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China’s future political and economic moves

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On May 22, 2020 China will organize its largest institutional political assembly, the National People’s Congress. Institutionally, it should have been held on March 5, but it had been postponed to May 22.

 There are two obvious meanings underlying this political choice, which results directly from President Xi Jinping.

 The first and most evident is the return to full normalcy, after the now officialised end of the outbreak in Wuhan, Hubei and of the other minor ones. Secondly, it is the sign of a rediscovered political, organizational and economic operation, pending a confrontation between China and the United States that is expected to become ever less easy to resolve on both sides, but also strongly decisive for the new world geo-economic equilibria.

There will be about 5,000 delegates from all areas of the country representing the 56 constitutionally recognized minorities who,over a period of about ten days, will institutionally define the annual budget, the country’s annual and multi-year economic goals, as well as some important bills. It is a Congress that establishes China’s “global strategy”, albeit in a concrete and simple way.

Certainly there is still the block on the entry of Chinese coming from other countries, but workers have returned to factories and almost all schools and universities have been reopened, as well as shops, although there are signs of possible new spreading of Covid 19, which so far the Chinese government has not neglected at all.

The attention will be obviously focused on the Central Government’s Report, which in this case will certainly be needed to have the necessary consensus and support from all regions in the country, so as to avoid both the danger of factionalism, which is central to the CPC’s theory and practice, and above all to provide economic and organisational consistency and unity to all the work that peripheral areas shall carry out on their own.

 This is a typical mechanism of the Third International’s tradition.

I was once confidentially told by Deng Xiaoping, who also came from one of the recognised minorities, that they did not want Communism as it was achieved elsewhere, but just Socialism, albeit with Chinese characteristics.

 Without bearing this in mind, even today little is understood of the Chinese political system and of its medium and long term goals.

At economic level, in fact, in the first quarter of 2020 China’s GDP fell by 6.8% compared to the same period of last year.

 The sharpest economic downturn since 1976, when Mao Zedong died and the GDP decreased only in that period, and later started to always grow again by 1.6%.

A final important sign to Western analysts was sent by President Xi Jinping on May 18 last, at the Assembly of the World Health Organization.

Obviously the first signal follows the vast diplomacy of support and economic and health collaboration, which characterized China immediately after the outbreak of the Wuhan epidemic-pandemic.

 In other words, President Xi Jinping wants to eradicate the idea that the Covid-19 virus is only “made in China” – an idea that characterizes the great “fake news” that has alarmed the United States and so far collected 116 adhesions to the request – recently made by the EU – of an independent study on the virus origins and on the new ways of spreading among human beings it has shown.

The first information and economic goal pursued is to avoid – first and foremost – the worldwide defamation of China, of its economy and of its reliability, and also avoid having to pay large sums of money for repairing the damage caused by Covid-19, should some countries, just like the United States, want to resort to this legal-administrative and insurance instrument to achieve their real goal, i.e. preventing China from playing – for a sufficiently long time – its current role as global competitor at economic, political and military levels.

 Hence, as President Xi Jinping clearly stated at the WHO Assembly, China does not feel to be and is not responsible for any life lost in the world due to the Covid-19 pandemic.

President Xi Jinping also added that China reacted as quickly as possible – as opposed to the slowness of action in other Western countries – thus clearly perceiving the threat posed by the pandemic. The President also said that it was China that first spread the sequencing of the entire virus genome, through the usual procedures, i.e. the official transmission of data to the WHO.

Therefore, President Xi’s speech at the WHO is intended to reaffirm China’s centrality. This will certainly be reaffirmed also at the forthcoming National People’s Congress, but with another secondary objective, i.e. to underline the isolation of the USA and its “factionalism”, just when China is regaining – after the pandemic – the primary role it has played in recent years as the leading country of the new globalization, while Donald Trump’s “America First” policy is isolating the United States from the EU and from China itself and is reproposing an old “Cold War” tension with the Russian Federation, as well as finally rebuilding fences and spreading polemics in the Middle East and Latin America. Self-isolation or probably an old-style and “out of time” perception of the US global role, which is still inevitable but must be rethought without solemn and currently useless memories of the past.

This is the other communication, economic and political goal of China’s current and future actions, in this phase when the Covid-19 still appears to be retreating.

 Deng Xiaoping told me so very clearly.

He told me they wanted Socialism, not Communism. In Deng’s mind, in fact, Communism is Western stuff. Indeed, the Chinese Communists had rightly interpreted Marx, who did not want the transition to Socialism and the structural end of capitalism in the peripheries of the world but, if anything, in its evolved centre, namely Germany and Great Britain. According to the CPC’s documents, Togliatti and Gramsci – before him – had “made mistakes”.

