Australia’s China dilemma

S P SETH

Australia’s China dilemma is getting ever more serious regarding the need to strike the right balance between its strategic relationship with the US and increasingly deeper economic ties with China. Indeed, when a Chinese company was sold a controlling interest in the Port of Darwin in the country’s north, it raised such concern in the US that President Obama reportedly raised the matter with the visiting Australian Prime Minister, Malcolm Turnbull. Darwin is an important strategic base for US military. More recently, when two Chinese companies were seeking to buy a controlling interest in an electricity grid (Ausgrid) in the state of New South Wales, the country’s treasurer (finance minister) disallowed it on national security grounds. The security concerns were not spelled out, though the treasurer is said to have acted on the recommendation of almost all the country’s security agencies. Earlier, however, Chinese investment in some other electricity assets had been allowed without any fuss.

Which led a former Australian foreign minister, Bob Carr, now heading Australia-China Relations Institute, partly funded by China, to describe the government’s decision to block the long term lease of Ausgrid to China as “a policy sacrifice to the witches’ Sabbath of xenophobia and economic nationalism stirred up in the recent federal election.” This only creates more confusion because Chinese money is seen in some quarters as not only seeking gradually to control Australia’s economic arteries, but also corrupting its political system, with reports of donations to political parties from Chinese interests at home and abroad. Taking aim at Bob Carr’s withering criticism of blocking the sale of electricity grid to China, Peter Hartcher, the Sydney Morning Herald’s international editor, wrote, “As for [Bob] Carr, he should understand the paramount importance of national security. When the federal government barred China’s Huawei [internet conglomerate] from bidding to build the National Broadcasting Network in 2012, Carr, as foreign minister, said that Australia was entitled to defend its national security.” Elaborating, he said, “In 2012 he [Bob Carr] was paid to represent Australia. Today, his partly Chinese-funded institute pays him to be part of the Chinese bluster.”

Speaking at the partly Chinese funded, Australia-China Relations Institute, which is headed by Bob Carr, a former prime minister, Paul Keating, suggested that Australia needed a foreign policy that was more accommodating of China’s regional primacy and not “caught up in some containment policy of China… to assist Americans in trying to preserve strategic hegemony in Asia and the Pacific.” Keating incidentally is a member of the advisory committee of state-run China Development Bank. This sort of ‘heresy’ is relatively new in Australia. Despite this, Australia’s US alliance remains the corner stone of its foreign policy.

However, Australia’s deepening economic relationship with China, further reinforced with a recently signed free trade agreement between the two countries, is likely to underpin Australia’s economic prosperity into the foreseeable future. China is now Australia’s biggest trading partner, taking about 35 per cent of its exports, and supplying about 20 per cent of its imports. A recent major Australian economic study, Partnership for Change, remains largely optimistic about the future direction of Australia-China economic relationship. Trade aside, China is also a major source of new economic investments in Australia estimated at 46 billion Australian dollars last year; though the US reportedly has the biggest accumulated stock of investment at 860 billion Australian dollars as of last year or 28 per cent of the total at the end of 2014-15. But China is steadily coming up, with a quarter of the new investments last year.

Australia’s prosperity has been built on foreign investments but China’s acquisition of Australian assets, considered economically, politically and strategically sensitive, is creating some problems. Not surprisingly, Beijing reacted strongly to Canberra’s decision to block Chinese investment of a controlling share in a New South Wales’ electricity grid. Its foreign ministry described the decision as a matter of “deep concern”, urging Australia to “avoid discrimination and provide a fair environment.” China’s commerce ministry said that, “This kind of decision is protectionist and seriously impacts the willingness of Chinese companies to invest in Australia”, suggesting that Chinese investors might start looking elsewhere.

By and large, China and Australia have a complimentary trade relationship based on Chinese demand for Australian goods and services for its growing and diversifying economy, and Australia is well served with Chinese consumer products, with a comfortable trade balance in Australia’s favour. The dilemma arises because Australia’s strategic nexus with the US puts it in the US camp when it comes to security issues. China’s projection of power in South China Sea is a case in point, where US and Australia are critical of China laying claim to a string of islands and dredging new ones to establish military facilities, making South China Sea into a virtual Chinese lake. Both Washington and Canberra favour a peaceful regional solution between China and its neighbours. The crunch might come if this issue were to develop into military conflict to involve Australia as US’ ally. And that might seriously damage their economic relationship.

However, Canberra hopes that it will not come to this and Australia might be able to juggle both its primary economic relationship with China and strategic nexus with the US. In any case, it is sometimes argued that Beijing has been aware all this time that Australia and US are strategic allies and this hasn’t stood in the way of their deepening economic relationship. Therefore, Australia need not be squeamish or defensive when asserting its national security interests, as with its decision to block China’s controlling investment in an electricity grid. The argument goes that despite Australia’s decision to block Chinese investments on national security grounds in some cases, the two countries’ have gone ahead to sign a free trade agreement. To quote Peter Hartcher again, “Chinese bluster is part of the theatre.” China probably is thinking long term that with Australia’s prosperity increasingly tied to Chinese trade and investments; there will be greater scope to loosen Australia’s strategic ties with the US. 

Note: This article was first published in the Daily Times.

Contact: sushilpseth@yahoo.com.au