Beijing doubles down on strategic ‘reserves’ build-up amid spooked global markets

As the world’s oldest civilisation, with more than 5,000 years of history, China has been characterised by cycles of boom and bust which correspond with its prominence on the global stage.

China’s modern history, at least since the success of Mao’s revolution and the formation of the People’s Republic of China in 1949, is no different, with various policies of collectivisation, mainly the Cultural Revolution and Great Leap Forward both resulting in mass famine, economic stagnation, and decline.

By the time the 1970s rolled around, the now-deceased Mao’s dream of a socialist utopia was crumbling, providing the perfect opportunity for the Western world to engage the ancient power, paving the way for it to emerge as one of the world’s truly great economic and industrial powers.

Characterised as the period of “Boluan Fanzheng” or “Eliminating Chaos and Returning to Normal” by Mao’s pragmatic and reform-minded successor, Deng Xiaoping, in an attempt to “correct the mistakes of Cultural Revolution”.

In response to the abject failures of the heavily central planning and a command economy, Deng sought to open up and liberalise the Chinese economy, paving the way for the true beginning of the globalised economy, and was rapidly embraced by both sides of the Communist East and Capitalist West.

Seemingly unassailable in its economic and industrial ascendency, China’s economic miracle avoided the Asian Financial Crisis and steadily positioned the nation to become the “factory of the world”, resulting in the hollowing out of many national industrial bases in favour of cheaper, “just in time” supply chains.

China’s economic shift also saw a major shift in the global flow of trade, particularly for industrial inputs, energy, and, of course, perishables; all needed to keep the vast Chinese economy and population operating like a well-oiled machine.

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Concurrently, Beijing has invested in the largest peacetime expansion of military capability since the decade preceding the outbreak of the Second World War, transforming the People’s Liberation Army from a second-rate military, to one of the world’s leading powers.

Bringing us to today, no matter where one looks, it is clear that the post-Second World War economic, political, and strategic order is in varying stages of retreat, decline or stagnation and is, more generally, under siege.

Meanwhile, Beijing has been watching patiently as the Western world stumbles in response to the ongoing war in Ukraine and the pressures on the global system as a result of conflict in the Middle East and the strategically vital waterways and begun to rapidly expand critically important strategic reserves, raising concerns for eagle-eyed investors and analysts who are now anticipating a potential disastrous confrontation.

‘Preparing for something major’

Highlighting this concern is Jamie Seidel of News.com.au, speaking to the chief executive officer of US-based investment firm Steno Research Andreas Larsen, who stated, “China is preparing for something major. That seems increasingly obvious judging from the stockpiling of important resources.”

Building on this is an analysis conducted by Mike Studeman – former commander of the US Office of Naval Intelligence and director of intelligence for Indo-Pacific Command – in War on the Rocks where he stated, “Despite the manifesting peril, China’s recent economic setbacks and faux conciliations suggest to some, including President Joseph Biden, that the danger is passing and China will end up too preoccupied with domestic challenges to focus on a fight and risk global ostracism, leading to further economic calamity.

“Unfortunately, the opposite is true. Xi is militarising Chinese society and steeling his country for a potential high-intensity war. China’s trajectory signals deepening danger and a hardening of Xi’s intent to execute an act of aggression similar to Russia’s invasion of Ukraine,” Studeman explained.

Where it was once believed that the Western response to Russia’s invasion of Ukraine would deter Chinese President Xi Jinping from pursuing his ambition to reunite mainland China with the self-governing democratic island of Taiwan, hopes appear to be quickly fading.

Of particular note is the failure of the Western sanctions regime on Russia, which has been supported by China and India, with Studeman adding, “Xi seems to have studied the sanctions playbook the West used against Russia over Ukraine and subsequently initiated long-lead protective measures to batten down the hatches of China’s economy to resist similar pressure.”

Going further, Studeman added, “Xi’s most critical choices reflect a march to war. Leadership changes at the 20th Party Congress in late 2022, for example, turned the politburo into a body more akin to a war cabinet. Fifteen of its 24 members now have Taiwan-related experience. Included in this cadre is the most recent former eastern theatre commander – the general responsible for executing a Taiwan fight – who was leapfrogged to the politburo without being a prior member of the Central Committee.”

This brings us to the state of the Chinese economy and the rapid push by Xi to shore up the critical supply chains of raw resources, agricultural produce and energy, building vast domestic supplies that are capable of sustaining the Chinese economy and industrial base for a protracted period in the event of conflict.

Highlighting this push by China is Gerard DiPippo, former senior fellow, Economics Program, at the US-based Center for Strategic and International Studies (CSIS), who stated, “Beijing is already taking multi-year steps to insulate the Chinese economy from external vulnerabilities. Technological and material self-sufficiency are primary goals of China’s 14th Five-Year Plan (2021–25) and achieving a high degree of self-reliance is the ‘essence’ of Xi Jinping’s new development dynamic.”

Unpacking the central pillars of this push, DiPippo identified the central priorities including industrial policies focused on eliminating foreign dependencies across the value chain; efforts to identify and mitigate vulnerabilities to US sanctions and organise its bureaucracy for the imposition of countersanctions; Beijing has expedited efforts to reduce China’s dependency on the US dollar for international finance via renminbi internationalisation; stockpiling critical supplies, especially commodities and technological inputs that China imports; and trade policies to foster greater global reliance on Chinese exports and investment policies to tie key foreign firms to the Chinese market.

Reinforcing these details, Studeman added, “Efforts to boost food and energy security are well under way, and China is building overland pipelines and coal-fired plants with renewed fervor in anticipation of limiting the impact of expected foreign maritime interdiction of oil and gas during any conflict. China has been building its strategic petroleum reserves for years in above- and below-ground facilities well beyond nominal nation-state peacetime buffers.