 And certainly not out of servility towards the USSR that, at the time, was an unavoidable point of reference for the Italian Communist party (PCI).

Hence we should never think that the CPC stopped studying Karl Marx’s texts, albeit with creative intelligence.

Quite the reverse. Nowadays Marxism is often mentioned in China, as the theory for shifting – within capitalism – from the production of goods and services to mass financialisation that the Chinese government currently uses, above all, to propose – with extreme caution –  its entry into the world market.

 And Deng, who was always a dear personal friend, is now one of the two true historical references for President Xi Jinping, together with Mao Zedong.

Hence unification of China, together with the still necessary Great Modernization, in addition to those established by Deng Xiaoping at the beginning of post-Maoism, which was never real Communism, because it never set as its goal the transformation of the remaining global capitalist world, but its penetration, with Chinese and, above all, national objectives and styles.

Moreover, just to eliminate again this brand of “Made in China” virus and of adverse actions and hacking against the websites of Western research centres – which is an accusation made by the EU – President Xi Jinping has clearly stated that- when discovered and tested – the therapies should become “global public goods”.

Another strong signal sent by China to the West is clear: do not think you can make the usual big deal with the future anti-Covid19 vaccine because when we have it anyway – and we will probably have it before you – we will distribute it as free patent and we will not ask for additional costs or fees.

It is easy to imagine what could be the propaganda and geopolitical result for China in this case, which would find itself distributing modern and above all free anti-viral vaccines to all the regions, in Latin America, in Asia and in Europe itself, which have been radically and further impoverished by the pandemic.

What could Westerners say in this case? Could they say their vaccine is cheap, but better?

 It is easy to imagine the effects of this counterfactual propaganda.

 It is also easy to imagine the potential geopolitical impact of such an operation.

 At the next upcoming National People’s Congress another political and economic weapon of Chinese propaganda is and will be the reaffirmation of China’s political, scientific and financial contribution to the World Health Organization, just as the United States has declared that its contributions to the WHO have been frozen.

Where there is a “void”, the Chinese fill it. Westerners have left on their own, but they have lost both a possible ally and a major source of information. Bad choice. Opponents must be penetrated and not be cursed with a ritual that is very closely related to that of Protestant sects or American new religions such as Scientology. The eighteenth-century-style sectarianism is not a good way for spreading a political message – just think of the neo-evangelical sects that made Bolsonaro’s electoral fortune in Brazil.

Hence, for the Chinese, simultaneous implementation of Sun Tzu’s rules and the Thirty-Six Stratagems.

Finally, however, President Xi Jinping has not rejected the idea of a “large world analysis” on Covid-19, but regarding the global responses to the pandemic, not only the vague theories on its territorial origin.

These are the guidelines that, in all likelihood, we will see in action at the forthcoming National People’s Conference.

 But there are two other essential political signs from China that we must consider: one is the core of the future Chinese expansion, which is still Africa – another great void of Westerners that China is filling strategically and economically – and the other is the new Chinese attention- and of President Xi, in particular – paid to the Great South of the world. A legacy of Mao’s Thought.

In the policy line, already established for the national People’s Congress to be held on March 5 last, there are some rather new aspects: firstly, the new deadline for the eradication of absolute poverty throughout the country, which has been postponed for the meeting to be held next Wednesday, while the deadline for China to become a leading nation in technological innovation is still 2035. The same holds true for 2050, the deadline for the project to turn China into a world leader.

In other words, to make Deng Xiaoping’s Fourth Modernisation, the military one, the axis of China’s real technological, civil and organizational transformation.

Throughout China, the Covid-19 pandemic has in fact stepped up processes that had already been defined in the past by the central Government: firstly, the acceleration of digitalization, which has obviously been favoured by the “lockdown” that China has adopted – as happened in almost all European countries and the United States, where the closure of companies and distribution has forced consumers to inevitably resort to e-commerce.

Obviously, also in China, as elsewhere in the world, greater attention has been paid to what is still called – who knows for how long – “national interest”.

 However, this has not happened in the EU countries on the verge of bankruptcy, such as Italy itself, where any aid provided by the other EU Member States is only for their own gain, since they are obviously just waiting to swallow up what remains of Italian SMEs, and the huge colossal private savings of Italians, to rescue their banks.

In Italy an incompetent ruling class is waiting for ambiguous aid such as the ESM or the future, equally ambiguous, slow, vague and unclear “Recovery Fund”, as it was charity, generous donations and gracious concessions from old friends.

