Australia’s China dilemma
There could hardly have been a better visual metaphor for Australia’s China dilemma than the contrasting images in Monday’s media.
On the one hand were pictures of football fan Prime Minister Scott Morrison at the Australian high commission in Honiara, throwing a rugby ball around with kids, tending the barbecue and sucking on a beer as he practised the art of soft diplomacy in the Solomon Islands on his first overseas visit since winning the election.
On the other hand were the images, taken on the same day, of three Chinese warships, including a People’s Liberation Army frigate, steaming unannounced into Sydney Harbour. This smacked of a rather pointier kind of diplomacy, especially given recent events in which Australian Navy vessels were shadowed by Chinese ships, and Australian military helicopters were targeted with lasers during exercises in the South China Sea.
It made for quite a contrast. There was Morrison, smiling in his island-print shirt, seeking to emphasise Australia’s commitment to a “step-up” engagement with Pacific nations, a move seen as part of a concerted effort, led by the United States, to push back against growing Chinese influence in the Pacific. He had come bearing gifts: a $250 million pledge over 10 years of grant funding for infrastructure, including help in the construction of a new complex to hold the prime minister’s office and the foreign affairs and trade ministries in Honiara, and an assurance of “deeper co-operation” on defence and security.
Then there were the warships in Sydney Harbour, silently reminding us of that growing influence, and that Australia is the most China-dependent economy in the developed world.
Morrison was keen to play it down, insisting that the ships’ arrival – on the eve of the 30th anniversary of the Tiananmen Square massacre – should not be subject to “over-analysis” by Australian media, policy experts or the public.
The 700-odd Chinese military personnel were just here for a bit of R&R on their way back from a counter-drug-smuggling operation in the Middle East, he suggested. Indeed, their presence was to be seen as a “further demonstration” of the good relationship between China and Australia. And while it may have come as a surprise to everyone else, reportedly including his Liberal Party colleagues in the New South Wales government, “it certainly wasn’t a surprise to the [federal] government”.
Which is nice to know, because it would otherwise have looked like real gunboat diplomacy.
Still, the visit was seen as strange by a number of defence analysts, who pointed out that Sydney was not the most convenient stopover between the Gulf of Aden and China, and that previous visits usually involved just a single vessel, not a three-ship task group. It looked to them as though the Chinese were making a show of their presence.
It’s not hard to see why people might read it that way, for things are changing very fast, geopolitically.
“I hesitate to be melodramatic, but you can feel the tectonic plates shifting under our feet,” says Hugh White, professor of strategic studies at the Strategic and Defence Studies Centre of the Australian National University.
“Both economically and strategically we are looking at a much sharper bifurcation between the US and China than any Australian government has contemplated. The Morrison government is confronting a very different world from that which Turnbull confronted, as recently as 2016. Back then Donald Trump wasn’t yet president. There was no trade war. America had not declared China a strategic rival. It was still talking about China as a responsible stakeholder.
“Three years ago no one was talking about China’s malign influence on Australia’s political processes. Concern about China’s influence in the Pacific was way lower than it is today.
“The water has got a lot hotter in the last few years.”
Indeed, it’s got hotter in just the past few weeks. The tariff war between the US and China has ratcheted up – the Chinese announced last weekend a “blacklist” of US companies and hinted at restricting the supply of rare earth minerals vital to high-tech equipment. The US has warned Britain that if it uses any Huawei equipment in its 5G network, the US will restrict intelligence sharing.
Speaking at last weekend’s International Institute for Strategic Studies Shangri-La Dialogue in Singapore, an annual gathering of defence ministers from Asia, Europe and North America, the acting US defence secretary, Patrick Shanahan, condemned those nations that used “a toolkit of coercion”, including actions such as “deploying advanced weapons systems to militarize disputed areas” and engaging in “state-sponsored theft of other nations’ military and civilian technology”.
He demanded “behaviour that erodes other nations’ sovereignty and sows distrust of China’s intentions must end”.
Shanahan stopped short of explicitly saying the countries of the region had to choose sides.
“The United States does not want any country in this region to have to choose or forgo positive economic relations with any partner,” he said.
His speech was followed by the release of a new US Defense Department “Indo-Pacific Strategy Report”, which bluntly described Chinese strategic objectives as seeking “Indo-Pacific regional hegemony in the near-term and, ultimately global pre-eminence in the long-term”.
