and other issues. The 2007 ASEAN charter’s vision of deeper political, economic, security and socio-cultural integration is no more. Salvaging what’s left will require accepting that reality and regrouping accordingly.
Notwithstanding past bureaucratic and functional pledges to do more together, ASEAN’s regional integration has always been shallow. Intra-regional trade in goods remains low, at 21.3%, and trade in services trade is under 12%, according to data from the ASEAN secretariat. Moreover, 88% of investment in the region comes from outside sources. Unlike the European Union, with its economic integration through a single market, ASEAN has emphasised cross-border connectivity through hard and soft infrastructure, from roads and railways to tourism and people-to-people contacts.
True, for a while after the ASEAN charter took effect, the organisation appeared to be going places. At the time, the region’s economy was the fastest-growing in the world, and its promising trajectory coincided with Myanmar’s post-2011 decade of political opening and economic reform.
Harnessing that internal momentum, ASEAN took the lead in organising regional projects for peace and security, through gatherings of the Asia–Pacific Economic Cooperation forum, the ASEAN Regional Forum, the East Asia Summit and the ASEAN Defence Ministers’ Meeting Plus. Corporations and investment funds formulated ASEAN-focused strategies, recognising the region’s promise as an interconnected production hub with a combined GDP of more than US$3 trillion and more than 680 million people, many of them young and comprising an expanding middle class.
But this narrative of ASEAN progress has lost its lustre as the geopolitical setting has changed. ASEAN’s success requires relative peace and a rough balance between the major powers in its orbit. When the big powers are locked in a zero-sum conflict—as between Russia and the West or China and the United States—ASEAN almost inevitably will become as divided and ineffective as it was before Cambodia joined as the tenth and last member state in 1999.
Consider China’s interests in the South China Sea, Myanmar’s internal conflict and Russia’s war of aggression in Ukraine. Each issue pulls different ASEAN member states in different directions. Cambodia supports China and Myanmar’s junta under the State Administration Council, but not Russia. Laos appears to be backing all three. And Vietnam has been critical of China, but silent on Myanmar’s military dictatorship and sympathetic to Russia.
Meanwhile, Indonesia, Malaysia, the Philippines and Singapore have aligned in expressing concerns about China’s belligerent role in the South China Sea, the Tatmadaw’s takeover in Myanmar and Russia’s war. And while Thailand has been soft on China’s territorial assertiveness and Myanmar’s putsch, it has taken a measured stand against Russia’s aggression.
Myanmar itself is a telling case. The United Nations still recognises the ambassador from the civilian-led government, and ASEAN so far has refused to allow the State Administration Council to represent the country in its major gatherings. As a result, Myanmar was on the record voting to condemn Russia at the UN even as the council openly supported the Kremlin. Having failed to promote dialogue and negotiation in Myanmar with its ‘five-point consensus’ last year, ASEAN’s rotating chairmanship, led by Cambodian Prime Minister Hun Sen, is now pressing harder against the junta and its leader, Senior General Min Aung Hlaing.
Still, the situation in Myanmar is threatening to derail November’s ASEAN-anchored summit meetings in Phnom Penh. And Russia’s war has cast a shadow over the APEC meeting in Thailand and this year’s G20 summit in Indonesia the same month.
To navigate this fraught geopolitical environment, ASEAN needs a new approach. Members that are willing and able to take common positions should do so without waiting for unanimity among all 10 countries. Indonesia, Malaysia, the Philippines and Singapore are already leading the way, and others, such as Thailand and Vietnam, can join them on specific issues that serve their interests. The new model could perhaps follow an ‘ASEAN 5+X’ formula, with the five original members—Indonesia, Malaysia, the Philippines, Thailand and Singapore—serving as a renewed organisational core.
