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After an initial fumble, and an angry rebuke, the government is preparing to offer Chinese business more than just a free trade agreement. By Sophie Morris.

Abbott government’s uneasy dealings with China

Tony Abbott meets Jia Qinglin on a visit to China as opposition leader in July 2012.
Credit: XINHUA

Andrew Robb is no stranger to major Chinese deals. Before entering parliament, he spent two years on Chevron’s investment team on the Gorgon Gas Project, helping secure a commitment from the China National Offshore Oil Corporation to buy
$50 billion of natural gas from Australia.

Finalised just over 10 years ago, it was the forerunner of many major Chinese resource deals with Australia.

Now, as trade and investment minister, Robb will be aiming for the same sort of success as he tries to win Beijing’s support for a free-trade deal.

As Prime Minister Tony Abbott and Foreign Minister Julie Bishop were setting off a series of diplomatic fireworks last year, Robb was working hard to ensure that the economic relationship with Australia’s largest trading partner was not a casualty.

Just months after the Abbott government incurred the wrath of China by siding with Japan and the United States in a territorial dispute, The Saturday Paper understands the Coalition government is willing to offer Beijing significant concessions in order to clinch a free-trade deal this year.

The government is prepared to consider visa options for skilled workers to come to Australia to work on major Chinese projects and is also open to allowing more investment from China without Foreign Investment Review Board approval.

Abbott will have to walk through a diplomatic minefield before he gets there, however, deciding whether to risk provoking China by repeating his description of Japan as a “strong ally” and Australia’s “best friend in Asia” when he visits Tokyo en route to Beijing next month.

The concessions on investment and visas will be controversial in Australia, but they are part of a strategy to show, as Abbott put it recently, that in dealing with China Australia can “walk and chew gum at the same time”.

“It is possible to have a respectful disagreement with the Chinese on one issue and at the same time be strengthening the overall relationship including trade relationships,” the prime minister said a fortnight ago, as he announced the six-day trip to Japan, Korea and China.

But Hugh White, professor of strategic studies at the Australian National University, thinks it naive to assume China will narrow the relationship down to an economic partnership and turn a blind eye to other differences, particularly regarding Japan.

“The Chinese have very consistently used their economic weight and opportunities as a mechanism for achieving political and strategic objectives,” White says. “Until Tony Abbott has left Tokyo, there will remain a significant risk that he will not be disciplined enough in Japan to avoid punishment in China. Abbott will be reluctant to admit it but I don’t think the visit to China will go ahead and work unless he has made – and will stick to – very clear commitments about the language that he will use in future about these things.”

A free-trade deal with China is not expected to be finalised on this trip but a recent promise by Chinese Premier Li Keqiang to accelerate negotiations has given hope that it could be signed this year. That would put the deal inside the ambitious timeframe set by Abbott, following nine years of talks.

After the humiliating rebuke served to Bishop when she visited Beijing in December, Abbott will hope he is more cordially received and that he can show the trade relationship has not been dented by the diplomatic stoush.

Since coming to power in September, the Abbott government has made clear its strong support for Japan in regional trade and security issues in the knowledge this will irritate China, which is already uncomfortable with Australia’s enthusiasm for America’s promised pivot to the Pacific.

Some detect the influence of the prime minister’s national security adviser, Andrew Shearer. He is known among foreign policy wonks to be hawkish on China, an advocate of a strong role for the US and Japan in the region and close to the conservative government in Tokyo.

Others say the strategy reflects Abbott’s own philosophical approach. He believes that, as modern free market democracies, Japan and Australia share values that Communist China does not.

When Abbott travelled to China as opposition leader in mid-2012, he paid a Sunday morning visit to a Catholic church. It was a private gesture but underlines a comment Abbott later made to an Australian business leader. Among his chief concerns about China, he said, was that it would not allow the country’s Catholic church to appoint cardinals to the Vatican without approval from the Communist Party.

What's on the table

Securing access for skilled labour to work on major Chinese projects in Australia has long been one of China’s goals in the free-trade talks. In a bid to finalise a free-trade deal this year, the Abbott government is prepared to consider it, despite angst about jobs and fears it could undercut local wages and conditions.

Robb has said recently that the free movement of labour is not being considered as part of the trade negotiations. But The Saturday Paper understands improved access for Chinese workers is being looked at in another context and could be included in changes to the skilled migration program, following a review of the 457 visa scheme that is due to report mid-year.

