Australia’s policy on China is one that cannot speak its name. Decisions driven by an underlying policy are announced, but that underlying policy is unspoken and even denied. Two examples are the 5G decision that banned Huawei and ZTE, and the Manus Island naval base joint initiative with PNG and the U.S. Each one hinged on Chinese state actions and policy, and, in each case, ministers avoided saying the C word.
This is fooling no one—certainly not Beijing—but it’s leaving the Australian public misinformed about one of the key areas of government policy for their lifetimes. That’s bad policy and bad politics.
Too much weight is put on ‘managing the relationship,’ at the expense of understanding and managing the real balances of interest in the relationship—and how those balances are changing.
Beijing uses the lack of policy clarity and Australian jitters about the tone and ‘vibe’ of the relationship as leverage to put pressure on each looming decision. It—along with media that love a controversy—portrays each one as a ‘test’ of the relationship, an opportunity to do the ‘right thing’ this time, and so ‘reset’ the relationship. The next government will face this in spades after the election.
In one big way the Australia–China relationship is a photo negative of the Australia–U.S. relationship. Our China relationship has been almost wholly economic, while the policy world in Canberra talks as if the U.S. relationship—‘the alliance’—is entirely about strategy and security. Both need a rebalance.
Policymakers need to remember that the U.S. is much the largest single source of investment into Australia, followed by the UK and Belgium—but also not be complacent about the large fixed stock of U.S. investment. China (including Hong Kong) ranks fifth, after Japan, although particular investments and bids from China have been in sectors with strong strategic implications, such as communications and energy distribution.
With the Chinese state’s growing willingness to use its power aggressively and openly, as well as coercively and covertly, the relationship requires strategic issues and interests to be understood and managed in combination with the economic ones.
Honesty about the difficulties in dealing with the authoritarian Chinese Communist Party (CCP) under President Xi and what it means for how Chinese companies and the state work is needed both within policy circles and in Australia’s public discourse.
Most of the big decisions Australian Governments will make in coming years will need to integrate the economic elements with the strategic ones. Beijing does so now, to its benefit, and this is exactly what the new U.S. China policy is starting to do.
At present, national security issues bubble up through our national security agencies to ministers and economic ones bubble up through the economic portfolios, and the two seem to meet mainly on the Treasurer’s desk when it comes to foreign investment and in cabinet and the National Security Committee in other cases. It’s not good enough for the integration of strategic and economic advice to happen just in ministers’ heads or in the cabinet room.
Australia’s economic relationship with China is mainly a supplier-customer one. We sell China world-class resources and services (iron ore, coal, gas, education and tourism) at globally competitive prices, and we buy manufactured goods at equally competitive prices.
Quick Wins
A very quick win is one of realisation. On our trade, we can simply recognise a central fact: Beijing isn’t doing us favours by buying resources and services from us. This is a case of Australia being interdependent with Beijing, rather than being dependent on it.That’s great news, because we have more decision-taking room than we tell ourselves, and it’s less likely than advisers have told us that Beijing will act punitively when Australia takes sensible decisions in our national interest.
We can also realise that there’s no escape from the fact that Beijing pursues strategic interests and goals through economic means. So national security must be a major factor in what many might prefer to be wholly economic decisions.
- Overall, we seek a mature, respectful relationship between our nations, in ways that enhance the prosperity and security of our region and the world. Clarity on where our interests work together—and where they don’t—is an important step in building this relationship.
- We want to continue our close and growing economic relationship because it’s to both countries’ benefit. Beijing gets high-quality resources and education and tourist services at competitive prices. We get revenue and economic activity that’s important to our society.
- Our economic and trade relationship can continue to benefit both countries’ people, while being informed by our strategic interests as well as our economic ones.
- We’ll gradually diversify our economy to reduce the business and strategic risks from relying too heavily on a single country. That will make us a more resilient economic partner.