The old ASEAN is gone for good. The region will not be completely united through political-security, economic and socio-cultural communities. But nor will the organisation be disbanded. Instead, its likeminded members should pursue a hard realignment, so that individual parties—like Myanmar’s military—can’t paralyse the rest of the group. For now, the new ASEAN should centre on the founding five members plus Vietnam. If Cambodia and Laos want to be regarded as core members, they will need to moderate their positions, rather than carry water for external powers.
The idea of forming an ASEAN economic community is no longer an option. Instead, governments, civil-society organisations and businesses with stakes in Southeast Asia will need to start thinking of the region’s integration as an à la carte menu rather than a five-course meal.
Rumours that President Xi Jinping was under house arrest amid a military coup in China—apparently driven by Falun Gong–linked social media accounts known for spreading factually problematic information—spread widely in late September. The available facts told most analysts that a coup probably hadn’t occurred, so it wasn’t surprising when Xi resurfaced on 27 September. That said, analysts shouldn’t be quick to deny that Xi’s position in power is more precarious than it might appear. No one knows for sure the degree to which his position is absolute. And neither, perhaps, does Xi himself. He may have positioned himself as ‘dictator for life’, but the forces of control are dynamic and he has survived in part because he doesn’t make that assumption himself.
Ahead of the 20th National Party Congress, kicking off on Sunday, we have been reminded that from the Chinese Communist Party’s perspective, power isn’t inevitable. We saw ramped-up prosecutions, continued calls for loyalty and warnings of colour revolutions. None of this is necessarily a sign of weakness or strength. The constant cycle of crisis or potential crisis is something the Chinese Communist Party also derives power from. It is a means for mobilising the party and the public, and for justifying intensified security measures and crackdowns. The threats are not imaginary.
A good rule of thumb for assessing political rumours from China is to consider them based on the balance of probabilities. If we’re going to talk about Xi’s power, it’s best to use the structure of power as a framework and shape the questions from there. As suggested to me by my colleague Peter Mattis, there are five main elements to being the foremost leader in the People’s Republic of China: gun, paper, pen, knife and blood.
The ‘gun’ is the People’s Liberation Army. The PLA is the party’s armed wing—not the country’s army—and is the guarantor of the party’s power. As Mao Zedong famously wrote, ‘Political power grows out of the barrel of a gun.’
The ‘paper’ is handled by the central paper-pushers in the General Office of the Central Committee and the Organisation Department, which play an important role in the party’s management of itself.
The ‘pen’ is the propaganda apparatus. The gun defeats enemies, but the pen, as Mao noted, unites the people (under the leadership of the party) and attacks and destroys the enemy. It also defines and interprets party orthodoxy.
The ‘knife’ is the internal security apparatus (the Ministry of State Security and Ministry of Public Security) responsible for social and political control.
And finally, the ‘blood’, representing the core families of the party. They hold massive wealth, much of which sits outside of China, and command their own loyalists by extension.
Mao controlled these elements as he rose to power and as he stayed in power after the forming of the PRC. As chronicled in Gao Hua’s meticulous study of Mao’s seizure of power, he began with his base in the Red Army and steadily moved to control how the central party machinery functioned and the propaganda organs. Xi has gone after each of these areas, it would appear with great success.
Early in his tenure, Xi began an anti-corruption campaign targeting the PLA. Two former vice-chairmen of the Central Military Commission were singled out for particular scrutiny: General Xu Caihou, who died of cancer in 2015 a year after being put under investigation, and General Guo Boxiong, who was sentenced to life in prison. Another PLA officer, General Gu Junshan, former deputy director of the PLA General Logistics Department (since rebranded as the Logistic Support Department), was given a suspended death sentence.
As analyst Kevin McCauley wrote in 2015, much of the early anti-corruption campaign and personnel changes focused on logistics and political officers responsible for money, personnel, materiel and construction projects. The significance of these posts is even more crucial in a political context, because the party’s ability to rely on the PLA to mobilise in a crisis requires political loyalty as well as preparedness for military action.