Already, the government has relaxed the conditions around visas for Chinese business people, allowing them to apply for a multiple entry visa once every three years, rather than annually.

The government is also understood to be willing to move on another issue that matters to China – allowing private companies to invest up to $1 billion here without requiring approval from the Foreign Investment Review Board.

Government-controlled companies – which account for much of Chinese investment – would still require FIRB approval, but the Australian government believes that China has become more comfortable with this process. In the past seven years, Australia has approved 420 applications from Chinese investors, worth about $93 billion.

Chinese investment is a sensitive issue within the Coalition, which has promised to increase scrutiny of foreign purchases of farmland and agricultural businesses.

Rural MPs understand the potential gains from a deal that could open up major and growing markets for dairy, meat, wine and fruit and vegetables. But some of Abbott’s MPs want him to declare before he embarks on his tour of North Asia that there will not be “open slather” on foreign investment in farmland.

“If the prime minister is going to China to talk about the free-trade agreement, I think it’s important that he first state the case about foreign investment in farmland,” says Nationals senator John Williams. “I want to sell the product, not the farm.”

A dressing down from China

One of the first signs of a shift in Australia’s relationship with China came barely a month into the new government, when Bishop met her US and Japanese counterparts in Bali for what is known as the Trilateral Strategic Dialogue.

The meeting took place on October 4. Normally, anodyne communiqués follow such meetings. This time, the backdrop was escalating tensions between Japan and China over the Senkaku/Diaoyu islands.

The resulting statement “opposing any coercive or unilateral actions that could change the status quo in the East China Sea” was dynamite to those who watch such things closely. For the status quo is exactly what is in dispute. By signing the communiqué, Australia was aligning itself with Japan’s claim to the islands, which are also claimed by China.

Just as retired generals sometimes voice concerns about military strategy when serving officers cannot, so too do former ambassadors sometimes speak up when diplomats must remain quiet.

Australia’s first ambassador to China, Stephen FitzGerald, claimed Shearer intervened in drafting this document, beefing up the text supplied by the Department of Foreign Affairs and Trade to make it more supportive of Japan’s case.

In an article posted online, FitzGerald characterised Shearer as an “advocate of bludgeon diplomacy and hairy-chested confrontation of China”.

He warned that this sort of approach, meddling in issues in which Australia is not directly involved, reduced Australia’s clout in the region and could even have military consequences.

“What will happen if the Indonesian government turns to China to supply or even directly assist its navy in the protection of Indonesia’s sovereign borders? And China obliges? And they turn to Abbott, Bishop and [Immigration Minister Scott] Morrison and say, ‘You, of all people, ought to understand’?”

Two days after the communiqué was issued, Robb had a meeting – also in Bali – with his Chinese counterpart, commerce minister Gao Hucheng, to talk about the prospects for a free-trade deal. Some of Australia’s competitors, including New Zealand, ASEAN and Chile, had managed to finalise agreements with China. Now Abbott had said he wanted a deal within a year.

Robb followed up later in October with a visit to Beijing – the first by any minister from the new government. By then, the pragmatic trade minister must have known he would have some explaining to do to persuade the Chinese to keep talking.

On October 9, Abbott had met with Japanese prime minister Shinzo Abe at the East Asia Summit in Brunei and declared Japan to be Australia’s “best friend in Asia”. In a further sign of their rapport, he invited Abe to visit Australia and address parliament.

But it was the events of November that saw the simmering diplomatic tensions erupt. On November 23, China declared an Air Defence Identification Zone in the disputed region of the East China Sea, requiring aircraft to give advance notice before flying through the area.

As the US led the international backlash, Bishop had her department call in the Chinese ambassador, Ma Zhaoxu, to object to this unilateral move. She released a statement announcing she had done this, publicising a diplomatic protest and provoking a furious response.

Rarely does the Chinese embassy comment publicly but, in an extraordinary statement responding to Bishop, it claimed it had requested the meeting to express “strong dissatisfaction at Australia’s finger-pointing” and to warn Australia to not take sides in territorial disputes, “so as to avoid damage to the co-operative relations between the two countries”.

The next day, during a press conference in Canberra with Burmese opposition leader Aung San Suu Kyi, Abbott raised the stakes further. Asked whether it had been overkill to haul in the Chinese ambassador, he replied: “I think China fully understands that on some issues we are going to take a different position to them. We are a strong ally of the United States, we are a strong ally of Japan, we have a very strong view that international disputes should be settled peacefully and in accordance with the rule of law and where we think that is not happening, or it is not happening appropriately, we will speak our mind.”

