Tag Archive for: China

Beijing’s new and old rhetoric on the Taiwan question

On 12 September, the State Council of the People’s Republic of China and the Central Committee of the Chinese Communist Party issued a ‘Proposal on supporting Fujian Province in exploring a new path for the integrated development across the Taiwan Strait’.

The PRC system produces a great many policy statements about Taiwan. In 2022, it released a white paper on the Taiwan question, only the third since 1992, and CCP Chairman Xi Jinping gave a major, and disastrously timed, Taiwan speech in 2019. Whether the new statement is consequential may only become clear in the months and years ahead, but it does contain some notable features.

The statement outlines institutional, social and governance integration between Taiwan and Fujian. It calls for relaxing Taiwanese residency rules in Fujian and proposes allowing Taiwanese to participate in non-government organisations concerned with issues like environmental protection and rural development, and even take up non-official roles in Fujian’s legal system.

The statement requires local governments to facilitate the operation of Taiwanese businesses by easing regulations and it describes the establishment of an ‘integrated development demonstration zone’.

It also emphasises Taiwan’s and Fujian’s shared cultural and historical connections, including the Minnan language, and notes the importance of Quanzhou and Zhangzhou as ancestral towns in Fujian for many Taiwanese.

In a broad sense, social and economic cross-strait convergence is a longstanding PRC theme. It is generally what Beijing means by ‘peaceful reunification’ and what it points to when it claims that ‘the tide of history’ is bringing Taiwan and China naturally together. Integrating Taiwan’s economy with Fujian’s has come up many times before, recently in the proposal for a Fujian export zone in 2009 and the trade zone established in 2015.

However, highlighting a shared Fujian and Taiwan identity is interesting coming from the very top of the PRC system.

Generally, Beijing places the status of Taiwan within historical national goals—what Xi calls the great rejuvenation of the Chinese nation—and nationalist rhetoric about Taiwanese people as ‘flesh and blood’ Chinese.

The new statement focuses instead on the Minnan culture and ancestry of people who settled in Taiwan from the 17th century. These groups came mostly from Zhangzhou and Quanzhou in Fujian with successive imperial regimes: the Dutch in the mid-17th century, then the exiled Ming loyalist kingdom of Koxinga and then the Qing empire. The Qing never had full control over Taiwan, and in 1895 ceded the whole island to Japan under the Treaty of Shimonseki. In the Japanese period, among many social and economic changes, Minnan cultural identities articulated into political and cultural movements for self-determination in the name of a singular Taiwanese identity.

The Republic of China, founded in 1912 under the Chinese Nationalists, or Kuomingtang (KMT), took over Taiwan in 1945 from Japan in the first attempt at national unification. This led to the anti–Chinese Nationalist uprising of 1947, crushed by Nationalist forces, followed by the arrival of the national government of the ROC and the flight of more than one million refugees from the advancing communists in 1949.

The establishment of the ROC created schisms in Taiwanese society between so-called mainlanders and the majority Taiwanese. Even though it’s no longer the febrile divide it once was, it can still be expressed in a north–south sentiment and in class identities. In the democracy era at the national level it is represented very approximately in the political bases of the Democratic Progressive Party (DPP) and the KMT.

Beijing has long considered party-to-party relations between the CCP and KMT as the only instrument of cross-strait dialogue; it has refused to engage with, or really even comprehend, Taiwan’s DPP government. Therefore, it is noteworthy that this statement speaks to the DPP indirectly through the party’s constituency.

But it does so in Beijing’s typically reductive and instrumental way and its policy measures are unlikely to mobilise authentic sentiment in Taiwan or Fujian. The questions of history, reconciliation and identity have been at the centre of Taiwan’s public life for decades. It is now 30 years since the newspaper United Daily News sent three well-known writers, Wang Hao-wei, Jian Zhen and Jiliang Hou, to Quanzhou and Zhangzhou to visit their lineage temple halls and record their experiences. They returned not with any commitment to the goals of the CCP but with thoughtful and varied reflections on ancestry, identity and the meaning of home.

Officially, Taiwan’s Mainland Affairs Council dismissed the statement as ‘wishful thinking’ and in the week of its release, the People’s Liberation Army escalated its military activity around Taiwan, with 68 aircraft deployed at one point.

Ultimately, the statement shows that Taiwan policy work in Beijing consumes significant government resources and carries enormous political weight but is simultaneously constrained by the CCP’s ideological fixations. It matters that a statement comes from the very top of the PRC system that adjusts the boundaries of policy, but equally that it is a fractional shift beset by contradictory actions from other parts of the system. It goes nowhere near to addressing, or even understanding, Taiwan’s social and political reality and what would actually be required to achieve Beijing’s goals without tipping the region into a permanent crisis.

For Australia, continuing peace in the Taiwan Strait is a fundamental national interest, but Canberra has no means to effect any change to Beijing’s Taiwan policy. This is a very challenging foreign policy problem, but Australia but it can deepen its own Taiwan policy work to deliver more calibrated and agile responses to Beijing and communicate its interests from a more grounded and informed position.

Keeping Taiwan connected

Internet connectivity is a lifeline—albeit a fragile one—for Taiwan. A recent war game staged in Taipei with experts from the military, tech industries, academia and government suggested that, in the event of a Chinese blockade, the island would be particularly vulnerable to a communications cutoff.

The threat to Taiwan’s digital infrastructure was made plain in February, when Chinese maritime vessels severed two submarine cables connecting the island to Matsu, a tiny archipelago that belongs to Taiwan but is located just off the coast of China. The months-long outage deprived residents of internet access and left Matsu, which houses a strategic military base, open to attacks. The damaged cables also exposed the vulnerability of the US tech giant Google, which has a data centre on Taiwan’s western coast.

Currently, 15 submarine cables connect Taiwan to global telecommunications. A Chinese invasion or prolonged blockade could thus cut off the island from the world, with consequences for the global economy and financial markets. Such an outcome could also threaten the security of the United States and its regional allies, including Japan. As a result, the Taiwanese government must focus on strengthening communication capabilities and ensuring robust and reliable internet connectivity.

