Episode 010 - Constrained by China
I’ve seen with my own eyes how Australia sold itself out to China and may as well now be a province of Beijing. But this happens at the ground floor with individual decisions so let’s expose some of the danger here and what you can do to avoid becoming constrained by yet another rising empire regardless of where you live on this planet.
On this episode we discuss the risk to your personal sovereignty from rising empire states, in particular the People's Republic of China, and how its ambitions of empire building affect us all - even though we don't live anywhere near it. And how the story of Australia should be considered the "Canary in the Coal Mine" tail of the downsides of the rise of China.
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Show Notes
National identity is a strange animal. We all identify with the country of our birth, even though many of us don’t live in that country. However how would you like it if the country of your birth was taken over by a foreign power, in your absense? That’s exactly what happened to my wife & I after moving to the USA. We’ve lived in the USA for over 20 years, and we left Australia in the late 199000s in search of opportunity and to build a business in the heart of the Dot com revolution. That worked - I came back to the USA with basically a couple of suitacases, and within five years amassed over $1 million in net worth with a growing business & real estate portfolio, although we left behind a couple of rental houses in Australia.
Over the course of the 2000s, we saw the highs and lows. The highs started in about 1999 for us, with the dot com boom and we then saw the crash of 2001 with the dot com crash, forcing us to sell our home in California and move to Arizona. In retrospect, that was probably the best thing to happen to us, but at the time it felt like a total failure. Then as we re-established ourselves in Arizona and bought more real estate, we saw the highs of the real estate boom of the 2000s, only to see it all crash in a pile of rubble in the 2008 global financial crisis. Having gone through these extreme swings of ups and downs I always looked in the rear view mirror wondering if we had made the right decision to leave Australia.
It seemed that Australia got through the 2008 global financial crisis unscathed. It was one of the few countries that did. Although it probably saw some flattening of growth, that was quickly passed as the export industry in Australia was in a boom period. Everyone benefited from this. Those that worked directly in the mining of minerals were the biggest winners and yet those on the periphery all prospered. Truck drivers could make $200,000 a year driving products to and from mines in Western Australia. There was a mass shortage of workers. Initially this was filled with a lot of “friendly” immigrant countries, particularly the UK (Australia is a commonwealth country after all). But it was still not enough. More workers were needed.
What was driving all of this growth? One word - China. The demand for cheap manufactured products in China, particularly driven by the USA consumption, meant that China was in a massive growth period. They needed new cities, new highways, new skyscrapers, new industrial plants, etc. and all of this needed raw material. The biggest demand was for iron ore as they needed to produce steel and one of the largest suppliers was Australia. China took over the majority export customer position in Australia, and Australia were happy to dig up their backyard, put it on ships and send it to China.
The people prospered. A country that was traditionally conservative an rarely embraced debt found itself being lured into the trap of debt by world banks that saw it as a cash cow due to this export boom. Soon people would be buying flat screen TVs for every room in the house, then new imported European cars, then new houses for more flat screen TVs and bigger garages for more cars, then boats, then ATVs, etc. The demand for housing started driving up prices. A 2 or 3 bedroom suburban house in Sydney started pricing above $1 million. Then that went to $1.5 million. Today it is closer to $2 million. Banks went crazy lending. They didn’t care - just keep lending. Bankers wanted commissions. They would do anything to make a buck - often fueled by cheap money from, you guessed it, China.
It seemed that China was not only going to be the #1 customer, but it was also going to be the #1 creditor. But who cares while the music was playing.
Now a clarification - I’m going to be super critical of the People’s Republic of China. That is, the State. Not the Chinese people or people of Chinese descent. I have many friends who are Chinese or of Chinese descent and they are innocent victims of the unbridled ambition and power of their communist party rulers. But not unlike any state that has the ambitions of empire, innocent people on all sides of the borders exist.