By calling Japan a “strong ally” – along with the US – Abbott not only elevated the relationship but also implied a military dimension. No formal alliance exists that would oblige Australia to aid Japan in the event of conflict, but some strategists fear this sort of rhetoric raises the possibility Australia could become entangled in such action if China and Japan clash in the South or East China seas.

When Bishop headed to Beijing for a scheduled meeting in early December, her Chinese counterpart Wang Yi used the visit to publicly chide her. While cameras rolled, he accused Australia of “jeopardising bilateral mutual trust” and said “the entire Chinese society and the general public are deeply dissatisfied” with her comments. The cameras were ushered out as Bishop began to respond.

“I have never in 30 years encountered such rudeness, actually,” said Peter Rowe, Australia’s top diplomat for North Asia, in a startlingly frank admission during a recent senate estimates hearing.

The same hearing also yielded the intriguing claim from DFAT chief Peter Varghese that there were “capital A” and “small A” allies, so the prime minister was not wrong to call Japan an ally, even in the absence of a formal alliance.

“Bungling and ham-fisted”, is how Labor’s foreign affairs spokeswoman Tanya Plibersek describes the Coalition’s approach to China, claiming it has plunged the relationship to its lowest ebb since before Gough Whitlam’s historic visit in 1971.

Bishop has played down the slight and says it was followed by a productive meeting and “delightful” dinner. Diplomatically, there has since been some rapprochement. The Chinese ambassador recently spoke at a meeting of Coalition MPs in Parliament House hosted by Bishop. When prompted to repeat the “best friend in Asia” line on the ABC’s Lateline on March 6, Bishop declined.

Diplomatic nervousness

Australia’s former ambassador to China Geoff Raby, who still works as a consultant in Beijing, says it is not uncommon for a new government to struggle to find a narrative about China. Both John Howard and Kevin Rudd felt the full force of Chinese displeasure within months of gaining power.

He says China has an interest in making the relationship deeper and long-term but issues a warning that Australia must keep its own messages distinct from those of other countries with which it is aligned.

“If we want to advocate our own interest, we need to be seen and to be heard to have our own voice on all matters,” he says. “If we don’t seem to have our own voice, China will not bother listening to us.”

But there is a delicate balance between having a message heard and appearing to lecture China. “There is no need to publicly keep going on about differences in values,” says Raby. “There are plenty of forums where we can raise matters that are of concern.”

Talks are intensifying on trade, with senior negotiators meeting in Beijing two weeks ago and signs that China may be open to progress when Abbott and Robb visit in early April. The prime minister will be accompanied by 20 senior business leaders as well as state premiers, as he emphasises the economic dimensions of the relationship. He will meet in Canberra this Monday with business people to discuss the relationship, amid concerns that Australia is missing out on investment, following a recent KPMG study showing the US has overtaken Australia as the preferred destination for Chinese funds.

Robb will take some 600 businesspeople with him for the inaugural Australia Week in China. Australian businessman Peter Arkell, who chairs the Australian Chamber of Commerce in Shanghai, says the diplomatic tensions amount to “background noise” in the day-to-day reality of doing business there.

Against angst over falling iron ore prices, he says the outlook for deeper economic ties is still strong and that the relationship extends beyond just minerals, with growing opportunities in sectors including financial and legal services and architecture. “We look for shadows to jump at instead of looking at the reality, which is very positive,” he says.

Privately, though, some business leaders are concerned that the Abbott government’s rocky start with China, along with the high-profile dispute between Clive Palmer and Chinese investors, is making the commercial environment more fraught.

As the trade talks approach the end game and the diplomacy stabilises after last year’s terse exchanges, a nervousness persists.

On January 29, three Chinese naval vessels sailed into waters between Australia and Java for a surprise training drill not far from Christmas Island. It was the first time the Chinese navy had come so far south to conduct such an exercise. The appearance of warships raised eyebrows inside the Australian Defence Department and Canberra scrambled to launch a surveillance aircraft to monitor them. It was a tense moment.

Walking and chewing gum sounds straightforward but there’s nothing simple about managing the political, strategic and commercial relationship with a rising China.

This article was first published in the print edition of The Saturday Paper on Mar 15, 2014 as "The Chinese puzzle". Subscribe here.

Sophie Morris
is The Saturday Paper’s chief political correspondent.

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