PETER DRYSDALE. Getting the Australia–China relationship right (East Asia Forum)

May 30, 2019

There’s no more important issue for Australia at this time in the history of its international economic and foreign affairs than to get the relationship with China right. It’s an issue that went through to the keeper during the election. But for the new Morrison government, forging a viable, credible strategy in its dealings with China will be a priority that plays into all its foreign relations strategies, prominently also with the United States.

Despite negative commentary about the health of the Australia–China relationship, the trade and economic partnership has thrived over the past few years.

Australia–China goods trade topped AU$192 billion in 2018, having grown more than five times as fast as the world average. This remarkable growth was largely due to strong Australian commodity exports and impressive trade diversification.

Australia’s share of Chinese iron ore imports was 60 per cent in 2018. Chinese external procurement of iron ore rose to 90 per cent of its consumption, up from 83 per cent in 2014. Australia’s share of Chinese coal imports rose to a record 54 per cent in 2018, from 48 per cent in 2014. China’s coal imports from Australia grew by 9.8 per cent year-on-year, despite China’s reportedly tightening import restrictions on coal in the last few months of 2018.

On the back of early-stage China–Australia Free Trade Agreement (ChAFTA) tariff reductions, Australian wine and dairy exports to China have seen strong growth, despite reports in June 2018 of wine shipments being held up in Chinese customs. Australian wine exports to China grew 18 per cent in 2018 to AU$1.1 billion compared with 10 per cent globally. Growth of 34 per cent in dairy exports the last financial year made Australia China’s fourth-largest supplier.

In services, Australian exports to China grew 17.2 per cent to AU$16.9 billion in 2017–18, more than double the growth in Australia’s total services exports over the same period. This included 16.7 per cent growth in the travel sector. A record 1.43 million tourists in 2018 makes China Australia’s largest source of short-term visitor arrivals. The export of education also continues to grow. The total number of Chinese students in Australia stands at a record 205,000.

It’s properly functioning markets that have delivered these strong Australia–China trade results. Australia’s largest trade relationship is one that is interdependent with (not dependent on) China, as it already draws a quarter of its imports of strategic raw materials from Australia, a proportion that continues to grow.

The bilateral investment relationship is a different story, as the data released from the Asian Bureau of Economic Research’s Chinese investment database this week indicates. That’s in part because the political relationship has sputtered.

The biggest risk is that Australia gets trapped in an uncertain US strategy towards China that will invite hostility from the country’s most important trading partner and change the global rules of engagement in a way that opens Australia to real damage.

That’s why establishing a constructive trajectory in political dealings with China is crucial: because of its importance to the economic ambitions of the Australian community; because it is central to preserving prosperity and political stability in the Asia Pacific region; and because it is critical to securing the rules-based global economic and political system that underpins Australia’s prosperity and political security.

Worrying about poor diplomatic messaging or the lack of a good ‘narrative’ to describe the Australia–China relationship is misplaced. The narratives about political influence and false ‘choices’ between economic and security interests and partners are not core problems, but Australian national housekeeping problems.

What needs to be done now is to bring into play all the machinery Australia has in the bilateral relationship to persuade China and the Australian public that there are strong joint interests that can escape the shadow of US–China trade and other tensions.

This does not mean any dramatic change in Australia’s security relationship with the United States, unless that country was to demand lockstep Australian support for an aggressive posture towards China and abandonment of rules-based multilateralism.

The resilience of the Australia–China trade relationship depends fundamentally on both partners’ commitment to the international market system and the rules under which it has flourished. That system is the core of economic and political security in Asia and it’s under threat from the Trump administration’s ‘America First’ trade and decoupling strategies. Australia and China have common cause with their partners in the region in dealing with this global threat. At the same time the political anxieties caused by China’s rise, partly but not wholly because of its different political system, have to be confronted frankly in Australia’s dialogue with China.

The core task is to enunciate these substantial strategic interests that both countries share in a time of great change. This task will be on-going. It cannot sensibly be dealt with at a single point in time. The Comprehensive Strategic Partnership between Australia and China, the Strategic Economic Dialogue and ChAFTA are key vehicles for addressing them over time. Both countries can commit to strengthening this machinery by building-in a broad-based infrastructure of dialogue to engage on the evolving agenda of a partnership focused on change.

What’s clear is that the new Australian government now has an opportunity to propose to China’s leaders a high-level dialogue on shared interests. China’s policymakers will want to talk about difficult things like Huawei and the Belt and Road Initiative (BRI) and Australia’s will want to talk about difficult things like militarising the South China Sea, the Uyghurs and ways of dealing with BRI problems. But that need not frustrate sympathetic engagement on the very big agenda that both countries share.

Peter Drysdale is Head of the Asian Bureau of Economic Research and Editor-in-Chief of East Asia Forum in the Crawford School of Public Policy at The Australian National University. He was co-author of the Australia–China Joint Economic Report in 2016 and of a new report released this week titled Getting the Australia–China Relationship Right

This article was published by East Asia Forum on the 23rd of May 2019. 

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