One potential solution is to engage the services of Starlink, the mobile satellite-internet system operated by Elon Musk’s rocket company, SpaceX. Some would argue that Musk, who also owns X (formerly Twitter), is the internet’s most powerful man; others would describe him as the most erratic. Starlink, a key part of Musk’s business empire, provides internet connectivity globally through its more than 4,500 low-earth-orbit satellites.

Soon after Russia invaded Ukraine, Musk allowed his satellites to broadcast in the country free of charge and donated thousands of Starlink terminals to the government in Kyiv, helping it circumvent Russia’s attack on Ukraine’s telecoms infrastructure. Since then, Starlink has become an essential tool of the Ukrainian military, allowing it to gather intelligence on Russia’s latest troop movements and to communicate securely with NATO partners.

But while Musk was touted as a hero early in the war, government leaders are increasingly beholden to his whims. Last year, Musk refused to activate Starlink coverage near the coast of Crimea when Ukraine was planning a drone attack on Russian ships, arguing in a text to the then deputy prime minister, Mykhailo Fedorov, that the country was ‘going too far and inviting strategic defeat’.

Using Musk’s Starlink to access the internet and connect with the outside world could prove to be problematic for Taiwan. First, relying solely on Starlink means that any systematic failure or data compromise could be irreversible. Second, Musk has explicitly identified as ‘pro-China’ and even suggested that Taiwan should become a ‘special administrative zone’ of the People’s Republic, similar to Hong Kong. Third, Musk has substantial business interests in China: Tesla, Musk’s electric-vehicle company, has its most productive manufacturing hub in the country, which is also the world’s largest EV market.

Given all this, in the event of a military conflict between China and Taiwan, there’s no guarantee that Musk would not accede to China’s demands. Without sovereign control of its data, including data flows and data storage, Taiwan’s national security would be at risk.

To protect itself, Taiwan—already a global leader in the semiconductor supply chain—must develop indigenous capabilities in satellite communications and technologies. By integrating and consolidating resources, the Taiwanese government could establish, and maintain control over, public–private partnerships that would be able to ramp up capacity rapidly in the event of a war. The government should also streamline the procurement process to make it easier for start-ups to work with defence contractors.

While Taiwan’s National Development Fund invests in satellite technologies and critical communications infrastructure, the Ministry of Defense and Ministry of Digital Affairs should work with the Taiwan Space Agency to exchange intelligence and establish a defence-shield system with partners such as Japan, South Korea, the Philippines and Australia. Taiwan needs to launch 120 satellites to ensure uninterrupted backup coverage, but policymakers are racing against time and must leverage allies’ support.

The US government, for its part, should consider allocating some of the funds provided by the CHIPS Act and the National Defense Authorization Act to co-develop, with Taiwan, satellite communications technology and the relevant semiconductor chips. In addition, as part of its Indo-Pacific strategy, the US should take the lead in establishing this alliance, by forming working groups, establishing technology standards and arranging high-level exchanges.

The situation in Taiwan is not entirely analogous to that in Ukraine. Unlike Ukraine, which shares a long land border with Russia, Taiwan is separated from China by the notoriously rough seas of the Taiwan Strait. Moreover, Taiwan imports more than 90% of its energy, which means that a blockade would swiftly bring the island’s economy to a halt, in addition to threatening the security of its neighbours and the Indo-Pacific region more generally.

A disruption of Taiwan’s internet connectivity could all too easily turn into a global crisis. As tensions across the Taiwan Strait rise, the island’s security is becoming a shared geopolitical concern. Defeating China may not be possible, but outsmarting it certainly is. Taiwan and its allies should start investing today to ensure that the island’s links to the outside world remain robust, even at the darkest hour.

Time to renew Australia’s police-to-police connections in the Pacific

Two weeks ago, it appeared that Vanuatu’s then prime minister, Ishmael Kalsakau, had survived a parliamentary no-confidence vote. It turned out to be simply a stay of execution.

Last week, the Pacific island nation’s parliament elected Sato Kilman as prime minister. It’s not clear yet whether this challenge was related to domestic issues, or whether it was another round in the competition for influence in the Pacific. Kalsakau had been heavily criticised for signing a security pact with Australia.

An immediate concern for Canberra is that during the political crisis, Beijing sent police personnel and equipment to train and build the capacity of Vanuatu’s police force. China’s ambassador, Li Minggang, stated that the Chinese police would ‘greatly enhance the ability of Vanuatu police to maintain social order’. But it’s likely that policing with ‘Chinese characteristics’—using police to defend a political regime—will prove difficult for the people of Vanuatu to stomach.

It does not align with the Pacific way of doing things. Neither does it align with decades of reform. It’s a setback for the quality of policing in Vanuatu. For Australia, with its long history of providing police capacity development, this represents a lost opportunity.

Policing in the Pacific is challenging. Large geographical areas, heterogeneous societies, violent crime, corruption and political instability can present logistic and policy issues. In many cases, police fill a hybrid role that merges law enforcement with national security, especially in nations like Vanuatu that lack a military or similar institutions. Police occupy a significant role with few counterbalances. Operational practices and organisational culture are therefore fundamental to producing just outcomes.

For Beijing, the solution to policing problems in Vanuatu and elsewhere in the region is relatively straightforward: increase the police force’s capacity to keep order and focus on protecting the state and its leaders. It’s a solution derived from China’s own experience and doctrines, superimposed this time on the Pacific island context. Such thinking is wrong-minded and doesn’t align with the historical development of the region’s police organisations.

Most of the Pacific’s police forces were established under colonial rule and were used by nations like the UK, France and Australia to control local populations. Police operations focused on dominating communities and being accountable to the regime, not the people. Sharp similarities can be drawn between these historical police organisations and those currently operating in China. Beijing’s approach could lead to a slide back towards unjust practices.

In the years since independence, police in some Pacific nations were involved in conflict and the suppression of democracy, which created deep multigenerational distrust between the people and the police. That legacy has been hard to shift.

