But is China really on track for the ‘collapse’ that Gordon Chang famously first predicted in his 2001 book, The Coming Collapse of China, one he still thinks is imminent in 2022? Or is Tom Orlik, author of the 2020 book China: the Bubble that Never Pops, more likely to be correct, writing in October in Bloomberg that although the ‘China bubble is losing air’, it’s ‘not going to pop’ – because of the nation’s ‘unparalleled record of surmounting crises’?

The question of whether China can keep rising looms large in the reporting and analysis published in Foreign Affairs. It’s a theme they return to time and again, presenting competing narratives, with no obvious bias. In October 2021, an article by Michael Beckley and Hal Brands, was titled ‘The End of China’s Rise: Beijing is running out of time to remake the world’. The authors begin by asserting that, despite China ‘moving aggressively to forge a Sinocentric Asia and replace Washington atop the global hierarchy,’ there is little for the West to worry about because ‘China’s government is concealing a serious economic slowdown and sliding back into brittle totalitarianism. The country is suffering severe resource scarcity and faces the worst peacetime demographic collapse in history.’ China is, in short, ‘running out of people’ and the ‘economic consequences will be dire.’ This, combined with the government’s ‘force-feeding capital through the economy since 2008,’ leads Beckley and Brands to argue that ‘China is tracing an arc that often ends in tragedy: a dizzying rise followed by the spectre of a hard fall.’

A second article by Jude Blanchette in November 2021 conjures up a very different picture: ‘Xi’s confidence game: Beijing’s actions show determination, not insecurity.’ Blanchette challenges the ‘Collapsing China Syndrome’ head on.  Blanchette argues that, while the ‘doomsayers’ are not entirely wrong in identifying the factors that constrain China’s growth, they fail to weigh these up against Beijing’s potential and actual strengths.

Perhaps Blanchette’s most contentious point is that Beijing’s biggest strength is its ‘effective authoritarianism’: its ability to mobilise and channel resources with ‘remarkable speed.’ The efforts to minimise the economic impacts of COVID in 2020 is one example. While acknowledging that this ‘disregards the rights and freedoms of Chinese citizens,’ he contends that the ‘CCP in 2021 has been stronger, more capable, and in command of more resources than at any other time in its 100-year history’.

This chapter reflects on some of the topics that obsessed the English-language press reports on China in 2022, alongside other topics that perhaps should have received more attention, to identify the key challenges affecting that nation’s economic health. Assessing these challenges based on evidence and fact – rather than fear and fiction – is essential for understanding where the Chinese economy is headed, and what might prevent it from getting there.

‘Running out of people’?

For decades, I travelled around China asking people what they thought the country’s biggest challenge was. Time and again they would say ‘Too many people’. In the 1950s and 1960s, Mao Zedong had pushed the narrative that ‘many people would make China strong.’ This ‘population optimism’ fed into China’s population boom during that time (from just under 544,000 people in 1949 when the People’s Republic was founded to 929,000 in 1976 when Mao died). Chinese demographers had already started to think this was a serious problem, but the fate of economist Ma Yinchu 马寅初, who warned in 1957 of the dangers of overpopulation and was attacked as trying to ‘discredit socialism,’ served as a cautionary tale for those who would say so out loud.

Deng Xiaoping, who oversaw Ma’s political ‘rehabilitation’, including a formal apology to him from the CPC in 1979, adhered to a different narrative. He was ‘population pessimistic’, believing that reducing China’s population growth was key to increasing per capita income. He launched the One-Child Policy in the early 1980s, aiming to bring population growth to zero and quadruple per capita income by the year 2000. He didn’t quite get to zero population growth, but per capita income did quadruple by 1996.

While fertility decline wasn’t the only driving factor, it was a significant one. According to Cai Fang 蔡昉, former Director of the Population Institute at the Chinese Academy of Social Sciences, around one quarter of the increase in China’s per capita income during its ‘growth miracle’ years from 1978 to 2010 can be explained by declining fertility. There is a simple logic behind this demographic dividend: a reduction in fertility leads to a reduction in youth dependency and a surge in the working age population, and because there are now relatively more workers and fewer dependents in the population, output or income per person increases.

Fast forward to the introduction of the two-child policy in 2016, and the three-child policy written into law in 2021. Cai Fang strongly advocated for this policy relaxation and I, too, on non-economic terms support it. But in purely economic terms, if reducing fertility was so important for raising per capita income, how could increasing fertility also be a good thing? Would it be catastrophic if – as looks likely to be the case – China is headed for a ‘low-fertility trap’ as, despite the freedom to have more, many Chinese couples now choose to have one child only?