At the same time, Xi put himself in charge of huge PLA reforms with the establishment of the Leading Small Group on Deepening Reform of National Defence and the Military in 2014. He oversaw the establishment of the PLA Ground Force headquarters, the PLA Rocket Force and the PLA Strategic Support Force in 2015, and directed a major PLA restructure that began in 2016.
Xi was quick to focus on ensuring that the propaganda apparatus was on his side. Propaganda controls party dogma and helps Xi to project an image of strength, domestically and internationally. Huang Kunming, a Xi ally, was appointed head of the Central Propaganda Department, under the CCP’s Central Committee, in 2017. During Xi’s tenure, the department has tightened its control over media, with the State Administration of Press, Publication, Radio, Film and Television being moved from the State Council to the Central Propaganda Department’s control in 2018. This strengthened Xi’s ability to define how the party’s theory about achieving national rejuvenation suggested Beijing’s direction in light of real-world events.
Like every party general secretary, Xi has his supporters in key positions, like the person running the CCP General Office. He also has enough control of the party discipline and anti-corruption organisations to use them against political opponents—as he clearly did in July with the sentencing of white-glove financiers for his political opponents and in September with the sentencing of a number of officials linked to the Ministry of Public Security.
To control the knife, Xi launched a rectification campaign against the political–legal apparatus last year. One of the most senior officials taken down in the anti-corruption campaign, Zhou Yongkang, had most recently been head of the Central Political and Legal Affairs Commission, an area of the party-state apparatus that had resisted Xi’s efforts to politicise everything. Xi had either neutralised people or put his own in places of political power. Zhao Kezhi, who held the post of minister of public security, was recently replaced by Xi ally Wang Xiaohong. Zhao had earlier been replaced by Wang in the concurrent role of party secretary in the Ministry of Public Security.
Xi has generated the most resistance from the CCP’s elite families. The question here is whether the old power-broker system continues to function and has enough influence to unseat someone like Xi. It’s possible that the system has changed so fundamentally that the party elders can no longer act as a check on Xi.
The video message of Song Ping, the elderly representative of a significant PLA faction, is one of the most dramatic signs that the party’s bloodlines may be opposed in the current moment. (It is worth noting that signs of such dissatisfaction go back years.) As commentator Dimon Liu pointed out in June, criticisms of Xi by individuals writing from within the PRC have been published. None of those people are known to have been arrested, which is only possible if they are being protected by someone powerful in the PRC.
Yet, despite his consolidation of power, Xi has clearly made some mistakes.
The dynamic zero-Covid policy has created widespread dissatisfaction and left a trail of economic damage. Its disruptions have encouraged companies to think more directly about diversifying supply chains and forced new conversations about quality of life.
Xi’s decision to enter a ‘no limits’ partnership with Russia on the eve of its invasion of Ukraine put the PRC on the other side of an issue that has united the US and Europe. Although European countries are grappling with the energy crisis brought about by their dependence on Russian gas, new conversations are beginning about dependence on PRC supply chains.
Xi’s pressure campaign on Taiwan has closed off pathways for peaceful unification and encouraged the US to more explicitly state its support for Taipei. Last month, President Joe Biden for the fourth time stated that America would defend Taiwan if the PRC launched an unprovoked attack.
Xi also has doubled down on state-owned enterprises leading the economy, refusing to look at rebalancing the economy towards consumer demand. Now the headwinds are rising quickly and economic forecasts look increasingly grim.
So, the control solidified early on could be wearing down, and we are left to ask, by how much? At what point does dissatisfaction become opposition? Have generational change and Xi’s anti-corruption drive disrupted the familial and patronage networks that gave party elders power in the past?
For the CCP, the party congress is not when and where major political and personnel decisions are made. It is the platform the party uses to formalise and announce what already has been decided in backrooms. It isn’t always clear what those decisions might be until they become known to the world. It’s even possible that a palace coup and political manoeuvre forcing Xi out could go unmarked until the party congress provides the opportunity to tell the world.
