The biggest buy out in Australian history has big implications for property.
I’ve talked a bit about how much the Australian relationship with China has changed in the past few years, but this isn’t really about us.
The whole world is adjusting its stance to a new China, as China starts to flex its muscles.
Things are changing quickly. In fact, with China currently cracking down on it’s tech sector and some of it’s most successful companies, some investing legends are saying that China is now ‘uninvestable’.
(No, it’s not a word.)
Not Goldman Sachs though. The Vampire Squid can still smell money in the water:
(Re)balancing socialism and capital markets
Recent regulations have signaled that the Chinese authorities are prioritizing social fairness/stability over the capital markets in areas that are deemed public goods or important to strategic policy goals.
While these moves may help improve social equality over time, they have provoked the worst selloff for China since 2018, with AST companies collapsing 65% since last Friday, and China Tech losing another US$400bn in market cap in the past two weeks (US$1.2tn from mid-Feb).
… From a long-term macro perspective, the new regulations could potentially lead to a more balanced economy in terms of growth drivers and resource allocation, less inequality which is conducive to aggregate consumption growth, foster fairer competition which is crucial for innovation and creativity, and lower systemic risk in the highly levered sectors.
I think this is putting lip-stick on a pig.
I reckon these ‘purges’ have less to do with “fairness” and more to do with bringing everything under the thump of Xi Jinping.
Ambrose Evans-Pritchard at The Telegraph in the UK agrees:
Beijing would like us to believe that the great purge of China’s technology sector is akin to Teddy Roosevelt’s subjugation of the US robber barons a century ago.
Roosevelt’s trust busters confronted the Rockefellers and JP Morgans of the era, breaking up Standard Oil, US Steel and the railway monopolies. His Square Deal is the best known of America’s episodic responses to overweening and abusive corporate power, each aimed at preserving the country’s Jeffersonian spirit and preventing the rise of an entrenched oligarchy.
Xi Jinping is doing the opposite. His purpose is to bring all centres of rival power under tight control and reassert the total political monopoly of the Communist Party.
… The clampdown has no regulatory consistency and is better understood as an intimidation campaign: a pre-emptive move by Xi’s faction within the party to eliminate threats.
“The Communist Party will destroy all value if that is the cost of protecting their strategic control. They won’t plan to do this, but they are ready to go there if necessary,” said Dominic Armstrong from the emerging market fund Horatius.
Xi’s war on foreign listings is partly a response to America’s Holding Foreign Companies Accountable Act, which demands close scrutiny of the political and military ties of directors. “They don’t want American regulators prying into the books of these companies, which are state secrets,” said George Magnus, from Oxford University’s China Centre.
But it is also an attempt to force Chinese companies to list in Hong Kong, now stripped of its rule-of-law protections. To the extent that it works, it accelerates China’s retreat into semi-autarky, and does so before the country has achieved full technological take-off or come close to authentic parity with the West.
‘[Xi] is cracking down on the most dynamic digital parts of the economy. It is self-destructive and I think the outcome is that China will be going sideways by the late 2020s, stuck in the middle income trap.’
President Xi may dial down his intimidation campaign on companies, having achieved his immediate political objective, but he has shown already that investments in Chinese assets are no longer safe.
To imagine that the intimate financial coupling of China and the West can continue for long in these geopolitical circumstances is beyond naive.
I don’t think we’re going back here. This is a cold war (and hopefully it stays cold.)
But the fantasy of China joining hands with the West and walking into a golden future of trade and prosperity is dead in the water.
Australia needs to heed the warnings, and set our economy up for the massive changes that are coming and are in fact, already unfolding.