I argue it wouldn’t be. China’s working-age population is projected to decline by 18 percent between 2020 and 2050. If labour force participation rates don’t change, its workforce will also decline by the same amount. Yet, taking into account labour’s contribution to aggregate output (currently around 60 percent), in terms of the impact on average annual GDP growth, that amounts to a reduction of just 0.35 percentage points per year through to 2050.

Having more babies now won’t change these figures much at all, because those babies won’t join the workforce for about twenty years. Investments in education are one obvious way to boost productivity in the long run. But other policy changes could produce a faster, positive boost to GDP growth and per capita income gains. One is raising the retirement age. Back in 2015, there was talk of new policies that would gradually raise the ages from sixty for men, and fifty and fifty-five for white- and blue-collar women respectively. These changes were touted to begin in 2022, and true to its planning word, this year the State Council announced a gradual extension of retirement ages to be achieved by 2025 – although the details on how high they’ll go are scant, apart from noting that it will vary with age. Equalising the retirement age for women – the gender with universally higher life expectancies – with their male peers could readily extend China’s workforce with the stroke of a pen. (Political leaders are expected to retire at 68, but the rules don’t seem to apply to Xi Jinping, who is 69 and about to begin his third five-year term in office.)

Another policy to offset population ageing would be to increase labour force participation rates, especially among women. The record on this is even less positive, with just 62 percent of women over the age of fifteen engaged in the labour force in 2021. While high by developing-country standards, this is a three-decade low for China, and on a declining trend, having fallen steadily from 73 percent in 1990. With China’s global gender gap ranking at 102 this year – a sharp decline since its peak rank of 5 in 2008 – and the number of women on the previously 25-person (now 24-man) strong Politburo Standing Committee falling from just one to zero, there is little reason to think Xi will act to boost the number of women workers more generally. Indeed, given the high youth jobless rate, due to a record number of university graduates seeking limited jobs in an economy beset by COVID uncertainties, Xi may continue to undermine the female workforce, focusing on raising participation among young men instead. Either way, under- and unemployment among youth and women counter the argument that China is ‘running out of people’. They do, however, reveal other challenges for China’s long-term growth prospects.

Returning to Mao and Deng, I think they were both at least partially right. High fertility rates in the Maoist era did help China become powerful, because in power terms, size matters. Lower fertility then made Chinese people richer. It is true that China is ageing more rapidly than other countries of comparable levels of development, and that comes with problems. But fertility decline also leaves its citizens much better off, on average at least.

 ‘Common Prosperity’: Rhetoric or reality?  

In 1985, in pursuit of his goal of quadrupling per capita GDP, Deng Xiaoping famously said that some regions and people could become prosperous before others, and that would help others gradually achieve common prosperity. He insisted that there must ultimately be ‘no polarisation of rich and poor’ because ‘that’s what socialism means’. Those waiting patiently for some of China’s immense wealth to trickle their way have been doing so for four decades. In 2021, disposable income per capita in rural households was just 40 percent of their urban counterparts – an improvement from 32 percent a decade earlier, but still a substantial income gap. By 2022, China’s 539 billionaires were collectively worth nearly US$2 trillion, while the World Inequality Lab reported that the top 10 percent of its population earned 14 times more than the bottom 50 percent. Despite official claims that poverty was completely eradicated in 2020, studies since then have revealed a new pandemic-induced poverty wave, taking the poorest Chinese people further backwards. Could Xi Jinping’s latest solution finally give those people reason to hope?  Since 2021, ‘Common Prosperity’ 共同富裕, has become a signature policy goal in Xi’s ‘Socialism with Chinese characteristics for a New Era’.  Yuen Yuen Ang has written in Foreign Affairs that ‘common prosperity’ is not just rhetoric but ‘a set of instructions for government officials who are tasked with implementing Xi’s vision.’ This vision ‘is not a call for egalitarianism’: it is instead a commitment to ‘encouraging wealth creation through diligence and innovation.’ Among other things it involves ‘proactively leveraging the important role of the state-owned economy in advancing common prosperity’ and calling on those who ‘got rich first to voluntarily share their wealth.’