Over recent decades, policing across the region has advanced significantly. Remnants of the old ways remain, but law enforcement in Pacific island countries has undergone substantial reform with a greater focus on democratic policing, prioritising protecting people rather than controlling them. Australian and New Zealand police have been on the front line of this reform.

Australia’s law enforcement community has deep and lasting multigenerational connections to policing in the Pacific, not just as donors but as partners. While we provide equipment, the relationship concerns more than a state’s security.

With such deep connections and alignment of purpose, why didn’t Australia offer to assist in Vanuatu? The answer is a lack of capacity. Already, federal, state and territory police services are heavily committed and the amount of reported crime far exceeds their capacity to respond. The world-leading organisation once used by the government for such missions, the Australian Federal Police’s International Deployment Group (IDG), no longer exists.

In 2004, the government created the group specifically for missions overseas. As the first of its kind  in the world, the IDG was tasked with helping to build policing capacity and respond to emergencies.

In March 2007, the IDG employed more than 600 people with approximately 250 Australia-based and 350 deployed overseas. Of the 350 on those operations, 100 officers were seconded from Australian state police and 13 came from Pacific island countries. The rest were AFP personnel. The 250 Australia-based personnel were primarily unsworn officers working in areas such as human resources, finance, contracts and logistics, capacity building and training.

Over the past decade, the IDG was reduced and then merged into the AFP’s international operations capability. This was largely in response to declining demand for peacekeeping contributions and was seen as a cost-saving measure.

With increased geopolitical competition in the region, Beijing is offering alternative policing capacity development to that provided by Australia and New Zealand. In addition to providing equipment to Vanuatu, China has provided equipment, policing advice and training to Solomon Islands.

Beijing offers a flawed policing model that Australia must contest.

To help the region avoid the securitisation or militarisation of police forces, a reinvigorated capacity is required. Australia needs a new IDG to respond to regional law enforcement issues and provide capacity development to support democratic policing. It needs to include officers from across the Pacific, Australia and New Zealand. When not responding to regional crises, it could focus on ensuring that the region’s police reform continues towards democratic values and not authoritarian ones.

ASEAN summits overshadowed by absences and a map

As Indonesia prepared to play host this week to the various annual ASEAN-centred summits, culminating in the 18th East Asia Summit, President Joko Widodo warned, in terms familiar to ASEAN watchers, against the risk of Southeast Asian countries being pulled into major-power rivalry. ‘ASEAN has agreed to not be a proxy to any powers,’ he boldly declared, in a reference intended to resonate equidistantly in Washington and Beijing.

If Jakarta, as the outgoing ASEAN chair, is concerned about a surfeit of competitive strategic attention from the US and China, the more immediate issue for ASEAN this week was high-level neglect, underlined by the absence of both US President Joe Biden and Chinese President Xi Jinping from Jakarta. ASEAN’s convening power is not what it could be, or once was.

It is not ASEAN’s fault that the regional security environment has deteriorated to the extent it has. But the dimming of ASEAN’s diplomatic fortunes is an inevitable consequence of the grouping’s increasing struggle to maintain internal coherence, which has undermined its role as an institutional hub for the region’s multilateral security architecture and raised fundamental questions about the organisation’s ability to live up to its founding purpose.

ASEAN’s limited decision-making bandwidth in the run-up to summit week was mostly concentrated on the intractable embarrassment generated by Myanmar, one of the group’s newest and most troublesome members. Not for the first time, ASEAN’s rotating chairmanship will skip Myanmar, passing to the Philippines in 2026. This move to spare ASEAN’s blushes by alphabetically rearranging the diplomatic deckchairs will do nothing to convince critics that it is any closer to a more coherent policy position on Myanmar. Neither the ASEAN chairman’s statement nor the East Asia Summit statement included any new significant initiatives or wording on the matter.

While Myanmar’s ejection from the ASEAN chair’s seat will bring the diplomatic limelight to Manila earlier than planned, the Philippines has its own reasons to feel ambivalent about ASEAN, despite being a founder member. Manila has struggled in vain to obtain diplomatic support from its fellow ASEAN members, in the face of a sustained external threat from China’s encroachment on the portion of the South China Sea that international law recognises as the Philippines’ 200-nautical-mile exclusive economic zone. This week’s summit statements brought no obvious changes of tone or substance on the South China Sea, either.

Instead, an apparently never-ending process to negotiate an ASEAN–China code of conduct in the South China Sea, running for more than 20 years, has taken on the feeling of a sham exercise that serves only to expose ASEAN’s powerlessness and disunity in the face of Beijing’s bilateral carrot-and-stick tactics. While Vietnam, and to a lesser extent Malaysia and Brunei, are in the same claimant boat as the Philippines, Indonesia has appeared more willing to turn a diplomatic blind eye to China’s less intense but still persistent presence in Indonesian waters near the Natuna Islands.

Widodo’s administration is preoccupied with domestic concerns, such as relocating the capital from Java to Borneo, for which it needs funding, including from China. Plans for ASEAN navies to stage an unprecedented multilateral exercise in waters north of Natuna this month, sending a strong collective signal to Beijing, have been modified in favour of a less pointed location to the south of Natuna. This adds to the impression of an organisation that appears collectively willing to look the other way in the South China Sea.

Probably the stand-out speech in Jakarta this week was given by the Philippines’ President Ferdinand Marcos Jr, who told his ASEAN counterparts that his country ‘firmly rejects misleading narratives that frame the disputes in the South China Sea solely through the lens of strategic competition between two powerful countries’. He added: ‘This not only denies us our independence and our agency, but it also disregards our own legitimate interests.’ As well as airing its concerns about China’s recent aggressive behaviour in the South China Sea, Manila was plainspoken about its growing frustration with ASEAN’s passivity on a ‘core’ issue for the Philippines.

