Australia-China Relations in the First Year of the Turnbull Government
Colin Mackerras (马克林)
Griffith University, Australia
Abstract
This paper discusses Australia-China relations in the first year of the government of Malcolm Turnbull, i.e. from September 2015 to September 2016. It focuses on strategic and economic relations. In strategic terms it has some analysis of bilateral factors, especially the “comprehensive strategic partnership” as well as of the impact of the United States on Australia-China relations. In the economy, there is consideration of trade and some attention also to investment.
The paper sees a flourishing bilateral Australia-China relationship, with the economy being the bedrock. It also sees some important challenges, especially resulting from the triangular Australia-China-United States relationship. It calls for a shift in the balance in Australia’s foreign relations towards China and away from the United States.
Key words
Australia-China relations, Malcolm Turnbull, strategic partnership, triangular relationship, balance
Introduction and Background
This paper aims to analyse Australia-China relations during the first year of the prime ministership of Malcolm Turnbull in Australia, that is, from mid-September 2015 to mid-September 2016. Through a Party spill, Turnbull had replaced Tony Abbott as leader of the Liberal Party and hence Prime Minister of Australia. Considerably more socially liberal than his predecessor, he was initially much more popular. However, he soon lost his gloss, while the Australian Labor Party (ALP) was revitalized under the leadership of Bill Shorten. Turnbull only just scraped back as prime minister in the election of 2 July 2016, with several minor parties gaining strong influence and even control in the Senate.
Despite Turnbull’s explicitly optimistic tone, Australia’s economy suffered from the end of the mining boom and from a budget increasingly in deficit. At the same time, despite the slowdown of the acceleration rate of its economy, China’s overall strategic rise looks like continuing indefinitely. Besides, Turnbull inherited most of his foreign policy from his predecessor. Major elements of that foreign policy include:
1. A continuing dependence on the US alliance;
2. A focus on East and Southeast Asia, especially China and Japan;
3. Continuing concern for Britain and Europe;
4. Concern with, and hostility to, international Islamist terrorism;
5. Concern for the environment; and
6. A growing interest in India.
Among these factors, the first is the most important. Australia has a security treaty with the United States, namely the ANZUS Treaty. Signed in September 1951, it remains as significant as ever for Australian governments. In security terms, it tends to govern Australia’s other bilateral relationships, especially that with China.
Turnbull’s Policy on China
This brings us to the central topic of this article, namely Australia’s bilateral relations with China. We may sum up Turnbull’s performance on China as follows:
1. Strategically, it is very positive, but some problems have emerged, mainly due to the triangular relationship with the United States.
2. Trade and other economic relationships have flourished.
3. Educational relations have expanded. They include academic exchanges with mutual research involvement in each other’s projects, and student exchanges that have made China Australia’s most important source of overseas students.
4. Cultural relations have mushroomed, with exchanges in writers’ delegations and performing arts units among many other phenomena.
Among these four factors, the first two will be considered separately in later sections. Space prevents analysis of the third and fourth factors.
The most important development of the Abbott-Turnbull Coalition government in its strategic relations with China was the specific adoption of a “comprehensive strategic partnership” by both sides. It was confirmed by both sides during Abbott’s prime ministership, when Chinese President Xi Jinping visited Australia in November 2014, and was carried on by Turnbull. The Defence White Paper , released by Turnbull’s Minister for Defence Marise Payne in February 2016 included a specific and favourable mention of this policy:
Australia welcomes China’s continued economic growth and the opportunities this is bringing for Australia and other countries in the Indo-Pacific. Formally elevating Australia and China’s bilateral relationship to a Comprehensive Strategic Partnership during President Xi Jinping’s visit to Australia in 2014 was a reflection of the importance both countries attach to our expanding political, economic, strategic and people-to-people ties. (Australian Government, Department of Defence, 2016, section 2.18:44)
Another very interesting and important factor in the strategic relationship was the Darwin port facility. In October 2015 the Northern Territory Chief Minister Adam Giles announced that the Chinese-owned company Landbridge had taken out a 99-year lease over the facility for A$500 million. Giles claimed this was a purely commercial deal. However, there are possible security matters relevant to the lease of a port, and some journalists and academics claimed that this particular transaction was more than commercial. Nevertheless, the Department of Defence confirmed it and, though Giles lost power in the Northern Territory in the election of late August 2016 (even losing his own seat), the successor ALP government made no attempt to alter what he had done over the lease.