Yet, for all the billionaires rushing to prove that they were listening by donating money to various charities, philanthropy cannot solve rural-urban inequality in China today, which stems from gross underinvestment in health and education in the countryside. In their 2020 book Invisible China: How the Urban-Rural Divide Threatens China’s Rise, Scott Rozelle and Natalie Hell write that to address these inequalities, which relate to ‘structural issues within China’s political system,’ China first needs to reform the hukou system (of residence permits), which has ‘maintained and reinforced inequality through law’. Secondly, it must recentralise the fiscal system so that poor areas are able to fund better education and health outcomes; and shift the focus from short- to long-term growth, to prepare for the future. Should the Chinese government carry out these three reforms, Rozelle and Hell contend the country can escape the ‘middle-income trap’ (when countries develop to a certain point but then growth plateaus) and deliver sustainable, inclusive growth for decades to come. If it doesn’t, in the worst-case scenario, the results would be ‘catastrophic.’

China’s track record offers little cause for optimism. For example, reform of the hukou system has been ongoing for several decades now, and has stepped up in recent years, especially in small- and medium-sized cities. Yet, by October 2022, just one ‘megacity’ – Zhengzhou, the capital of Henan province, with a population of twelve million – has plans in place to abolish all restrictions. In June, Shanghai announced a relaxation of its regulations: its coveted hukou would now be granted to ‘non-locals who’ve graduated from the world’s top 50 universities and work in the city’. This smacks of a fragmented and elitist authoritarianism – as opposed to Blanchette’s ‘effective’ kind – in which wealthier provinces and cities implement policies that counteract Beijing’s equalising ambitions, ensuring that wealth continues to trickle up, not down. The impacts on China’s long-term growth prospects could be profound.

Chains of debt

China’s overseas and internal debt ‘crises’ were an ever-present topic in Western media throughout 2022. The former is invariably linked to accusations of ‘debt-trap diplomacy,’ a phrase ubiquitous in Western discourse about the Chinese government’s Belt and Road Initiative and other global investments. Deborah Brautigam, a scholar of China-Africa relations, has described how within twelve months of the first appearance of the phrase ‘debt-trap diplomacy’ in 2017, nearly two million search results could be found on Google. The concept, she says, somehow began ‘to solidify into a deep historical truth’. Yet Brautigam draws on a database of more than 1000 Chinese loans to Africa to argue that she ‘has not seen any examples where … the Chinese deliberately entangled another country in debt, and then used that debt to extract unfair or strategic advantages.’ Other scholars support this finding, including in the oft-cited case of Sri Lanka, as in Shahar Hameiri and Lee Jones’ report on ‘Debunking the Myth of China’s debt-trap diplomacy’ in which they, like Brautigam, conclude that the debt-trap narrative is ‘simply incorrect.’

This isn’t to say that the Chinese government is innocently and only pursuing ‘win-win’ development in its global economic engagements. Of course, it is pursuing power and influence as well. And some of its multinational companies – state-owned and otherwise – behave badly in the process. Again, this is indicative of a less-than-entirely effective authoritarianism: not all domestic actors behave in accordance with the wishes of the centre. It is also true that countries across the globe have taken on substantial Chinese (and other foreign) loans that could cause them – and their Chinese lenders – significant problems in the future. The full facts in this particularly complex zone, where geopolitics, economics and grand strategies intertwine, can be impossible to ascertain. But we should at least rule out the fictions.

This is harder to do when talking about China’s internal debt challenges, including in the real estate sector. According to one narrative, the Evergrande crisis that began in August 2020 (when it was revealed that the country’s second largest property developer was over $300 billion in debt) has now spilled over to the industry to the point where there is ‘a total collapse in confidence, and only [more] government intervention can save the day’. A Financial Times report in October characterised China’s ‘property crash’ as a ‘slow-motion financial crisis’.

In the same month, writing in Bloomberg, Tom Orlik pointed out that: ‘For more than a decade, analysts have warned that excesses in borrowing and building have pushed China’s property sector onto an unsustainable trajectory.’ And yet when policymakers ‘get ahead of the problem by cutting off sources of financing to overleveraged developers,’ it is those same analysts that cry out for more intervention, not less. Orlik sees it differently, describing the history of China’s real estate sector as a ‘series of exuberant booms and near-disastrous busts. Every time it appears the end is nigh, policymakers have tweaked the dials on down-payment requirements, mortgage rates, and financing for developers to get things back on track. They’re doing so again, though this time their goal isn’t engineering another boom, but moderating the pace of decline.’

Crises are, by definition, unpredictable events and economists are notorious for mis-predicting them. Simply put, the risks are high and rising, and there’s contention over how well the Chinese government can mitigate them.