The relevance of the East Asia Summit has also waned in tandem with ASEAN’s fading star, and the forum is at risk of descending into a perfunctory and pro forma meeting. The summit continues to fall short of its optimistic billing in Australia’s 2017 foreign policy white paper as ‘the region’s premier political and security forum’. Biden’s and Xi’s no-shows, too, belie that description.

Fortunately for the US and its allies, Beijing was in no mood to capitalise on Biden’s absence in Jakarta by projecting a softer side to Southeast Asia. Representing China at the ASEAN Plus Three summit on Wednesday, Premier Li Qiang shrilly warned ASEAN, Japan and South Korea against ‘taking sides, bloc confrontation and a new Cold War’.

Last week, China’s Ministry of Natural Resources unveiled a new ‘standard’ map of China, timed ‘during the celebration of Surveying and Mapping Publicity Day and the National Mapping Awareness Publicity Week’, according to China’s state media. The map drew widespread and rapid condemnation from across the region for reiterating Beijing’s expansive territorial claims, including the dashed line that encloses most of the South China Sea and Taiwan—via the inclusion of a tenth dash to the island’s east.

India, Malaysia, the Philippines, Taiwan and Vietnam all lodged diplomatic protests. While the map restates China’s claims in very similar terms to a national map unveiled almost exactly a decade ago (which I covered for The Strategist), the episode underlines Beijing’s chronic insensitivity towards its neighbours, on land and across water, following as it did on the heels of a meeting between Xi and Indian Prime Minister Narendra Modi and a recent altercation between China’s coastguard and Philippine vessels near Second Thomas Shoal.

A statement from China’s foreign ministry asserting that the issuance of standard maps ‘is a routine practice in China’s exercise of sovereignty’ only further inflamed regional concerns already piqued by China’s latest exercise in expansionist cartography. While Beijing’s new map represents nothing new in terms of the territorial claims it depicts, the fact that it has drawn a much sharper regional reaction than the map of 10 years ago attests to heightened threat perceptions among a majority of its neighbours, even if that reality failed to percolate down to the lengthy summit statements and handshakes on display in Jakarta this week.

This cold war is different

US President Joe Biden brought the leaders of allies Japan and South Korea to Camp David last month to discuss how to contain China and counter Russia’s influence—for example, in Africa’s Sahel region, which has recently experienced a string of coups d’état. Meanwhile, leaders from the BRICS countries—Brazil, Russia, India, China and South Africa—gathered in Johannesburg to criticise the West’s dominance over the international institutions established after World War II. It was enough to give Cold War historians déjà vu.

The West’s main adversary today is China, not the Soviet Union, and the BRICS is no Warsaw Pact. But with the world entering a period of uncertainty following the demise of the post–Cold War order, the parallels are sufficient to convince many to turn to pre-1989 conceptual models to gain insight into what might come next. This includes the US and China, though each is betting on a different model.

Between the end of World War II and the fall of the Berlin Wall, the two main forces defining the international order were ideological conflict, which split the world into two camps, and the quest for independence, which led to the proliferation of states, from 50 in 1945 to more than 150 in 1989–1991. While the two forces interacted, ideological conflict was dominant: struggles for independence often morphed into proxy wars, and countries were forced either to join a bloc or define themselves by their ‘non-alignment’.

The US seems to think a similar dynamic will dominate this time around. Faced with its first peer competitor since the fall of the Soviet Union, Washington has sought to rally its allies behind a strategy of ‘decoupling’ and ‘de-risking’—essentially an economic version of the Cold War policy of containment.

Whereas the US may be expecting Cold War II, shaped primarily by ideological polarisation, China seems to be betting on global fragmentation. Yes, it has tried to offer non-Western countries an alternative to Western-dominated institutions such as the G7 and the International Monetary Fund. But, in China’s view, the quest for sovereignty and independence is fundamentally incompatible with the formation of Cold War–style blocs.

Instead, Beijing expects a multipolar world. While China can’t win a battle against a US-led bloc, President Xi Jinping seems convinced that it can take its place as a great power in a fragmented global order.

Even America’s closest allies aren’t immune from the trend towards fragmentation, despite US leaders’ best efforts. Consider the recent Camp David summit. Though some media were quick to herald a ‘new cold war’, the participants’ interests diverged in several ways.

South Korea’s main focus remains North Korea, and the intelligence-sharing agreements and nuclear consultations announced after the summit were as much about signalling a resolve to push back against North Korean dictator Kim Jong-un’s regime as they were about countering China. Japan, for its part, is eager to avoid strategic escalation over Taiwan—a development that would threaten its economic model, which depends significantly on trade with China (including in semiconductor-related technology). And both South Korea and Japan are unhappy with the zeal with which America is pursuing its de-risking strategy.

As for the situation in the Sahel, it has all the features of a classic Cold War proxy standoff. Since Burkina Faso, Guinea and Mali succumbed to military coups, the US and France have come to rely on Niger’s government as the last bastion of Western support in the region. Under the late Yevgeny Prigozhin, the Russian mercenary army Wagner Group gained substantial influence over Mali’s governance and practically ran the Central African Republic. The last thing the US and France want is for Wagner to gain another foothold in the region.

But now that Niger’s government, too, has been ousted by the military, American and French responses have diverged sharply, allowing the country’s new rulers to have their cake and eat it. The military junta has requested Wagner’s assistance to stave off the threat of intervention, but appears willing, at least for now, to allow the US to continue operating drone bases in the country.

Perhaps the biggest news, though, was the BRICS’ announcement that six countries—Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates—would become full-fledged members by the beginning of next year. Pre-summit editorialising notwithstanding, China is under no illusion that countries like Saudi Arabia and the UAE will join it in a bona fide anti-Western bloc; Beijing’s goals are more subtle.

Joining the BRICS increases countries’ freedom of action—for example, by increasing access to alternative sources of financing or, eventually, providing a genuine alternative to the US dollar for trade, investment and reserves. A world in which countries are not dependent on the West, but free to explore other options, serves China’s interests far better than a narrower, more loyal pro-China alliance ever could.

