Xi for life could be good, could be bad; only time will tell

March 13, 2018 Alistair Nicholas 0 Comments

With the decision over the weekend by China’s rubber stamp parliament to end term limits on the presidency I remembered the 2000-year old Chinese parable about the farmer and the horse.

The parable goes something like this. A farmer gets gifted a horse. All his neighbours praise his good fortune as the horse should be useful in taking the farmer’s produce to market. But he says “could be good, could be bad; only time will tell.”

The horse indeed is helpful for the farmer but after a time it runs away. His neighbours say “What bad luck.” The farmer replies “Could be good, could be bad; only time will tell.”

Some months later the horse returns accompanied by another horse. The farmer’s neighbours again praise his good fortune at now having two horses to take his produce to market. Yet again the farmer says “Could be good, could be bad; only time will tell.”

He gives the second horse to his son who has just come of age and is helping in the family business. But his son falls from the horse and breaks his leg. The neighbours say “What bad luck.” But the farmer replies “Could be good, could be bad; only time will tell.”

Soon afterwards soldiers of the emperor visit the local area to draft young men into their army. While all the other families’ young sons are drafted his son who is maimed from the broken leg is spared from conscription.

The moral of the story is that something that is seemingly bad could in fact be a blessing in disguise. So too with Xi Jinping being able to remain president for as long as he wishes – and possibly for life. It could be good, it could be bad; only time will tell.

Could be good

For Australian business on the positive side of the ledger, it is likely to mean more stable and predictable government policies for an extended period of time. Xi Jinping Thought, now enshrined in the Chinese Constitution alongside Mao Zedong Thought, and the President’s Belt and Roads Initiative (BRI) will set the framework for China’s domestic and foreign policy agenda for as long as he remains president.

Both should mean continuing opportunities for Australian business. Xi Jinping Thought should mean stable growth for the Chinese market and continuing prosperity for consumers. Australia’s education and tourism services sectors should continue to prosper along with Chinese consumers. The Belt and Roads Initiative will mean more opportunities for Australia’s natural resources sector as the demand for new roads, railway lines, bridges, ports and airports along this new Silk Road will need to be supported by infrastructure development. Whether Australia joins the BRI or not Australia’s resources sector is likely to see business opportunities flow its way.

Could be bad

On the negative side of the ledger there are increased risks of a trade war with America and even of conflict in the South China Sea. Despite claims from several quarters that a “Thucydides Trap” is avoidable, it is starting to look a lot less avoidable than we would like. President Trump has claimed trade wars are good and easy to win, and he has targeted China with new tariffs on steel and aluminium. And the US will likely continue conducting freedom of navigation exercises near China’s militarised islands. Australia, which has secured an exemption from President Trump’s tariffs on steel and aluminium, might also participate in freedom of navigation exercises that raise the ire of Beijing.  If China’s economy falters and consumers become restless President Xi might be tempted to take more aggressive postures on trade and defence in the region.

In that analysis we would at best be collateral damage; in the worst case scenario we could be drawn into conflict between our two biggest trading and investment partners.

What can business do to stay on the right path?

Business needs to press home to Canberra the need for it to play the role of a middle power that is friends of both Washington and Beijing. Canberra needs to work its diplomatic channels on both sides of the Pacific to ensure relations remain on an even keel.

And business can also press their partners in both China and the US to press their own governments in Beijing and Washington respectively to keep an even keel.

The ascendancy of Xi is much like the horse for the farmer. It could be good, it could be bad; only time will tell. In the meantime let’s not look a gift horse in the mouth.

By Alistair Nicholas

Executive Vice President – Director, Special Projects

(Alistair is a former government trade advisor and was based in Beijing for 13 years before returning to Australia in 2013)

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