Conclusion

Tom Orlik has used the term ‘Sinophrenia’ to describe a ‘condition of modern commentary that combines the belief that China will imminently collapse with the belief that it is taking over the world.’ The article by Beckley and Brands above falls into this category. In contrast, Jude Blanchette’s article might seem ‘Sinophoric,’ although placed in the broader context of his writings, this would be inaccurate. He had previously described how Xi’s gamble on consolidating power in his own hands has set him on a ‘current course [that] threatens to undo the great progress China has made over the past four decades.’ In October 2022, he observed that ‘authoritarian systems and authoritarian leaders always appear solid on the outside—until suddenly, they don’t.’

No-one doubts that the lockdowns in response to Xi’s zero-COVID policy have made 2022 a very rough year for China’s economy (and its people). With the Russia-Ukraine war, rising tensions in the Taiwan Strait and the ever-escalating rivalry between the US and China, the geopolitical headwinds are getting stronger. Add to these the economic headwinds identified here, and it is certainly possible to construct a narrative of crisis or collapse. But it is also possible that the Chinese government will demonstrate more flexibility than it has in recent times, adopting effective policies that not only stave off crisis, but also set the country on the path for long-run, sustainable and inclusive growth.

The post The Chinese Economy: Bursting bubbles, Terminal Troubles? appeared first on The China Story.

First, while there is no doubt that the Australian economy is highly dependent on China, there is a distinct lack of consensus over what should be done about it.

As the pandemic took hold in Wuhan early 2020, Australian commentators were quick to focus on the economic damage this might inflict on the domestic economy. Some, like Michael Shoebridge of the Australian Strategic Policy Institute, asserted that “With COVID-19, the Chinese state has created unacceptable risks for the rest of us and it will continue to do so unless it changes or until we reduce our dependence on activities within its jurisdiction.” I, on the other hand, was among those who said that our China dependency could prove to be a “blessing in disguise“, given that its economic growth projections were so far above those of our other major trading partners.

By year end, there was some truth in both of these arguments. This was evident in the growing number of sectors that were hard hit by an array of tariffs and export controls imposed by Beijing, while in aggregate, China accounted for 40 percent of all Australian exports in 2020, a record high.

If the alternative to our “China dependency” was simply a matter of replacing all of our exports to China with other large and rapidly growing markets, there would be no debate. If, instead, the alternative is a shrinking domestic economy, underpinned by diminishing exports, collapsing companies and rising unemployment, things are far more complicated.

A second point of contention surrounds the question of who is to blame for the deterioration in the political relationship. My PhD student Vishesh Agarwal and I have tracked this relationship using the Global Database of Events, Language and Tone, which classifies daily reports of events from 11 global news outlets, yielding a “Goldstein score” that ranges from -10 (for extreme hostility) to +10 (for extreme cooperation). Focusing on state actors, we aggregate cooperation events (that is, those with a positive Goldstein Score) and conflict events (those with a negative Goldstein score) to construct a political relations index for each bilateral relationship, including for Australia and China.

The figure above plots the long-term trends in the PRI based on events for which the Australian government is the “sender” and the Chinese government is the “target” (in blue) and, conversely, for which the Chinese government is the “sender” and the Australian government is the “target” (in red). One point this makes clear is that, while 2020 was indeed a horrible year for the relationship, it is certainly not when the trouble started. Aside from the clear downward trend since 2014, it is noteworthy that the Australian government’s decision to ban Huawei from participating in the 5G network is the lowest point of all from Beijing’s perspective – and significantly below the COVID-19 inquiry in April 2020.

While the deteriorating political relationship is indisputable, the question of who is to blame certainly is not. Australian Prime Minister Scott Morrison insists that Australia’s China policy has been consistent over time, and that Canberra has done “nothing to injure [the] partnership,” while Chinese officials maintain that “the problem is all caused by the Australian side”. The reality is far more complex – and contentious – than either of these positions.

This is best illustrated by Beijing’s alleged “economic coercion” imposed on a growing list of Australia companies and sectors throughout 2020 – a third issue of contention. No one denies that the Chinese government has increased its capacity and willingness to use economic tools such as trade policy to punish others for acting against China’s national interests. Nor does anyone dispute that Australia seemed to be the prime target of such practices in 2020. What is disputed is why?

