Australia and China: It’s Complicated

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Australia and China: It’s Complicated

Even amid the current tensions, the state of the relationship is more complex than headlines would suggest.

Australia and China: It’s Complicated

A staff member wearing a face mask stands near a display of Australian wines at the China International Import Expo in Shanghai on November 5, 2020.

Credit: AP Photo/Mark Schiefelbein

In 2012, on the 40th anniversary of diplomatic relations with China, Australia’s first ambassador to Beijing reflected on the growth potential in the relationship. Dr. Stephen Fitzgerald stated that Australia needed to think about its relationship with China beyond economics, to develop a multidimensional perspective. “Engaging through many channels and at many levels will help us get the access and clarity of voice we need,” said Fitzgerald at the time. “That’s what a mature relationship would look like and a good political relationship depends on maintaining that intensity of contact.”

Throughout 2020, the Australian government’s inability to develop that relationship has contributed to the deterioration of relations between Canberra and Beijing – to the extent that a number of former prime ministers, foreign ministers, and ambassadors to China have publicly expressed concern over the lack of government-to-government engagement.

The Morrison government’s central focus on the economic aspects of its relationship with China stands in sharp contrast to the nuanced relations it has developed with other regional partners like Japan, South Korea, and Indonesia. This inability to communicate with and understand Australia’s largest two-way trading partner has severely impacted export businesses, particularly those that cater to China’s economic transition to consumption-led growth.

A litany of regulations, inspections, and new tariffs have resulted in fresh produce exports such as lobsters and cherries rotting on the docks as they remain unclaimed at entry ports throughout China. To seasoned China watchers, these activities have the dual purpose of conveying Beijing’s concern over the relationship and activating the Australian business community as lobbyists. China’s response to the decline in bilateral relations has been tactical, delivered progressively across specific import categories and supported by official comments in state media outlets.

The premier commodities of the trade relationship remain untouched – notably the A$80 billion worth of iron ore that Australia exports to China annually. Fortescue Metals Group has reinforced its existing relationships with Chinese partners and shareholders, in addition to signing agreements with new buyers. BHP CEO Mike Henry recently addressed the China Development Forum in Beijing, noting the company’s long-term commitment to the country. “China has become [our] most important trade partner, our largest market, and an increasingly significant supplier of goods and services,” Henry said in his speech. “Given the strength and speed of its economic recovery from [COVID-19], China is in a unique position to contribute to the world’s path back from the pandemic.”

Australia’s China Legacy

Australia established diplomatic relations with the People’s Republic of China in 1972. To date, Australia remains the only Western country to have elected a Mandarin-speaking head of government, former diplomat Kevin Rudd. In 2020, the head of the Department of Foreign Affairs and Trade (DFAT), former ambassador to China Frances Adamson, is also a Mandarin speaker.

In fact, the relationship that Fitzgerald aspired to almost a decade ago has kept trade and communication channels open during this period of tension. Over the past five decades, Australia has successfully built four generations of China specialists ranging from expatriates and entrepreneurs to students and scientists. Some, like Rudd and Adamson, have even reached the upper echelons of political leadership.

Despite Canberra’s diplomatic gaffes and even a controversial Senate hearing into issues facing the Chinese Australian community, relations with China have been consistently maintained through the broader scope of the relationship. A range of well-established channels and key influencers (often state premiers) have ensured ongoing bilateral communication and engagement.

Bede Payne, the executive director of AustCham Shanghai, sees the relationship as more complex and resilient than how it is often depicted in mainstream media. “AustCham has operated in the China market for more than 25 years and many of our members have been here longer than that,” he commented. “Our people-to-people relationships are strong and won’t disappear overnight.”

Current State of Play

Australia ranks in China’s top 10 sources of principal imports. While iron ore, natural gas, coal, and gold make up the bulk of these (A$98 billion in 2018-19), service industries such as education and tourism (valued at A$16 billion in 2018-19) have become an important part of the trade relationship. Given that success in these industries requires a more sophisticated, bilingual understanding of the market, this area of growth has been led by the Chinese Australian business community. The greatest disruption experienced by these sectors has been travel restrictions and quarantine protocols caused by the COVID-19 pandemic.

Yet the relationship extends further than just these commodities. China is Australia’s largest market for a number of industries, such as wool (90 percent destined for China), barley (48 percent), and cotton (68 percent). Ninety percent of Australia’s top ten importing industries are within the manufacturing sector, producing items such as pharmaceuticals, scientific instruments, and surgical equipment destined for China. The two-way investment relationship exceeds a combined total of A$138 billion and Australia is one of the world’s strongest daigou (overseas personal shopper) markets.

The recent expansion of these markets has diversified Australia’s economic relationship with China, increasing the range of industries engaged with the country. Service imports such as aged care and consumer items that cater to the middle class have increased the economic dependence of SMEs and family-owned businesses on the health of the bilateral relationship – so much so that in August, Australia recorded its largest annual bilateral trade surplus of A$77.4 billion.

