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Survival imperatives and opportunity knocking...

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The cracks in China's success need global glue

ANU economics professor Ross Garnaut told the forum that China's fiscal stimulus had boosted the economy by 3 per cent, but its monetary expansion via bank credit had provided a 10 per cent boost.

"There was a lot of pent-up investment demand, which came roaring back."

He said the global banking system could no longer smoothly cover huge trade surpluses in Asia and huge deficits in the West, so Asians would have to spend more and Westerners save more.

That transition, he said, would be easier for China and the rest of Asia, than for the West.

"And for Australia, turning its back on direct foreign investment from China will force it to make a bigger adjustment than would otherwise have been the case. Other countries are not taking the same attitude as us."

Professor Garnaut said "current tensions in the resources trade (with China) should get us all thinking".

Similar issues, he said, dominated Australia's relationship with Japan earlier, despite "the lots we have in common".

"It should have been a much richer relationship. So far, the China relationship has been more diverse. But there is some danger that these tensions will come to dominate perspectives on both sides," he said.

"And in this case, the initiatives on monopolisation have come more from our side. We have to think hard about structural arrangements to prevent this being the main focus of the relationship."

The best answer, he said, would be "the development of a Shanghai commodity market as a place for pricing northeast Asian minerals, instead of so much hanging off a single negotiation every year"...
"Monopolisation" - I bet not many will agree with Prof G, and if you don't believe me, just check out the Aussie media.. almost 80-90% of them journos are talking as if China is the greatest enemy of Australia of all time without giving a second thought that this "evil nation" provides bulk of the "income" to this country. This is probably one country in this world that treats its biggest customer with contempt and constantly wanting to denigrate their system, their leaders and their people, based on impression one gets the media, of course.

Is Australia digging its own grave? Probably not because China is pragmatic enough, and there're enough people in Australia sensible enough to know cooperation is way better than confrontation. In a confrontation between China and Australia economically, the result is quite obvious, Australia will walk off second best.

If you find this hard to believe or accept, just ask yourself this simple question - is your customer always right? It's that simple!

Until and unless Australia or the big miners like Rio/BHP start to accept there's a need to cooperate with China, there's a need to work out a solution that provides some kind of Win-Win outcome, Australia is and will always be facing the threat of losing its biggest customer and by default plunging its economy into a serious recession.

This is the reality. Chauvinistic talks such as those you read in this forum will never carry the day. It's bread and butter every one wants. It's your/our children we care about and their future we want to ensure and this could only come about with a good trade relationship with China. One that builds on cooperation instead of confrontation.

If you find it hard to accept what China has done with the IO negotiation, let me explains - it boils down to this - Rio/BHP wants to continue their dominance in the IO trades to China and they want to continue their last 4 years' dream run with IO price rising by 40-50% on an annual basis. Hence they are doing everything within their disposal to "win" the price negotiation.

The Chinese, after 4 years of runaway IO prices (and with other commodities) with a resultant inflation rate nearing 8%, they are fearful of such history repeating because that effectively will put their economy backward, ruining their stimulus plan.

The conflict is this simple and before you accuse me of being bias, take a moment to think, to consider the whole situation because this is what the Chinese are thinking and they are acting on their fear and their thought. You disagree? Fine, make a lot of noise and go tell the Chinese to FO but it won't make the matter go away. The Aussie economy is still in a dire straits and it needs the Chinese market. And it needs the Chinese market in the next 20 or 30 years because the only growing market for commodities right now is China. Until India is ready, Australia doesn't have a choice but to learn to deal with China, no matter how "sh**" she feels.

Get a grip with reality. China is like an elephant to Australia. For that matter, it is an elephant to every country in this world, including the USA, Russia and UK or EU. It needs to be handled with care and the only way to get the better out of it is through cooperation and not confrontation. Use your wits and not your brawn and learn to play a game that will make sure there's a Win-Win outcome and not one that is Win-Lose, it is an impossibility for Australia to be the ultimate winner in an economic contest with China. The best we can get out of it is a hopeful Win-Win where both sides are feeling they are winning and are actually benefiting from the exchange.

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