In uncertain times when the rules have been cast out, regional specialists should be more open to possible discontinuities. As former director of US Central Intelligence Robert Gates noted, ‘Area experts, country experts, are sometimes the very last to see a revolutionary change coming, because the history of most countries is a history of continuity. In discontinuity, they find too many reasons why that won’t happen.’
The history of the CCP is littered with political crises, the most dangerous of which involved questions of leadership succession and economic policy. Even if the coup rumours were a false alarm generated by wishful thinking, the current dynamics should have us systematically assessing potential discontinuities because of the potential for another crisis to emerge that tests the resilience of the CCP. Xi’s behaviour shows that he knows that the struggle for power is never over. We should take note of this in our own thinking.
At the 20th National Congress of the Chinese Communist Party, starting on Sunday , Xi Jinping will almost certainly be confirmed for a third term as the party’s general secretary and China’s president. With that, he will become China’s longest-serving paramount leader since Mao Zedong, and the rules and norms that are supposed to govern the CCP regime will be shattered.
Those rules and norms were put in place largely by Mao’s successor, Deng Xiaoping, who took power in 1978. Deng knew firsthand the damage the party’s ideological fanaticism could do. During the Cultural Revolution, one of his sons was paralysed by rampaging Red Guards. Deng himself was stripped of his official positions and sent to work at a factory in a remote province for four years—one of three times he was purged from government during his long revolutionary career.
To ensure that China would never again be gripped by such terror, Deng—with the support of other veteran revolutionaries who had survived the Cultural Revolution—restored collective leadership and imposed age and term limits for most senior CCP positions. In the decades that followed, China’s top leaders served no more than two terms, and Politburo members respected an implicit age limit of 68.
But Xi has exposed just how fragile Deng’s ‘rules-based system’ really was. In fact, for all the hoopla about Deng’s accomplishments, his record on reining in the CCP regime is mixed, at best, not least because his own commitment to the rules was not nearly as robust as one might expect.
In practice, Deng disdained collective leadership and formal procedures. He seldom held Politburo Standing Committee meetings, because he wanted to deny his main rival, a staunch conservative opposed to economic reform, a platform to challenge his policy. Instead, he exercised leadership through private meetings with supporters.
In dealing with leaders sympathetic to pro-democracy forces, Deng frequently violated the procedures and norms he had established. His dismissal of two liberal CCP chiefs—Hu Yaobang in 1986 and Zhao Ziyang (who refused Deng’s order to implement martial law during the Tiananmen crisis) in 1989—defied the party’s bylaws.
At the same time, Deng sometimes avoided introducing a rule at all, if doing so could undermine his political interests. Most notably, he—together with other ageing CCP leaders—did not impose age or term limits on Politburo members. Even if they could not hold formal government posts indefinitely, they would never lose their decision-making authority.
Likewise, Deng enacted no formal rules governing who could chair the Central Military Commission. This enabled him to continue to do so after he had resigned from his other posts. Following that precedent, Jiang Zemin did the same in 2002. As for Xi, while he had to go through the motions of getting the presidential term limit removed from the constitution in 2018, he benefited from the fact that the CCP has not imposed an official term limit on its general secretary.
There is nothing shocking about China’s struggles to uphold rules and norms. Even mature democracies like the United States face such challenges, as Donald Trump’s presidency clearly showed. But should formal constitutional checks and balances fail, democracies can at least count on a free press, civil society and opposition parties to push back, as they did against Trump.
In dictatorships, rules and norms are far more fragile, as there are no credible constitutional or political enforcement mechanisms, and autocrats can easily politicise institutions, such as constitutional courts, turning such bodies into rubber stamps. And there are no secondary enforcement mechanisms. China has no free press or organised opposition. If a rule becomes inconvenient—as the constitutional limit on presidential terms did for Xi—it can easily be changed.
