Right now there are many Pollyannas who subscribe to the “she’ll be right” view of the Australian economy; after all, it’s so well managed by a combination of two of Australia’s outstanding institutions: Treasury and the Reserve Bank.
For proof, look no further than the fact that it has survived Wayne Swan and Joe Hockey. Yet the very first trading day of 2016 would have had the brokers and bankers who are paid to talk things up choking on their cornflakes at Pearl Beach and Portsea. And any economist worth her or his salt should have at least gulped.
On January 4 and again on January 7, China’s sharemarkets in Shanghai and Shenzhen were forced into a trading halt after indices breached the daily limit of 7%. In between times, on January 6, the Chinese government added fuel to the fire that is its fast-receding “reputation” as good economic managers by pissing $93 billion up against the wind of markets. On January 7, policymakers juked the circuit breaker, the latest sign of skittishness and peripatetic policymaking by China’s suddenly vulnerable economic managers.
Once the toast of the world, China “saved” the global economy by furiously printing renminbi like there was no tomorrow. Unfortunately for China, tomorrow appears to have arrived — and in the shape of a mountain of Chinese debt, pushed out the doors of the state-owned banks with unusual alacrity. Every sector is affected.
So, for example, China’s chronic overcapacity remains largely untouched: steel mills, smelters and factories keep production level high so the cash can keep rolling in to pay off the debt, all the while many are losing even more money. It’s a money-go-around, which Beijing has so far been helpless to stop. It seems that the emperor and his economic team may not be wearing any clothes.
After flubbing last August’s market crash, the policy tsars on the Communist Party’s Leading Group for Financial and Economic Affairs, which runs the economy, have flubbed this one, too. It has become abundantly clear that the party group, headed by Xi Jinping and his No. 2 Premier Li Keqiang (economics degree and all) are largely clueless when it comes to managing anything but unfettered growth.
No hint of original thought has been displayed by team Xi as it borrows time-worn solutions from the CCP playbook: Xi’s cult of personality is burgeoning, and nationalism has been amped up as distraction from the economy. Yet in a battle for the hearts and minds of the citizenry — and this is true in pretty much any country — between weekly food prices and naval glory, the hip pocket wins every time. Xi’s primary goal in elevating the visibility of the armed forces is securing his control over the People’s Liberation Army, something that largely eluded his predecessors Jiang Zemin and, in particular, the colourless technocrat Hu Jintao.
China’s militaristic show of strength is also a singular message of power projection to its neighbours in south-east Asia — a clutch of whom are trapped in ongoing spats with China over various rocky islands that sit atop fossil fuel deposits suddenly not worth much investment or escalation. Investment is the carrot, defence the stick, to restore its position as regional hegemon.
Still, give generals, air vice-marshals and commanders new toys and they get horribly itchy trigger fingers. All this will doubtless be under consideration by Defence Minister Marise Payne and her cabinet colleagues.
This essayist is loath to tick off other media, as it makes him seem a bit too much Sharri Davidson, but this is worth an exception: The Sydney Morning Herald ran a piece last week by Michael Pascoe, who said of China’s slow-down, “big whoop”. Well, actually Mr Pascoe, it is quite a big whoop. Australian investors — that would be your readers — are terrified. The little Aussie battler is headed further south, earning its status in spades already this year (there go the SMH readers’ European trips), and it’s only just begun.
It seems the SMH, in its dotage, has finally given up, exhausted at fighting the good fight for so long, and joined the “she’ll be right” club.
The mining Pollyannas — a group that has considerable crossover with the Australian Pollyannas — thought if they called the bottom of the commodities market enough times last year, they might be right. As the old Chinese proverb goes “bottom picker get dirty finger” and, indeed, it’s still coming. Iron ore is preparing to fall back under $40, having already given back half the 18% it gained in a limp New Year’s rally. Beneath the oddly calm surface of the Australian economy and budget is being smashed amid frightening wealth destruction in the mining sector.
China takes one-third of our exports, and those revenues are pretty much irreplaceable and are pummeling the budget. But big whoop.