The picture that emerges is of a world in which the superpowers lack sufficient economic, military or ideological clout to force the rest of the world—in particular, the increasingly confident ‘middle powers’—to pick a side. From South Korea to Niger to the new BRICS members, countries can afford to advance their own goals and interests, rather than pledging fealty to the superpowers.

Contrary to how it may appear to many, not least in the US, the new cold war seems to be based not on the old logic of polarisation, but on a new logic of fragmentation. Judging by the growth of the BRICS, there’s no shortage of countries that find that new logic enticing.

Is China’s economy about to go bust?

Australia is more exposed to a downturn in the Chinese economy than any other advanced country. So far, however, commodity markets provide no evidence of a Chinese recession around the corner.

The spate of gloomy commentary about the Chinese economy in the Western media reflects real concerns, but markets are not behaving as if the world’s second largest economy is on the cusp of its ‘Lehmann Brothers moment’.

China’s demand for iron ore—the key ingredient of its industrialisation and Australia’s most vital economic interest in the country—remains as strong as ever. In a column in the Financial Times, Louis-Vincent Gave, the chief executive of the China-focused economic consultancy Gavekal, noted that iron ore prices have risen by 50% from their low point last October and have rallied in recent weeks, even as the chorus of Western commentary about a Chinese downturn has grown louder.

The current price of US$108 a tonne compares with a low of less than US$40 the last time China faced an economic downturn, in late 2015.

Gave says that if a financial crisis were imminent, you would expect to see it reflected in bank shares, as occurred ahead of the Lehmann Brothers collapse and the European banking crisis a few years later. However, China’s bank shares have actually performed 12.6% better than US bank shares over the past 12 months.

He noted that Chinese government bond markets have also outperformed the traditional safe haven for nervous investors: US Treasury bonds.

China is certainly facing difficulties, but it is not yet obvious that they add up to the inevitable downfall of an economy driven by an authoritarian government, as argued by Adam Posen, the president of the Peterson Institute for International Economics, in the latest issue of Foreign Affairs.

Posen says China’s problems under Xi Jinping are no different to Venezuela’s problems under Nicolas Maduro, Turkey’s under Recep Tayyip Erdogan, Hungary’s under Victor Orban or Russia’s under Vladimir Putin.

‘China’s political economy under Xi has finally succumbed to a familiar pattern among autocratic regimes. They tend to start out on a “no politics, no problem” compact that promises business as usual for those who keep their heads down. But by their second or, more commonly, third term in office, rulers increasingly disregard commercial concerns and pursue interventionist policies whenever it suits their short-term goals,’ Posen writes.

‘What remains today is widespread fear not seen since the days of Mao—fear of losing one’s property or livelihood, whether temporarily or forever, without warning and without appeal.’

A similar theme was developed this week by Cornell University’s Eswar Prasad, who was responsible for pioneering research on China at the International Monetary Fund in the early 2000s. In an essay in the New York Times, he argues that while the numbers portray a stalling economy, the far more profound concern is that consumers and businesses are ‘losing confidence that their government has the ability to recognise and fix the economy’s deep-seated problems’. The economy is at risk of a downward spiral unless this is reversed.

Prasad says private-sector confidence has been shaken by central government edicts, such as last year’s crackdowns on technology companies, education providers and foreign businesses, and the heavy-handed efforts to rein in excesses in the property market.

‘President Xi might favour a command and control system, but he is learning that private-sector confidence is the hardest thing to control,’ he writes.

The commentary draws on a series of related troubles. The property market downturn is continuing and may be accelerating; one of the largest developers, Country Garden, is at risk of failure.

Local governments, which have been an important source of economic stimulus spending, are carrying heavy debts. Those debts have traditionally been serviced by land sales, but they’re no longer keeping pace.

The financial health of the so-called shadow banking sector, which sells investment products to consumers, is also a concern. The Economist this week warned the sector is threatening the stability of the broader financial system. One major firm has gone bankrupt because it had been reinvesting household savings in the property market. More may follow, The Economist warns.

Declining property prices and distressed wealth-management products have eroded consumer confidence. Retail sales have not bounced back as expected after last years’ Covid-19 lockdowns.

While regulators have warned Chinese share-market analysts and economists against publishing negative commentary and have been told to ‘interpret bad news from a positive light’ (according to one quoted by the Financial Times), Western commentators haven’t held back. US President Joe Biden described China’s economy earlier this month as ‘a ticking time bomb’.

So how does one explain the disjunction between seemingly unflappable commodity and financial markets? Perhaps most important is the financial health of the central government, which has the capacity to provide a backstop for the property market. A recent IMF review of China’s government balance sheet found it had total financial assets of US$12.5 trillion, the highest in the world. Its net financial assets of 7.25% of GDP give it a financial strength among the top 15% of nations.

A second line of argument is that much of the current weakness is tied to poor consumer confidence, which will turn around as business conditions improve. Gavekal economists note that both employment and household incomes have been rising and say that if this continues, household spending patterns will return to normal.

China’s vast economy, with its competitiveness in global manufacturing, its leadership of most elements of the energy transition and the world’s biggest population of middle-class consumers, has a resilience overlooked by some who risk schadenfreude in their forecasts of inevitable doom.

Some of the global commentary has suggested that a downturn in China wouldn’t matter much for the West because China is a relatively small source of demand for most nations, with notable exceptions like Australia. New York Times columnist and economic Nobel Prize–winner Paul Krugman says Chinese demand is only 1% of GDP in the United States, adding that its economic woes may help bring down US inflation.

For Australia, by contrast, exports to China represent almost 8% of GDP. Only a handful of countries like Zambia, Chile and the United Arab Emirates have greater exposure. Australia’s exposure to China has brought it two decades of rising living standards, despite weak domestic productivity.

Concern about the Chinese economy has had some impact on Australia—the exchange rate has fallen from US68.9 cents to the Australian dollar in mid-July to US64.5 cents now—but it is too soon to be bringing out the sackcloth and ashes.