While trampling institutional rules and norms may benefit autocratic rulers, it is not necessarily good for their regimes. The CCP’s experience under Mao is a case in point. Unencumbered by any institutional constraints, Mao engaged in ceaseless purges and led the party from one disaster to another, leaving behind a regime that was ideologically exhausted and economically bankrupt.
Deng understood that a rules-based system was essential to avoid repeating that disastrous experience. But his conviction could not overcome his self-interest, and the institutional edifice he built in the 1980s turned out to be little more than a house of cards. Xi’s confirmation this month is merely the breeze triggering its inevitable collapse.
As the Chinese Communist Party convenes next week to embellish and extend Xi Jinping’s role as emperor, the mandate of heaven wobbles.
The imperial mandate has been translated into a Marxist mandate of history. Heaven or history, the mandate confers legitimacy based on performance.
One CCP gauge for the state of the mandate is ‘comprehensive national power’, measuring a country’s economic, military and political weight. The national power calculation draws on the Soviet concept of the correlation of world forces and Karl Marx’s observation: ‘Merely quantitative differences, beyond a certain point, pass into qualitative changes.’
For much of Xi’s decade, the quantities have stacked up favourably and the quality of China’s power surged. The comprehensive power needle leant China’s way, pointing to significant gains against other states.
Suddenly, though, the power needle has stuttered. At the very least, the relative growth of Chinese power has slowed. And whisper it quietly as the emperor steps higher: some slippage is apparent.
The tide turns against China’s helmsman, domestically and internationally.
One bad period doesn’t negate all China has achieved since Xi took office in 2012, yet the power meter blips. This is not the 2022 that Xi ordered—a masterfully staged Beijing Olympics was supposed to be followed by a calm, ordered progress to the 20th National Party Congress.
The CCP gathers to bury the collective leadership model and remove all checks on Xi as China staggers on through Covid-19 lockdowns. Consider the irony, Kerry Brown comments, if a public health issue caused the people to question Xi’s mandate: ‘Zero-Covid is having an impact across the nation. A government that places ideology and political commitment above everything—even the public wellbeing and economic prosperity that lies at the heart of their legitimacy—runs risks like never before.’
Runs risks? That’s far from the calmly confident congress Xi wants.
Beijing set a GDP target of 5.5% for this year, but is on course for its biggest ever GDP miss. The actual percentage figure to be delivered will start with a 4 or even a 3. The days of double-digit growth fade to history. The middle-income trap is snapping. The debt mountain has become what Reuters calls ‘a threat to China’s stability and even the world’s economic health’. The real estate crash is ‘a slow motion financial crisis’, revealing systemic problems. The demographic reckoning looms as China’s population ages faster than that of any other country in modern history.
China exults that it’s the world’s largest exporter and official creditor, but frets at the might of the US dollar, still the most important currency, pre-eminent in trade and cross-border debt.
Unable to knock the greenback from its peak, Beijing seeks to build a digital payments system instead. The digital currency is ‘programable’, allowing China to impose conditions, giving a ‘god’s eye view of the currency’ and how it’s used. See ASPI’s 2020 report on the international implications of the digital version of the yuan.
Putting much of this together, Sebastian Mallaby has penned an op-ed pointing to the emerging cracks in the system, starting with these opposed questions: ‘Is China (a) an economic juggernaut, rapidly overtaking the United States in the technologies of tomorrow? Or is it (b) an ailing giant, doomed by demography, failing real estate developers and counterproductive government diktat?’
The CCP will embrace option (a) because Xi—princeling turned emperor—is both product and expression of the party.
China’s strategic equation has shifted dramatically since 4 February, when Xi and Russia’s Vladimir Putin announced their ‘no limits’ pact, pledging ‘no “forbidden” areas of cooperation’. Ukraine has turned this into a limited liability deal, with much off limits.