Another structural factor of the Chinese economy triggered by the pandemic has been a greater level of technological and financial competition among the countries affected, and also among Chinese companies themselves in their domestic market, which has obviously grown in importance and has largely replaced reduced exports and also imports, actually blocked by the combination of the pandemic and the trade war between China and the United States.

Socialism that makes once again “substitution economy”, as was the case in the 1950s.

Another economic factor that the pandemic has reactivated or accelerated, in China as elsewhere, is the major role of the private sector and the no-profit sector.

This will certainly be at the core of the next National People’s Congress, which sees local, ethnic and political autonomies strongly represented. Nevertheless, it mainly represents – ina politically significant way – also some technical-scientific elites, fully integrated in the CPC, which, however, have a strong influence both on the Party and on the “inner circle” of President Xi Jinping.

President Xi wants to avoid China losing it dominant role in the world as a result of the now hopefully ended pandemic. Indeed, he wants to redesign it at a time when, due to past and present mistakes, the productive, social and healthcare system of the United States and part of the EU shows strong failures, which immediately spill over and affect what were once called the “productive forces”.

As President Trump said, the United States has harshly asked for a gradual “decoupling” – albeit fast and certain – of the American companies from China. Due to the very characteristics of the current Chinese economy, however, President Xi Jinping knows all too well that – whatever happens to the Chinese economy today and in the immediate future – the Global Value Chains (GVCs), on which China cannot but fully rely, are all semi-destroyed.

A few months ago, Chinese companies were among the largest companies in the world to applyfor “force majeure” certificates to terminate existing supply contracts in the world.

 Certainly, the real attack by Trump’s America on the Chinese economy will be launched through the new Global Value Chains, which, almost certainly, will now encircle China, but will no longer penetrate it.

China will play its cards which – as we will see soon – will also be played at the forthcoming National People’s Congress, with a network of probable internal Chinese marginal areas that will very fiercely compete with the new probable external pro-USA network of new CGVs which -we imagine – will pass through India to Vietnam, and through Taiwan, to India and obviously Japan. This is the reason for Taiwan’s recent “revival” as an unlikely geo-economic opponent of China, upon US clear indication.

 Another issue that will be surely well explored by the next National People’s Congress – with President Xi Jinping who will be able to strongly innovate the Chinese economy, even with a higher rate of liberalization – is that of strengthening the State, so as to make it ever more effective as a “power multiplier” and as developer of a national policy line, “with Chinese characteristics” – exactly as Deng Xiaoping repeated to me – which combines military, finance, productive economy, diplomacy and intelligence Services, with a view to winning the real war of China today, i.e. the war against the USA which, however, no one will ever fight on the ground and with the old means of “classic” military power.

Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr. Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs “International World Group”, he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group. In 1992 he was appointed Officier de la Légion d’Honneur de la République Francaise, with this motivation: “A man who can see across borders to understand the world” and in 2002 he received the title “Honorable” of the Académie des Sciences de l’Institut de France. “

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A brief history of Sino-Australian political relations from 1949 to 2020

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Former prime minister Malcolm Turnbull and Mr Xi met for a bilateral talk during the G20 Forum in Hangzhou.(Supplied: Twitter)

To understand what is happening now requires an understanding of history. The recent Sino-Australian relations have been like a roller coaster ride, which needs to date back to history at least from 1949.

There are several characteristics worth mentioning in Sino-Australian relations. First, there have been diplomatic ups-and-downs between the two governments due to the divergence of the two countries’ political systems and ideology. Second, by comparison, bilateral ties have generally been improving for decades due to the reciprocal economic complementarities and cooperation despite the recent trade disputes. Third, Sino-Australian relations “has become more unequal with the passage of time” due to China’s rise. Fourth, the influence of the US on the foreign policy of Australia cannot be underestimated. In terms of structure, this part will be divided into four periods, posited on the founding of the People’s Republic of China in 1949, the establishment of diplomatic relations in 1972, the outbreak of Tiananmen Incident in 1989 and the recent decline of bilateral relations starting from 2015 with additional illustration of the influence of the US in Australian foreign policy.

The Pre-recognition politicial relations from 1949 to 1971

Graeme Dobell argues, “China has always loomed in the Australian consciousness”, possibly because Australia is geographically located in the Asia Pacific and surrounded by Asian countries with a significant number of ethnic Chinese. Historically, China was viewed in Australia as a threat, namely, “Yellow Peril”. The notion is a color-metaphor, full of racism. East Asians, especially the ethnic Chinese, are an existential hazard to other countries as immigrants.  Professor Gina Marchetti argues that

the rooted in medieval fears of Genghis Khan and Mongolian invasions of Europe, the yellow peril combines racist terrors of alien cultures, sexual anxieties, and the belief that the West will be overpowered and enveloped by the irresistible, dark, occult forces of the east.