For whom the BRICS toll

Last week’s BRICS summit—bringing together the leaders of Brazil, Russia, India, China and South Africa—was touted as a pivotal event that could change the contours of international relations. Some compared it to the Bandung conference of 1955, which laid the foundation for the Non-Aligned Movement, while others anticipated progress towards an alternate system of global governance fit for a multipolar world. But what the summit showed is that shared grievances don’t amount to a shared vision.

The bloc’s decision to admit six new members—Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates—may seem to vindicate predictions that BRICS will remake the world order. After all, more than 40 countries were allegedly vying for membership, though a formal list was never disclosed.

But the decision to expand—like the push for de-dollarisation—amounts to picking low-hanging fruit. When it comes to the numerous thorny global challenges requiring urgent attention, the summit provided little in the way of solutions. And that can be expected to continue: ultimately, BRICS has always been more statement than substance, with each member using it as a platform to advance its own ends. A larger, even more heterogeneous membership will impede consensus on all matters of consequence.

Start with South Africa, the summit’s host. Not only was the country excluded from the G7 summit earlier this year, but it has also faced criticism for its supposedly neutral stance on the Ukraine war, and the United States has accused it of providing weapons and ammunition to Russia. In a recent speech, South African President Cyril Ramaphosa noted that ‘some of our detractors prefer overt support for their political and ideological choices’ and vowed not to be ‘drawn into a contest between global powers’.

Meanwhile, Ramaphosa has taken great pains to emphasise South Africa’s ties with China: the bilateral relationship, he recently noted, is ‘almost as old as our democracy’. But South Africa’s ‘largest trading partner’ isn’t China, as Ramaphosa claims, but the European Union, and South Africa trades more with the EU and the US than it does with the other BRICS members. For South Africa, BRICS is a convenient platform with which to boost its leadership in Africa and globally.

China has always had similar designs for BRICS: use it as a tool of geopolitical influence, including by advancing an alternative vision of global governance. To this end, this summit holds particular importance. Coming on the heels of the agreement among Japan, South Korea and the US to expand security and economic cooperation, the summit offered an opportunity for China to push its vision of BRICS as a full-scale alternative to the G7, with Chinese President Xi Jinping firmly in the driver’s seat.

BRICS members are likely to embrace some of China’s pet issues, such as countering ‘unilateral and protectionist measures’ like trade sanctions. And even in areas where they disagree, China might be able to use its economic weight—the country accounts for 70% of the bloc’s GDP—to sway them. It was, after all, the principal advocate for expanding the grouping, a move that the others, except Russia, resisted—until they didn’t.

The Kremlin, for its part, sees BRICS as a crucial means of countering Russia’s international isolation. Russian President Vladimir Putin—who participated virtually, in order to avoid being arrested on an International Criminal Court warrant—used his time in the spotlight to attempt to rally support for his Ukraine war narrative. More broadly, Russia—like China—hopes that BRICS can build alternatives to Western-led initiatives and alliances.

Not all BRICS members share that vision. India, which is locked in a prolonged border standoff with China, wants to represent the global south on the world stage, not least to bolster economic development. But it also wants to maintain an independent foreign policy. This is the same reason why India bristled at the notion of the Quadrilateral Security Dialogue—with Australia, Japan and the US—mimicking a military alliance. India’s fellow flawed democracy, Brazil, also seems to prefer genuine non-alignment and has ambitions to act as a diplomatic balancer.

Divergent visions and interests have impaired BRICS from the start. As Jim O’Neill—who coined the term (then BRICs) in 2001—wrote in 2021, beyond ‘creating the BRICS Bank, now known as the New Development Bank’ and meeting annually, ‘it is difficult to see what the group has done’. Not much has changed in the two years since, and a slew of new members will hardly contribute to the group’s coherence, let alone its effectiveness.

The latest summit might have featured important discussions on topics like the introduction of a common BRICS currency and the Black Sea grain deal, which Russia recently scuttled. But, as is customary with BRICS summits, the concluding communiqué offers plenty of aspirational rhetoric—including commitments to ‘inclusive multilateralism’ and ‘mutually accelerated growth’—but not much else. Criticising the global order is much easier than building a new one.

But even if this BRICS summit doesn’t sound the death knell of the current order, it does highlight just how widely shared grievances against it have become and how keen many countries are to challenge the status quo. The West must heed the warning signs.

Despite the risks, Australian exports to China are booming again

The Chinese economy may be softening and commodity prices falling, but Australia’s exports to China hit a record $102.5 billion in the first half of this year thanks to massive shipments of lithium concentrate.

Lithium has overtaken liquefied natural gas as Australia’s second biggest export to China behind iron ore, with sales rocketing to $11.7 billion between January and June. Two years ago, first-half sales of lithium to China reached only $470 million.

China is taking almost all of Australia’s lithium output, underlining its dominance of both critical-minerals processing and of the energy transition more generally. Apart from China, just 2% goes to Belgium and 1% each to the United States and Korea, according to the Department of Industry, Science and Resources.

While the development of a major new export commodity is a boon to the economy, especially at a time when prices of other exports are sliding, China’s capture of the lithium market runs counter to the warning in the Australian government’s new critical minerals strategy of the danger of excessive reliance on a single customer.

The strategy declared that the ‘risks of disruption to critical mineral supply chains are heightened when mineral production or processing is concentrated in particular locations, facilities or companies’. Australia’s strategy was to work with ‘likeminded governments’ to diversify supply chains.

Detailed trade data from the Department of Foreign Affairs and Trade shows that the diversification of export markets during China’s two-year campaign of economic coercion of Australia was short-lived. Sales to most of Australia’s other principal trading partners have been falling sharply as sales to China recover.

When China embarked on its campaign of economic coercion, Australia was saved by its other Asian trading partners (see chart below). China’s share of Australia’s exports had peaked at 43% in May 2020 but plunged to 28% by the middle of last year.

Shares of Australia’s export markets, January 2015 to June 2023

Source: Australian Bureau of Statistics (six-month rolling total).