China stays on the safe side of the sanctions against Russia, offering supporting words but no weapons. When the two leaders met again last month, Putin acknowledged Xi’s ‘questions and concerns’. Whatever the cracks in the marriage of convenience, Xi is bound to his fellow autocrat in a dangerous world.
Beijing’s judgement of the military balance suddenly involves a huge Russia discount. On the other side of the calculation sits the new 50-nation Ukraine Defense Contact Group, offering what the US describes as momentum and resolve.
China’s military budget has grown for 27 consecutive years and it’s comfortably settled as the world’s second largest, while still well short of half what the US spends. Broaden beyond the bilateral comparison, though, and the power computation becomes problematic.
China’s growing assertiveness is a major driver of military spending by countries such as Australia and Japan (the 7.3% jump in Japan’s defence budget last year was the biggest annual increase in 50 years).
The total defence spending of the Quad (Australia, India, Japan and the US) is triple that of China. No question about the prime driver for the Quad getting back together in 2017: a disruptive Xi is the group’s godfather.
The self-obsession of the CCP means it pays close attention to parties and political players elsewhere. Beijing will have noted the alliance of parliamentarians from almost 30 countries drawing up a blueprint last month to help democracies resist Chinese intimidation. The Inter-Parliamentary Alliance on China aims to safeguard the international rules-based order, uphold human rights, promote trade fairness, strengthen security and protect national integrity.
From values to vital defence kit, there’s a lot of pushback happening.
No clear answer is possible in the debate about whether we’re approaching ‘peak China’. Indeed, a slowing or weakening China might be more dangerous than a nation confident that time is on its side.
The spectre haunting the CCP congress is that the international tide has turned, while the domestic waters are choppy.
The clear judgement is that the relative increase in China’s power is slowing.
The needle on the power meter is wavering, and it might just be waning.
Geography influences the strategic choices of all countries, but Vietnam is an interesting case of a ‘swing’ state in comparative grand-strategy terms. The country occupies the eastern part of the Indochinese Peninsula, with an elongated coastline of 3,260 kilometres facing the South China Sea. Vietnam also sits unambiguously in continental Asia, sharing a 1,300-kilometre border with China, as well as abutting Cambodia and Laos. This duality in Vietnam’s situation, straddling Southeast Asia’s geostrategic fault line, gives it unusual flexibility to develop a continental or maritime orientation. Despite a strong landwards pull in Vietnam’s history, Hanoi has latterly and perhaps decisively adopted a maritime course, though the country’s grand strategy remains dynamic and is actively debated among observers.
In the second half of the 20th century, Vietnam’s communist leadership was absorbed by the anti-colonial struggle and national unification. The long wars against France and then the United States, when Hanoi’s ideological and material allies were the Soviet Union and China (to a lesser extent), encouraged a continental disposition. Coastal supply routes were important to sustaining Hanoi’s revolutionary war effort in South Vietnam, but the main axis of supply ran overland through Laos and Cambodia, along the Ho Chi Minh Trail. North Vietnam’s armed forces lacked the means to contest US sea control in the South China Sea. China forcibly expelled South Vietnamese forces from the Paracel Islands in 1974, though Hanoi maintains Saigon’s claim. After reunification in 1975, Vietnam’s border conflict with China in 1979 and prolonged military intervention in Cambodia throughout the 1980s ensured that Hanoi was preoccupied by land-based threats for the remainder of the Cold War, with the exception of a brief clash with China in the Spratly Islands in 1988.
In the 21st century, however, Vietnam has transformed into an export-oriented economy that depends upon freedom of navigation in the South China Sea, and beyond, to deliver its prosperity. This has influenced its threat perceptions. The majority of Vietnam’s population and infrastructure is concentrated on the coast, making it vulnerable to attack from the sea. Vietnam has to defend and police the oil, gas and fish within its exclusive economic zone, as well as its territorial claims in the Spratly Islands. If, in future, China is able to exert uncontested control within the so-called nine-dash line, and acquires access to a naval base in Cambodia, Vietnam could find itself encircled and vulnerable to blockade. Once access to seaborne trade is denied, Vietnam would suffer immediately and grievously.