The Chinese state desire for control and empire wasn’t just playing out in Australia. African nations, South American countries, etc. all started to get the bug of selling their natural resources to China. In some cases, however, due to corruption in government, the Chinese would literally step in and start to implant their own people in those countries. When they realized that compared with the over populated and poluted cities of China, living in some beach front property in another country was a dream come true for Chinese, often wealthy capitalists in China started to look for ways to get themselves out of China. That started first with getting their money out of China. China quickly became the #1 foreign buyer of Australian assets. In the inner Sydney city area, Chinese owned 86% of all condominiums. They started realizing that they had to control the supply chain, so they would buy up and control the ports. They would then try and buy the lease rights to the very mines that are providing them their raw materials. But as they discovered over exports they wanted, from wine to seafood to wheat, etc. they started to invest in and eventually take controlling ownership of many large scale Australian assets. About 40% of South Australian wineries are now either fully owned or majority owned by Chinese companies or Chinese nationals.
Even the utlity companies in Australia were of foreign ownership. The power company was sold off to foreign owners. The people were beholded to China. Capitalistic enterprises in China rarely exist without support or ownership of the communist party.
Then in about 2014, things started to change.
The demand for Chinese products hit a peak as the USA started to move away from less Chinese products. In 2016, the election of Donald Trump started to move the needle towards a more “America First” model, favoring local manufacturers over imported Chinese products. These escalated into a Trade War with China, where the USA started to tax its local consumers with tariffs that made it less and less attractive to buy Chinese products. Trump would literally direct US companies to get out of China. Of course the US manufactures could never compete with Chinese labor but that didn’t matter - it was more important to “make America great again” than to “make China great”.
The updating of the NAFTA trade agreement with Canada and Mexico was a hard fought battle but in the end, a mutual bond was re-formed there, so that at least the USA could still operate as a North American collective. But China was still excluded from trade negotiations. The USA never liked the fact that China just copied everything it laid its hands on. They saw the China 2025 initiate and the Belt and Road Initiatives as strategic threats to US hedgemony and China’s rise in the world was going to be at the expense of the USA.
So demand started to drop. With that, Chinese demand for Australian raw materials dropped. And even as Australia discovered more natural resources (the discovery of natural gas supply in Australia was a huge part of this), the Chinese had bought lease rights out so that even the country of Australia couldn’t financially benefit from this.
It all started to unravel. First the banking industry was exposed for being corrupt and thieves. In 2018, a Royal Commission into the Banking Industry in Australia exposed the level of corruption and greed at unbelievable levels. Loans were made for millions and millions of dollars of real estate to people with no jobs, no assets, etc. We saw this happening prior to 2008 in the USA, but in Australia it was taken to a whole new level. The Australian government were forced to reel in the banks, meaning that interest only loans were scaled back and those with adjustable rate mortgages that matured could often no longer refinance into something affordable. Foreclosures started, and the available credit in the market started to dry up. Real estate pricing started to plummet.
The Australian government panicked. They had not experienced a recession for 27 years. This was all underwritten by China. They were totally constrained by China. And now the US was at a trade war with China.
Choosing your ally
Australia has a long history of a strong alliance with the USA. In World War II, Australia was close to being attacked and taken over by Japan. Although a strong and proud military, Australia was no way equipped to hold off the Japanese onslaught and was they gradually moved towards the rich ntural resoures of the largest island continent in the world and the Japanese started to take over neighboring Papua New Guinea, Australia was desperate for help.
The USA stepped in and the war in the Pacific was not only about controlling the empire building of Japan but it forged a strong alliance between Australia and the USA. Australians all know the debt they hold to the USA for saving their sovereignty and due to the enormous US war machine that entered the Pacific ocean in World War II, Australia and the US were able to hold off the Japaense, eventually repelling them back to Tokyo and the rest is history. That debt is in the hearts of every Australia. If there is one thing in the Australian psychy, it is a stalwart recognition of friendship with its allies. Consequently when the US called for support in the Korean war, or the Vietnam War, or Iraq, Afghanistan, etc., Australia was there.
In the 2000s, Australia opened up its shores to US military bases in the north of Australia. Near the city of Darwin, the US has a military base with over 2,500 stationed US service men & women there. They protect the northern perimiter of Australia.
Meanwhile the Chinese have come in and bought the ports. Near the city of Broome in the far north west of Australia, the Chinese even built their own airport to ship products from Australia to China. They control the supply chain of products & services.
