Australia-China relations: weathering the big chill

Prickly relations have resulted in delays to goods at Chinese ports.

Alternative perspectives: Chinese Premier Li Keqiang and Malcolm Turnbull take a different view to the media at a signing ceremony in Canberra in March last year. Picture: AAP

When Malcolm Turnbull and ­Chi­nese Premier Li Keqiang shook hands last year on a $500 million deal to allow Australian chilled beef into China, it was ­described as a “major breakthrough”, a “landmark moment” and “an absolute game-changer”.

Li’s visit to Canberra was a friendly one, with the Premier taking questions from the media — unusual for Chinese leaders — and joking about being served chicken when the two men had signed a deal over specialty steak.

Now, six months later, the deal is on ice, thousands of bottles of ­Australian wine are sitting at Chinese ports and university vice-chancellors hoping to lure Chi­nese students to local universities are struggling to set up meetings in Beijing.

The simmering debate over Chinese influence in Australia has left the government and business wildly at odds over the relationship with Beijing.

Australia’s proposed counter-interference laws last year and the open discussion of Chinese government tactics both in Australia and in the South China Sea led to a backlash from Beijing.

Beijing took particular issue with the discussion of Chinese ­influence and “Shanghai Sam” — former senator Sam Dastyari — in parliamentary debates leading up to the Bennelong by-election last December.

On one side policy hardliners and the national security community are pushing for Turnbull and Foreign Minister Julie Bishop to hold a tougher line with Beijing, arguing that Australia needs to set boundaries or China will continue to attempt to influence the country’s political system and take up more of Australia and the US’s traditional strategic space.

Yancoal director Geoff Raby’s recent intervention to urge the Australian government to sack Bishop marked a peak, however, in the increasingly vocal concerns expressed by the business community about the strains in the Australia-China relationship created by this tougher line.

Raby, a former Australian ­ambassador to China, said Turnbull needs to replace Bishop, alleging she is responsible for the frostiness in relations between the two countries.

Bishop’s move to set up a meeting with Chinese Foreign Minister Wang Yi, Trade Minister Steven Ciobo’s recent visit to Shanghai and a recent visit by Bishop to the Pilbara with high-profile businessman Andrew “Twiggy” Forrest and a plane-load of Chinese journalists can be seen in part as ­attempts to reassure business of the strength of the relationship — and a sign the ministers are cognisant of the sector’s concerns.

 

But the Chinese government has delayed visits by ministers and Department of Foreign Affairs and Trade head Frances Adamson to Beijing. Ciobo’s counterpart “wasn’t available” to meet with him when he visited China last month and he was kept waiting until the last minute before meetings with officials were confirmed.

The department said in a Senate estimates hearing on Thursday that it is unlikely that a major ­business event — the Australian Week in China — will go ahead this year, with Australian companies instead heading to China in ­November to take part in an ­export expo.

Adamson, who insists there has been progress in smoothing over problems in the relationship, finally visited Beijing this week for extensive official meetings.

However China made its displeasure with Australia public at an official level when Wang slapped down Bishop after their G20 meeting in Argentina, saying Australia needs to change its attitude towards China if it wants to improve relations.

“Australia-China relations are clearly in the deep freeze,” La Trobe international relations professor Nick Bisley observes. “It’s at least as bad as 1996 during the Taiwan Strait crisis and nearly as bad as post-Tiananmen.

“The big difference of course is that China matters a great deal more to Australia now than it did then.”

China ­accounted for less than 5 per cent of Australia’s exports two decades ago but for the past five years that share has hovered at a third. Australia has become more dependent on trade with China than it has been with any other country since the fading of the British Empire in the early 1950s. Accounting firm KPMG estimates that the strength of Australia’s trading relationship with China delivered about 20 per cent of our economic growth last year.

The question now is whether the diplomatic levers Beijing is pulling on Australia have spilt into the trade realm.

Certainly some Australian businesses have had recent issues in China — and Bishop asked Wang what was behind the issues — a possible sign Australia is concerned that they are linked to the political tensions.

 

The first public signs came mid-last month when shares in Treasury Wine Estates slumped more than 7 per cent after the winemaker admitted there had been a slowdown in shipments of its wine to China.

“Regarding separate commentary on certain industries in Australia seeing a slowdown on clearance of imports into China, Treasury Wine confirms it is also experiencing delays for some of its Australian country of origin shipments being cleared by the general administration of Customs China to replenish its inventory levels,” the company said in a statement.

Other winemakers followed, saying they are also experiencing increased checks on country-of-origin paperwork, leav­ing their product sitting at the port.

One other Australian business, also in agriculture, recently complained to Australian ministers about delays in the inspection of its goods by Chinese customs.

The main issue has been with “certificates of origin”.

Australian chambers of commerce or business groups issue certificates of origin to businesses on behalf of the government. These certify where goods come from so companies can claim preferential taxes on entry to a country under free trade agreements.

In this process, either Australia or China can seek clarification of these certificates, which busi­nesses say is quite normal and ­allowed under the present rules.

The slowdown happened when China sought verification of these certificates. So the Chinese government sent these queries through to the Department of Home Affairs, which has then checked them with the business bodies that issue them.

These can be turned around and sent back to China within a day or two, and there are now early indications that these are being processed and goods are moving through.