The Triangular Australia-China-United States Relationship
In terms of the strategic relationship between Australia and China, the United States and the ANZUS Treaty are so important for Australia that it is hardly possible to consider many of the key issues apart from the triangular relationship.
In recent years, with China having become Australia’s largest trading partner, there has been some controversy in Australia over the continuing dependence on the United States. In particular, Australian National University academic Professor Hugh White has written a number of works suggesting that the United States should do more to share power with China, meaning that Australia should move much closer to China in strategic terms and make much more attempt to distance itself from the United States.1 Although his work has drawn a great deal of praise (as well as some criticism) from academic and journalistic sources, it has not so far received nearly as much attention as it deserves from government. I believe the United States change in Administration and the accession of Donald Trump in January 2017 are good opportunities for Australia to rethink policy and pull away from the United States.
As far as Australian images of China are concerned, there is considerable ambiguity. Journalist David Uren (2012) sums up the situation well. He speaks of two approaches to China in the Australian mind, the economic, which tends to be positive, and the strategic, which involves the United States and has some negative factors. Uren calls these two approaches “the bottomless market and the menacing other”. He continues:
The first … shapes the economic policy of Treasury and the Reserve Bank. It transforms Australia’s place in the global economy, and the influence of the global economy on Australia. The second … binds Australia ever more tightly in military alliance with the United States... Each idea has tugged at our policy towards our great northern neighbour. There is a reservoir of goodwill and common sense that both sides have tapped into to soothe tensions and steady the relationship. There is much that draws the two nations together: the beat of commerce; the bond of travel as people from leaders to students and tourists discover each other; and, above all, a rich history in which each nation has made unique contributions to the place of the other in the world. But, as Australia makes its choices, an uneasiness has entered the relationship.
What is very striking is that China seems to be growing in importance in the mind of the average Australians. A poll carried out by the Lowy Institute referring to 2015 and released on 30 June 2016 found that the same proportion of respondents, 43 per cent, believed that the relationship with the US and with China was Australia’s most important. Just as interesting was that the proportion for the US was down from 48 per cent in 2014, whereas that for China had risen from 37 per cent in 2014.2
Some Factors in the Triangular Relationship
Australia, the United States and China share some international interests. Attitudes towards terrorism and climate change are similar, and anyway no divisive issues among the three. Australia belongs both to the China-based and created Asian Infrastructure Investment Bank and the United States-centred Trans-Pacific Partnership (TPP). What is interesting is that the United States has refused to join the former, so Australia’s participation is not welcome to the United States. As for the Trans-Pacific Partnership, it emerged during the 2016 United States Presidential campaign when both candidates were hostile to its continuation. The victory of Donald Trump appeared at the end of 2016 to seal its demise.
On two security issues important to China, Turnbull is veering strongly towards the United States, but trying to avoid confrontation with China. These are the South China Seas, especially the construction of islands there, and the Diaoyu Islands.
Japan
Australia has very good relations with Japan and China. The main divisive issue with Japan under successive governments is Japanese whaling and killing of whales in the South Pacific Ocean. However, opposition to this practice has come more from Australian conservationists than from governments. For Australians China is well ahead of Japan as “Australia’s best friend in Asia”. The Lowy Institute’s 2016 poll has the top three as China, with 30 per cent, Japan, with 25 per cent, and Indonesia, with 15 per cent.3
The Turnbull government is reluctant to prioritize the two countries. This position is different from China’s. When Australian Foreign Minister Julie Bishop visited China in February 2016, Wang Yi said: “We do hope, in its military co-operation with Japan, Australia will take into account this historical context [Japan’s war of aggression] and take into consideration also the feelings of people of Asian countries because of that part of history.” Australians who attended the Wang-Bishop meeting were surprised at the statement which did not seem to follow anything Bishop had just said (Stewart, 2016).