The mainstream view in the Australian media traces this back to the COVID-19 inquiry, asserting that Beijing is clearly punishing us for that. Yet, as explained by Darren Lim and Victor Ferguson in their (forthcoming) China Story Yearbook chapter that analyses the four biggest cases for the year – barley, beef, tourism, and wine – Beijing is still able to “plausibly deny” that each of these actions amounted to coercion, as opposed to legitimate concerns relating to anti-dumping and other unfair trading practices.

An added complexity can be seen from a timeline of Australia-PRC trade and investment developments published by the Australia-China Relations Institute, which identifies a long list of inquiries initiated by the Australian Anti-Dumping Commission against China throughout 2020, some of which date back a decade, alongside a number of Chinese investment proposals that the Australian government has rejected on dubious “national interest” grounds.

This is not to imply that Beijing is playing the game fairly by any means: as the number of Australian sectors it targets continues to rise, its denial of economic coercion is increasingly implausible. But surely it matters whether they’re the only ones bending the rules, or not.

Leaving that point to one side, with the bilateral political relationship facing an impasse at best, and a further deterioration if recent trends continue, a fourth important debate surrounds whether Australia’s trading (and investment) links with China will remain resilient to political tensions.

On the one hand are those who argue that “closer mutual dependence, not greater economic distance, most accurately describes the bilateral economic relationship to date”. Yet others have concluded precisely the opposite, that “the deteriorating geopolitical relationship between China and Australia is having a serious impact on the trade relationship between the two countries”.

My research with Vishesh Agarwal uses the PRI index above and detailed data for the exports of the Quad countries (Australia, India, Japan, and the United States) to China during the last two decades to provide some historical context for this issue. We find that political shocks between 1998 and 2018 had significant, but small, effects on Australian and Japanese exports to China in aggregate, both in the short and long term, while for the United States and India, political shocks were short lived, with no evidence of long-term effects.

In a more detailed analysis of the Australia-China relationship we find that the aggregate results are driven by the period of deteriorating political relations between 2013 and 2018, which had a significant and lasting negative impact on Australia’s export growth of energy and mineral products (including its three top exports to China: iron ore, coal, and natural gas). If this loss of trade resilience is already happening in sectors in which China depends on us the most, it seems highly likely that more and more sectors will be negatively affected in the years ahead unless there is an about turn in the political relationship – which seems unlikely.

And this leads to the biggest debate of all: What now? There are those like former Australian Ambassador to China Geoff Raby who argue that if current trends continue, we will enter a “new, new normal” of Australia-China relations that will see “a permanently adversarial association, with bilateral and multilateral cooperation severely limited and parts of the economic relationship regularly at risk”. Stressing China’s rise to becoming the world’s largest economy, Raby advises the Australian government to seek less strategic competition with China, and more strategic cooperation.

Others, like Professor Rory Medcalf, argue that “China won’t map the future” in the Indo-Pacific region, emphasising its economic challenges and the need for solidarity among the region’s free and democratic nations to “dilute and absorb Chinese power”.

The future relationship between – and individual trajectories of – the US and China adds more complexity to the mix. The more that Canberra is seen by Beijing to be “picking Washington’s side”, the more the Australian economy will suffer, as Beijing practices its increasingly sophisticated and powerful tools of economic statecraft against us. It is far from obvious how the Australian government should deal with this fact. But one thing seems clear: if nothing changes, Australia’s economy will take a long-term and significant hit.

Finally, as the bigger, more powerful player in the game, the Chinese government has the capacity to inflict economic harm on Australia. But that certainly doesn’t mean that it should. Abstaining from the use of rule bending and coercive tools could be just the tactic required to turn the bilateral relationship around, and to restore its global reputation in the process. Combined with a renewed commitment to bilateral engagement and dialogue from the highest level of government down, this could make 2020 a historical low point, and not a harbinger of the mutual suffering still to come.

The article was originally published on Public Sector Informant on 6 April 2021.

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I am both proud and privileged to be the Director of the Australian Centre on China in the World (CIW) and the Managing Editor of the China Story Project: proud because of what we strive to do; privileged to receive the financial support of the Australian Government, and to work with a fantastic community of academics, students and professional staff at the Australian National University (ANU), which connects us into the world beyond.

As the hub for China Studies at the ANU, CIW aims to foster cross-campus, national and international research collaborations that promote greater understanding of the Chinese world — the People’s Republic of China, Taiwan and the global Chinese diaspora. The Centre also aims to raise international levels of ‘China literacy’, by sharing the diversity and wealth of China-related scholarship at the ANU with the broader public, and contributing to important debates surrounding China’s role in a complex world.

