It says something about Australia’s position that we send more than 40% of our exports to a country that has an economy which is, to put it mildly, opaque.
We simply do not know much about inventories and stockpiles possessed by China.
Now, news reports are saying that Beijing next year will begin a drive to increase the size of its already huge state reserves of crude oil, strategic metals and farm goods.
Interestingly, the reports go on to say much of the planned purchases will be stored in “remote inland regions”. Why?
These stockpiles, apart from being “mammoth” as one report described them, are also extremely secretive. No one is quite sure, for example, where the People’s Bank of China keeps its large gold reserves, some conjecturing that the bars are under military guard.
Just recently, the country went on a copper and oil buying spree, yet the official figures for commodity imports last month dropped by 2.1% — and this followed a 1.4% decline in July.
Last month, news leaked that China was buying an extra 2,000 tonnes of the strategic metal cobalt.
China may be nervous about supply chain security
So, why is China about to hoover up such large quantities?
One theory is that the COVID-19 virus has alerted Beijing to how fragile supply chains can be and China doesn’t want to run out of raw materials or fuel, especially at a time when the government is clearly trying to stimulate economic growth post-pandemic.
Another is that China is preparing for supply disruptions as the trade war with the United States ramps us. Bans on US export items is a significant threat to China.
But there is also the issue of the fraying geopolitical situation in East Asia following the tearing up of the Anglo-Chinese agreement covering the governing of Hong Kong until 2047.
China is at present stirring up trouble on its border with India, where soldiers on both sides have been killed.
Now, the Taiwan issue is heating up.
The Beijing newspaper seen as a mouthpiece for Xi Jinping and his government, The Global Times, recently published an article headed “China must be militarily and morally ready for a potential war”.
It accuses the US of stirring up trouble among China’s neighbours.
“Considering that there is also the Taiwan question, the risk of the Chinese mainland being forced into war has risen sharply,” the paper said.
As Rabobank’s Asia-Pacific economic chief Michael Every has commented, “those in the know, know that this [stockpiling] has already been happening across the board for some time”.
“China has been swallowing up raw materials and strategic goods far in advance of what the economy needs right now,” he said.
But Mr Every makes the point that, whatever the trade tensions in the past, no one has ever refused to sell to China. Certainly not Australia, it must be stressed — the only recent change is discouraging China owning sources of supply in China, rather than buying from them.
Then he poses the question to which no one seems to know the answer: “What possible disruption could be on the horizon that would require China to have a large enough buffer of all conceivable inputs — in remote inland areas to boot — that it needs to use up its precious US dollar reserves in a bulk splurge now?”
Taiwan issue rankles with Beijing leaders
Beijing does seem to have worked itself up into a military frenzy, threatening to take Taiwan back by force if necessary. Chinese fighters have flown close to Taiwanese air space.
Taiwan obviously rankles deeply with China’s leaders. The imperial government in Beijing in 1895 was forced to cede Taiwan to Japan after a military defeat, and Tokyo controlled the island until 1945.
Then in 1949, the defeated Nationalist army fled the new communist regime in China and set itself up as a government-in-exile on Taiwan; its official title remains ‘Republic of China (Taiwan)’. For several decades, parliamentarians representing mainland constituencies continued to sit in the Legislative Yuan in Taipei.
Should China deliver on its threat to take back Taiwan against the wishes of the island’s people, economic sanctions would be a likely response from the US and other Western powers.
Beijing would not want to be cut off from supplies vital to keeping its military in action.
We have seen this before.
In 1941, in the months before the attack on Pearl Harbor, it was reported that Japan had placed orders for about one-half of Peru’s cotton crop, was purchasing molybdenum and would have bought copper as well had the US not already ensured that Peru’s supplies of the red metal went to them.
In fact, Washington bought 36,000t of Peruvian sugar in 1941, even though it was itself a substantial sugar producer, just to keep it out of Japan’s hands.
Yet Tokyo was able, just months before going to war in the Pacific, to buy strategic metals from Peru, including antimony, tungsten and vanadium.
Chinese investment in Australia declines
The economic troubles with Australia are continuing; in recent days it was reported that Chinese investment in Australia during 2019 was about half that spent here in 2018.
In 2016, Chinese investment peaked at $16 billion but last year totalled just $2.5 billion.
Given the recent clampdown by Canberra on Chinese investment, and the Chinese walking away from buying Lion Dairy and Drinks due to expectations that this would be not be approved, it would seem that 2020 investments levels may be even more restrained.