The move towards a maritime strategy is evidenced by changes to Vietnam’s defence capability. Despite the effects of the 2008 global financial crisis, Vietnam doubled its defence expenditure between 2006 and 2010. From 2009, it began acquiring six Russian Kilo-class submarines armed with anti-ship and land-attack Klub supersonic cruise missiles capable of hitting China. The modernisation of the Vietnam People’s Navy was officially declared a priority at the 11th National Party Congress, in 2011. The 2019 defence white paper put a seal on Vietnam’s strategic reorientation by officially identifying it as a maritime nation. Vietnam is unlikely to prevail in a serious maritime conflict with China, but it has made significant investments to raise the costs of aggression.
Despite these trends, it has been argued recently that Vietnam should ‘look west for its survival’ and refocus its strategic attention from the maritime domain to its land borders because ‘the balance of power on land works more in Vietnam’s favour’. According to this line of argument, Hanoi has little long-term hope of defending its maritime claims in the South China Sea due to the growing power disparity between China and Vietnam.
But the strategic situation on land is less severe than it may first appear. In reality, a binary continental-versus-maritime dilemma is somewhat artificial; Vietnam will continue to look landwards for its security, and to some extent for its prosperity too. Hanoi cannot overlook the possibility of invasion or incursion across its land borders. It is also the case that Vietnam’s armed forces remain army dominated for historical reasons. However, China and Vietnam signed a border treaty in December 1999, which was ratified in 2000. The two sides completed border demarcation in 2009. Although China has a dominant economic profile and significant political influence in both Cambodia and Laos, Vietnam’s Southeast Asian neighbours remain sovereign states and are unlikely to allow the People’s Liberation Army to launch attacks on Vietnam from their territory. Even if Phnom Penh and Vientiane agreed to host PLA ground and air forces, invading Vietnam would be prohibitively expensive, as demonstrated by Russia’s war in Ukraine and, indeed, China’s costly invasion of northern Vietnam 43 years ago.
By contrast, China’s unilateral and expansionist actions in the South China Sea haven’t faced serious consequences. Since 2009, Beijing has incrementally ramped up its claims across the South China Sea, consolidated its control in contested areas, interfered with the sovereign economic activities of other claimants within their exclusive economic zones, and militarised those features it has converted from rocks and reefs into artificial islands. China can exert pressure on Vietnam from the sea at much less risk to itself than over land, including but not limited to the use of grey-zone tactics.
If Vietnam were to vacate the features that it occupies in the Spratly Islands, China would be certain to fill the resulting vacuum, further strengthening its control. Giving up on the South China Sea would be widely unpopular with the Vietnamese public, potentially threatening the legitimacy of the Vietnamese Communist Party. Most importantly, accommodating Beijing’s maritime expansionism as a fait accompli would undermine Vietnam’s long-term security and that of the surrounding region. Hanoi has progressively aligned its domestic legislation with the UN Convention on the Law of the Sea and international law because its long-term interests are best served by upholding the rule of law and peaceful dispute resolution.
Vietnam’s maritime strategic orientation has fostered closer economic and security partnerships with Australia, India, Japan, South Korea, the United Kingdom and the United States. As Vietnam attracts more foreign investment, including production relocated from China, it has become important to international supply chains, giving other countries an increased stake in its security. External assistance has significantly improved Vietnam’s maritime law enforcement capacity, enabling it to develop its marine economy despite continuous pressure from China in the South China Sea.
Any reversal of the prevailing maritime strategy is therefore unlikely to hold water with Hanoi’s key decision-makers, who have embraced a maritime orientation as essential to Vietnam’s national security.
Vast and, more often than not, hidden supply and value chains underpin modern Australian life. We’ve become accustomed to, if not overly confident in, the ability of markets to meet our every need and want. Covid-19 and a series of concurrent natural disasters have left us with a nagging feeling that things might not really be so rosy. It’s become painfully apparent that some countries won’t always act in the interest of open global trade.