The China Story Project — comprising the China Story Yearbook and the China Story Blog — is the most prominent (though by no means the only) aspect of our community engagement. I have contributed a chapter to the China Story Yearbook since it was first initiated by CIW Founding Director Geremie Barmé in 2013, and have been one of its co-editors for the last four years. As we state clearly in each book, our ongoing reference to ‘The China Story’ 中国的故事 emphasises the principle that China’s Story is not just the official story portrayed by the Chinese Communist Party, but should also be seen from the diverse perspectives of the multitude of others who are dedicated to understanding the complexities of China through its language, culture, politics, economics, society and, most importantly, its people. The China Story Blog is based on the same fundamental principle.

Given this context, I find it baffling that CIW, the China Story, and each of its individual editors have all been subjected to abuse and accusations that are unreasonable and/or untrue, mostly on Twitter, but now in the Australian Parliament as well.

In one of my own unpleasant Twitter encounters, I was described by a high-profile individual with a very large following as being “notorious for appeasing the Chinese Communist Party (CCP) at any price.” There are a few things I might be notorious for among family and friends, but saying things to appease a foreign government (or indeed anyone) isn’t one of them! CIW is frequently charged with being funded by the CCP, which we clearly are not, and “toeing the Party line”— we do not, as the Yearbook and Blog, both blocked in China, attest.

Amid these ongoing unpleasantries, I continue to search for — and find — silver linings. Many of these seem to connect me back to my high school motto: Strength, Integrity, Knowledge.

I have learned strength from my ANU colleagues, including this Blog’s co-editor Yun Jiang, who told me on the day after the Senate Inquiry that she was doing ok, because she had come to expect such behaviour and had developed resilience to it. I am ashamed that she has suffered this way in the country we both call home, but her comment also made me stronger, and more determined to change what I can. I have also found strength from the kindness so many people have shown towards me when my own “Twitter abuse” has peaked. I am truly grateful for that, and trust that others have been shown similar kindness.

I now focus more than ever before on having integrity in all the work that I do, pursuing my research, teaching and engagement with an open mind, acknowledging my own biases, and taking on board new ideas that contradict what I thought I knew to be true. As an academic, I will continue to pursue the (subjective) “truth”, and I know many others who do the same. Their ability to engage respectfully in contentious debates — and to shift their positions too — gives me strength as well.

Above all else, it is knowledge that matters most of all. In a piece published on the ABC’s news website last week (and re-posted on this Blog as well), Professor Wanning Sun from the University of Technology Sydney refers to an old Chinese saying: “When a scholar meets a soldier, the scholar with an argument to make doesn’t stand a chance”. She goes on to describe her reticence towards engaging in the Senate Inquiry fearing that her “Chinese background would trump [her] scholarly credentials”, that is, that her knowledge is not valued. It is — now more than ever before.

The China Story Project provides a platform where “the scholar” (and others) do stand a chance — to share their knowledge with the broader community. To this end, I see the diversity of those we publish, in terms of their disciplinary backgrounds, research interests, nationalities, ethnicities, personal experiences, and ways of characterising and explaining the world around us, as one of the Project’s greatest strengths. I don’t agree with everything published on these pages, but I learn from each and every piece, and I thank all the contributors so far for that. I also hope to learn more — and have my mind changed — by stories that are yet to come.

And as for CIW, the same point holds: with an on-campus community of 76 academic and 35 PhD student members (and an extensive global research network beyond that), our diversity is our greatest strength. CIW does not “toe the Party line” nor any other line in fostering this extraordinary research capacity – the largest concentration of China scholars in any one university outside of mainland China itself. Instead, we uphold academic freedom for all, posing no conditions on individual research pursuits, other than that they be conducted with integrity and respect, in pursuit of truth and knowledge.

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The (Subjective) Facts

After reading various newspaper reports, I found my way to the source of the information: an interview by Australian Financial Review political correspondent Andrew Tillett with Ambassador Cheng on 26 April. I poured over the interview looking for evidence of a government-directed ‘threat’.  I was unable to find anything. 

Instead, when pressed on the issue of whether ‘China could stop buying our iron ore and coal and gas and look elsewhere for it?’ and whether this would result in ‘a boycott of Australia?’, the Ambassador responded: ‘I don’t know. I hope not’. He also pointed out that the ‘Chinese public is frustrated, dismayed and disappointed’ with how Australia is treating them, and that they ‘maybe’ would think twice about travelling to Australia for tourism or study, or buying our beef and wine.