However, the context was that Bishop had just visited Japan, where she received a warm welcome, including renewed intimation that Australia should buy a submarine from Japan. This followed a meeting Japanese Prime Minister Abe Shinzo had made in July 2014, during which his Australian counterpart Tony Abbott appeared to suggest that Japan would be Australia’s preferred choice for the purchase of a submarine. During Turnbull’s early months as prime minister this was quite a major issue in Australia.
In the event, in April 2016 the Turnbull government decided on France, not Japan, for the submarine purchase. This deal included having the main labor carried out in South Australia, an important matter at a time when the manufacturing industry was becoming a hot political issue before the July 2016 elections. One specialist probably expressed a typical view when he said that: “For France and Germany the bid was essentially commercial, but for Japan it was a strategic.” He regarded the preference for France over Japan as “an unnecessary snub to Japan.” (Thakur, 2016) Certainly, as we saw above, the Chinese leadership had made no secret of its opposition to Australia’s purchase of a submarine from Japan and was pleased at the choice of France.
Economics
We turn next to consider some of the main economic issues that involved the first year of the Turnbull government. Overall, we can say not only that the economic relationship was very positive, but also that it remained the cornerstone of the bilateral relationship. What David Uren describes as “the bottomless market” still dominates Australia’s image of China.
In terms of trade, the value in 2015 was A$150 billion, the highest it had ever been. This was despite the end of the mining boom in Australia and the slowdown of the growth rate of China’s economy. Australia belongs both to the China-based and created Asian Infrastructure Investment Bank and the United States-centred Trans-Pacific Partnership. The United States has refused to join the former, while it has excluded China from the latter. Actually, under the Trump presidency it is quite likely that the Trans-Pacific Partnership will become defunct. Yet the implication of Australia’s enthusiasm for both the Asian Infrastructure Investment Bank and the Trans-Pacific Partnership is that, in economic if not in strategic terms, Australia is already veering towards China rather than the United States.
Just before Malcolm Turnbull’s first anniversary as prime minister, a large-scale document was released entitled Partnership for Change, Australia-China Joint Economic Report 2016 . Apart from the highly scholarly nature of this report, it is important in being an Australian-Chinese product, jointly researched and written by the East Asian Bureau of Economic Research in the Crawford School of Public Policy at the Australian National University in Canberra, and the China Center for International Economic Exchange in Beijing. Prefaced in August 2016 by the two main responsible scholars, Professors Peter Drysdale and Zhou Xiaoqiang, it presents a highly positive and optimistic view of the Australia-China relationship in all respects, especially economic. The “Executive Summary” begins:
Australia and China, two vastly different nations, already have a huge and joint political, economic and social investment in the success of their bilateral relationship.
Taken to a higher level, as this Report recommends, this investment in the relationship can have a dramatic additional impact on both economies and societies (Drysdale &Zhou, 2016:14).
China-Australia Free Trade Agreement (ChAFTA)
By far the most important specific economic development in China-Australia relations during the first year of the Turnbull prime-ministership was the conclusion of the China-Australia Free Trade Agreement.
Actually, negotiations over the ChAFTA had started over a decade earlier. After many years of not very good progress, the Abbott government had made a priority of finalizing free-trade agreements not only with China, but with Japan and South Korea as well. Abbott even claimed ChAFTA as one of the signature achievements of his government.
Problems still remained. Chinese leaders believed the deal was very good for Australia, with most of the tariff reductions being in Australia’s favour. On the other hand, the ALP and the Construction, Forestry, Mining and Energy Union (CFMEU) feared that the agreement would lead to the loss of Australian jobs to Chinese people and allow underqualified Chinese workers into Australia. For these reasons they refused to endorse the ChAFTA.