A source said anecdotally that there has been high levels of scrutiny of Australian goods, which they described as a “spike” and said there has been a focus on ­Australian wine. Two factors could influence this: both the bilateral political tensions and Australian complaints about counter­feiting of Australian wine in China.

The increased scrutiny is also affecting other commodities and some manufactured products, with about 10 Australian companies believed to be hit by the paperwork go-slow so far.

Usually border authorities let goods through and exporters might pay a bond as their goods are allowed through. Later the ­exporter’s paperwork is audited and the company might then ­receive back the bond if the goods are allowed in duty free. However, in this case, some of the Australian goods are sitting on the docks of Chinese ports — which business believes is somewhat unusual.

And it’s not just wine. Some agricultural businesses have complained about issues gaining visas to China in the past six months — but one official pointed out that this has happened to European and US businesses as well.

After The Australian reported last month that there had been ­little movement on key points from Turnbull’s March meeting with the Chinese Premier, Ciobo acknowledged to this newspaper that there are ­issues with a $500m deal to open up access for premium Australian chilled beef to China.

“Progress on increasing the number of approved Australian processing plants has been slower than expected, though discussions are continuing,” the minister said.

The university sector was one of the first to voice concerns about government rhetoric on China after threats in the Chinese state-owned press about a reduction in student numbers.

There are no tangible signs there has been an impact on students, but university chancellors and education executives have struggled to secure meetings in China.

Umbrella group Universities Australia was forced to postpone a planned trip by a delegation of vice-chancellors to China because Chinese government officials would not confirm meetings.

Lowy Institute senior fellow Richard McGregor says it is not yet certain whether China is ­attempting to pull Australia into line through trade.

“If they were to start using economic levers, I think they would start with consumer commodities like wine and vitamins, and not the big bazooka (items) and target education, tourism or resources,” McGregor told The Australian.

This hasn’t stopped Labor making the connection.

“There are a number of companies that are affected,” opposition trade spokesman Jason Clare said recently. “I guess the problem here is over the course of the last 12 months the government has said some pretty silly and ­pretty stupid things, and that’s got the Chinese government angry and we’re seeing the consequences of that now.”

And while business started with quiet words to officials, it is now on the front pages as pushing government to soften its stance on China.

The intervention by Raby came just before Star Entertainment ­casino boss Matt Bekier warned that the strained political relationship could check the flow of ­inbound Chinese tourists.

On Wednesday night, the Trade Minister stressed that there has been vast increases in trade with China despite the bilateral tension, saying the dip in beef ­exports last year was because of paperwork issues that have now been fixed.

The latest monthly trade report shows Australia’s resource-dominated exports to China are running at near record levels.

Ciobo says the government is focused on getting wine “stock moving from the port” and there has already been “some success” in getting paperwork ­issues through the Chinese system.

Despite this, the freeze worries diplomats in the federal department. A source familiar with the inner workings of the ­bilateral ­relationship says that on a scale of tension, they would put the Australia-China ­dispute at a four out of 10 at the end of last year and over January, which has now ­dialled down to three out of 10.

They argue that Australian trade has been largely unaffected and other parts of the relationship are operating as normal.

“Seventy-five per cent is smoke and messaging, and the rest is fire,” the source says, lauding the “extraordinary success” Beijing has had in convincing countries that the ­bilateral relationship is an end in itself.

Instead, the source says, China is carefully giving Australian businesses small shocks to “make them second guess” whether their trade issues have been impacted by the tensions.

Now analysts will be watching for any shift in policy from the present stance as the diplomatic iciness continues.

No one can see the government retreating from the interference laws. The government and Labor members of the parliamentary joint committee on intelligence and security are increasingly ­confident they can come to an agreement over amendments to one of the bills — perhaps as soon as next Tuesday.

But there is no question government ministers have all dialled back their harder rhetoric. The Prime Minister has even made an extra effort to praise China over its role in mounting pressure on Pyongyang, and Ciobo says criticism of China’s activities in the South China Sea is “megaphone diplomacy”.

Reading between the lines of Thursday’s testimony from Australian diplomats to parliament, there are no illusions about the tougher future Australian business is facing, with China unlikely to separate its political brawls from its economic tussles.

“I think China would like to have its place, its leading role in the region, recognised by its neighbours,” DFAT’s North Asia head Graham Fletcher observed. “It wants respect and it wants its interests, what it regards as core interests, respected by others.

“China regards the relationship as a whole and that problems in one area will have implications in other areas.”

Adamson warns that “shaping” China’s global contribution is “difficult” and Australia needs to be prepared for things to “get more difficult” and contests to “become, perhaps, sharper”.

There is no easy fix to these tensions, especially as China’s power grows and regional ambitions ­expand, as China experts Stephen FitzGerald and Linda Jakobson of think tank China Matters argue in a paper released this week.

They say Australia needs to ­accept that over the coming decades, China will not be adopting Western-style democracy, there will be no regime change, it will crack down on dissent and it will not abandon its ideas of China’s place in the world. It will pursue unification with Taiwan but will harbour no military ambitions to invade Australia.

“As the PRC’s power grows it will be more prone to browbeat smaller neighbours when they do not adhere to Beijing’s wishes,” the authors say. “It will be inclined to evade, bend or reshape generally accepted rules and norms … The risk of corrupt practices and self-censorship creeping into our ­society will likely increase.”