“At the same time, Beijing has deepened its alliances to secure flows from global energy providers, notably Russia, Gulf Cooperation Council states, Iran, Iraq, Angola, Brazil, and others,” this foreshadowing and “alliance building” is a key component of Beijing’s broader global push to establish a parallel global system that runs counter to the post-Second World War order.

Studeman added, “Xi has already undertaken to protect Chinese supply chains, cyber security, and critical infrastructure, China may be quietly reducing exposure of its foreign exchange reserves. Steady declines in Chinese holdings of US Treasury bonds since 2018 (from $1.2 trillion to less than $800 billion) roughly parallel year-on-year increases held by Belgium and Luxembourg, suggesting China may be shifting the financial custodianship of its American bonds.”

This ultimately spells major trouble for the Western world and the United States, in particular, all of which face mounting domestic and international economic challenges, largely as a result of public and private debt incurred during the COVID-19 pandemic, mounting inflation and weakening of the US dollar as the global currency, all of which are further compounded by the increasing multipolarity of the world.

Waiting for the opportunity – a storm from Beijing is heading to Taiwan

All of these factors combine to create an environment where an already weary US and Western world, more broadly, is reluctant to intervene, despite rhetoric and reassurances.

Studeman detailed this further, stating, “Following traditional Chinese decision making that emphasises advancing when the propensity of factors flows favourably in one’s direction, Xi will likely be inclined to wait opportunistically before making a major decision on Taiwan.

“He is more likely to make a big move when the People’s Liberation Army is deemed more ready and when domestic and international dynamics unfold in a way that is more conducive to success. Given the stakes for his leadership mandate of China, his power, his reputation, his legacy, and probably his very life, Xi knows he must do more to load the iron dice before he rolls them on a Taiwan crapshoot. International views of Chinese power may weigh heavily on Xi’s decision-making calculus.

“He may be tempted to act before China is seen as beyond the apex of its power, so that he can still overleverage coopted nations to remain compliant in the face of Chinese aggression,” Studeman detailed.

Adding further colour to watch out for, Gerard DiPippo identified a number of key factors that could precipitate potential Chinese actions against Taiwan or, more broadly, other tactical and strategic priorities in the Indo-Pacific, including:

• Imposition of stronger cross-border capital controls, including in response to apparent capital flight from elites.
• A freeze on foreign financial assets within China.
• Rapid liquidation and repatriation of Chinese assets held abroad, including sales of US bonds (concerningly for Australia, this could include “privately held” real estate assets).
• A surge in stockpiling emergency supplies, such as medicine or key technology inputs.
• A suspension of key exports, such as critical minerals, refined petroleum products, or food.
• Measures to reduce demand or ration key goods, especially imports like oil and gas.
• Restrictions on outward travel for Chinese elites or high-priority workers.

Adding further complexity for China watchers, DiPippo added, “China’s short-term economic actions might not offer conclusive or specific warnings about Beijing’s military intentions. Economic indicators would need to be paired with other signs, such as PLA movements or domestic propaganda, to determine Beijing’s military intentions.”

This is particularly relevant when considering similar recent hostile actions, namely Russia’s most recent invasion of Ukraine in February 2022 and the preceding build ups between the 2014 invasion of the Donbass, again explained by DiPippo, who said, “Moscow’s financial measures after the 2014 sanctions were designed to harden Russia’s financial system to potential sanctions (“fortress Russia”), including by accumulating international reserves, diversifying away from US dollar assets, and increasing fiscal savings through conservative budgeting. The Russian government attempted to reduce dependencies on foreign hardware and software. In 2018, Moscow announced a program to achieve self-sufficiency in domestic agriculture.”

However, it is important to understand that such measures, if implemented by Beijing, could be seen as largely defensive in nature, in a similar nature to those actions taken by Russia, which DiPippo explained as, “Russia’s attempts at financial hardening and economic self-sufficiency were treated as defensive.”

Final thoughts

Importantly, in this era of renewed competition between autarchy and democracy, this is a conversation that needs to be had in the open with the Australian people, as ultimately, they will be called upon to help implement it, to consent to the direction, and to defend it should diplomacy fail.

Dr Ross Babbage of US think tank Center for Strategic and Budgetary Assessments said, “I think what we’ve got to show what’s the vision for Australia, you know, what can we achieve and what you know if we go on the trajectory we are on at the moment. I’ll tell you what, you know, a lot of people, a lot more people in a decade’s time are likely to be either in really dumb jobs or maybe not have jobs at all, and in the society be a lot weaker and will be a lot less prosperous.

“So what we want to say is, look, there’s plenty of scope for doing more and smarter things, encouraging investment to do that, and then there will be some very, very interesting additional jobs and opportunities, a lot of high tech, and so on, I can tell you that, you know, talking to foreign investors, they’re quite keen on principle to work here, and do a lot more here and provide a lot more good jobs for Australians,” he explained.

This requires a greater degree of transparency and a culture of collaboration between the nation’s strategic policymakers and elected officials and the constituents they represent and serve – equally, this approach will need to entice the Australian public to once again invest in and believe in the future direction of the nation.

In the second part of this short series, we will take a look at the corresponding yet equally scathing commentary in recent days highlighting the growing strategic and military decline of Australia despite the rhetoric of recent months.

Get involved with the discussion and let us know your thoughts on Australia’s future role and position in the Indo-Pacific region and what you would like to see from Australia’s political leaders in terms of partisan and bipartisan agenda setting in the comments section below, or get in touch at This email address is being protected from spambots. You need JavaScript enabled to view it. or at This email address is being protected from spambots. You need JavaScript enabled to view it..