Addressing this challenge requires some big, new policy thinking. Global magnesium supply chains illustrate how difficult that will be.
The supply and value chains for magnesium are a long way from the minds of average Australians. Many would assume that because Australia is a bulk mineral ore exporter without a significant manufacturing base, there’s no need for magnesium to be a concern. That assumption is wrong.
Magnesium is a critical input for major and emerging economies’ economic and industrial development. It has diverse high-tech applications in a wide range of sectors, from renewable energy to aerospace, defence to transport, and telecommunications to agriculture. The global demand for aluminium alloys, made from magnesium, is increasing. Magnesium is critical to the growing market for electric vehicles since its light weight helps to increase their range.
However, for industry and sometimes governments, magnesium supply chains are vulnerable to sudden disruptions.
By 2019, China had become the dominant producer of magnesium, capturing a 94% share of the global export market. Its companies produce magnesium at prices that no other market can match.
Chinese companies have avoided the temptation of using market share to set high prices. Instead, they have set prices that present competitors with high barriers to market entry. The low prices have been a windfall for both manufacturers and consumers, and have helped further entrench China’s market dominance.
Interestingly, our understanding of the supply-chain vulnerabilities created by this arrangement wasn’t driven by increasing strategic uncertainty but by Chinese domestic policy.
As early as 2006, the Chinese government had become concerned about energy security in light of China’s growing economy. In 2016, it introduced a dual-control policy focused on reducing energy intensity and limiting overall consumption. However, the policy wasn’t afforded any real priority, so it had a limited impact.
About a year ago, the central government began actively monitoring consumption across China. In September 2021, Shaanxi Province fell victim to the country’s ‘double control’ when it failed to meet energy consumption targets. The government swiftly shut down high-energy-intensity industries, including aluminium production. An international supply crisis ensued, and prices have soared.
Of course, higher prices could make entering the market more attractive to new players. But establishing magnesium value chains—from mines to producing unwrought magnesium and aluminium—takes time. Then there’s the added complexity of climate and trade policies. Plus, investors know that the supply chain shortages relate to Chinese domestic policy, which could be reversed just as quickly to prevent market entry.
Canada, the EU, Japan, the UK and the US are all reeling from the sudden disruption of the magnesium and aluminium supply chain. All are trying to find a way to address the issue and reduce prices to avoid further disruption in manufacturing. While markets are part of the solution, they alone won’t resolve this problem. Like Australia, most of these countries have limited experience in intervening in markets of this type. A resilient global supply chain will require work from each nation, both individually and in cooperation with one another. Resilience will have a price premium attached to it. Still, this latest episode shows that inaction has a price too.
Australia is an established magnesium producer. Companies like Magneto Metals, with its Batchelor magnesite project in the Northern Territory, are poised to provide supply-chain resilience. Like other companies, Magneto Metals knows that ‘to succeed, projects will need to have an integrated low-cost, low-carbon energy strategy and carbon footprint, meet increasingly stringent ESG [environmental, social and governance] policies and a competitive operating cost’.
But unlike similar projects in China, Australian companies face additional costs for infrastructure development, such as roads and affordable power supplies. In the Northern Territory, the future of magnesium rides on investments in facilities like Darwin Harbour’s Middle Arm Sustainable Development Precinct. China’s market domination still allows it to manipulate pricing, however, and Chinese state-controlled companies have arguably used their market dominance to affect commodity prices in the past in order to inhibit the growth of competitors in the market for rare-earth elements.
A small grouping of like-minded countries could ensure carbon pricing along these supply chains. Such an approach would reward companies that adopt less emissions-intensive processes, resulting in greater competition among suppliers.
Globalisation in one form or another is no doubt here to stay, but the age of predictable, reliable supply chains is over.
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