05-08-2014, 09:26 PM
‘Vulnerable’ China a threat to stability
THE AUSTRALIAN AUGUST 05, 2014 12:00AM
Paul Garvey
Resources Reporter
Perth
Former Bank of England governor Mervyn King in Kalgoorlie yesterday for the Diggers and Dealers conference. Picture: Colin Murty Source:
News Corp Australia
ONE of the world’s leading economic minds has warned that instability could come to Asia as China grapples with its increased “vulnerability” and loss of self-sufficiency.
Mervyn King, the former Bank of England governor, told The Australian yesterday that China’s new reliance on food and commodity imports, coupled with its military rise, would increase the risk of an outbreak of conflict.
Drawing on the similarities between today’s geopolitical picture and that which faced the world in the lead-up to the World War I, Lord King said China was right to feel uneasy about its susceptibility to the supply of crucial commodities.
“If you were sitting in China you would be very unnerved to see that you used to be self-sufficient in food and many natural resources, and ... you’re now dependent on imports through seas that are controlled by a foreign country’s navy for all your imports of food and other natural resources,” Lord King said on the sidelines of the Diggers & Dealers forum in Kalgoorlie.
“That ought to make you nervous, particularly when that power is not obviously a friendly power. “So it’s perfectly understandable that China itself feels nervous and therefore wants to do something to make itself feel less nervous. The problem is, when it does that, it’s going to make other countries feel nervous.
“It’s not a question of blaming a country, it’s not a question of people being goodies or baddies, it’s a question of the logic of the position people find themselves in, which means in this multi-polar world countries will do things to try to give themselves security.”
He noted that China’s steps to address its concerns had prompted it to build up a fleet of submarines and land-based missiles that could “neutralise” the ability of the US to take action in the South China Sea, which in turn had contributed to a rise in anxiety in other nations.
“What will happen is anyone’s guess, I have no idea, and it doesn’t require anyone to want to have a war or is consciously trying to be aggressive. It’s merely that once you get into a position where each country in order to defend itself takes steps which result in the system as a whole being less secure, the system is less secure and accidents are more likely to happen,” Lord King said.
“That’s why we should be more nervous about it — not because people are good or bad or doing aggressive things, but because the framework we end up with is less resilient than the American dominance that everyone moaned about but which turned out to be very robust.”
For Australia, the rising uncertainty could be positive for the prices of key commodities such as iron ore and gold. As countries look to insure themselves against disruptions of supply, he said, commodity prices could rise.
In a far-reaching interview, Lord King also said that the nations of Scandinavia had set the benchmark for Australia in effectively managing their exchange rates.
He said the sovereign wealth fund established by Norway with the proceeds from its North Sea oil assets had helped protect its manufacturing industries from the impact of rising exchange rates.
“That’s helped to smooth the fluctuations in the exchange rate so the domestic economy has not suffered as much as happened in the UK when we discovered North Sea oil or in Australia,” he said.
“I do think as a general proposition that thinking deeply about these questions of sovereign wealth funds is increasingly important in economies which have significant natural resources.”
Similarly, Scandinavian nations had shown the most effective path in structuring parental leave schemes that best encouraged ongoing participation in the workforce.
With the Abbott government’s proposed paid parental leave scheme facing an uncertain future, Lord King’s comments will add to arguments from some corners for a greater focus on childcare costs.
“The big difference between Scandinavia, where there are a lot of women in the labour force and in senior positions, and other European countries where there aren’t, is the state provision of very good childcare,” he said.
“It becomes a matter of norm that married women and women with children work, that’s the norm and its expected, so you almost have to opt out of that. And the childcare is available to you at a very reasonable cost. Whereas certainly in London you have to earn a very high salary to justify paying childcare costs.”
Finally, Lord King said he hoped Scotland would vote to remain part of the UK as part of its referendum on the issue.
“We would be a lesser country if Scotland were to leave, a significantly lesser country. And I don’t believe that Scotland needs to be independent in order to be recognised around the world as distinctively Scottish,” he said.
“Scotland has done more for the world by being part of the United Kingdom and will be able to do more for the world through being part of the United Kingdom than it would on its own.”
