Australian executives appear tone deaf when it comes to Beijing’s rapidly evolving thinking about China’s future role in the global economy and dependence on the kindness of strangers, especially those viewed as allied with the US.
As captains of industry lament the deterioration in Australia’s trade relationship with an increasingly hostile China, Beijing’s apex political players are preparing for next month’s meeting of the Communist Party elite to draw up the next – and potentially game-changing – five-year plan.
It’s a plan that could reshape the longer term role of Asia’s dominant power in the global economy, as China seeks to insulate itself from a world that it views as increasingly hostile to its interests.
Australia is learning the hard way that the rules of engagement are changing as Beijing’s targeting of key agricultural industries gathers pace. An entire new game could be on hand as China’s top brass adds meat to the bones of President Xi Jinping’s concept of a “dual circulation” economy.
While hardly the catchiest phrase to encompass a retooling of the world’s second-largest economy, its intent is clear: We’ll take what we need from the world but focus on building up China from the inside.
Change is coming. Xi, who convened a meeting of the party’s top reform committee on Tuesday, called for “accelerating the establishment of a new development pattern”.
The longer term focus on self-sufficiency will require Australian business and investors to adapt their thinking on China.
A clear focus of the self-sufficiency drive is on developing China’s high tech industries to ensure no repeat of being held hostage by US bans on semi-conductors.
But food, minerals and energy will also be in focus, industries that Australia had long assumed would enjoy perpetually growing demand from China.
China will still need Australian food and resources but the development of west African iron ore will be a long-term ambition that may figure into its strategic calculus.
Australian investors will also need to think about how to invest in the China theme.
Is investing in exporters to China the way to go when it seems determined to look more after its own interests? If China is serious about boosting its consumers wouldn’t an investment in Chinese consumer companies be a smarter choice than betting on Treasury Wine Estates?
Long-time observers of China’s economy would argue the dual circulation concept is just another iteration of supply side reform and a push to bolster the rise of the consumer – policies that Beijing has had mixed success in delivering.
But the external environment has changed and that is lending urgency to Xi’s push for a stronger role for the domestic economy.
The policy pivot comes as China’s economy has rebounded from a sharp first quarter contraction triggered by Beijing’s lockdown of the economy.
While retail sales have lagged, gauges of manufacturing and service industry activity are improving. China’s steel mills have roared back to life, helping sustain the strength in iron ore prices.
China’s currency, the yuan, has enjoyed a massive rally and is trading at its strongest level against the US dollar since May 2019. A strong and stable currency will feed into Beijing’s desire to see the yuan more widely used in global trade.
That Australia’s three big iron ore producers are selling small amounts of iron ore in yuan-denominated trades hints at the future of trade with China.
China’s financial markets are also putting Wall Street in the shade. The Shanghai Composite is up 11 per cent this year, making it the third best-performing market in the world.
Additionally, Hong Kong is attracting China’s tech elite to the boards of its stock exchange and it’s opening its financial markets to more foreign investment.
And that is the beauty of Bejing’s plans.
While greater self-sufficiency means less reliance on the external economy, the opening of its stock and bond markets means foreigners may end up funding the longer term strategic aims of Beijing and Chinese companies.