There is no quick fix to our parlous relationship with China
Originally published in the Australian Financial Review.
The Australians who advocate that the country reduce its export reliance on China have had good news of late. Beijing has decided to do the job for us.
If that sounds like black humour, it is, but only just.
In recent weeks, China has cut local barley and beef exports and may be targeting thermal coal. Each of those markets has their own dynamic, but there can be no doubt that Beijing wants to make Australia pay a price for leading calls for an inquiry into the origins of COVID-19.
But behind the debate in Australia triggered by Beijing’s sanctions, over whether the government should have pushed for an investigation into COVID-19 on its own, or mustered support from other countries first, is a bigger issue.
Australia has now entered a new and dangerous phase in relations with Beijing, of how to manage the ever-present and very real threat from Beijing of trade sanctions in response to inevitable political disagreements.
On top of now settled sources of friction, over Taiwan, Hong Kong and the South China Sea and cyber attacks, there are numerous other points of conflict.
The precise scope of the World Health Organisation inquiry into COVID-19 will be a battleground in itself, with Beijing certain to resist unsupervised access to Wuhan.
When Australia begins to enforce its foreign interference laws, passed in 2018, it will shine an uncomfortable light on the Chinese community organisations in Australia which act as virtual CCP lobbies.
As US-China relations spiral down, Australia-China relations are likely to deteriorate alongside the superpower conflict.
In sum, there is no quick fix to the parlous bi-lateral relationship. There is no nice way to push back against Beijing, and it will doubtless come at a cost.
The approach of the more hawkish participants in the China debate to calibrating such costs is much like the way one of the British officers discusses battle tactics in ‘Master & Commander’, the classic series of nautical novels set in the early 19th century.
“Never mind the manoeuvres,” the officer says, “always go straight at them.”
If Australian exporters lose valuable markets in the process, so be it. To argue otherwise, they contend, amounts to appeasement and “taking the money,” and sovereignty be damned.
But it isn’t just mining barons in Australia who are “taking the money”, although they do a pretty good job of it. The whole country is, most importantly of all, the treasury through personal and corporate tax receipts.
A healthy budget doesn’t just fund health, education and social services, through good times and bad. It also pays for the substantial defence build-up that the same hawks are (rightly) arguing for.
Australia in this respect is in a similar position to Japan. Both countries are spending more on defence in readiness for the rise of China. But to pay for extra defence spending, they partly rely on China to succeed.
However one describes this dilemma - it is either a vicious or a virtuous circle - the bigger point is that you don’t strengthen your national security by deliberating shrinking your trade and the economy.
Certainly, diversifying trade is desirable. But diverting trade from China is not necessarily diversification if the alternative markets aren’t there. In fact, it amounts to a loss of national income
It is all very well to talk about what large markets India and Indonesia will be in two decades. Compared to China, both countries’ economies are under performers.
It is possibly too late to change the downwards trajectory of bi-lateral relations. Australia and China increasingly have hard and settled views of each other. Whatever each country does, the other will assume they are acting out of the worst motives.
But perhaps there is a smarter way for Australia to play its hand.
When China was weaker in the 1980s, Deng Xiaoping famously prescribed a policy for relations with the outside world known by its shorthand of “hide and bide.”
In other words, Beijing would, as a matter of tactics, conceal its ambitions and bide its time until it was stronger, all the while not compromising any of its fundamental positions.
It was not a recipe for ceding China’s interests. Rather, Deng was resolving to preserve them so they could be advanced at an opportune time.
If there was ever any doubt that such a policy was out of date, Xi Jinping has made sure to throw it out the window altogether. China isn’t biding its time under his rule.
Therein, there might be a useful prescription for Australia. We need more Deng and less Xi in setting our diplomatic parameters.
After all Australia’s tougher policy - foreign interference laws and the exclusion of Huawei from the new telecommunications network – had a clear aim.
We wanted to make ourselves a harder target for China, not the sitting duck that we might end up being.
Richard McGregor is a senior fellow at the Lowy Institute.