The next day China’s defence minister, Wei Fenghe, spoke to the forum about the escalating trade war between the US and China, saying: “If they want to talk, we will keep our doors open. If they want to fight, we will fight to the end.”
And as the tensions between the US and China grow, Australia is left in a position a bit like a kid caught between divorcing parents, traumatised by the prospect of choosing one or the other.
“It’s now accepted by everyone that balancing China versus America is Australia’s biggest foreign policy challenge,” says White. “You can sum it up in two sentences. We want to avoid offending China. We want to avoid offending the United States. And that’s getting ever harder.”
To understand why, you need only to look at Australia’s trade numbers.
Australia’s exports to China are worth more than its exports to the next three trading partners – Japan, the US and India – combined. Exports to China have grown 56 per cent during the past five years. Australia’s second-biggest export market, Japan, has grown 6 per cent in the same period.
Two-way trade between Australia and China was just shy of $200 billion last financial year, which was an increase of 17.5 per cent on 2017.
“That’s a much more rapid growth rate than we see in either our overall trade or China’s overall trade. It’s a bright spot in our trade picture,” says Shiro Armstrong, a trade economist at the ANU and the director of the Australia-Japan Research Centre.
“That’s despite the rhetoric around the relationship, and the reports about things like coal and wine into China being slowed down. In reality, the wine and coal trades have grown rapidly. The slowdowns get some headlines, and it’s a complicated picture. The delays in allowing coal coming in, for example… There is no real evidence of this being targeted just at Australia.”
But, given the circumstances, it is understandable that every glitch in the trade relationship becomes a political worry.
In March last year, after then foreign minister Julie Bishop raised concerns about Communist Party influence on Chinese students coming to Australia, the state-owned Global Times claimed Australia was deliberately delaying student visa approvals, suggested there was official concern, and bluntly told students not to come here.
Given education services now rank third after iron and coal among Australian “exports” – and are worth about $30 billion a year, one-third of which comes from China – this would have been a big worry had the reality followed the rhetoric.
But it didn’t. According to the latest Department of Education data, the number of international student enrolments from China grew 5.5 per cent in the year to March 2019, from about 183,000 enrolments in March 2018 to about 193,000 enrolments. Of these, about 136,000 enrolments were at universities in March 2019 – an increase of 9.2 per cent on March 2018.
Says Armstrong: “The Global Times will say all sorts of things from time to time, but it’s not as simple as the Chinese government just turning the taps on and off. It’s more complicated.”
That’s not to say there are not real concerns. He notes Chinese direct investment in Australia has “plummeted” during the past two years. Having nearly trebled, from $4.7 billion in 2014 to $15.8 billion in 2016, it fell back to $4.8 billion in 2018.
Armstrong blames uncertainty in the Australian regulatory regime towards China, following our decisions to knock back some large investment proposals. But he also notes that “these are mostly private commercial decisions”, rather than an explicit indicator of Chinese government displeasure.
The reality is that, given the debilitating trade dispute with the US, it’s not in China’s interest “to be messing around with Australia or anyone else”.
“It’s important to note that China relies on the rules-based international trading system perhaps more than any other country,” Armstrong says. “They are fully integrated into the international economy on the trade front. China by and large abides by the rules of the WTO [World Trade Organization, the body that sets the rules, and arbitrates trade disputes].
“And China needs friends at this particular time…”
In fact, he suggests, the US is now the bigger threat to the rules-based trade order, and potentially to Australian economic interests.
“The current, proximate threat to the rules-based order is actually the Trump ‘America first’ agenda,” he says.
“It has now threatened tariffs on Mexico [if Mexico does not stop the flow of Central American asylum seekers trying to get to America]. India is losing its preferential access to US markets, and of course there is its action against China. All outside the established rules. And other countries are responding by retaliating, also outside the rules, or doing deals.”
He notes that the US administration is very specifically pressuring countries with which it does business to side with it against China, seeking to insert what they call “poison pills” in trade agreements where “if any of these countries start negotiating with China, the US can veto the agreement”.
Most seriously, the Trump administration is waging war on the WTO. Trump has repeatedly railed against the organisation, calling it a catastrophe and a disaster, and claiming the US loses cases because other countries have most of the judges. In fact, the US has a higher success rate than most.