In Australia, as a Western country located away from the West,  its Immigration Restriction Act of 1901, infamous as the White Australia Policy, was designed to prohibit Chinese settlers. “Fear of China and hostility to the Chinese immigrants were factors” that supported the Federation of Australia, and both factors existed for decades. The federating of Australia was the process by which the sixBritish colonies consented to unite and become the Commonwealth of Australia. Liberal Prime Minister Harold Holt formally abolished the White Australia Policy in 1966 with the introduction of the Migration Act 1966. By legislating legal equality among European and non-European migrants, this new Act has opened a new immigration history era. It has been the most crucial step in forminga multicultural society in Australia.

However, Australia’s unique geographic location and huge disparity of population between Australia and China have decided that the natural insecurity of Australia as a nation, for that linguistically, historically and intellectually, Australian ancestry originates from Europe, and its vital economic partner and most crucial military ally is the United States, both far away from Australia. Furthermore, Gyngell argues there is always “fear of abandonment” in Australian foreign policy. Likewise, former Australian Minister for Foreign Affairs Gareth Evans and former Australian diplomat Bruce Grant confirm that

the evolution of Australian foreign policy needs to be assessed against a background in Australian politics of persistent anxiety about a threat from Asia: sometimes vague and undifferentiated, sometimes specific, but always there.

In this period, China was viewed in Australia as a threat, namely, the aforementioned “Yellow Peril” and “Red Menace”. Arguably, the Red Menace has always existed in the Australian society and the government until now,which is a term applied during the Cold War for describing a nation that faces the increasing authoritarian threat of communism. This term was used to refer to the Soviet Union, while nowadays, it has been employed to mean Communist China. Besides, the difference of scare only reflects the extent to which the Australian government fears the Chinese Communist Party. From 1949 to 1972, especially when Australian and Chinese troops participated in the Korean War as rivals and later the Cultural Revolution was launched in China, Sino-Australian relations were hostile to each other due to the fact they were both subordinated to different political and ideological camps: USSR-led communism and the United Stated-led capitalism.

The steady development of Sino-Australian political relations from 1972 to 1989

During this period, Sino-Australian relations encountered the most drastic ups and downs the bilateral ties have ever experienced. In 1972, the Whitlam Labor government’s election marked the most radical turning point in Sino-Australian history by establishing diplomatic relations with China in December of the same year. Despite the endeavor, Whitlam made, this new chapter of the bilateral relations is mainly dependent on the change of  China Policy from the strongest ally of Australia, the United States. More concretely, in the early 1970s, the American army was withdrawn from Vietnam, indirectly ending the military collisions with the People’s Liberation Army.At the beginning of 1972, Nixon has his dramatic visit to Beijing and Shanghai.

From 1972 to 1989, the bilateral relations were at the stage of steady development. Partly, the positive Sino-Australian relations can be attributed to the same view of opposing the Soviet threat, which facilitated the Sino-Australian cooperation. More specifically, in July 1973, the first Sino-Australian trade agreement was signed by the Chinese government and the Whitlam government. The visit of Whitlam to Beijing in late 1973 culminated in a joint communique, concurring with the promotion of views exchanges among the Sino-Australian officials. In 1976, during the period of the Coalition-led Fraser government, “the Australian Parliament even stood in silence in the honor” of Mao Zedong, when Mao passed away. In 1978, the Australia-China Council was built by the Coalition-led Fraser government to facilitate bilateral relations.

Furthermore, in the 1980s, with the economic reform of Deng Xiaoping and the incrementally frequent visits of Sino-Australian senior leaders, the Australian government saw the economic opportunities China may bring, and the Chinese government also realized the Chinese modernization might benefit from the support of Australia. Mackerras argues that “the mid-1980s saw the relationship reach a peak”. In 1984, the ALP-led Hawke government launched the China Action Plan, “an overall economic program towards China”, aiming to deepen bilateral economic cooperation. In 1985, Hawke told the Australian parliament that a ‘special relationship’ between the two countries was forming.

The realistic Sino-Australian political relations from 1990 to 2015

The outbreak of the Tiananmen Incident in 1989 was a devastating turnaround in Sino-Australian relations, bringing the vigorous relations to a sudden stop. To some extent, Deng’s economic reform gave Australia and the Western world an illusion that China tried to become more Western. Contrariwise, the Incident shattered misapprehension of the special relationship between the two countries and has pushed human rights to one of the central issues that needs to be addressed in the bilateral agenda until now. It is noteworthy that the negative influence of the Tiananmen Incident was in all domains. Antagonized by the Australian broadcasting of violence in Beijing, the Australian people, including politicians, business people, scholars and religious figures, unanimously condemned Beijing. All aspects of Sino-Australian relations were affected at varying levels.

