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Australia and China: where to after this?

24 April 2020

5:00 AM

24 April 2020

5:00 AM

Coronavirus has reinvigorated discussions around the Sino-Australian relationship. Australia’s dependence on China highlights how interconnected we are on trade and investment (specifically, goods and services), the acquisition of key Australian assets, Australia’s reliance on China through global supply chains and exposure of Australia’s local manufacturing sector’s ability to back sovereign capability. 

The key challenge faced in our relationship is finding the right balance between protecting Australia’s economic prosperity, public health, national security and way of life whilst pushing back on China when it acts against Australia’s domestic policy objectives. Maintaining the prosperity and security achieved over the last several decades should entail continued openness and security. This precludes sabotaging Australia’s long-term national interest with short-term thinking or pandering for political gain. 

The implications of COVID-19 span a wide range of sectors in the Australian economy, including agriculture, education, pharmaceuticals, tourism and resources. Over one-quarter of all Australian trade is with China, approximately one-third of Australian exports go to China, while 15 per cent of our tourists and about 38 per cent of our foreign students are Chinese citizens. 

COVID-19’s impact on global supply chains highlights Australia’s current dependency on China, particularly with respect to medical and pharmaceuticals, telecommunications equipment, IT products, furniture and homewares. This disruption exposes a substantial weakness in the Australian local manufacturing sector to mass-produce such essential items necessary to support Australian sovereign capability.  

There is consequently a greater necessity for Australia to diversify and a domestic focus on manufacturing by rebuilding its capability in the aforementioned areas. 

Fortunately, Australia’s reliance on trade with China is mitigated by its existing free trade agreements with Indonesia, Japan and South Korea, as well as ongoing negotiations with the EU and Britain.  

Meanwhile, China is dependent on Australian coal and uranium to power its factories and to meet its objective of sustaining rising prosperity and construction-led growth for two decades. China’s continued focus on growth, including its intention to build more nuclear power stations, have made it the world’s fourth-largest buyer of uranium; it is also increasingly seeking resources like gas and iron ore. This constitutes leverage, as the Chinese leadership remains cautious about pushing Australia too hard.  

Over the last five years, China has not implemented economic policies to admonish Australia in retaliation for its banning of Huawei, the enactment of foreign interference legislation, and its entry into the trilateral “Blue Dot Network” with Japan and the United States to help develop infrastructure in the Indo-Pacific region. 

Recently, the debate over Chinese attempts to acquire distressed Australian assets and businesses has spurred the Australian government to intervene by lowering the key takeover threshold from $1.2 billion to zero, securing its discretionary power to block any overseas bid.  

Australia has placed considerable pressure on the World Health Organisation after it backed the reopening of China’s wet markets, which studies have identified as the probable source of COVID-19. The recent backlash from federal politicians towards China has been substantial, with Australian politicians across the ideological spectrum criticising the WHO’s response to the COVID-19 crisis and their acceptance of Chinese explanations for the virus, its source and causes. 

Federal Liberal MP Dave Sharma said in response to China: the world was right to react with ‘anger and consternation and demand some sort of transparency and accountability in future’.  

Australia needs to reconsider what its relationship with China will look like at the end of COVID-19. It will have to prepare itself as the international order will probably be quite different when this pandemic concludes.  

Managing Australia’s relationship with China requires a distinct understanding of its strengths, value proposition, buoyancy and vulnerabilities. Through this lens, a sober discussion is essential on what the implications of COVID-19 are upon Australia domestically, its regional partners and allies once the pandemic passes. 

By enhancing public and political awareness and diversifying Australia’s economic and investment ties, it is positioned to empower decision-makers and key actors to effectively manage the nature and parameters of Chinese influence.  

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