Australia’s China conundrum

By Sushil Seth

With Australia’s economic fortunes linked to China’s economic growth, Beijing presumes that it has earned the right to hector Canberra on the state of its economy. And to add insult to injury, a junior diplomat at the Chinese embassy did the hectoring by telling a business forum that Australia’s “dual speed and patchwork economy” needed fixing with Chinese help.

In a wide-ranging critique, Mr Ouyang Cheng reportedly advised Australia to deal with “infrastructure bottleneck and shortage of skilled labor”. He maintained that China’s strengths in these areas could be utilized to “help accelerate Australia’s economic development.”

He cautioned that “Australia’s dual speed [basically the growing mining sector, and the depressed manufacturing and other economic activities) and patchwork economy would not only hurt its own economic development but also influence China and Australia’s long-term economic co-operation.”

These problems are “… also limiting China’s investment in Australia.” And he sought a new mechanism to engage Australia on economic and trade issues to “solve the difficulties of the Chinese enterprises in Australia during their projects application and operation.”

China feels that Australia discriminates when it comes to Chinese investment proposals.

Basically, China’s wants a bigger, if not decisive, say in the way it would like to deploy its capital and labor (if and when needed) in Australia. This will enable it to coordinate demand and supply of the commodities it imports from Australia, and curb their price hikes.

In a larger sense, China would very much like to integrate Australia’s economy in a supportive role to China’s economic requirements.

The flexing of China’s economic muscles is on par with Beijing’s approach to international relations evident in Asia-Pacific region and as far away as Africa and Latin America.

It is using its economic leverage to corner resources for China’s economic development by linking the resources sector of these countries to its economic growth and creating their dependence on China. And once tied in, these economies have very little leeway to chart an independent course.

With Australia, these are early stages but the trend is quite clear. Indeed, there is enough disquiet in Australia to warrant a Senate inquiry into the question of foreign investments, particularly in agricultural land where China has made some forays to mine in farm lands.

Australia’s relations with China are rather tricky. At one level, China is its largest trading partner, with two-way trade topping $100 billion last year, much of it in Australia’s favor.

At another level, Canberra regards China as a strategic threat. Which is leading it to further expand its defense ties with the United States.

It is also moving much of its navy and air force to the north and west of the country where its minerals and energy resources are concentrated and it is more vulnerable. Without naming the potential threat from China, it is taking necessary steps to secure its northern approaches.

Australia has committed to a major program of modernizing and updating its military hardware.

Obviously, Canberra wouldn’t expect to face this threat on its own but by being part of a joint and/or coordinated force with the United States and, possibly, Japan.

As Greg Sheridan, foreign editor of The Australian, writes, “Moving more of our navy and air force to the north and north-west, and inviting a much bigger US military presence there, makes eminent strategic sense.”

But the question is: how will Canberra strike a balance between its primary economic relationship with Beijing and its security partnership with the United States? This is Australia’s China conundrum.

Professor Hugh White of the Australian National University favors Australia playing a bridging role by persuading both US and China to a shared and cooperative leadership in the region. In which case, Australia will not need to choose between them and might live happily thereafter.

He has argued that, “China needs to be persuaded that it, too, should settle for a shared leadership in Asia, a continued strong role for the US and growing roles for Japan and India.”

He apparently seems to realize the odds against this. Because, alternatively, he suggests that Australia might “like New Zealand, simply rely on neutrality and remoteness to keep us clear of Asia’s turmoil, and hope they keep away from us.”

But Professor White’s neutrality option doesn’t have many takers in Australia.

The US, of course, is pretty confident that Australia will be on its side. Australia is US’s military ally, and is taking steps to further expand strategic cooperation with the United States against the backdrop of a rising threat from China.

In other words, China will have to reckon with the reality of Australia not only siding with the US in case of a military confrontation between US and China but also actively contributing to meet all eventualities.

Australia is, of course, not being explicit about this, and hoping that the necessity to choose might not arise. But it is like an ostrich burying its head in sand.

Apart from the general contest for leadership between China and the US, there are regional flashpoints like Taiwan, Korea, and the one now emerging over the South China Sea. China is seeking to edge out its regional neighbors, like Vietnam and the Philippines, from competing sovereignty claims to island chains.

The Philippines has even invoked its alliance with the US to deal with Chinese encroachments into waters and islands claimed by it.

China knows that Australia is a US ally. But Beijing hopes to use its economic leverage through trade and investment to dent its alliance with the United States. However, if Australia were to opt for neutrality, China would be unlikely to take its claim seriously considering its vast network of strategic links with the United States.

China’s growing economic interests in Australia will give it a convenient handle to interfere in Australia’s affairs. Ouyang Cheng’s stern lecture to Australia requiring it to fix its economic malaise is a precursor of things to come..

In this sense, Australia’s economic fortune through its China connection might not be a blessing in the medium and long term. But, in the meantime, let us make the most of it.