This economic integration is so complex that, regardless of the country’s own political cycles, Australia’s growth and resilience relies upon its understanding of Beijing’s planned economy. For more than 50 years, the relationship has consisted of multiple trade, investment, collaborative research, and commercialization initiatives that have ensured Australia’s relevance to China’s key development goals. The latter include a healthy population, strong consumer market, increased renewable energy use, and a net-zero emissions economy by 2060.

Many of these initiatives have remained untouched by the fluctuations of diplomatic relations and over the past 18 months many projects have been newly established or advanced. Payne says that despite diplomatic tensions, Australia’s national brand remains strong in the mainland. “Our reputation – for providing safe, reliable, high quality products – hasn’t changed at the consumer level,” he said. “Products in health, food, beverage and fresh produce will continue to be in demand.”

Business as Usual for Key Initiatives

The strength and complexity of the relationship rest upon a range of industry-led ventures operated at the state level of business and government. While the federal government is a Liberal/National coalition, 62 per cent of Australia’s states and territories are managed by Labor governments, which are strongly connected to China.

One of the most engaged states is Western Australia, which has maintained a government office in Shanghai since 1996. Featuring an export-led economy that is heavily reliant on the agricultural and mining sectors, the state was recently praised in an opinion piece by China’s consul-general in Perth for its consistent support of trade and cultural exchange.

In 2020, the Queensland government completed the first round of its Commercialization Partnership Program, placing local innovators into incubators across China. Designed to develop technology transfer and commercialization projects, the program concentrates on the agriculture, food processing, medical research, and renewable energy sectors.

The Victorian government coordinates a range of programs through its China Strategy, which was introduced by Premier Daniel Andrews five years ago. It has also planned a range of infrastructure developments that will boost the state’s manufacturing sector by supporting China’s Belt and Road Initiative. Andrews has committed to traveling to China at least once every 12 months to maintain key relationships on the mainland. By contrast, the last Australian prime minister to visit China was Malcolm Turnbull in 2016.

Underpinning these projects and trade deals is Australia’s expatriate community in China, which includes multi-generational diplomats, trade emissaries, and entrepreneurs. Relations between the embassy, the Australian Chambers of Commerce, Austrade, and the expatriate business community have remained solid throughout 2020. These channels have also been utilized recently by Australia’s minister for trade, to reinforce the importance of the China market and engage directly with those on the ground.

Payne points to the recent China International Import Expo (CIIE) as further evidence of the strength of the commercial relationship. Despite the travel and quarantine restrictions, Australia’s presence this year increased over 2019. “More than 180 Australian companies were in attendance as exhibitors,” he said from Shanghai. “The mood was generally very positive and by the end of the expo a significant number of contracts and MOUs had been signed.”

Looking Toward the Biden Era

The U.S. election has provided opportunities for a reset in China relations for both the United States and Australia. Considering the well-documented impact that U.S. politics has on Australia’s own Capital Hill, it’s worth reflecting on the potential change that a Biden administration could deliver.

President-elect Biden’s trade and business policies both acknowledge the need for improved relations with China. His forward economic strategy, which focuses on building small business, supporting entrepreneurs, investing in technology, and reinforcing the American manufacturing industry, implies a greater engagement with China. Most of his top trade advisors have emphasized the need to address the trade war impact on America’s farming and manufacturing industries.

Biden’s foreign policy priorities – addressing greenhouse gas emissions, containing the coronavirus, promoting fair trade practices, developing international technology standards, and encouraging North Korea to dismantle its nuclear weapons program – also depend on a stronger relationship with Beijing. Long-time advisor and Biden’s reported secretary of state pick Antony Blinken noted at a U.S. Chamber of Commerce event in September that economically decoupling from China was “unrealistic and ultimately counter-productive.”

The president-elect is also sensitive to the impact of anti-Chinese sentiment upon the U.S. electorate’s fastest-growing ethnic group, having consulted a number of community organizations prior to the election. Former National Security Advisor Thomas Donilon, a keen proponent of the Obama administration’s “pivot” to Asia and host of the 2013 summit between Barack Obama and Xi Jinping, is rumored to be Biden’s pick for ambassador to China.

Australia’s effort to simultaneously maintain strong relations with the world’s leading creditor and the world’s largest debtor will continue to be a long-term challenge for economists, policymakers, and exporters. This month, Australia deftly handled both parties by renewing its support for the Quadrilateral Security Dialogue while committing to the world’s largest free trade deal, the Regional Comprehensive Economic Partnership. If this is any indication of its long-term economic and geopolitical approach to the region, the coming years should be quite interesting.

*An earlier version of this article erroneously claimed Australia was the second Western nation to establish diplomatic relations with China.

Katie Howe is a strategic consultant based in Canberra, Australia. She has been involved in Australia-China relations since 1995. Her professional expertise includes government relations, corporate communications, regional strategy, and risk management support.