THE AUSTRALIAN AUGUST 05, 2014 12:00AM
Paul Garvey
Resources Reporter
Perth
Former Bank of England governor Mervyn King in Kalgoorlie yesterday for the Diggers and Dealers conference. Picture: Colin Murty Source:
News Corp Australia
ONE of the world’s leading economic minds has warned that instability could come to Asia as China grapples with its increased “vulnerability” and loss of self-sufficiency.
Mervyn King, the former Bank of England governor, told The Australian yesterday that China’s new reliance on food and commodity imports, coupled with its military rise, would increase the risk of an outbreak of conflict.
Drawing on the similarities between today’s geopolitical picture and that which faced the world in the lead-up to the World War I, Lord King said China was right to feel uneasy about its susceptibility to the supply of crucial commodities.
“If you were sitting in China you would be very unnerved to see that you used to be self-sufficient in food and many natural resources, and ... you’re now dependent on imports through seas that are controlled by a foreign country’s navy for all your imports of food and other natural resources,” Lord King said on the sidelines of the Diggers & Dealers forum in Kalgoorlie.
“That ought to make you nervous, particularly when that power is not obviously a friendly power. “So it’s perfectly understandable that China itself feels nervous and therefore wants to do something to make itself feel less nervous. The problem is, when it does that, it’s going to make other countries feel nervous.
“It’s not a question of blaming a country, it’s not a question of people being goodies or baddies, it’s a question of the logic of the position people find themselves in, which means in this multi-polar world countries will do things to try to give themselves security.”
He noted that China’s steps to address its concerns had prompted it to build up a fleet of submarines and land-based missiles that could “neutralise” the ability of the US to take action in the South China Sea, which in turn had contributed to a rise in anxiety in other nations.
“What will happen is anyone’s guess, I have no idea, and it doesn’t require anyone to want to have a war or is consciously trying to be aggressive. It’s merely that once you get into a position where each country in order to defend itself takes steps which result in the system as a whole being less secure, the system is less secure and accidents are more likely to happen,” Lord King said.
“That’s why we should be more nervous about it — not because people are good or bad or doing aggressive things, but because the framework we end up with is less resilient than the American dominance that everyone moaned about but which turned out to be very robust.”
For Australia, the rising uncertainty could be positive for the prices of key commodities such as iron ore and gold. As countries look to insure themselves against disruptions of supply, he said, commodity prices could rise.
In a far-reaching interview, Lord King also said that the nations of Scandinavia had set the benchmark for Australia in effectively managing their exchange rates.
He said the sovereign wealth fund established by Norway with the proceeds from its North Sea oil assets had helped protect its manufacturing industries from the impact of rising exchange rates.
“That’s helped to smooth the fluctuations in the exchange rate so the domestic economy has not suffered as much as happened in the UK when we discovered North Sea oil or in Australia,” he said.
“I do think as a general proposition that thinking deeply about these questions of sovereign wealth funds is increasingly important in economies which have significant natural resources.”
Similarly, Scandinavian nations had shown the most effective path in structuring parental leave schemes that best encouraged ongoing participation in the workforce.
With the Abbott government’s proposed paid parental leave scheme facing an uncertain future, Lord King’s comments will add to arguments from some corners for a greater focus on childcare costs.
“The big difference between Scandinavia, where there are a lot of women in the labour force and in senior positions, and other European countries where there aren’t, is the state provision of very good childcare,” he said.
“It becomes a matter of norm that married women and women with children work, that’s the norm and its expected, so you almost have to opt out of that. And the childcare is available to you at a very reasonable cost. Whereas certainly in London you have to earn a very high salary to justify paying childcare costs.”
Finally, Lord King said he hoped Scotland would vote to remain part of the UK as part of its referendum on the issue.
“We would be a lesser country if Scotland were to leave, a significantly lesser country. And I don’t believe that Scotland needs to be independent in order to be recognised around the world as distinctively Scottish,” he said.
“Scotland has done more for the world by being part of the United Kingdom and will be able to do more for the world through being part of the United Kingdom than it would on its own.”