So when the president of the USA starts a trade war with China, you can imagine just what a difficult position this is for Australia. Australia literally cannot exist without China now. I saw this first hand in a trip there this year. We took my wife’s mother on a day trip to the seaside, and visited a small town on the southern coast of Australia called Port MacDonnel. That town is famous for its lobsters. Much like Maine or Boston in the USA, lobsters are locally caught by small fisherman or consortiums of fishermen that supply the local warehouses. It used to be you could buy a lobster off the boats directly on the docks. So I walked down there to do just that.
I spoke with one of the local fishermen to buy a lobster. He literally wouldn’t sell them to me. Then I tried another boat. Same answer. Finally I found someone who would, but he wanted (and this is not a joke) $200 for a lobster. Just to put that in perspective, that is about US $160 for a lobster.
When I asked why, it is because that is what the Chinese are paying. So you (as a local consumer) have to compete with the free market here. No one is going to pay that, so the reality is no one eats lobster. The same story can be told of wineries. South Australian wines are some of the best in the world, and yet unless there are enormous govt. subsidies imposed, the locals have a hard time buying a bottle of wine. I can buy Australian table wines at Costco in the USA for $5 a bottle, but the same bottle of wine in Australia is $20.
This hyper-inflation means that Australia has become one of the most expensive countries to be in, in the world. It is ranked #2 highest debt to income ratio in the world, and has the #2 most expensive real estate pricing in the world. How can the local people afford this? Well they demand very high wages, but as more and more people find that they are being laid off by employers who cannot compete or the demand for their exported products drops, then you can see the danger of this spinning out of control very quickly.
And the pain & suffering of this shows up negatively against the USA. The Australians do not have a favorable opinion of the current US political administration as the general business model of mainstream media seems to be “All Trump, all the time”. Australia couldn’t care less about Trump. He looks more like a crazy reality TV star leading a circus than a President to them. But what they do see is that his policies are hurting them. Political will of the population has to drive government policy because those government officials are looking to their own re-election prospects, and the Australian people don’t want to go back to a “normal” economy with its ups and down swings. Many voters were not even born when Australia had its last recession. Imagine forcing those people to shed their debt and live frugally. They have never been trained to do that.
This is a very dangerous situation.
But let’s make it even worse....
When the Chinese started to buy less and less Australian exports, or that they had already invested in the goose that was laying the golden egg, so that the tax revenues slowed down, the Australian government officials and ambassadors, etc. went to their Chinese friends and said, “If you no longer need our exports, what can we do to help you out that will strengthen our economies?”
The answer was simple - The Chinese requested that Australia open up its immigration to allow Chinese nationals to move there and become “new Australians”. And Australia obliged. They did the same with other larger trading partners like India as well, but due to population density and economics, the Chinese were the largest immigrant group. Today 1 in 5 Australians are of Asian decent.
Australia started to sell a “Pro-Growth” agenda to the people. Their argument was that it was a big country with only 25 million people living there. Surely we could open up immigration and benefit? But Australia didn’t invest the treasure they had acquired from decades of boom times with Chinese exports. They had lost most of that to debt levels, often provided by the likes of massive Chinese banks - forcing them to sell out the lease rights to mines, agriculture, etc. where the Chinese would control the sea ports and airports. Australians were now answering to Chinese bosses.
It didn’t really have a choice. It opened up immigration. The cities swelled from over population. The local people cried out that infrastructure couldn’t take this increased population, but the Australian government didn’t re-invest in any meaningful way. Everyone knew this was a stupid strategy, but when a new immigrant enters your country with a suitcase of cash to buy your real estate, your goods & services, etc. are you going to turn them away? Australia clearly did not.
Eventually we started seeing Chinese nationals that were naturalized Australian citizens running for local office. Cities and counties started to have representative elected Chinese members that served areas with predominantly Chinese populated regions with Chinese representatives. The social culture started to change. One of the more popular methods of immigration was to use the Australian Universities as a conduit to Chinese immigration. Wealthy families would pay for their children to attend Australian university. The Universities wanted the money, and in concert with Australian government immigration policy, they further incentivized this by offering programs that allowed students at the end of even as low as a two (2) year student associate degree, they could work in remote regions or even in urban regions and eventually get citizenship - thereby being able to bring their entire family to Australian as relatives under the same program. Cities like Adelaide, where I grew up, started to see the universities as a major contributor to the local economy and was a result segmented the city into areas that would support the massive number of Chinese national students with cafes, restaurants, shopping, apartments, etc. turning the center of the city of Adelaide into a massive “Chinatown” for the influx of foreign students. Signs for businesses would be in Mandrin first, English second.