The article subsequently published in the Australian Financial Review was headlined ‘Chinese consumer backlash looms over Morrison’s coronavirus probe’. This seemed to be an accurate headline for what had transpired, unlike the headlines in numerous other newspapers that followed, including the Sydney Morning Herald’s ‘Australia could lose billions from Chinese government boycott threat’.

The Chinese government is certainly capable of using economic tools to punish other countries for failing to act in accordance with its interests. We saw that most prominently when South Korea agreed to deploy a US anti-missile system in 2017. This resulted in huge losses to the South Korean economy, particularly in the tourism sector – helped by a Chinese state-backed media campaign that depicted Korea in a negative light.

But just because the Chinese government can and has used coercive tactics in the past, it doesn’t follow that they would have this time. The Ambassador certainly didn’t hold back on expressing his (and Beijing’s) dismay over Australia’s push for an inquiry into the source of the coronavirus. And perhaps he could have been more diplomatic in answering (or not) the series of Chinese consumer-related questions that Mr Tillett posed to him. 

In any case, all words are subject to interpretation by the reader, and I found the ‘judgement’ handed down to the Ambassador via headlines across the country too harsh. 

Reading between the lines 

Like those who assumed him to be ‘guilty as charged’ because of their understanding of Beijing’s actions in the past, there was also more to my assessment than the interview alone – relating to questions of motivation and freedom of choice. 

It is not clear, for example, that the Chinese government could prevent its citizens from studying overseas in their country of choice –  most students who find their way here do so via international education agencies, which are highly competitive, lightly regulated and scattered across the country. They could certainly reduce the number of China Scholarship Council scholarships available for students studying in Australia, but nowhere near to the level of the ‘billions’ in the Sydney Morning Herald headlines.

Moreover, by choking off this flow, Beijing would not only infuriate millions of potential students with life-long dreams of studying abroad. It would also shoot itself in the foot – since limiting the international education experiences of its youth would undermine its own drive for China to become a highly-skilled, high-tech, advanced economy. 

This leads to a point that is so often overlooked in Australia’s ‘China dependency’ discussions: they need us as much as we need them, perhaps even more so in some sectors. So even if they could punish Australia, would they? 

On the other hand, while I don’t presume to know how 1.4 billion Chinese people think, I do know that if I were Chinese and currently contemplating where I might travel or study in the world, I would seriously consider choosing somewhere other than Australia. If they were to believe both our press (and theirs), they could perhaps be forgiven for not travelling to a country that no longer describes them as a ‘true friend (as former prime minister Tony Abbott did not that long ago), but rather one that – in the press at least – increasingly depicts China as an adversary at best, an ‘enemy’ at worst.

I do not think the Chinese government is perfect by any means. The direction the country has taken in recent years under President Xi Jinping’s (now lifelong) term, has been both personally and professionally distressing. Witnessing the brutal suppression of the Uyghurs in Xinjiang and the clampdown on academic freedom are two cases in point. 

But nor do I think that Australians would be better off if we disengaged from our largest trading partner altogether – as some of China’s harshest critics would have us do. 

This is not only because the economic costs would be astronomical. It is also because, were we to disengage with all those countries whose Presidents we didn’t like, whose policies we objected to, or who occasionally threatened to punish others with the use of economic (or military) tools, our world would become very small indeed. 

The Australian government should not tolerate being told what to do by any other country, no matter how powerful they are. And nor should we blindly pursue economic interests to the neglect of security concerns. But in steering the right course for Australia’s future with China – one that is now fraught with complexities – surely we need cool, calm heads, as well as headlines, to deal with the facts as they present themselves, not as we wish or assume them to be.

This article is adapted by the author from her article published by the Canberra Times on May 4, 2020.

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After Jane introduces the book’s key themes, Louisa discusses connections between the Hong Kong protests in 2019 and the Party’s ‘Tiananmen Playbook’ from 1989. Darren explains the ‘technology security dilemma’ and why it is resulting in the ‘conscious decoupling’ of the United States and China, and Jane focuses on the challenges facing the Australian university sector in this context. The conversation also reflect on how COVID-19 has altered these significant China stories, in ways that none of us could have imagined in 2019.

We hope you enjoy it, and look forward to hearing your feedback.

