Australia must be China clever

Yesterday I wrote about the implications of China replacing the US as the world economic superpower. (China has the whip hand, April 14)

Today I look at the implications for Australia. It's not easy for Australians to accept that our future is with China. China has a very different approach to human rights than Australia, and its government and business systems are closely tied to the state.

When we elected Kevin Rudd as Prime Minister we hoped that his ability to speak Mandarin would lead to much greater understanding between our two countries. As Michael Roux set out (The megaphone politics over China, April 6) there has been a serious breakdown in relationships between Kevin Rudd and the top Chinese leadership. That needs to be gradually repaired because if it is not then over time it will affect our trade levels and will limit the advantages we can gain from China.

If the problems at the top are repaired there is the possibility of substantially deepening the relationship to cover tourism and a greater involvement in education plus specialised technology and agriculture. I expect a big rise in Chinese investment in our agriculture and in businesses, which provides the opportunity to Chinese businesses apply Australian technology back home. A good example of this is Goodman Group where China is applying Goodman's warehouse management logistical skills in Hong Kong and China.

While significant differences at the top remain, it will be harder for Australia to become a strategic partner with the new world economic superpower.

We simply have to accept that the Chinese systems and attitudes are different. And we also have to understand that when the US was the major economic power their model was the one everyone wanted to copy. Increasingly other countries – particularly those in our region and in Africa – will be looking to China rather than to the US for guidance.

Australia needs to understand that the Chinese have already started to pour billions into Africa to build that region into being a second source of raw materials and foodstuffs. In some ways they find many African countries easier to deal with than Australia. The Africans certainly don't lecture China over human rights. Before the decade is out Africa will rival Australia in the supply of natural resources to China.

If we are smart enough to work towards being a strategic partnership with China in our region then our position in the region will be unassailable. But it could easy go the other way particularly as Australians have not yet comprehended the implications to our air defences of the failure of the Joint Strike Fighter to match Russian technology which is available to China and others in the region. We backed a loser.

Australians also need to understand that while China has become the global economic superpower there remains a lot that can go wrong in China. The Chinese need to slow their economy and will do this via tighter bank credit, higher interest rates and, probably, an appreciating yuan.

But there is a clear risk of overshooting particularly given the property boom in China which has all the earmarks of a potential bubble. Chinese banks could be left with enormous bad debts. (The equity hole in China's housing, April 13.) Just as Australia is riding China's 11 per cent plus growth wave so we will ride any downturn.

Australia can partly thank the massive Chinese stimulus packages for being able to sail through the global economic crisis better than any other developed country. However, if anything seriously goes wrong in China we will be among the countries most affected.

We also need to heed the warning of the Hong Kong and Shanghai bank, (HSBC's China warning, April 6.)

In some ways Australia has become a massive China play. The Australian dollar is closely linked to Chinese electricity production so when China hit a slump in the wake of the GFC our currency fell. As the Chinese stimulation kicked in so our currency rose.

There is no doubt that we are benefiting from the vast amounts of low interest rate money that is sloshing around the world. That will not last for ever.

Australia is the lucky country once again but that luck will run out if we are not also the clever country.