Our economic destiny is China, not America | afr.com - Financial Review

Australia is at a point where it has to choose between its ally America and its economic backer China

By Isabella Steger  May 02, 2017

https://qz.com/971330/australia-is-at-a-point-where-it-has-to-choose-between-its-ally-america-and-its-economic-backer-china/

With America’s commitment to Asia-Pacific security looking shaky and China’s economic—and military—might rising, a peculiarly Australian question is at the forefront: Are we Asian or Western? It’s a dilemma not just of cultural identity—but about which major power Australia’s future hinges on.

“We haven’t had to choose in the past,” said Hugh White, a former official in Australia’s defense department who now teaches at Australian National University (ANU). But with a more isolationist Trump administration in power in the US, “Australia now has to think for the first time in its history what kind of place it wants to make for itself when Asia is not dominated by an Anglo-Saxon power.”

As a former British colony with a majority white population, Australia has for much of its history viewed itself as an Anglosphere country despite its proximity to rising Asian powers like Indonesia and China. Australia has a long-standing alliance with the US, and is arguably America’s most loyal ally on the battlefield. The country also hosts a number of US bases, including over a thousand marines stationed in the northern city of Darwin, as part of president Barack Obama’s “pivot to Asia. (paywall)”

Australia started to consider its place in Asia in a more serious way in the early 1990s, as the country, mired in recession, looked with trepidation (paywall) at Asia’s rapidly growing economies. Then prime minister Paul Keating warned in a speech in 1992 that Australia should no longer be dragged down by “Anglophilia and torpor.” The height of Australia’s cultural embrace of China arguably came during the administration of Kevin Rudd, a fluent Mandarin speaker. And Australia has also, in the past decade, become a much more multiculturalcountry, with Chinese now the second-most common language spoken in Australian homes.

“Australians need to much more deeply think about how they are going to navigate the region as China becomes more dominant.”

But Australia is still far too passive when it comes to China’s ascendancy, according to Linda Jakobson, founder of China Matters, a public-policy initiative based in Sydney.

“Australia has had a pretty easy equation for several decades now. Prosperity has continued in Australia as it ships resources to China, which has also contributed to prosperity in China. One hasn’t had to try very hard,” said Jakobson. “Australians need to much more deeply think about how they are going to navigate the region as China becomes more dominant.”

Location, location, location

While America dithers over its commitment to Asia, Australians know how their economic bread is buttered.

China wants everything from minerals to steaks to education from Australia, and is now Australia’s biggest trading partner in terms of imports and exports. According to a recent KPMG report, Chinese investment in Australia in 2016 hit a new record (pdf) since the financial crisis, with a record amount going into agriculture, as China’s middle class seeks safer food sources in ever-growing numbers. China is also the biggest source of foreign students to the country.

Attitudes toward China among Australia are also warming—particularly among the younger generation—as disenchantment toward the US grows, according to polling conducted by the Lowy Institute, a Sydney-based think tank. Trump, after all, did kick off his presidency by insulting a number of nations around the world, including Australia, and reportedly held an unfriendly phone call with prime minister Malcolm Turnbull.

“In America now we have Donald Trump, and that is the biggest wake-up call for clear thinking about America at least since the Vietnam War years,” said Stephen FitzGerald, Australia’s first ambassador to the People’s Republic of China, in a March speech. “This is not to say there hasn’t been cause in the years between; there just hasn’t been the scale of shock.”

“In America now we have Donald Trump, and that is the biggest wake-up call for clear thinking about America at least since the Vietnam War years.” 

Since the call, Trump’s administration has tried to mend its relationship with key allies including Australia, but for some long-time observers of defense and strategic matters in Australia, the writing is already on the wall. Keating went as far as to call Australia America’s “client state,” and warned that rising tensions between China and the US in the South China Sea—where China has laid claim to a number of islands that are also claimed by other countries in the region—could end up dragging Australia into a military conflict it shouldn’t get involved in.

Gift horse

Letting go of Australia’s Anglo-Saxon past, however, is neither easy, nor imminent.

While China’s gargantuan appetite for Australian products has shielded the country from the worst effects of the global financial crisis, Australians also recognize that this has come at a cost. Many blame the influx of Chinese money for fueling a property boom that has put home ownership out of reach for most Australians in major cities. And while Chinese demand for goods like wool and health supplements seems innocuous, there are growing concerns that China is able to transform its economic power over Australia into political leverage. Last year, a series of political donations scandals linked to Chinese donors raised questions over whether Australian politicians were vulnerable to security risks. Investments into more sensitive areas like farmland and infrastructure are also a source of worry—Australia last year rejected a Chinese bidder from buying a stake in power network Ausgrid.

Rory Medcalf, a professor at ANU, warned in a recent paper that Australia is overstating China’s economic leverage and should be ready to push back if China attempts to use its economic power as a form of coercion—a recommendation that has particular resonance at a time when China has applied that tactic to try and force Taiwan and South Korea into political submission.

“The risk is that Australia will buy the story that their economy is so comprehensively dependent on China that Australia cannot afford to cause China much difficulty on security and political issues, even when our interests diverge,” he wrote, adding that in terms of foreign direct investment in Australia, China still stands far behind the US, UK, and Japan. There are also no easy substitutes for goods like Australia’s iron ore if China wanted to reduce its reliance on Australian resources, he added, and exports of coal, tourism, and education to China make up less than 1% of Australia’s GDP.

Australia has pushed back. Canberra decided to shelve an extradition treaty with China as politicians expressed concerns over China’s human rights record—three Australian employees of gaming company Crown are currently being detained in China, while in March, China also prevented Feng Chongyi, a Chinese professor teaching at a Sydney university, from leaving the country. China in 2009 arrested employeesof mining giant Rio Tinto, including an Australian national.

“We can’t not accept China playing a bigger leadership role in the region because it’s not a democracy.”

Canberra is due to release a foreign policy white paper this year, which lays out Australia’s vision for its foreign relations for the next decade, for the first time since 2003. A recent speech by foreign minister Julie Bishop—which came just ahead of a visit to Australia by Chinese premier Li Keqiang—suggests that at least for the near future, Australia will hold the line on China. Speaking in Singapore, Bishop called on the US to assert its leadership role in the region in the face of rising tensions in the South China Sea, and warned that undemocratic powers like China could undermine Australia’s “preferred” democracy-led order.

White, the former Australian defense official, criticized Bishop’s speech as “a ringing call for yesterday.”

“We can’t not accept China playing a bigger leadership role in the region because it’s not a democracy. It’s just wildly unrealistic,” he said. “We’re not comfortable with it but China will play a bigger role and we have to learn how to deal with that.”