Arguably, after the Tiananmen Incident, the attitudes of the Australian government has changed to be more pragmatic and national-interest-driven. Wang argues that  the reassessment of Sino-Australian relations “did not lead to a fundamental policy shift” in Canberra “and human rights were not emphasized to the detriment of Australia’s economic interests”. In 1993, as the first Australian Prime Minister after the Incident, Keating visited China, breaking the diplomatic ice, partly because he needed to push wool exports to China.

Noticeably, from 1989 to 2015, China and the comparison of world powers experienced earthshaking changes. The hazards of the Asian Financial Crisis in 1998 and the Global Financial Crisis in 2008 lead to the economic meltdown of some Southeastern countries and the relative decline of the West. Bearing the two Crises, China has benefited enormously, even the most, from joining the WTO and other regional and global economic organizations as a member of economic globalization. At the end of 2010, China surpassed Japan and has become the second-biggest global economy, indicating that the global economic center has gradually transferred to East Asia. During this period, Hong Kong and Macao were subsequently handed over to China, enhancing China’s confidence. There is no doubt that bilateral relations have been increasingly asymmetrical during this time, leading to the concept of equal partners less possible.

From 1989 to 2015, facing China’s economic rise, on the one hand, the Australian government and business took advantage of the historical opportunities and have been more engaged in the Chinese economy. For instance, the Coalition-led Howard government was a firm“ supporter for China’s accession to the WTO” to share better Chinese economic growth. In 2014, the Coalition-led Abbott government and the Chinese government started to portray the bilateral relations as a “comprehensive strategic partnership” due to the incremental and robust trade relations and more frequent communication between top leaders of the two sides. On the other hand, due to the different political ideologies and systems, and the gradually widening disparity of the two countries, there have been strong concerns in the Australian government that China may leverage trade over Australia. Foot  indicates the sense of uncertainty and insecurity in Canberra that

Has Beijing worked to support the dominant norms of the international order, or has it striven to overturn them? Has it ever deserved to be called “responsible power”, a term defined by the dominant states, or has it acted irresponsibly? To place these questions more explicitly within an international relations framework, has China shown itself since 1949, and more especially during the period of reform and opening since 1979, as capable of be socialized into supporting global norms? Or, as realists would predict, have there been signs that its rising power over the past two decades has generated new tensions in the international system? Looking more to the future, what kind challenge does its enhanced capabilities pose to the status quo?

Despite the dilemma that the Australian government has to face and the political ups and downs between the two countries during this period, “the growing sense of independence in formulating Australia’s policy towards China, as well as the increasing saliency of trade considerations in implementing such policy, has transcended political and inter-administration divides”. Thus, to some extent, although there were still ups and downs during this period from the ALP-led Hawke government to the Coalition-led Abbott government in 2015, the bilateral relations “appears to have become less uncertain” and matured. Arguably, the Australian government started to view China either without unjustified fear as they had before 1972, or super optimism as they had before 1989.

In fact, the differences may only exist in the style of how different administrations approach China. For instance, the first Mandarin-speaking Prime Minister Kevin Rudd introduced a concept called “Zhengyou in Chinese that means to voice different opinions to benefit the Chinese leadership. By comparison, another Prime Minister John Howard preferred to deal with China on more practical issues.

The increasingly strained bilateral political relations from 2016 to 2020

Bilateral relations have deteriorated since the exacerbation of territorial disputes in the South China Sea in 2016. The Australian government criticized China for not abiding by the South China Sea Arbitration, a joint statement with Japan and the US. In response, the Chinese government expressed its strong displeasure through its state-owned media the Global Times, denouncing Australia as a “paper cat”. Currently, the Australian government is concerned that Chinese activity in the South China Sea may threaten Asia pacific security, thus influencing Australian sovereignty and security.

More importantly, Australia’s closest and strongest ally, the US, initiated a trade war with China at the beginning of 2018.  Since Australia often follows American foreign policy, the increasingly intense Sino-American relations have negatively affected Sino-Australian relations. In the same year, Sino-Australian ties soured further when Australia became the first country to officially ban China’s Huawei from its 5G network. A similar prohibition on Huawei was later executed in the US in 2019.