The streets were never that wide to begin with, but now the cars would jam up the traffic everywhere. Old colonial buildings, with rich history, were being torn down for nine storey apartment buildings. The very identity of the city was transforming to support this change in population diversity and quantity.
This was commonplace in Australia. The same situation was occuring in Sydney, Melbourne, Brisbane, etc. The Ponzi scheme of debt meant that cities would do things that they would never normally entertain. They would literally sell their identity out to a foreign power just to be able to get from day to day with such a heavy debt load.
Not a new strategy
If you look at the empires of the 20th century, this strategy of controlling a country through debt is not new. The US had been doing this in central America for decades. This is best illustrated in the book, “Confessions of an Economic Hitman” by John Perkins (you can watch a YouTube Ted Talk from him here about this https://www.youtube.com/watch?v=btF6nKHo2i0)
But now it was being played against Australia. China had created a subservient relationship over the course of about 20 years that resulted in Australia effectively becoming a province of China. This might sound like a strong statement, but if you consider the lead up to this situation that I’ve outlined here, it is nothing but the truth.
Here’s the problem though.... If the US and China are in a trade war and Australia is forced to pick a side, they will choose China. Why? Because they cannot literally function without Chinese money. They are tethered to China so that they have no way of functioning without China. China want the vast acres of rich, natural resourses and where in the past we would see countries taking those resources by force, the Chinese have achieved the same goals without the spilling of one drop of blood. They own Australia now.
If you look at this strategy, it is playing out all over the world. Some countries are openly rebelling against it. Hong Kong is probably the most obvious ex-British commonwealth country doing this, but it won’t last. They can’t fight back against the innevitable future of being taken over by China. Sure, they signed an agreement with England at handover, but we all know that China won’t honor that agreement.
It was ironic that I was sitting on a plane, listening to a podcast that I enjoy from Jamie King, that I would highly recommend call “Steal this show”. In particular the episode entitled “The Assassin’s Mace - Strange asymmetries in the Soft War with China”
It seems that the influx of China into other sovereign countries through the perpetuation of the Chinese surveilance state with 5G, Huawei, etc. is happening everywhere. Even nuclear power plants in Britain have majority Chinese ownership. This is shocking, but is it not just another example of the takeover of Australia being duplicated in another region?
I mean if it works, just scale it, right?
Jamie King talks about a powerful documentary that is on Netflix called “The American Factory” in which it shows how a defunct US GM plant is taken over by a Chinese glass manufacturer, re-employing the local workforce and revitalizing the local town economy in Ohio. And yet it is obvious that the owner and Chairman of the glass company was underwritten by People’s Republic of China state. That the Chinese state owns the very same corporation that is now employing thousands of US workers, and responsible for them to pay their mortgages, put food on the table, pay for their health insurance and educate their children. When a country creates a dysfunctional quazi-capitalistic failing system as the US currently has, with little or no decentralized free market, it is a simple target of a foreign power.
The insertion of a Chinese company into that region is more like a trojan horse than a savior for the people. They wages dropped from $30+ per hour to $15 per hour with the expulsion of the trade union. The pressure this puts on families to survive creates a far stronger subservient relationship with the employer, but in this case it isn’t some faceless corporation hell bent in raising shareholder value. It is a foreign power, hell bent in total domination.
You see shackles come in all shapes & sizes. The US people are living in a forest & trees situation. We think that our freedom is being limited by money. That the fact we have to front-up to a workplace at an early hour and are chained to a cublicle and expected to accept that as worth it for the pay check every two weeks is something that we all want to rebel against. Just as a prisoner in solitary confinement for 23 hours a day would. But that is not the reality of what is going on. Sure, the large corportations or statist governments need “worker ants”, until they have replaced them with machines. But meanwhile the enticement of debt creates a master/slave relationship with the banks and providers of said debt. We have no choice other than to do the bidding of the master here.
