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Hedge Clippings | Friday, 07 May 2021
Drums of War?
China's extraordinary rise and growth over the past 16 years (and more) has dominated Australia's prosperity across many sectors - resources, agriculture, education, property, investment and trade generally. Both sides seemed happy with the benefits, even if certain cultural and political issues were conveniently overlooked by both along the way.
It would also not be incorrect to say that over the past sixteen months both Australia's and the world's attention has been dominated by China - and given the source of COVID, not only economically. In simple terms a few home truths have resulted in what many would call an overreaction by China - either in the form of rhetoric and name calling, or in Australia's case in the form of punitive trade sanctions carefully selected to do maximum harm on one side, and minimum damage on the other.
And as the rhetoric and name calling has increased, so the West has focussed on security and the long held Chinese claims - particularly under President Xi over Taiwan - and the potential for a real military confrontation, rather than the escalating sabre rattling.
A recently published book in the US predicted that China would invade Taiwan by 2034. Chris Joye writing in the AFR this week raised the stakes, estimating the chance of war at 50%. Kevin Rudd, who if nothing else knows China well, estimates China will invade Taiwan, but not for a decade.
So the question - both IF and WHEN - is certainly front of mind in Australia, and it seems is rapidly gaining global attention.
This week Hedge Clippings asked Delft Partners' CIO Rob Swift his opinion. Rob has many years' experience both globally and in Asia, and his view was quite different. He argued that while tensions, particularly over Taiwan, are high, much of the rhetoric (and not only on the Chinese side) is political and populist, and aimed at the domestic population.
Rob's logic, and it does seem logical, is that China cannot afford a military confrontation due to the economic and trade damage that would result. In the short interview (which you can see here) he says "follow the money" and "follow the trade flows" which China has benefitted from to such a massive extent over the past 20+ years.
The risk to this of course is, what if Xi thought he could invade Taiwan and get away with it without provoking a military confrontation with the USA? However, one would assume that this would result in such a massive global political and trade backlash that invading a small island with a population of less than 25 million, however politically or strategically important, would be the equivalent of kicking an economic "own goal".
As such, Rob certainly agrees we're at war, but that it is a trade war, and likely to remain so.
So the question remains both If, and if so, When. Time will tell.
And on that sobering note, enjoy the weekend.
News & Insights
Video interview with Robert Swift from Delft Partners
Beware the beauty contest by Aitken Investment Management
Taiwan: Not the Most Dangerous Place on Earth by Delft Partners
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