In terms of domestic politics, there are continuously more negative speeches about China.Australian politician Andrew Hastie urges urged the Australian government and public to realistically recognize the unprecedented democratic conviction and security threat from China. He even goes “as far as to compare the Western tolerance of China’s rise with the appeasement of Nazi Germany”. Hamilton argues Chinese infiltration in Australia is a “silent invasion”. The Minister for Home Affairs Peter Dutton, one of most senior officers in the Liberal-Coalition-led Morrison administration, condemned China’s interference and cyber hacks in Australia and claimed that the policies of the CCP are incompatible with Australian values.

2020 may have been the most turbulent year for Sino-Australian relations so far. Facing the once-a-century Covid-19 pandemic, Beijing has taken trade actions against a series of Australian goods such as barley, cattle, wine, cotton and coal after the Morrison administration advocated an independent Covid-19 inquiry without consulting Beijing first.

The tension also extended to people-to-people exchange. Canberra has warned its residents against arbitrary arrest in China. In contrast, Beijing has cautioned against studying and visiting Australia due to purportedly increasing racism and discrimination against people of Chinese and Asian descent. At the end of 2020, Morrison reacted furiously and demanded an apology from Beijing to an image tweeted by a Chinese diplomat showing an Australian soldier holding a knife to an Afghan child’s throat, which has further shadowed current and future relations.

Meanwhile, despite the global pandemic, there is increasing scrutiny in Australian media, including of the Hong Kong anti-extradition bill, the Xinjiang re-education camp, and China’s political donation to Australian political parties, Chinese spy students, the fight between Hong Kong and Chinese students in Australia, the defection of Wang Liqiang, Huawei backdoor suspicion and the detention of Cheng Lei and Yang Hengjun. According to the Lowy Institute poll in 2019, Australians’s trust in China to ‘act responsibly’ has dropped to 32 %, a 20-point decline from 2018. In 2020, trust in China has deteriorated to 23%, the lowest point in the Poll’s history.

Whatever, if any, evidence underpins these narratives or not, they seem to point out one reality: the plummeting state of Sino-Australian relations. Geoff Raby, former Australian Ambassador to China, even argues that Sino-Australian relations are at their lowest ebb since 1972.It may be controversial to argue that the current bilateral relations are worse than the relations in 1989, but it is appropriate to point out the reality that the Sino-Australian relations have been incrementally damaged. The Australian government’s dilemma is the overreliance of the Australian trade upon China and the exacerbated political disagreement. Jonathan Pearlman argues that “security and economics are tugging Canberra in different directions, as are its values and its interests”.

The Influence of the United States in Australian foreign policy

Undoubtedly, the Australian foreign policy has been influenced by the American government, as Australia has been called the “fifty-first state” of the US. Australia and the US have the same language background, similar European ancestry, similar political systems and strong economic ties. More importantly, in 1951, Canberra and Washington agreed on the Australia, New Zealand and United States Security Treaty (ANZUS), regulating that “an attack on either country’s armed forces or territory in the Pacific area” means “common danger” for the three countries. Since the US abolished its responsibilities to New Zealand due to the disputes of nuclear-armed ships, the ANZUS has become a bilateral treaty between Australia and the US and, separately, between Australia and New Zealand.

Given the American economic and military power around the world and the substantial disparity of Australia-American strengths, it is easy to argue that the ANZUS is the cornerstone of Australian security, and the US is the most important ally of Australia. In fact, Australia followed the US’s leadership through the UN, in the Korean War in 1950, the Vietnam War in 1962, the Afghanistan War in 2001 and the Iraq War in 2003 and recognized the PRC after the Nixon government had changed its China policy. To underpin the above view, Tow and Albinski affirm that the “ANZUS alliance remains Australia’s primary security relationship”. The former Australian diplomat Dr.Alison Broinowski argue that

Australia uncritically and voluntarily imitates its major ally (the United States) and its minor ally (the United Kingdom) in most things, yet lacks the capacity to do them well and the independence to do them differently. Having taken the drug of dependence from birth, Australia seems allied and addicted to it.

Thus, it is easy to question how independent Australia’s foreign policy is, especially its China policy, and argue that Australia does generally imitate the US’s foreign policy. As for the recent downturn of bilateral relations, Geoff Raby, an insider of Australia politics, believes that Canberra has developed policies to push back China’s rise in that the US started regarding China as a strategic competitor.

However, there is some policy flexibility in the Australian government, mainly economic-interests-motivated. To cite an instance, despite the opposition of the US, Australia participated in the China-led Asian Infrastructure Investment Bank in 2015 and leased the Port of Darwin to a Chinese company in the same year. Australia took the position as an outsider in terms of the Sino-American trade war, suggesting the two sides to end the fight to avoid the risks of collateral damage to Australia. Even in the 1950s and 1960s, when the Australian government adopted a hostile attitude towards China, the wheat trade between China and Australia“reached a significant level”.