- We welcome debate and exchanges of views as part of our politics and national decision-making. However, we won’t tolerate foreign influence activities that are in any way covert, coercive or corrupt, and we will counter cyber exploitation activities, as we will from any state or non-state actor.
- We don’t see the Chinese state’s use of aggressive military and coercive power in the South China Sea or in other parts of the world as contributing to peace and stability. This is a clear example of different strategic interests, and this difference will inform our policy and actions.
- As is the case in Beijing, there are some limits to our engagement. We don’t seek to advance the capabilities of the People’s Liberation Army, and this will constrain some defence, industrial and research interaction between us.
- We have reached ‘peak foreign direct investment’ when it comes to Chinese investment into Australian critical infrastructure—physical and digital—so foreign investment decisions will take this into account.
- We want to work with the leadership in Beijing to manage our bilateral relationship effectively, guided by our policy framework and on a basis of mutual respect.
Ministers can gain valuable political space by saying publicly what’s until now been an emerging and implicit framework on China.
Beijing already knows that the de facto policy settings in Canberra look a lot like this policy framework—and has probably been surprised that recent governments have turned themselves inside out to not say most of this.
The Hard Yards
Implementing this policy framework involves some hard yards across the bureaucracy. Portfolios that aren’t natural partners, such as Defence and Treasury, or Foreign Affairs, Education and Defence, will need to work much more closely together to provide integrated policy advice to ministers.They’ll need to look beyond individual decisions and set out an agenda that provides opportunities from big decisions like the recent one on 5G.
Where was the package that took advantage of this decision and set out a positive agenda for how Australian technology firms were going to work with the U.S. and other partners in the new 5G and future internet environment created by this decision?
Ministers will need to be more demanding of their departments on this to drive this deeper cooperation. As with the banks, after Commissioner Kenneth Hayne, the incentive structures for senior bureaucrats probably need to change.
And a decision like Treasurer Frydenberg’s that—for very good reasons—vetoed a Chinese firm’s takeover of east coast gas distribution should no longer be able to be made without an accompanying set of policy incentives and measures that encourage investment in this type of asset from such places as Canada, Japan, the U.S. and the EU (all wealthy investor states or organisations whose strategic interests and relationships with companies pose no security problems through such investment).
National security must be a foundational element in major economic decisions—and most decisions involving the Chinese state—not just a risk item to be ticked off to get to ‘yes’ on particular deals and investments.
Breaking the Rules
On China, diplomacy needs to return to its proper role as a part of the policy implementation machinery and not lead the debate. This will recognise that relationship management is a supporting element of our China policy, not its heart.Unfortunately, much current policy and knowledge within key departments is an extrapolation of past decades and isn’t proving up to the task of dealing with the Chinese state under President Xi, let alone the combination of Xi’s China and Trump’s America.
Another rule ready to be broken is the one that has seen senior officials speak less and less publicly and openly, using tightly scripted talking points that ensure nothing is said even when they do speak. Engaging maturely with the Chinese state and bringing the public and the corporate world along will be much easier if more policy voices are in this conversation—and senior officials from multiple departments can step up here to everyone’s benefit.
Federal ministers and officials also could do a great service to other levels of government and the national interest by lifting their engagement with state and local government counterparts on China policy. A joined-up policy approach across all levels of government is needed to understand and deal with the broad activities of the Chinese state and its linked companies. Having a truly national approach to major Chinese initiatives such as the Belt and Road Initiative and the Smart Cities program is both necessary and urgent—and must be led from Canberra.
Really breaking the rules on Australia’s engagement with China might need some rather powerful external push, rather than looking to the formal arms of government.
If the next government were to want to rethink our relationship with China across the political, economic and strategic waterfront in light of the way President Xi’s authoritarian CCP is running it, then maybe the banks have a lesson for us. The forensic mind of a royal commissioner like Hayne might be just what’s needed to really reset things, as Justice Hope did as royal commissioner into the Australian intelligence community in the 1970s.