The slack was picked up by Japan, whose share of Australia’s exports went from 11% in mid-2020 to 21% by September last year, and by other Asian nations whose combined share rose from 22% to 34%, comfortably overtaking China.

But with China’s share climbing back to 36% in the first half of this year, Japan’s share has dropped back to 16% and the rest of Asia is now taking just 29%.

Australian coal sales to China stopped entirely during 2021 and 2022, causing huge shifts in the global coal trade. China started buying coal from Indonesia, which then cut its sales to India and elsewhere. India boosted its purchases of Australian coal that had previously gone to China.

These flows have now reversed. India’s purchases of Australian coal, for example, went from around $1.5 billion a month to $2.5 billion a month through much of last year, but are now back to about $1.3 billion. China is now spending about $1 billion a month on Australian coal.

China has also returned to purchasing Australian oil, with sales rising from nothing to $860 million in the first half of the year. Although never put on China’s list of banned Australian purchases, imports of wheat and other cereals (excluding barley) have risen rapidly from $500 million in the first half of 2021 to $3.1 billion so far this year.

The trade figures to the end of June don’t show any Australian exports of barley, for which China has only just agreed to drop its punitive tariffs. Tariffs remain on wine, and at the end of June, China still had trade bans on Australian copper ores, wood chips, timber and crayfish.

Total Australian exports to China rose by 22.4% in the first half of the year, despite a sharp, and continuing, fall in commodity prices.

China’s capture of Australia’s lithium exports highlights the tension between economic forces and strategic policy. The government favours investment from Western nations and its clear preference is to build supply chains with Western partners that bypass China.

The Foreign Investment Review Board has been knocking back efforts by Chinese companies to invest in the Australian critical-minerals industry. For example, it has vetoed moves by a company directed by a Chinese national, Astroid Australia, to purchase 90% of lithium miner Alita Resources and prevented Yuxiao Fund from increasing its 9.9% stake in rare-earths miner Northern Minerals.

However, China has been building its expertise in critical minerals since the 1980s. Its unrivalled lead in processing and manufacturing technology makes it the obvious choice for buyers wanting quality refined critical minerals.

More broadly, the concentration of export markets in China exposes Australia to the impacts of both downturns in the Chinese economy and future geopolitical tensions between the two countries. However, the experience of the past two years, when the Australian economy barely noticed the impact of China’s trade strikes, underlines the flexibility and adaptability of international markets.

Getting the grain out of Ukraine is China’s chance to step in

Thousands of tonnes of grain stored in the Ukrainian port of Odessa were destined for some of the world’s hungriest people. But on 17 July, Russian President Vladimir Putin nixed Russia’s participation in the Black Sea Grain Initiative (BSGI), a UN- and Turkey-brokered agreement that promised safe passage of the grain through the Black Sea to global markets.

Russia may have a war interest in blocking Ukraine’s grain but its partner, China, is likely to push for a new grain deal. Russia’s actions clash with China’s longstanding practice of courting countries in the global south, and Beijing will hesitate to side with Russia in devastating their food security. How China brokers such a deal will reveal the limits of the Russia–China relationship.

Despite the war, Ukraine remains one of the world’s largest wheat suppliers. As of July, it provided 80% of the World Food Programme’s wheat, and the UN estimates that 64% of the grain Ukraine exported under the BSGI went to low- and middle-income countries. The International Monetary Fund forecasts a 10% to 15% increase in global grain prices from the deal’s cancellation, while wheat and corn futures have risen by 9% and 8%, respectively. Without a deal, the world’s poorest people will go hungry, increasing the risk of conflict, economic privation and disaster-driven migration.

There’s a clear incentive for China to involve itself in repairing the BSGI. Standing by Russia’s actions could destroy its decades-long diplomatic strategy of strengthening bilateral relations with developing countries. It has increased its engagement and leadership of the global south through forums such as BRICS (Brazil, Russia, India, China and South Africa) and the African Union, and promised infrastructure, aid and security through the Belt and Road Initiative (BRI), the Asian Infrastructure and Investment Bank and the Shanghai Cooperation Organisation. Beijing has presented itself as a benevolent supporter of the global south’s rights to development, prosperity, peace and food security.

These efforts have been embedded in Chinese messaging for years. Every BRICS declaration for the last five years has referenced them as China has touted the grouping as an alternative to the Western-led multilateral system. Food security was further enshrined as a pillar of BRICS through the 2022 BRICS strategy on food security cooperation and the BRICS Forum on Agriculture and Rural Development.

China will also look for any opportunity to increase its influence and voice within the UN, a broker of the BSGI. Chinese state media has focused on China’s work in ‘establishing peace’ in Ukraine through the UN, through bilateral diplomacy and by reporting neutrally on the UN statement condemning the breakup of the deal. Qu Dongyu, a Chinese national, is director-general of the UN’s Food and Agriculture Organization and on 22 July, Geng Shuang, China’s deputy permanent representative to the UN, told a Security Council briefing that China wanted a resolution to the halting of the BSGI, noting that it was of great significance to ensuring global food supply. This suggests that China sees promoting food security as important to its international interests.

In China, Russia has a begrudging partner that seesaws between tacit support of the invasion and diplomatic messaging pitching itself as a peacemaker while noting how horrified it is at ‘NATO’s eastward expansion’. Its suspected direct support for Russia’s war is further enflaming tensions with the US but, more importantly for China, harming its reputation and economy. Several European countries that were previously strong BRI supporters have said they won’t attend China’s BRI forum later this year because Russian President Vladimir Putin will be there. China wants and needs friends, and Russia is making that tougher than it needs to be.

In addition, China knows that both the Western coalition and Russia’s proposed solutions to the impasse won’t adequately secure food supplies to the global south.

At its poorly attended Russia–Africa summit in late July , Moscow pledged free grain to a group of six African nations. This misses the point that the ability of poor countries to buy grain at reasonable prices is determined by supply, not the identity of the buyers and sellers. It also ignores that short-term deals with no promises of renewal are unlikely to calm markets. With only six nations offered the deal, Putin politicised a food security decision in a way that was unlikely to win him friends among economies that missed out.

