Great expectations: The unraveling of the Australia-China relationship

“It is the steady streams of mutual understanding and friendship between our two peoples that have created the vast ocean of goodwill between China and Australia. I am greatly heartened by the immense support for China-Australia relations in both countries,” China’s President Xi Jinping told the Australian Parliament in November 2014.¹

In 2020, these words are almost impossible to believe: China’s leader on a state visit to Australia, announcing the conclusion of a free trade agreement and elevation of the relationship to a comprehensive strategic partnership.² Canberra’s streets were lined with twirling dancers and students waving Chinese flags. Yet, amid the pomp and ceremony, signs of deep-seated structural tensions were already on display: flag wavers obscured a Falun Gong protest from view,³ and it was later alleged that the student supporters had been bussed in by the Chinese Embassy.⁴

Six year later, those tensions now define the relationship. China’s Foreign Ministry spokesperson is detailing the many risks of racist attacks to Chinese people if they were to travel to Australia.⁵ China has banned exports from a number of Australian beef facilities, and placed a dramatic 80% tariff on Australian barley after an 18-month long anti-dumping investigation.

These measures are apparently in response to Australia’s call for an independent inquiry into the origins of COVID-19, a proposal that evolved into a compromise motion endorsed by a record 137 countries — including Australia and China — at the World Health Assembly in May.⁶ Australian Prime Minister Scott Morrison suggested that the World Health Organization could have “weapons inspector-style powers” to investigate future public health outbreaks.⁷ These marked changes in behavior from both Beijing and Canberra have taken place in recent months without so much as a phone call between the leaders or even trade ministers of the two countries.⁸

Why have political and trade tensions between Australia and China escalated so quickly? How is Australia responding? And why should the rest of the world care about the state of play between Australia and China?

“The Australian people stand up”⁹

“There has been foreign interference in Australian politics,” said then-Prime Minister Malcolm Turnbull in December 2017.¹⁰ This marked the beginning of a downward spiral in bilateral relations. Prime Minister Turnbull commissioned one of his advisors to produce a classified report into foreign interference in Australia and, soon after, announced new legislation.¹¹ The new laws were, in part, a response to a nationwide scandal that discovered an up-and-coming Australian senator had warned a Chinese political donor and businessman that he may have been under surveillance.¹² Months later, Australia announced that it would exclude Huawei from the development of its 5G network — one of the first countries in the world to do so.¹³

Australia was quickly put in the diplomatic freezer. High-level visits were paused, state media lashed out, and ministerial exchanges deferred.¹⁴ The deterioration in bilateral relations seemed hugely consequential for Australia’s national interests: not only is China Australia’s largest trading partner, but also a major player in almost every issue of Australian foreign policy. Moreover, Chinese language and culture are key components of Australia’s multicultural society, with 1.2 million Australians claiming Chinese ancestry.¹⁵ While Beijing’s ire affected ministerial and official contact, the political friction had little discernable effect on two-way trade: in the same period, Australian exports to China grew by 26%.¹⁶

Beijing has expressed dissatisfaction with Australia’s behavior before — when it has spoken out about the South China Sea,¹⁷ or allowed Uighur dissidents to travel to and speak publicly in Australia.¹⁸ But the situation in 2020 is unprecedented: both in terms of the breadth of economic measures, real and threatened, as well as Beijing’s seeming lack of concern about both the economic costs and the political fallout of its behavior.

Why Australia, and why now?

China has long sought to divide and isolate U.S. allies — and Australia’s identity in Beijing’s eyes has always been defined by its relationship with the United States. What has changed of late is twofold: China is increasingly assertive in achieving its goals; and contrary to Beijing’s intent, Australia has become increasingly assertive in pushing back. The clash of China’s expanding interests and Australia’s unwillingness to be deterred illustrate the structural challenge for Australia that will characterize future relations with the People’s Republic of China.

