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‘Primed’: Renewed concerns mount over China’s preparations for war

Chinese Navy aircraft carrier, Liaoning leads a People's Liberation Army-Navy task group in 2019

Global alarm bells are beginning to sound once again as economists and strategic policy experts, at home and abroad, are stressing concerns about China’s economic vitality despite export booms, raising the spectre of conflict far closer to home.

Global alarm bells are beginning to sound once again as economists and strategic policy experts, at home and abroad, are stressing concerns about China’s economic vitality despite export booms, raising the spectre of conflict far closer to home.

Since Nixon opened or rather reopened China in the 1970s, the ancient power has rapidly emerged as one of the world’s truly great economic and industrial powers, shaking off the failure of Mao’s Cultural Revolution and the ensuing poverty that swept across the People’s Republic of China.

Spearheaded by Mao’s reform-minded successor, Deng Xiao Ping, the period of economic liberalisation and explosive growth beginning in the late 1970s, and really taking root in the 1980s, would become known as “Boluan Fanzheng” or “Eliminating Chaos and Returning to Normal”, which would pave the way for the true beginning of the globalised economy.

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As part of this growth, many nations began to peg their economic prosperity and stability to the rising power; Australia, least of all, repeatedly doubled down, leveraging its vast mineral and resource wealth to transform China into one of the world’s major economic powers.

During this period of explosive and historic growth, China’s economy avoided both the Asian Financial Crisis and the Global Financial Crisis to steadily position the nation to become the “factory of the world”, resulting in the hollowing out of many national industrial bases in favour of cheaper, “just in time” supply chains.

However, the one thing China’s economy – like the global economy – couldn’t escape was the ravages of the COVID-19 pandemic, which saw waves of domestic and international lockdowns across the globe, with devastating human, economic, political, and strategic costs.

The impact on supply chains at home and abroad, coupled with Beijing’s attempts to coerce trading partners like Australia during the pandemic, served to shatter the once-alluring illusion that as China became wealthier and its leaders and people became more prosperous, they would become more liberal, democratic, and less autocratic.

This was just one in a series of false, yet lofty and idealistic ambitions that swept across the Western world in the jubilation of the post-Cold War world and the “End of History” as championed by Western academics like Francis Fukuyama.

As if caught in a fever dream, we now know that this is far from the economic, political, and strategic reality we now confront, presenting major challenges for both Australia and the Indo-Pacific.

Highlighting the potential impact of this, a number of economists and strategic policy analysts have begun to sound the alarm regarding the major implications of China’s declining economic stability, domestic demographic challenges, and the future of the Indo-Pacific.

Collating concerns about Beijing’s economic policy and its shift towards a war footing is Frank Chung, in a piece titled, China flooding foreign markets with cheap goods is "a situation structurally primed for war”.

Setting the scene, Chung stated, “Turmoil in global minerals markets as China floods the world with cheap goods highlights a situation ‘structurally primed for war’, defence analysts have warned.”

Global market turmoil precedes something nasty

China flooding the global market with cheap consumer goods, steel, and other items may seem like an odd indicator for a prelude to war, particularly one that could ultimately plunge the world into total conflict and potentially nuclear conflict.

But domestic circumstances may be forcing the hand of Chinese leader Xi Jinping and his ambitions to re-establish China as the global “Middle Kingdom” at the centre of global economic, political, and strategic power.

Chung explained, “Collapsing iron ore prices threaten to wipe out tens of billions of dollars from the profits of Australia’s largest miners, while ‘carnage’ in battery minerals nickel and lithium over the past year has led to now-unprofitable projects being delayed or cancelled.

“The current chaos in iron ore is largely due to the implosion of China’s over-inflated real estate bubble, which for years has consumed vast quantities of the key steelmaking ingredient, mostly from Australia, sending shockwaves through the every level of society and sparking frantic efforts by Beijing to revive its economy. Now those efforts include doubling down on exports such as cars, machinery and consumer electronics, propped up by cheap, state-directed loans, according to The Wall Street Journal, which warns the globe may be facing a repeat of the ‘China shock’ of the late 1990s and early 2000s,” Chung added.

However, this iteration of the “China shock” is vastly different to the previous incarnations from the late-1990s and early-2000s and ultimately spells major trouble for the West and the Indo-Pacific.

Massachusetts Institute of Technology professor of economics David Autor explained this difference to The Wall Street Journal, mainly being that where previously China had actively exported mass volumes of consumer goods to the West, hollowing out the industrial base of the Western world, to the different approach now.

“Beijing is seeking to engineer an economic turnaround by ploughing money into factories, especially for semiconductors, aerospace, cars and renewable-energy equipment, and selling the resulting surplus abroad ... Unlike in the early 2000s, however, the Western world now sees China as its chief economic rival and geopolitical adversary,” Professor Autor explained.

This ultimately creates an environment of tension, competition, and in some cases (as Australia experienced during the COVID-19 pandemic) open economic coercion on the global market, something the Western world has never truly had to confront.

For Australia, China’s glut of steel is having a major impact on our domestic steel producers, applying further pressure to what remains of our already-strained industrial base, something detailed by the Australian Strategic Policy Institute’s David Uren, who explained, “While the Australian budget is reaping a bonanza, Western steel mills, including Australia’s Bluescope Steel at Port Kembla and the Whyalla Steelworks, are coming under pressure. Steel has for decades been one of the most politically sensitive international markets and the surge in China’s steel exports will contribute to an increasingly acrimonious international trade environment over the year ahead.”

All of this combines for an increasingly hostile and tense Indo-Pacific.