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The Economic Revival of Japan

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Photo: Jezael Melgoza/ Unsplash

Amidst the uncertainty weaved by the pandemic, the stock markets around the world have shunned the preconceived notions associated to their functionality over the past year. While some sophisticated economies are suffering turmoil at the ensue of new Covid variants, deviant vaccination drives, and resumption of state-wide lockdowns, some of the countries are outright negating the educated forecasts made by seasoned financial experts all over the globe. China stands as a flag-bearer of such reality-defying markets: bagging GDP growth unlike any in the world whilst simultaneously controlling the virus strain in Beijing. Recent to the tally, however, is the quaint nation of Japan that despite being head-to-head with another gruesome wave of Coronavirus, still manages to consistently outperform the hailed champions of the global financial markets.

The 3rd biggest economy in the world astonished the financial gurus when Nikkei 225, Japan’s core stock market Index, soared up steadily over the last few weeks. With a 1.9% hike at the week’s opening on Monday, 15th February, Nikkei 225 Index surpassed the coveted 30000-point threshold after more than three decades. The economic rebound is associated to the export sector picking up the pace after a sluggish performance last year. The country still wrestles with the throttle of the pandemic; confirming over 1000 Covid-positive patients since November 16th and adding the cumulative death toll of 7056; surpassing the 7000 deaths mark in just under two weeks.

The positive effect, however, dawns since the daily confirmed cases are showing a steady drop; below 1000 daily-confirmed cases in over 4 months. This occurrence is in tandem to the global fall in the Covid cases. Moreover, Japan’s approval of the Covid vaccine produced by Pfizer Inc. is reflecting the recovery in the health condition of the country, especially a lucrative news amidst the second health emergency recently imposed in Tokyo.

Standing at the 30393.13-point mark, Nikkei 225 is expected to follow the bullish trend heavily over the following week as well. According to the measured forecasts, the bourse is optimally headed to strike the 33000-point mark after crossing the milestone of triple decades. This is due to the positive economic outlook in tandem to the rebooting of the global economy which would ultimately enable the export-reliant country. With Japan announcing a 12.7% GDP growth trailing from the recovery of the last quarter of 2020, followed by a hefty government stimulus to prompt domestic consumption, the Japanese bourse is expected to inflate by up to 30% by the end of the first quarter of 2021 in March, presumably speculating a record surge to bypass the highest ever figure of 38915.87-point, posted by Nikkei 225 back in 1989 before being subsequently floored by the notorious price bubble crash.

However, the economic recovery much less a record shattering surge in the market is heavily dependent on some of the core facets. The debacle of the nationalisation of vaccines is evident in Europe and ironically is the crisis posing more of a serious threat than the pandemic itself. Japan’s economic stability would only be possible given the vaccinations are administered effectively and timely with minimal resistance. As Japan still finds it hard to evade the emergency measures introduced in multiple regions, a vaccine crisis could intensify the emergency precautions and lockdowns may even gear into effect. This could seriously undermine the production capabilities of the country which ultimately could carry forward as an element hampering the blooming investor confidence in Japan.

Much to the global conformity of economic peril last year, Japan’s economy also contracted by 4.8% in 2020. The steep contraction, despite being of a greater extent relative to the 3.5% annualised shrinkage in the US economy, was still much controlled than the forecasted 5.3% fall projected by the International Monetary Fund (IMF). However, unlike some of the regional economies, the pandemic-induced decline lasted only for a short span of time before Japan waded through and rallied. Posting a 3% growth in the 4th quarter of 2020, when major economies like Germany and US grappled with recession, Japan steadily made surface.

Now as the pessimism looms in Europe and the political divide worsens in US, Investors are pouring confidence in Japanese equities which provide a solid foundation to the already surging Japanese Indices. This shift in perspective could be gauged by the purview of global stock positions taken by the active equity investors throughout the globe; pouring investments unlike the sceptical position adopted since January. The increasing investor confidence coupled by the improving economic and social health of Japan has proved monumental on the financial charts; despite being in the highs of a heavy stimulus, S&P 500 continues to be outperformed by Nikkei 225, sometimes even falling short by colossal margins to the returns added by the Japanese Index.

Which way the markets would turn and how Japan could sustain the whelming economic recovery depends largely on how Japan deals with Covid and how efficiently it regulates the vaccination drives. Moreover, Japan’s success may be upped the ante by any new misery that might befall on US or Europe that could ultimately drive more confidence and flare to the 3rdlargest economy of the world.