When Turnbull announced his intention to challenge Abbott for the prime ministership on 14 September, he highlighted the ALP’s and its leader’s attitude towards the ChAFTA as one major reason:
You only have to see the catastrophically reckless approach of Mr Shorten to the China-Australia free trade agreement, surely one of the most important foundations of our prosperity, to know he is utterly unfit to be Prime Minister of this country, and so he will be if we do not make a change.4
Although the agreement had already been signed on 17 June 2015, minor changes were made in the enabling legislation in Australia, as a result of which the ALP offered its support and the ChAFTA finally came into force on 20 December 2015. The CFMEU maintained its hostile attitude but could not prevent the implementation of the agreement.
The early signs are very positive indeed. They show expansion in economic relations not only in quantity, but also variety. One Australian journalist wrote of the effects of ChAFTA on the economic bilateral relations as follows:
The ChAFTA that came into effect three months ago certainly is helping drive a rush of engagement in both directions. More students, more tourists, more property buyers and other investors are coming to Australia. More milk powder, more vitamins, more hi-tech collaboration is going to China, where Australian companies are even jointly running aged-care centres—a new call on middle-class incomes, as China’s rapidly ageing post—one-child demography creates a big challenge in caring for elderly parents (Callick, 2016).
Investment
One kind of economic relationship that has become involved in politics in Australia is investment. Actually, in terms of numbers Chinese investments in Australia are still well behind quite a few other countries. In May 2015, the top five countries for total cumulative investment in Australia were the United States (28.4 per cent of all investment), the United Kingdom (16.5 per cent), Belgium (7.9 per cent), Japan (6.6 per cent), and China (5.3 per cent, with Hong Kong actually taking up more than half of the Chinese investment).5
However, the fact that some of the most important enterprises involved are state-owned has given grounds for political misgivings in some quarters, an anxiety ironically shared by those on the far right and the far left of the political spectrum. Although, as the growing investment suggests, most proposals are welcomed, there have been a few rejected under Malcolm Turnbull’s prime ministership. One major example is the New South Wales power asset Ausgrid, the sale to Chinese enterprises of which Treasurer Scott Morrison blocked in August 2016 on “national security”grounds. This move, which seemed to be responding to prejudiced popular pressure,raised questions about the transparency of such decisions and undoubtedly caused some in China to question the value of investing in Australia.
The most important example of Chinese investment stalled by Morrison was that of the world’s largest cattle station Kidman and Co., which occupies over 100,000 square kilometres in Queensland, South Australia and the Northern Territory. At the end of April 2016, Morrison declared the bid by the Chinese company Dakang Australia Holdings to buy the asset as dangerous to Australia’s “national security”, in response to which Dakang withdrew its proposal. Deputy Prime Minister and National Party leader Barnaby Joyce declared himself happy with this decision.
In October 2016, together with a Chinese company Shanghai CRED, Australian mining magnate Gina Reinhart put in a further proposal. The Chinese company, which accounted for one-third of the bid only, is owned by property billionaire Gui Guojie and was initially part of Dakang. This proposal seems much more likely to succeed than the original Dakang offer, because Gina Reinhart is a prominent Australian. Still, the Kidman case has added still further to uncertainty over Australia’s investment decision processes and made many in China think that other countries have better (or anyway equally good) potential.
Conclusion
Australia’s relations with China remain very good overall. The leaders of each country are generally positive about the other, and the “comprehensive strategic partnership” may be useful and welcome to both. Economic dealings remain the bedrock on which other types of relationships can flourish. Although not considered in this paper, educational and cultural exchanges are on the increase and generally problem-free.
There are, however, challenges in the relationship, which could and should be better than it is after Turnbull’s first year as prime minister. The issue of investment remains problematic both within the National Party and among left-wing circles in the ALP, with some of the trade unions very fearful of being taken over by Chinese interests. For me, this issue tends to be overblown in the media, but is unlikely to go away any time soon.