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As Chris Ulhman put it in March, “Two-thirds of the world’s economy now put China as one of their top three trading partners. That’s the real problem with this. We are deeply dependent on a single economy. Literally when China sneezes, the world catches a cold.” This phrase has never been more apt than it is in 2020. But is our deep dependence on China the ‘real problem’?  The answer at this stage is a resounding no.

There is no question that Australia, “the world’s most China-reliant economy [is] reel[ing] from virus shockwaves”. China accounts for a third of our total exports, and significantly more in some sectors. A first quarter of negative GDP growth in China has inflicted substantial economic pain on vast swathes of the Australian economy, from fisheries, iron ore and LNG to higher education and tourism.

Diversification of our exports towards other emerging markets is often proffered as a solution to this ‘China problem’. India is heralded as a prime example, with its vast population and growth potential – even if that potential is far from being realised. Goldman Sachs has just downgraded its projections for Indian GDP growth in 2020 from 6% (in January) to a mere 1.6%. Its US and Euro projections are even more dire, at -6% and -9% respectively.

A World Bank report published on March 30 presents an equally distressing picture for East Asia and the Pacific. With regional growth projected to plummet from 5.8% in 2019 to 2.1% in 2020 in the baseline scenario (and to -0.5% in a worst-case scenario of a deep contraction and sluggish recovery), no country will be spared. And while that includes China, the size of its economy means that it will account for more regional (and global) output by the end of 2020, not less.

To put these figures in perspective, with a US$13.6 trillion economy in 2019 and growth of 2.3% in 2020, China would increase its output by US$313 billion in 2020. Thailand and Malaysia, the second and third largest economies in the East Asia and Pacific region, are projected to contract, while the Philippines in fourth place, with slightly higher projected growth than China, will contribute just US$9.9 billion. India, with a 2019 GDP of US$2.73 trillion, will add US$43.6 billion – about one seventh of China’s contribution.

The Chinese government is highly unlikely to settle for growth of 2.3% in 2020, given its current official growth target of 5.6% (likely to be downgraded to 5% shortly). On top of the range of targeted measures already in place to restart the economy, expectations are rising that the Chinese government will soon introduce a fiscal stimulus package similar in scale to the one rolled out during the global financial crisis of 2007-08 (of $4 trillion yuan or US$575 million). As reported by Reuters in mid-March, this could include an infrastructure investment package backed by up to 2.8 trillion yuan (US$394 million) of special bonds issued by local governments. No other government in the region has this kind of capacity to stimulate economic growth.

China’s fiscal stimulus during the last financial crisis resulted in growth rates that were far above the rest of the world, officially reaching 9.7% in 2008, 9.4% in 2009, and 10.6% in 2010. This contrasted with the recessions in most of the developed world: of all OECD countries, only Poland, South Korea and Australia were spared.

Australia’s dependence on China at the time – alongside its own fiscal response to the crisis – had plenty to do with this outcome. Then, China’s stimulus was directed towards government-led projects in hard infrastructure, which resulted in high demand for Australian iron ore and other resources. The 2020 stimulus will instead support ‘new infrastructure’ including 5G networks, data centres, and charging stations for new energy vehicles. In a more direct response to the health crisis, there will also be new projects targeting public health and emergency materials supply. Australia might not stand to benefit so obviously from this kind of spending. But there will still be ample opportunities that Australian companies can tap into.

None of this is to deny the substantial risks that remain for China, including a possible surge in new infections (which would in turn lead to new lockdowns), alongside heavily damaged investor and consumer confidence and plummeting global demand. But it does suggest that China is likely to be the most significant source of renewed demand for Australian exports.

The rock lobster, or ‘Dragon Shrimp’ as it is known in Chinese, is a symbolic case in point. While a Bloomberg article published on 27 February described the decimation of Chinese demand for this ‘prized’ Australian export’, an Australian Financial Review article published on April 9 declared that demand is bouncing back ‘just in time for Australia’s struggling fishermen’.  There is simply no other country in the world that could put ‘lobster back on the menu’ and save an Australian industry in this way.

The Australian government’s economic response to the coronavirus is both promising and welcome, with total support of $320 billion (16.4% of annual GDP) already on the table. But without China’s renewed demand for Australian goods and services, this won’t translate into significantly higher growth for the Australian economy in the months, and years, ahead. Australia may well have caught this terrible ‘cold’ from China. But on the road to recovery, its relationship with this economic giant is likely to be its greatest strength – not its biggest problem.

An earlier version of this article was published by CEDA on April 14, 2020.

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