President Xi the Key to China's Destiny

A Quick Note: Enclosed is a brief excerpt from my AFR column this weekend (click on that link to read it). For some reason, quite a few people have contacted me saying they loved it. It's funny because it is very hard for me to predict how folks react to my columns, and which ones will really rip. This column does include a letter I received from the Prime Minister, Scott Morrison, last week about my preceding column on fiscal/monetary policy fusion. So perhaps that is what got people going. My process for writing these pieces is generally very simple. I wake-up early every Friday morning, and without having thought much about what I am going to submit, just start writing, stream-of-conscious like, for about an hour. An easy column takes an hour---a harder one two to three. I would say that 80-90% of columns fall into the easy category. Anyway, enclosed is an excerpt:

The sharp deterioration in relations between Australia and China is regrettable but also entirely expected. For the best part of a decade this column has asserted that China and the Western world are on a collision course for conflict. This was not a fashionable view back in 2013 when the Asian Century paradigm was in full-flight.

The probabilities of economic and military conflict have escalated under the current regime, which cannot be judged according to a rational, profit-maximising Western calculus. Rather, China’s actions can only be understood through the prism of President Xi Jinping’s Marxist-Leninist framework, which he describes as “socialism with Chinese characteristics”.

Xi believes conflict between capitalism and Chinese socialism is inescapable, and he has been diligently preparing for this contingency since he came to power. To properly divine our destiny, one must come to grips with the essence of the man who will exert enormous influence over the distribution of possible outcomes.

Xi is a brilliant yet fatalistic princeling-politician, who was arrested alongside his father, the Communist Party’s former vice chair and propaganda chief, as a teen during the cultural revolution, and whose sister was tragically murdered by revolutionaries at the time.

The sense of destiny derives from the fact that Xi has risen from being an ostracised outcast who lived in a cave and laboured in a work-camp to become the unalloyed, paramount autocrat leading the most populous, and second most powerful, nation on earth (after applying to rejoin the party ten times).

With presidential term limits and all threats to succession ruthlessly eliminated, “Xi Jinping Thought” enshrined in the party’s constitution, and the mantle of the “People’s Leader” bequeathed by the politburo for the first time since Mao, Xi is now unambiguously the most powerful person on the planet.

This extraordinary ascension has left him with an understandably ideological conviction that under his leadership Chinese socialism will prevail in its existential battle with capitalism, even if the logic as to precisely what warrants this determinism lacks articulation, and could indeed be fatally flawed. Prescient or otherwise, Xi’s life is emphatically committed to the fight.

The evidence thus far validates our long-held projection—informed by numerous China advisers—that our globalised and interconnected world is cleaving into two decoupled camps: one dominated by Western liberal-democracies competing against another Sino-led bloc populated by weaker developing nations and authoritarian states.

When I asked professor Hugh White about the risk of war between China and the US back in 2012, he handicapped the probability at around 10 per cent. Interviewing Dr John Lee, who is one of our advisers, for the Portfolio Construction Forum recently, he lifted that to a terrifying 50 per cent, which accords with our assessment.

Another national security expert, Professor Rory Medcalf (also an adviser), was of a similar mind when asked the same question at this forum. Neither is calling for World War III, but rather quantifying the realistic risk of a lower-intensity kinetic conflagration breaking out in the South China Sea or over Taiwan as a result of some kind of miscalculation. Undoubtedly, the election of Joe Biden, who is less capricious than his mercurial predecessor, does ameliorate the prospect of such misunderstandings materialising.

While prime minister Scott Morrison is arguably right in not acquiescing to our largest trading partner in the face of unprecedented economic coercion, many Chinese-Australians feel we have been vilifying their country for years over human rights abuses and the single-party state’s democratic deficiencies. From their vantage, the kerfuffle over the foreign ministry tweet is simply a bit of give and take that does not remotely approach any parity.

The nuance is that Morrison understands that our friends up north only respect and respond to actions. Words mean naught to the Middle Kingdom, which is why she is so loose with them. There is, therefore, a case to be made that the resolve he has displayed to date goes some way towards establishing firmer foundations for a functional and respectful trading relationship while acknowledging irreconcilable differences in each nation’s values and political approaches.