NATO and Ukraine, on the other hand, favour a diplomatic solution to the problem and have proposed logistical workarounds to export Ukrainian grain west over land or south via the Danube delta. Although this would address grain supply, insurance premiums and the costs of transporting goods overland from zones under Russian shelling would limit its impact on prices—especially since the European Commission said in late July it has no budget to subsidise shipments.

Given all this, analysts should watch for increased Chinese messaging efforts bilaterally, multilaterally and through state media burnishing China’s credentials as a benevolent leader of the global south. China’s foreign minister, Wang Yi, announced at a BRICS ministerial meeting on national security on 25 July ‘four propositions’ for strengthening cooperation among the nations of the global south that could be a basis for this. There will likely be an uptick in bilateral meetings with affected countries in Africa and the Middle East as well as with Turkey to gain intelligence on, and perhaps shape, that country’s position on the BGSI. Crucially, analysts should watch for possible Chinese diplomatic efforts to convince Russia to sign back onto the deal or negotiate alternatives.

Ukraine’s grain harvest occurs in August and September, and a deal is needed urgently for this year’s grain to be exported. The BRICS summit in South Africa that begins on Tuesday would be an ideal opportunity for China to pressure Russia, and perhaps even to announce a deal. Its details will reveal the extent of China’s strength in its relationship with Russia and the health of its foreign affairs apparatus. Whatever happens, we should hope for the sake of the world’s poor that a deal is struck to let the grain flow.

The West’s China crossroads

Last month, Canada suddenly announced that it was freezing all ties with the Asian Infrastructure Investment Bank, a multilateral lender created by China as an alternative to the World Bank. According to Canada’s finance minister, Chrystia Freeland, the decision was in response to allegations that China’s government had stacked the institution with Chinese Communist Party officials who ‘operate like an internal secret police’.

Then, just days later, Hungarian Foreign Minister Peter Szijjarto announced that the Chinese company Huayou Cobalt would site its first European factory in Hungary, in the small village of Acs, where it will produce cathode materials for electric-vehicle batteries.

Against the backdrop of the US–China rivalry, it’s easy to dismiss these two events as trivial. But Canada’s and Hungary’s leanings are highly relevant to this bigger geopolitical story. While decision-making in Washington and Beijing obviously matters, these strategic bets by smaller countries offer equally important insights into the future of globalisation.

Canada and Hungary are among NATO’s less populous member states. And with each undergoing a fundamental change to its strategic outlook, the two countries are somewhat unexpectedly beginning to trade places. Five years ago, Hungary was the poster child of nationalism, and Canada a paragon of free-trading globalisation. But now, Hungarian Prime Minister Viktor Orban and his political director, Balazs Orban (no relation), are betting on a strategy of economic connectivity, whereas Canada is heading in the opposite direction.

Faced with all the talk of protectionism, decoupling and China’s notion of economically self-sufficient ‘dual circulation’, Balazs contends that, ‘if the fragmented, bloc-based international order of the cold war era is restored, it will threaten Hungary’s international relations and trade status’. For a country whose economic model relies on trade with both Germany and China, and on oil and gas from Russia, decoupling is bad news. Thus, the ‘Orban doctrine’ is about finding a sweet spot between China and the United States, rather than choosing one over the other.

Canada, on the other hand, used to be a standard-bearer for multilateralism and the liberal international order. But it now seems to have abandoned the idea of a universalist order in favour of one that excludes states motivated by values that depart from its own. The most articulate exponent of this strategy is Freeland, the veteran journalist who is now Canada’s deputy prime minister and finance minister. While US Secretary of the Treasury Janet L. Yellen coined the term ‘friend-shoring’ to describe the privileging of trade relations with countries that hold similar values, Freeland has taken the concept much further, advocating not just deeper economic relations with like-minded countries, but closer social and political ties as well.

According to the ‘Freeland doctrine’, the West should no longer be devoting time and energy to slowing the unravelling of the geopolitical era that began after the Cold War. Instead, it should start severing ties with autocracies and concentrating more on forming smaller like-minded groupings such as the G7.

This is not just empty talk. Both Hungary and Canada have already started implementing their new agendas. In addition to approving the Huayou factory, Hungary has also greenlit the Chinese company CATL’s plan to build what will be the biggest battery plant in Europe. In doing so, it is making a big bet on the future of China’s economic relations with the European Union.

Of course, Canada and Hungary have very little influence on the shape of the global order. But when it comes to reacting to the structural changes that are underway, they have given other small and mid-sized countries two radically different models to consider. The extent to which one proves more attractive than the other will have far-reaching implications.

One of the biggest question marks hangs over the rest of the EU, with its population of nearly 500 million and combined GDP of US$16 trillion. Germany, especially, will have to make strategic choices that will inevitably pull the rest of the bloc along with it.

There were high hopes that Germany’s eagerly anticipated China strategy, published earlier this month, would provide some clues as to whether it’s heading down the Canadian or the Hungarian path. Yet the months-long drafting process culminated in a document that tries to have it both ways, embracing Freeland’s grammar and Orban’s logic.

The German strategy begins with the clear-eyed observations that ‘China has changed’ and that ‘de-risking is urgently needed’. Yet it stops far short of advocating decoupling, and it leaves it to German companies—with their deep economic interests in China—to decide how much de-risking is appropriate. This is quite a departure from an earlier draft of the strategy, which had envisioned ‘stress tests’ on German companies present in China and would have required German businesses to ‘specify and summarise [their] China-related developments’. That’s no small matter, considering that just four German companies—Mercedes-Benz, BMW, Volkswagen and BASF—accounted for 34% of all European investment in China between 2018 and 2021.

Notwithstanding the new strategy document, German politics remains divided between the two different persuasions. Events in both China and the US will undoubtedly bear on the debate and help to determine which faction wins out. The stakes are high, because where Germany goes, the rest of Europe often follows. While its ambivalent rhetoric tells us very little, its policy decisions will tell us everything. We will soon know which path it has chosen.