New markets can be ‘gained by force’

Chung then shifts the dial, speaking to Elbridge Colby, who, in detailing the impact of China’s economic policy stated, “Why? China has vast overcapacity it must export. Now countries don’t want to import so much from it. Where will it export to? It needs markets. Markets can be gained by force.”

This feeds into comments made by Paul Krugman of The Sydney Morning Herald who stated, “The basic point is that China, in various ways, suppresses private consumption, leaving the country with huge savings that need to be invested somehow. This wasn’t too hard 15 or 20 years ago, when Chinese GDP could grow as much as 10 per cent a year largely by catching up with Western technology: A rapidly growing economy can make good use of huge amounts of capital. But as China has grown richer, the scope for rapid productivity gains has narrowed, while the working-age population has stopped increasing and has begun to decline.”

For Australia, a nation that is incredibly dependent on China’s continued economic growth for everything, ranging from higher education and real estate, through to energy, raw resources, and agricultural produce, this spells major trouble for our own long-term economic prosperity and stability.

This is reinforced by Krugman who stated, “The International Monetary Fund believes that over the medium term, China can expect a growth rate of less than 4 per cent. That’s not bad – it’s something like twice the growth most observers expect for the United States. But China is still trying to invest more than 40 per cent of GDP, which just isn’t possible given falling growth."

Equally confronting for Beijing’s leaders is the fundamental structural and systemic design flaws inherent within the Chinese system and it’s hybrid command/market style economy, or as Deng Xiaoping used to say, “Socialism with Chinese characteristics” which has only retreated under Xi Jinping’s government.

This leads us back to the question of China’s domestic economic challenges, something Michael Shoebridge explained to Chung, stating, “Deflation in China and low growth makes their prices more compelling and means they must export to stay in business. So that trend’s all bad, then you look at the minerals side of things – the Chinese are working very hard on alternative supply chains for critical minerals that aren’t from Australia and also alternative suppliers for our bulk export, iron ore. That’s what the big Guinea mine [Simandou] is all about, sure it’s taking a long time but they’re determined.”

Going further, Shoebridge explained the need for Australia, like many Western nations to snap out of the naive, almost dogmatic belief that we live in the same “globalised” world of pre-COVID-19, stating, “[Australia] has this real problem that we’re stuck pretending that the pre-pandemic, globalised economy still exists and that it’s just about us producing stuff at a compelling price and getting it bought ... The pandemic started to break globalisation and geostrategic competition has further fragmented it, [but] our core policy settings [haven’t changed].”

Ultimately this brings us back to the actions that Beijing may take in order to quell domestic political and economic challenges, with major concerns about China’s ambitions for Taiwan and the broader Indo-Pacific as a whole as the nation seeks to prop up its economic growth, while ensuring that its demographic cliff doesn’t trigger a domestic societal collapse.

Again, something highlighted by Krugman, who stated, “Trying to reduce that superpower’s ability to do harm makes sense, even if it makes many people nervous. And the possibility that China may not be as much of a superpower as many expected doesn’t change that calculation.

“If anything, China’s problems may reinforce the case for precautionary action. China’s rulers have long relied on economic achievement to give them legitimacy. Now they’re facing trouble on the home front, most immediately in the form of rapidly rising youth unemployment. How will they respond?” Krugman posited.

Final thoughts

Whether for ill or good, China’s ambitions and actions will shape the prospects of peace, prosperity, and stability in the Indo-Pacific more completely than any other nation; however, we in the developed world can’t be held to ransom by authoritarian and ethnic supremacist nations as Xi’s China has increasingly become.

Helping China is mutually beneficial for nations like Australia, but it can’t come at the expense of our values and principles. Nations like Australia and the United States, by virtue of their position within the post-Second World War international order, can go a long way to helping where possible and guiding where necessary.

However, we also have to be realistic about China’s designs, ambitions, and willingness to upend the global order to achieve its own objectives for the post-Second World War order.

Accordingly, Australia, in particular, will need to take a more considered, targeted and aggressive approach to building its own economic, political, and strategic competitiveness and resilience to better resist acts of future coercion and embrace the opportunities of the 21st century.

Dr Ross Babbage of US think tank Center for Strategic and Budgetary Assessments highlighted this necessity, saying, “I think what we’ve got to show what’s the vision for Australia, you know, what can we achieve and what you know if we go on the trajectory we are on at the moment. I’ll tell you what, you know, a lot of people, a lot more people in a decade’s time are likely to be either in really dumb jobs or maybe not have jobs at all, and in the society be a lot weaker and will be a lot less prosperous.

“So what we want to say is, look, there’s plenty of scope for doing more and smarter things, encouraging investment to do that, and then there will be some very, very interesting additional jobs and opportunities, a lot of high tech, and so on, I can tell you that, you know, talking to foreign investors, they’re quite keen on principle to work here, and do a lot more here and provide a lot more good jobs for Australians,” he explained.

This requires a greater degree of transparency and a culture of collaboration between the nation’s strategic policymakers and elected officials and the constituents they represent and serve – equally, this approach will need to entice the Australian public to once again invest in and believe in the future direction of the nation.

Get involved with the discussion and let us know your thoughts on Australia’s future role and position in the Indo-Pacific region and what you would like to see from Australia’s political leaders in terms of partisan and bipartisan agenda setting in the comments section below, or get in touch at This email address is being protected from spambots. You need JavaScript enabled to view it.or at This email address is being protected from spambots. You need JavaScript enabled to view it..

Stephen Kuper

Stephen Kuper

Steve has an extensive career across government, defence industry and advocacy, having previously worked for cabinet ministers at both Federal and State levels.

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