China ties chilly and lacking a strategy

China’s economic growth rate has slowed in the past four years but it is still expected to add economic activity this year roughly equivalent to Australia’s entire economy. On the International Monetary Fund’s preferred measure, it has been adding the equivalent of an Australian economy or more every year since 2004 and will to do so into the indefinite future.

The rise of an economic superpower is transforming the world economy, and the economies of Asia in particular. China has ­become the dominant source of trade, investment and the movement of people in its neighbourhood. Its “Belt and Road” initiative is calculated to foster development in poorer countries in the region while cementing their commercial linkage with China. American economic interests in Asia remain huge, particularly in Singapore and South Korea, but they are rapidly being eclipsed by China.

Through the 1990s and the first decade of the 2000s, China’s emergence was embraced under the banner of globalisation as its supply of cheap consumer goods and demand for resources and ­investment brought improvements in living standards across much of the world. But China ­increasingly confronts a superpower rivalry in which economic interests are ­defined in terms of national security. This is most overt in the Trump administration’s invoking national security provisions of world trade agreements to justify tariffs on steel and aluminium. Donald Trump’s head of trade policy, Peter Navarro, explains the planned imposition of tariffs on a broader range of Chinese imports worth $US60 billion ($78bn), saying the US is “strategically defending itself against economic aggression”.

National security also has become paramount in the Turnbull government’s management of its relationship with China. Malcolm Turnbull was expected to build on the warm relations Tony Abbott established with Xi Jinping. Turnbull knew China better than any previous prime minister with the exception of Kevin Rudd and had lobbied for Chinese telecommunications company Huawei to be allowed to bid for the National Broadband Network. But from the moment he gained office, national security ­issues were to the fore. In response to US objections to the leasing of Darwin Port to a Chinese company, the government appointed former ASIO chief David Irvine to the Foreign Investment Review Board, which he now chairs.

The Turnbull government blocked Chinese investment in electricity distributor TransGrid, citing national security, and established the Critical Infrastructure Centre to prevent any repetition of the Darwin Port lease. When Turnbull unveiled draconian new treason and foreign interference laws late last year, he declared “the Australian people stand up”, liken­ing his defence of Australian sovereignty to China’s defeat of the Japanese. Chinese authorities ­believe the laws are aimed at them.

The foreign policy white paper published late last year called on the US to retain its dominant position in Asia, warning that China was challenging its position. It based Australia’s security on the continued regional engagement of the US while warning of the ­potential friction in the relationship with China from our “different interests, values and political and legal systems”.

The contrast with the Abbott government is stark. Abbott set a 12-month limit for concluding negotiations on the Australia-China bilateral trade agreement soon after gaining office and sealed the deal with a state visit from Xi, including an address to federal parliament (and a side trip to Tas­mania). It was the most advanced trade agreement China had signed with any nation.

Julia Gillard had established a “strategic partnership” with China in 2013 that involved a commitment to annual leadership visits. Under Abbott, the Chinese up­graded this to a “comprehensive strategic partnership” (you have to be Chinese to decipher the ­nom­en­clature). He led a business mission to China and broke with the US in taking Australia into the China-sponsored Asia Infrastructure Investment Bank. Abbott commissioned a former head of the PM’s department, Ian Watt, to conduct a global study of governance to guide the institution.

Abbott was even prepared to entertain limited exemptions from FIRB thresholds for select Chinese state-owned enterprises, although this was ultimately parked for a ­review of the bilateral trade agreement. Abbott’s relationship with China was helped by the influence of Andrew Robb, who arguably was the most effective trade minister Australia has had, at least since John McEwan in the 1950s and 60s. It was also helped by Joe Hockey as treasurer.

Robb’s successor, Steven Ciobo, is the Turnbull minister working hardest to rekindle the Chinese relationship but he lacks Robb’s political clout, and the ­review of the investment and services elements of the trade agreement, which was launched last year, is going nowhere. The chill that has settled over Australia’s ­relationship with China is causing difficulty arranging the bilateral visits envisaged under the strategic partnership. Department of Foreign Affairs and Trade secretary Frances Adamson had a planned visit to China deferred. Turnbull’s scheduled visit to China this year was planned for May, then pushed back to June. The latest talk is it will wait until November when several multi-nation summits are occurring.

There have been other rocky periods in Australia’s relationship with China, most recently in 2009, when the Rudd government took a tough line on Chinese ­invest­ment in the resources sector and was critical of China on human rights, while talks on iron ore ­prices turned acrimonious.

However, the Rudd government always had a sense of strategy about how to manage China’s rise, as was shown by its ­effort to elevate the East Asia Summit as the most significant ­regional forum for discussing ­security and economic is­sues, ­including leaders of China, Russia, India and the US.

There is no corresponding sense of strategy now and what is worrying is that the dominance of security concerns in Australia runs parallel to the more antagonistic stance of the US. It doesn’t look like a passing phase. Australia’s commercial relationship continues as ever, with China buying more iron and coal, and sending more students and tourists our way. China’s continued strong growth and its spillover to Australia are an important reason our economy is performing well. The Turnbull government should give greater consideration to the importance of that economic relationship to national security and what can be done to strengthen it.