“The US administration is holding up appointments of judges to the dispute-settlement body of the WTO,” says Armstrong.
“The appellate body of the WTO usually has seven judges; it’s down to three, and two of those will finish their terms in December. The US is vetoing appointments by other countries and looks like it will continue to do so until it gets what it wants, and it’s not clear what it wants.
“Without that the WTO cannot enforce decisions anymore, so the global rules system with respect to trade – that we rely on – will cease to function.
“That’s really serious. That dispute-settlement mechanism could be destroyed by December unless the US changes its mind or the rest of the world stands up to it. That’s a very real threat to economic and political security in our region,” says Armstrong.
“A hegemonic power, facing a rising power, is threatening to tear down the entire trading system unless it gets its way on changing the rules and boxing China into a corner. That isn’t very helpful to the rest of the world – or even itself.
“It will likely all come to a head when the G20 meets in Osaka at the end of this month.”
Regardless of what Patrick Shanahan said in Singapore last week, the US is pushing countries in the region, and everywhere, to choose sides.
As is China.
Which brings us back to the Morrison government’s new focus on the Pacific, and the prime minister’s visit to the Solomons, which is one of a handful of Pacific nations that still recognise Taiwan as an independent state, rather than a rebel province of China.
Our “side” wants to keep it that way, and to counter the growing Chinese influence there.
Interestingly, as well as the $250 million of infrastructure promises, a few smaller items were given considerable emphasis in the media statement put out jointly by Morrison and the Solomons’ prime minister, Manasseh Sogavare, celebrating the two countries’ long partnership as “true wantoks”.
Additional funding of $260,000 was promised for a Get into Rugby Plus program, to initiate a women’s and girls’ Rugby Sevens competition “and develop highly trained coaches who can facilitate equal participation of boys and girls in rugby”, along with an elite sports training program in Australia ahead of the 2023 Pacific Games.
“As part of the Pacific Churches Partnership initiative,” the joint release further said, “we are pleased to announce that Australia will work with Solomon Islands churches across denominations to strengthen ecumenical exchanges with Australian church partners.”
And there was a commitment, too, that through the Catholic Church and in co-operation with New Zealand, Australia would facilitate the distribution of 580,000 books to children in the Solomons.
Small things, but as Graeme Smith, a fellow in the ANU Department of Pacific Affairs, says, important examples of Australian “soft power”, because they go to shared interests.
“I dare say these are things China cannot offer. Islanders are not big into ping-pong and badminton. And they are not that keen on a one-party atheist state.
“So we have an edge. The prime minister’s professed faith does not go over badly in the Pacific at all. These are very religious people [and] evangelical Christianity is on the rise in the islands.”
On ABC Radio this week, Diana Choyleva, chief economist at the Britain-based firm Enodo Economics, which advises global fund managers, said the world economy was splitting into hemispheres of influence – one American, one Chinese – and she was advising her clients to deal with that reality. She also suggested the Australian government has already made its loyalty clear.
Hugh White is not so categorical.
“Some people seem to think the big story is that we are all the way with the Americans. The big story is that we are not,” he says.
“As America’s language has become more and more stark, Australia has quite specifically distanced itself from that analysis. We have not named China as a strategic threat. For Australia to distance itself from a core US analysis in our own region is exceptional. People have not paid nearly enough attention to this.
“The Americans have been at us for years now to do more aggressive freedom-of-navigation operations in the South China Sea. And we keep refusing.
“We are still trying to walk both sides of the street,” White says. “Our position is duplicitous. But there is no policy behind that position. It’s a way of avoiding making a decision.”
And it will be ever harder to make one. By the estimate of the Australian Treasury, he notes, China’s GDP in 2030 will be $US42 trillion. The US’s will be $US24 trillion.
“This is the big one for us. Since Arthur Phillip waded ashore in 1788, it has always been the case that either Britain or the US was the strongest economy and the dominant power and our best mate.
“Now, for the first time, the world’s strongest economy and the dominant power won’t be a mate. Not necessarily an enemy, but not a mate.
“This is the most profound change since European settlement,” says White. “And for a very long time, until quite recently, Australian political leaders were pretending it wasn’t happening.”
They won’t be able to pretend for much longer.
This article was first published in the print edition of The Saturday Paper on Jun 8, 2019 as "Solomon communion". Subscribe here.