Sure, you might want to “FIRE” (Financial independence retire early). But if you save up a million dollars and expect to be able to live on that for the rest of your life, you are going to be really butt hurt when you realize that the very same counterparty that you give it to (ie. investment banks) are Chinese state owned enterprises and that you can’t get any decent % interest on your savings anymore and that you are forced into riskier and riskier investment products that will eventually collapse as one economy is fighting back for its own sovereignty against a super power that owns $1.1 trillion of its national debt and is responsible for almost every product you buy on Amazon or in Walmart.
What is the answer?
In order to rebel against oppression like this, first you must recognize it. But more importantly you can’t fight back in a physical fight if your oppressor is using economics as their weapon. They will always win. First you have to detach from that very economic system so that you can survive despite it. That means looking to ways to reduce your exposure to the banking system and international owned corporations. My biggest fear is that if the trade war continues and China wants to test its thermo-nuclear weaponry against the USA, they will sell off their holding in US debt, driving the US economy and bond market into the toilet. Then, just as I have advocated in my articles and on this podcast, the best opportunity comes to buy someone else’s disaster and chaos, which is exactly what I predict will happen. When forced into a corner, US asset ownership will go up for sale to the Chinese in the same way that the Australians have done it.
This is the endgame for China. If you don’t recognize this for what it is, it is at your peril.
I’m a huge fan of carrying multiple passports and diversifying your life by living in multiple countries. You are far harder to hit as a moving target and you can at least have a ‘bug out’ strategy here. There are over 200 member nations in the United Nations, and many are countries you may love to spend some time in. The richest in the world know the power of international diversification, which is what I do. Owning real estate in multiple countries is not just prudent, it should be mandatory. If you are high fiving yourself for retiring at the age of 40, think again. Unless you have spread your treasure far and wide, it will be taken from you by pirates. There is a very long history of that happening in the world, and you can’t avoid it. You need to spread yourself wide internationally here.
Also I believe that you might want to consider learning from those that reject a statist government control. Sure, there can be roles that govt can play in our lifes (I hear the argument “Who’s going to build our roads?”), but I also believe that a decentralized model of communities that are more like cooperative nodes makes more sense.
If you look at the tales in the book “The Starfish & the Spider” you will know how the Apache indians succeeded in fighting off Spanish colonization, whereas the Aztecs in Mexico could not. But having a society that is decentralized, it cannot easily be taken over by a foreign power. We must all work to build protocols to trade and communicate with each other, and not to put all of our hope and faith in some ideology of FIRE or any other obviously corruptable or attackable surface. If your faith is to put more more money in Vanguard Index funds, then wake up - Vanguard will become majority owned by China, and then where are your dividends to feed your family going to come from?
It is time for all of us to wake up and realize we are not only heading in the wrong direction as a country, but right into the arms of communist China. Take a lesson from the Australians and see the oncoming train ahead before you step foot into the tunnel.
Also stop letting the mainstream media lull you into a false set of truths. The USA currently is so heavily divided because News media realize they make more money selling advertising if they convince you that politics is a two team sporting event, and just as you have an emotional attachment to the nation of your birth, you have an emotional attachment to your “team” - the reds or the blues.
But meanwhile, your life is being stolen from you. And it isn’t from the reds or the blues. It is from foreign nation states that have a long game and you are a pawn on that chess board. Until you start rejecting domestic politics as anything more than a sporting event, you won’t see what is truly going on. Look at where your products are made, how expensive it is to go out to a restaurant today vs. 10 years ago, the price of housing, the cost of health insurance, etc. Sure you have to have strategies for financial sustainability to get through this, but ask yourself what drives this? The more you dig, the more you find the power of China and their appetite for your freedom.
Let’s remember - there are 1.3 billion Chinese. Australia has no chance with its measly 25 million population. China can crush Australia like a bug. But are you exposed to this? If you align with a single political party, or a single statist government, won’t you be a perfect target to also be squashed like a bug? For me, it would be better to live like a colony of ants, where if one is attacked the swarm can fight back. A decentralized network of communities makes a lot of sense here - with mutually agreed communication protocols that are underwritten by unambiguous math or logic. It is what makes the Internet impervious and it can be applied to so many other factors of our lives - from money (ie. Bitcoin) or decentralized governance or most importantly a true free market.