Sino-Australian Relationship in Crisis Mode

By Sushil Seth

Who would have thought that Australia’s relations with China would nose-dive under its Mandarin-speaking Prime Minister, Kevin Rudd? The question therefore is: what happened for things to reach a crisis point?

Before we analyze the state of Sino-Australian relations in some detail, one point needs to be emphasized. Which is that, after Kevin Rudd became Prime Minister, expectations were high on both sides.

Rudd believed that as China’s friend, and one who saw himself well versed in Chinese culture, he had some latitude when speaking to Beijing frankly even about issues (like Tibet) that will annoy them.

Beijing too seemed well inclined toward Rudd, being the only leader of a Western country with fluency in Mandarin and proud of it.

And they naturally thought that he would be sympathetic to China’s interests.

But things started to go wrong not long after Rudd became Prime Minister.

Even though he chose China among the first countries (and the first in Asia) that he visited, thus rattling Japan particularly; Beijing was not amused when Rudd publicly told them, during a Beijing University address, that frankly “there are significant human rights problems” in Tibet. And advised them to recognize this fact and deal with it.

Even as he claimed to be China’s friend he, nevertheless, continued to emphasize the primacy of Australia’s strategic alliance with the United States.

Beijing, of course, wasn’t expecting any sudden change in Australia’s primary political and security relationship with the United States.

But, it did expect that, under Kevin Rudd, Canberra wouldn’t stand in the way of Chinese investments in the crucial resources sector, particularly iron ore.

China is now Australia’s top trading partner, ahead of Japan. It is devouring Australia’s commodity exports, particularly iron ore.

According to one estimate, iron ore comprised 18 billion dollars (Australian) of Australia’s 32.5 billion exports to China last year.

With the global economy spiraling (until recently), and the demand for commodity prices high, China’s insatiable demand for iron ore hiked up its price several times, with huge profits reaped by Australian companies like Rio Tinto.

China was not happy. It wanted to control both the supplies and pricing of iron ore; with Australia as a major global supplier along with Brazil.

To this end, Beijing sought to double its stocks (share holding) in Rio Tinto, taking advantage of its debt problems. But, Rio Tinto backed out of the deal at the last moment, having made up with BHP, another Australian mining giant that, only a short while ago, wanted to gobble up Rio Tinto.

China was thus left high and dry, and fuming, it would appear.

Beijing feels that the Australian Government played a role in scuttling China’s investment by delaying its approval. Which, it regards as discriminatory against China.

Whether or not the Australian Government twisted Rio Tinto’s hands is not the question here. Because, most countries (China, even much more) wouldn’t like another country’s instrumentality having a controlling share in its strategic resource sector.

However, China cries foul and is not happy with Australia. Indeed, they seem angry and vengeful at the way, in their view; Australia has sought to fiddle with China.

Even as things were getting tangled with Rio Tinto, the global economic crisis lifted the pressure on commodity prices. China wanted Rio Tinto to reduce its iron ore prices by over 40 per cent, refusing to accept a 33 per cent reduction as agreed with Japan and South Korea.

With the wrangling over the price of iron ore still continuing, Chinese authorities arrested Stern Hu (a Rio Tinto executive in China, carrying an Australian passport) and three other Rio Tinto employees who are Chinese citizens.

They are accused of bribing executives of Chinese steel mills and stealing state secrets to damage China’s economic security.

It is now become a state security matter, and not simply an ongoing negotiating process about the price of iron ore.

However, the arrested Rio Tinto employees have not been formally charged, as we report.

And Australia is being largely ignored, with its approaches in the matter being regarded as interference in China’s “judicial sovereignty”.

To cap it all, the matter has become highly politically charged in Australia’s domestic politics, with the opposition taunting Kevin Rudd to pick up the phone and talk directly with the top man in China, obviously referring to President Hu Jintao or Prime Minister Wen Jiabao.

The implication here being that Kevin Rudd made much politically of his magic touch with China, and now is the time to deliver.

But China has told Australia publicly to butt out and let its judicial process take its own course.

Beijing is virtually telling Canberra that they should forget about Stern Hu and his colleagues, whom they have already pronounced guilty of bribery and stealing secrets.

They are already being branded as traitors by Chinese bloggers.

There are two schools of thoughts in Australia on the question of dealing with China. First, and the one sympathetic to China, would like Australia to cave in, not only because China is a regional giant but also because commodity exports to China are increasingly the bread and butter of Australia’s economic lifeline.

This school includes a good number of Australian Sinologists, as well as some strategic analysts.

The second school, reflected in the government policy so far, acknowledges the growing importance of China’s economic connection but argues (as did Prime Minister Kevin Rudd in a recent statement) that the importance of Sino-Australian economic relationship cuts both ways, since China needs what Australia has to offer.

Besides, if Canberra were to make a humiliating back down on the iron ore issue (ignoring the arrest of Stern Hu and his Chinese colleagues as well), it would mean that in future its economic policy (where it concerns China) will increasingly be dictated by Beijing.

In a larger sense, Australia will become part of China’s regional sphere of influence thus undercutting its US alliance and much more.

As one prominent Australian columnist has written, “Australia’s greatest strategic challenge: how to manage a successful relationship with China as a repressive state that rejects our values, legal system, governance and US alliance.”

Sino-Australian relationship has been brought to a crisis point with the arrest in Shanghai of four Rio Tinto employees, one of them an Australian citizen.

China is using this to intimidate Australia into submission.

It has been unhappy with Rudd’s Australia for a variety of reasons, including its softness for the Dalai Lama.

This annoyance must have turned into anger after the recent unofficial visit of a bipartisan parliamentary delegation to visit Dalai Lama in his Dharamsala headquarters in India.

To compound it further, the Melbourne International Film Festival is screening a documentary about Rebiya Kadeer, the Uighur leader in exile in the United States.

Beijing calls her a terrorist and holds her responsible for the recent violent unrest in Xinjiang.

A Chinese consular official reportedly rang the director of the Film Festival, demanding that the documentary be dropped.

This is not all. Rubiya is coming to Australia for the premier of her documentary and has plans to canvass her people’s cause with the government here.

China has, however, withdrawn some films due to screen in the Festival. And Chinese hackers have been at work to damage the web site of the Melbourne Festival.

At a strategic level, the new Australian defense white paper has apparently angered China even more by suggesting that a rising China could threaten Australia’s security as it overtakes the United States as the world’s largest economy around 2020.

Which means, “by 2030, any changes in economic power will affect the distribution of strategic power.”

Coming back to the Rio Tinto issue, Australia has sought to internationalize it by pointing out to Beijing that it could affect its commercial interests worldwide with the brazen arrest of the employees of an international corporation.

The United States has already raised the issue with Premier Wen Jiabao during the recent China visit of its Commerce Secretary, Gary Lock.

It would seem that Sino-Australian relationship is in for a rough ride for quite some time to come. How it will be resolved is anybody’s guess.