Even as Australia has distanced itself from White House conspiracy theories about the origin of the virus¹⁹, or refused to follow President Trump in leaving the Paris Agreement²⁰ or defunding the World Health Organization,²¹ China continues to view Australia as loyal and deferential to the United States. Beijing’s official statements will often refer to Australia “dancing to the tune of a certain country,”²² but state media will be clearer, describing Australia as “the only country that is obedient to the U.S.”²³ and “a close collaborator of the U.S. in its anti-China strategy at the expense of China-Australia relations.”²⁴

Beijing does see Australia as a force multiplier for the United States in the western Pacific, with an unhelpful interest in the sea lines of communication and the South China Sea.²⁵ Unlike the United States’ alliance with the North Atlantic Treaty Organization, which was designed to contain the former Soviet Union, Australia is an important element of the U.S. alliance networks in East Asia, including through U.S. Marines stationed in Darwin.²⁶ Beijing sees this as a barrier to achieving its geostrategic goals in East Asia, and has looked for opportunities to pry Australia away from the embrace of the United States.

To the contrary, successive governments in Canberra have taken a series of policy decisions that the Chinese Communist Party (CCP) leadership interpreted as directly challenging the critical interests of not just their country, but also their party. Previous examples of China leveraging economic coercion have generally focused on Taiwan, Tibet, and maritime sovereignty.²⁷ But recent treatment of Australia and other countries point to an expanding remit of interests over which China is willing to coerce, even at a cost to itself. Early estimates suggest that China’s barley tariffs on Australia will cost Australian farmers $330 million AUD, but as much as $3.6 billion AUD for China.²⁸

Many in Australia thought that the level of interdependence between the economies of Australia and China would insulate Australia from the kind of economic coercion that other countries have experienced.

Many in Australia thought that the level of interdependence between the economies of Australia and China would insulate Australia from the kind of economic coercion that other countries have experienced.²⁹ While China purchases over a third of Australia’s exports, more than 70% are resource commodities. These are vital inputs for China’s steel, construction, and other industrial sectors which are still central to its economy (and employment), especially so in recovering from COVID-19. Australia supplies over 60% of China’s iron ore imports, almost half its liquified natural gas imports, and around 40% of coal imports.³⁰ Half of Australia’s goods exports to China are of iron ore, for which finding sizeable alternative sources of supply is especially difficult.³¹

This interdependence was always seen as in Australia’s favor, and would deter forcible decoupling from either side. Recent behavior raises the question as to whether China sees that interdependence as a vulnerability, as it does with the United States.³²

The current raft of economic and political sanctions are an example of the CCP testing Australia’s resolve. Beijing may hope to force deference from Canberra through fear, but even in the absence of capitulation on specific decisions, China has a history of using economic punishments to teach wayward partners a lesson and defend both the Chinese system and the pride of the Chinese people. For example, Seoul has not reversed its decision about the deployment of the Terminal High Altitude Area Defense (THAAD) U.S. anti-missile system. But its possible that China hopes the campaign of coercive measures against South Korean economic interests conducted in response will encourage policymakers to think twice about future decisions that could similarly antagonize China.³³

Even where Beijing realizes that it cannot or will not change decisions of the Australian government, this behavior could prompt preemptive deference from other capitals through the painful Australian experience. Rather than attempt to change Australia’s mind about Huawei and 5G, Beijing sought to isolate Australia in the decision, and telegraph to the United Kingdom and Germany, amongst others, that there would be consequences for making similar decisions.³⁴ The current United Kingdom wavering has seen the Chinese Ambassador to the United Kingdom remind London that excluding Huawei “sends out a very wrong message [and will] punish your image as a country that can conduct independent policy.”³⁵ Again, Beijing seeks to divide and isolate.

The Australian debate

In many eyes, China’s efforts in Australia have backfired. Australia has not retreated in the face of Beijing’s ire. If anything, the bullying tactics have strengthened hardened attitudes. In the past, Australia’s China debate followed a predictable cycle, where Beijing demanded Australia “fix things” — code for conceding to the CCP’s demands — and Canberra was then criticised by business leaders for mismanaging the relationship and putting Australia’s economic prosperity at risk.³⁶

Much like in the United States, the growing public awareness of China’s willingness to use economic coercion has created a powerful imperative in Australia — on both the left and right ends of the political spectrum as well as amongst the public and business leaders alike.³⁷ The great unravelling coincides with a grim appreciation in the minds of the Australia public of the true nature of the Leninist party-state that rules China.