Then there is the issue of the triangular relationship between the United States,China and Australia. Is Australia too closely tied to the United States strategically? Will such a policy eventually damage the overwhelmingly important strategic and economic relationship with China, the most important country sharing the Asia-Pacific region with Australia? Can Australia have it both ways?
Up to now Australian leaders have argued not only that they can have it both ways, but that this policy can last indefinitely. To this writer, that view is very far from obvious. Of course there is no reason why two countries with very different cultures should not share major interests. However, if an unforeseen crisis should occur Australia will put itself in a very dangerous situation if it insists on siding with the United States against China.
It seems to me that the accession of a new administration in the United States is the ideal opportunity for Australia to change its attitude. It does not need to abrogate the ANZUS Treaty. What it should do is adopt a policy of much greater neutrality between China and the United States. Certainly it should not follow the United States in actions or policy pronouncements hostile to China. A change in direction would be both possible and wise.
Works Cited
Australian Government, Department of Defence, 2016 Defence White Paper, Department of Defence, 2016.
Callick, Rowan, “China’s Growing Middle Class Our Mega-Market”, The Australian, 9 April 2016, web version at http://www.theaustralian.com.au/business/opinion/rowan-callick/chinas-growing-middle-class-our-megamarket/news-story/b54c6f172420feee64f825c3fac7de63.
Department of Foreign Affairs and Trade, “Which Countries Invest in Australia?”, http://dfat.gov.au/trade/topics/investment/Pages/which-countries-invest-in-australia.aspx.
Drysdale, Peter&Zhou, Xiaoqiang, et al. , Partnership for Change, Australia-China Joint Economic Report 2016, ANU Press, East Asian Bureau of Economic Research, Canberra, China Center for International Economic Exchanges, Beijing, 2016.
“FULL SPEECH: Malcolm Turnbull explains why he’s taking on the PM”, 14 September 2015, http://www.9news.com.au/national/2015/09/14/16/30/full-speech-malcolm-turnbull-explains-why-he-is-taking-on-the-pm#cU3H0uGGGp 5cWIqL.99.
Lowy Institute Poll 2016, The, Lowy Institute for International Policy, Sydney, 2016.
Stewart, Cameron, “Julie Bishop Navigates Diplomatic Storm over China-Japan Rivalry”, The Australian, 19 February 2016, web version at http://www.theaustralian.com.au/national-affairs/foreign-affairs/julie-bishop-navigates-diplomatic-storm-over-chinajapan-rivalry/news-story/bc29405a0d683bc592080e538bffeae9?nk=b0b0771ab247be139c227c3cea4bcd59-1481869938.
Thakur, Ramesh, “Australia’s Submarine Purchase: An Unnecessary Snub to Japan”, Australian Outlook, Australian Institute of International Affairs, 3 May 2016, web version at http://www.internationalaffairs.org.au/australian_outlook/australias-submarine-purchase-flawed-regional-politics-taints-technically-right-outcome/.
Uren, David, The Kingdom and the Quarry, China, Australia, Fear and Greed , Black Inc., 2012.
White, Hugh, The China Choice: Why America Should Share Power, Black Inc., 2013.
1 The most important of these is the book-length study entitled The China Choice: Why America Should Share Power, Black Inc., 2013.
2 “Executive Summary” and Figure 9, The Lowy Institute Poll 2016, Lowy Institute for International Policy, Sydney.
3 “Executive Summary” and Figure 9, The Lowy Institute Poll 2016, Lowy Institute for International Policy, Sydney. Table 11.
4 See transcript of Turnbull’s speech in “Full Speech: Malcolm Turnbull explains why he’s taking on the PM”, 14 September 2015, http://www.9news.com.au/national/2015/09/14/16/30/full-speech-malcolm-turnbull-explains-why-he-is-taking-on-the-pm.
5 See the figures in Department of Foreign Affairs and Trade, “Which Countries Invest in Australia?”, http://dfat.gov.au/trade/topics/investment/Pages/which-countries-invest-in-australia.aspx.