Time to reset China relationship

by Colin Chapman

Australia and China need to stop bickering with each other. In this chapter-by-chapter spat, it is easy to see Beijing’s Communist Party chiefs as relentless bullies, using the kind of tactics so beloved by Donald Trump: threatening lesser fry, offering a smattering of charm, and then racking up the threats again.

The latest episode coincides with the publication of a letter from a bipartisan group of members of the American Congress to Arthur Sinodinos, Australia’s envoy to Washington. This follows Scott Morrison’s sensible call for an independent international investigation into the origins of the coronavirus in Wuhan, China.

The senators and representatives on Capitol Hill not only backed the prime minister but issued an angry ripost to the Chinese threat.

“We unequivocally oppose this behaviour and strongly support Foreign Minister Marise Payne’s rejection of ‘any suggestion that economic coercion is an appropriate response to a call for such an assessment’ “, the letter said.

The latest Chinese threats come from Beijing’s trade officials who seek to impose a 73.6 per cent tariff on Australia’s barley exports, an increase of almost 50 per cent, calculated to cause $600 million worth of damage to Australian farmers, and diverting business to Canada.

Australian barley exports hit by higher tariffs, beef hit, but coal still the big earner

Less than 24 hours later, on May 12, Beijing’s bully boys came up with another hit – suspending imports from four of our leading beef processors. China’s ambassador to Canberra had earlier threatened to ban beef imports from Australia as a reprisal for Morrison’s call for an independent inquiry into the origins of the Covid-19 epidemic. China’s foreign ministry cited violations of quarantine and customs regulations, but provided reporters with no details. In the same breath, an official spokesman also attacked Morrison’s pursuit of a coronavirus inquiry.

China’s bullying tactics, while escalating, are not new. Several years ago, when I was president of the New South Wales division of the Australian Institute of International Affairs, hosting a delegation of Chinese Communist Party officials, I was told Beijing believed Chinese students should not be answerable to Australian law, but to China’s. 

Even so, Australia’s trade officials are not faultless. Despite a free trade agreement between the two countries, Australia has selectively imposed tariffs on Chinese goods for six years, and China is the principal target of Canberra’s anti-dumping inquiries. A particularly sore point for Beijing is the tariffs Canberra imposes on Chinese fabricated steel and aluminium products. Chinese trade officials correctly point out that the duty on steel pipes is currently 144 per cent, and that the raw material mainly comes from West Australian iron ore and Queensland coking coal. Moreover, the Productivity Commission has from time to time said that such anti-dumping measures do not enhance Australia’s flawed productivity. It is perhaps worth adding that Australia often appears to cast a blind eye to dumping from the European Union, as foodstuffs on the shelves of Coles and Woolworths show.

In an unconnected development, China is watching closely the liquidation of Virgin Australia, where two Chinese investors are involved. The signals from the administrator appear to have thrown the process into confusion, which is the polite way of putting it.

The bickering has to stop, but reparations need to go beyond that. The relationship is important enough for the leaders of the two countries to get round a table and reset it.

The problem is we don’t know whether this issue is even in the in-tray of President Xi, let alone a priority. It should be a priority for Morrison. He would need to go to any meeting not as a supplicant but as a credible leader of a G20 country in the Asia Pacific, not one under the influence of the odious Donald Trump. That should not be too difficult, should it?

Finally, the China Relations Institute at Sydney’s University of Technology (ACRI) has published a wordy paper analysing calls on the Coalition to decouple Australia’s relationship with China because of the impact of the coronavirus epidemic. The paper is worth reading and freely available, but it is a red herring. The fact that Covid-19 originated in Wuhan, allowing Trump repeatedly to describe it as the ‘Chinese virus’, is not the cause of the deteriorating relationship between Canberra and Beijing. 

The ACRI report appears to overlook that fact. Three things need to be said. First the official relationship between Canberra and Beijing was bad long before the coronavirus emerged, and had nothing to do with health. Secondly, relationships between Australians and their Chinese counterparts are generally good, despite official tensions. Third, most business people on both sides value the connections that have been made, and will continue to build on them.

Nonetheless, ACRI makes some interesting points worth thinking about both during and beyond the epidemic:

  • The latest data confirm Australia’s significant trade exposure to China. In 2018-19, this reached $235.0 billion, compared with just $88.5 billion with Japan, which is in second place. A comparative analysis shows that by share of total goods exports to China, Australia is first amongst OECD nations.
  • The last time a single market was as important to Australia was well over half a century ago when Britain took 40 per cent of Australia’s exports, in 1952. That changed, of course, when the UK joined the then European Economic Community. 
  • The ACRI paper argues that companies doing business with China “need to understand it is not the government’s responsibility to bail them out in the event of a downturn in the Chinese market”. Every company is expected to do it due diligence and undertake proper risk assessment modelling.
  • Further, ACRI’s paper says, “the government’s considerations of the national interest extend beyond the benefits of trade to encompass national security and the strategic outlook. Sometimes the government will take decisions it judges to be in the national interest, including steps to preserve Australia’s sovereignty and freedom of action.  One example is the August 2018 decision to ban Chinese technology companies, Huawei and ZTE, from participating in Australia’s 5G telecommunications rollout, following advice from agencies that they represented a security risk that could not be mitigated. 
  • The view that we are too dependent on China for trade assumes another country stands ready to buy Australian goods and services.
  • Just one country, China, has accounted for the 60 per cent jump in Australian exports over the last decade. The only diversification strategy that makes sense for Australia is China plus one. “Forcing trade away from China only guarantees less Australian income and jobs”.

This last point is undoubtedly true, but it begs several questions. Have we really done enough to increase our exports to countries within ASEAN and the Trans-Pacific Partnership?  We have costly trade missions galore, but are they really working?  Does it really make sense to have trade effectively as a junior partner in the Department of Foreign Affairs and Trade?  We have huge agricultural surpluses, but are we competitive enough, and generous enough to countries that are starving?

As a nation, Australia has been slipping down the World Competitive Index, and our productivity is lamentable. 

China’s bullying tactics are unedifying, and to be resisted, but they also serve as a reminder of the risks of dependency, and the need to rethink relationships.

© Australian Strategies, 2020. All Rights Reserved

Further reading:

China wants to know if you are for or against her.

https://asia.nikkei.com/Opinion/China-wants-to-know-if-you-are-with-it-or-against-it

Covid-19 and the Australia-China Relationship’s zombie economic  idea, published by the Australia-China Relations Institute.