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East Asia

Mongolia-World Bank Group Partnership: Three Decades of Partnering for Prosperity

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It all began exactly thirty years ago. On February 14, 1991, the eve of Tsagaan Sar, Mongolia joined the World Bank Group[1]. This was the period when the country had just gotten on the path of democracy, free market, and openness to the outside world.  Mongolia rightly took pride in this transition but, at the same time, it presented enormous challenges, including a sharp economic contraction. Following the cut of external aid, the hardship was felt by Mongolians every day. Long lines were visible on every street corner for rationed food.

The World Bank’s support was quick to arrive. By the end of 1991, the first project of $30 million was already signed to help rehabilitate production in key sectors such as agriculture, energy and transport. The World Bank also carried out a comprehensive macroeconomic analysis, zooming in on the immediate challenges of runaway inflation and falling output.

Since these early days three decades ago, the World Bank Group (WBG) has accompanied Mongolia’s strong recovery and development, culminating in the country’s graduation from the International Development Association (IDA) – the WBG’s lending window for low income countries – last year. Mongolia’s economy has expanded significantly over this period, with GDP per capita rising more than fourfold from $1,072 in 1991 to $4,339 in 2019. But growth has been volatile. Like many other resource-rich countries in the world, Mongolia experienced persistent boom-and-bust cycles. Economic diversification remains critical to generate productive jobs, especially for the young. People’s living standards have improved, but growth did not not generate shared prosperity for all. Mongolian citizens expect their government to deliver quality education and health services, and provide for a clean and safe living environment. Their aspirations have not yet been fully realized.

Through good and difficult times, the WBG has remained a steadfast partner of Mongolia. Our budget support operations helped Mongolia restore macroeconomic stability and lay the foundations for inclusive growth. Our investments contributed to economic development in both mining and non-mining sectors, improving people’s livelihoods, and addressing environment and climate challenges. A total of $1.28 billion World Bank financing has been committed to Mongolia for these years. The WBG’s private sector arms—the International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA)—have also been active in supporting private investments.

The investments have helped improve people’s livelihoods across the country. In the energy sector, we supported electricity access to over 100,000 rural and herder families providing them with portable solar panels in the 2000s. In the early 2000s, the World Bank telecommunications project helped all 360 soums in Mongolia gain access to modern phone and internet services. To help herders mitigate natural disaster risks, we supported the world’s first index-based livestock insurance system in Mongolia. To improve governance, we helped revamp the statistical system in Mongolia to match international standards to inform decision making, and empowered citizens to make their voice heard on public expenditure allocations at local levels. IFC financed Mongolia’s first utility-scale windfarm for the country and supported reforms to increase access to finance for SMEs through enabling movable collateral.   

Most recently, in the face of the COVID-19 pandemic, the WBG quickly mobilized over $60 million to support the relief and stimulus measures for saving lives, protecting the poor and vulnerable, and ensuring sustainability of businesses and jobs. These resources are being invested for the most essential medical and diagnostic equipment in three tertiary hospitals, nine district hospitals of the capital city and 21 aimags, personal protective equipment for frontline health workers, and training for medical staff. A new project, which would finance the vaccination of about 60 percent of Mongolians has just been approved. The Bank is also financing the temporary relief of social insurance contribution for over 120,000 self-employed workers including 72,000 women and around 150,000 workers employed by 18,000 firms affected by COVID-19. Bank support has also benefited approximately 1.19 million children through the top-up payments to the government’s Child Money Program.

After thirty years of partnership with the World Bank Group, Mongolia has become a lower-middle-income country and its vision is to become by 2050 a high-income country with high levels of human development, better quality of life, a diversified economy, and good governance. This is an aspiration we will continue to support. To turn it into reality will be challenging. The first step will be to gradually phase out short-term relief measures and return to the important agenda of structural reforms which are needed to rekindle growth and make it sustainable and inclusive. Over the medium-term, Mongolia will have to contend with the growing risks associated with climate change, and the challenges this will bring to the structure of its economy. And it will need to offer its youth the perspective of productive, well-paying jobs, to retain the country’s talents at home.

The WBG is honored to have been Mongolia’s trusted partner over the past thirty years. We are confident that our partnership will continue and further strengthen in the decades ahead, rain or shine.

 [1] Mongolia joined the International Bank for Reconstruction and Development (IBRD), International Development Association (IDA), the International Finance Corporation (IFC), and International Centre for Settlement of Investment Disputes (ICSID) in 1991; and Multilateral Investment Guarantee Agency (MIGA) in 1999.  All these organizations together known as the World Bank Group.

World Bank

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