In 2008, China pulled itself, and the world, out of the hole created by the collapse of US markets.
China embarked on a massive infrastructure build, saving Australia in particular from the worst of the global financial crisis. Territory iron ore producers built mine development plans around the 2008 infrastructure demand, but this may not be a wise strategy this time around.
There is an expectation that China will do the same again in 2022, and save the world from the economic impacts of Covid.
President Xi’s recent observations that “infrastructure serves as a pillar for economic and social development” seems to confirm their belief. Mining, and the businesses that service mining, eagerly anticipate another China infrastructure building program similar to that in 2008.
Xi’s new infrastructure plan may have some collateral benefit for the Australian and NT economy, but its focus this time is determinedly domestic.
The policy framework is a consistent part of a long-term plan to develop economic security as a base for continued improvements in prosperity that help China to escape the so-called middle income trap.
The opportunities from this “escape” for NT-based businesses are different and, in many ways, broader – and they start with the expansion of prosperity.
Common prosperity and economic security is the foundation of all national security. Economic security is a new catchword for Western economies as they discovered the limitations of just-in-time supply chains and over-reliance on a single market. It comes as a surprise to some Western observers that China is no different.
For all, covid became a national security issue because it challenged the idea of sovereign independence that could be threatened by sanctions, disruption to trade settlement or interruption to trade routes.
The infrastructure required for security in this environment is not measured by steel rail tracks, high-rise buildings, or bridges. The foundation of the digital economy is unhackable, soft infrastructure. Its innovation in AI applications, such as managing country-wide electricity loads using quantum computing solutions delivered by secure satellite optical messaging.
For China, an escape from the middle-income trap rests on improved productivity and new economic processes. This is a digital economy and soft infrastructure is required to make it work.
Western business needs to understand and adapt to the standards developed and used by China. Failure to do so may exclude them from the full potential of the China market and associated ASEAN markets that adopt these standards. There is a competitive advantage available to NT businesses that deploy compatible systems.
Essential soft infrastructure development includes improved security of trade settlement, the growth of the digital economy using quantum computing and improvements in business efficiency.
For NT businesses this means a more challenging market, but it is also an easier market with the potential to reduce the irritating frictions from trade regulations and cross-border settlements.
Xi included developing a smart grid along with a series of new green, low-carbon energy bases and fine-tuning the oil and gas pipeline network. These are domestic projects designed to build a stable dual circulation economy.
To be sure there remains much work to do with improved planning of waterways, the building of coastal and inland ports and the upgrading of water transport facilities nationwide, but this is no 2008-style global rescue.
This takes place against the long shadow of the slow covid grind in China due to the zero tolerance policy. This is having a significant impact on Australian and NT business with manufacturers unable to access raw material and, if they can, then they are unable to transport the finished product.
The port congestion in major Chinese ports is not just an economic problem for Western businesses reliant on Chinese products. It is a major problem for those Chinese businesses, and joint venture businesses, that rely on exporting their products.
The economic effect of these lost business opportunities and interruptions to business activity is no longer just a ripple. It’s a spreading tidal wave that cascades down the Chinese economy, from the factory floor to the sidewalk café that provides workers with jian bing snacks for breakfast. It’s an economic force strong enough to reverse the flow of people from the countryside to the city as displaced and unemployed workers return to their home towns and provinces.
This economic lockdown has a growing impact on Western business engagement in China. This is seen in the increasing number of expats leaving China because they can no longer tolerate the lockdowns or the risk of lockdown. These people build a pool of China skilled resources that can be used by NT companies when business re-engages with China.
China economic growth will slow in the short term, but it will not collapse.
China remains a major consumer market and business opportunity but the nature of that opportunity is changing, as are the ways in which they are accessed. Smart business will also change to develop new areas of engagement.
Northern Territory business cannot afford to ignore these developments.