Trust in China has halved in the past two years, according to successive Lowy Institute polls. Only 23% of Australians now trust China to act responsibly in the world. One in five say they have confidence in President Xi Jinping to do the right thing regarding world affairs, a 21-point fall from 2018. And an overwhelming 94% of Australians say the government should find other markets to reduce Australia’s economic dependence on China.³⁸ Criticism of Beijing from business leaders that just a few months ago were calling for calm diplomacy are testament to the shifting winds.³⁹ Backbenchers on both sides of politics are regularly critical of China’s behavior in public.⁴⁰

The calls to discuss so-called sensitive issues with Beijing on Beijing’s terms are quietening.⁴¹ A public souring on China will only accept discussions behind closed doors when its effects can be demonstrated — but when Australian citizens like Yang Hengjun remain detained for no particular reason or others are sentenced to death,⁴² Canberra can no longer remain quiet. Beijing’s behavior has made Australian politics more resilient to its criticism, and given strength to the most hawkish voices. In Australia now, the idea of meeting China halfway, or trying to improve the relationship, is seen as a version of acquiescence or compliance.

Having said that, despite China’s view of Australia as a loyal U.S. ally, Australians are not necessarily turning toward the United States. Young Australians say the country should prioritize ties to China over the United States.⁴³ The presidency of Donald Trump has shaken some Australians’ belief about the future of the United States.⁴⁴ And Australia is not necessarily waiting for the United States to reclaim its position as the leader of the rules-based order. Without ignoring the importance of Australia’s alliance with the United States, Australia’s Defence Strategic Update 2020 places a renewed emphasis on Australia’s need to develop independent capabilities, as well as partnerships with countries including Japan, India, and Indonesia.⁴⁵

So why does it matter?

Although Australia looks like a strategic target for Beijing’s ire, it is hardly an outlier. China is a rising power with expanding interests, that will increasingly clash with others. As internal pressures place the CCP leadership under growing strain, more disputes will arise with more countries.

Australia may be unique as a Five Eyes member with a particularly high level of economic interdependence with China.⁴⁶ And it may be seen by Beijing as a necessary target given Canberra’s willingness to play a critical role in supporting the U.S.-led alliance system and leading the global charge on scrutiny of Beijing’s interference in the affairs of other countries.

But the struggles facing Canberra are structural, and cannot be simply fixed with better diplomacy.⁴⁷ More countries in the region will find that Beijing’s strategic and territorial goals are mutually exclusive with their own interests. Whether seizing disputed tracts of territory and stretches of water on China’s maritime and land borders, snuffing out Taiwan’s liberal democracy, or achieving military overmatch against the United States and its Allies and partners on the East Asian littoral, Beijing’s goals are an existential challenge to the status quo.

Where once China had neither the means nor the inclination to achieve its goals, China has now emerged as a great economic and military power. Perhaps unsurprisingly, Beijing’s policy planners are keen to use the full spectrum of state power to get onto the unfinished business of China’s statecraft. Australia has felt the rough touch of this coercion of late. And perhaps Australia’s resilience in the face of this pressure is an opportunity to demonstrate regional leadership.

But it is neither an aberration nor a discomfort that only close U.S. alliance partners and bold critics of China’s foreign interference will feel. In the coming years, any state that makes policy choices adverse to what Beijing judges are its interest risks taking blows from China’s coercive statecraft. This pain can be avoided, but only at the cost of deference to Beijing’s goals.

Hard questions will be asked in national capitals across the region, not just in Canberra. Beijing is testing Australia, with different sources of leverage. The long-arm of the CCP is reaching even further. More tests, for more countries, are coming in the future.