China and Australia have enjoyed strong economic ties since the 1990s. In 1996, bilateral relations took a turn for the worse as the Chinese government perceived Australia to be moving away from its support of the "one China" policy, towards a position more in line with US interests, due to Australia's seemingly increasing interaction with Taiwan.
Since then, despite the occasional hiccup in diplomatic relations, China continues to be Australia's largest two-way trading partner, accounting for 29% of Australia's trade with the rest of the world, as of 2019-2020. China is also one of the largest foreign direct investors in Australia, accounting for 4.5% of total foreign direct investment (FDI). China has invested in industries in Australia such as mining, agriculture, infrastructure and services.
However, recent trade wars and diplomatic tensions have culminated in China "indefinitely" suspending economic dialogue with Australia. This is not something that occurred overnight, but as a result of years of escalating disputes.
In February 2018, the Morrison government imposed tougher restrictions on foreign buyers of agricultural land and electrical infrastructure. This appeared to target Chinese investors. Soon after, Huawei and ZTE were blocked from proceeding with a 5G roll out in Australia over security concerns about Chinese surveillance. The US had done the same just a week earlier. And with tensions between China and the US also escalating, it appeared as if Australia was aligning more and more with the US.
Australia has also been openly critical of China's human rights record, with regard to the detainment of Uighurs in Xinjiang and the curbing of freedoms in Hong Kong. China has responded by saying that Australia's accusations are groundless.
In 2020, Australian Prime Minister Scott Morrison called for an investigation into the origin of the COVID-19 virus. Beijing has consistently denied any wrongdoing with regards to its handling of the pandemic, and was quick to display its anger at Australia. Chinese state media ran numerous inflammatory commentaries accusing Australia of political manoeuvring, and threatened that their bilateral relationship would be adversely affected.
The sentiment in China is that Australia is developing an increasingly Anti-China stance, and therefore it is pointless to honour communication mechanisms. Australia is viewed to have reneged on deals such as the Belt and Road Initiative and the 99-year lease of a Darwin port to a Chinese company. Therefore China believes it is necessary and justified to retaliate by similarly suspending previously-agreed deals.
Even within Australia, some have voiced their opinions that Australian politicians should be extremely careful about their language and policy measures as Australia needs to fix its ties with China due to its huge reliance on them as a trade partner.
Economic and political consequences
In retaliation to Australia's call for an inquiry into China's role in COVID-19, Beijing has imposed heavy tariffs and restrictions on Australian imports such as barley, wine, beef and coal. Australia is heavily reliant on the Chinese purchase of these items, and the sanctions have dealt a devastating blow to some industries. Wine export, for example, has dropped 95% since the sanctions were imposed.
Assistant Professor Lu Xi from the Lee Kuan Yew School of Public Policy explains that China appears to be using US-invented approaches to deal with Australia. In addition to market tools, Beijing has also exercised its influence by unofficially notifying import agents to stop buying Australian products. Some measures are more overt, such as anti-dumping and anti-subsidy duties on barley, while other methods, such as verbal notices, are less obvious. China however claims to be acting in accordance with international practices.
Prof Lu points out that China is still heavily reliant on Australian imports of iron ore. Australia is the largest producer of iron ore in the world, and even the second largest producer, Brazil, cannot provide enough to meet China's demands. So, Australia's largest source of trade revenue looks to remain stable for now.
Indeed, China's attempt at forcing Australia to concede may have backfired, as Australia has found new markets for the export of its goods. By diverting its exports to countries such as India and Mexico, Australia can also reduce its reliance on a single market, one that is proving to be increasingly unreliable.
Another consequence of these trade wars is that China has begun lobbying for individual agreements with local Australian governments and institutions. Prof Lu states that the central-local system is one of the weaknesses of electoral countries in their tussles against China. However, Australia has recently seen the cancellation of the Belt and Road initiative between China and the state of Victoria. This initiative had previously drawn criticism for not being consistent with Australia's foreign policy.
Information war
The ongoing tensions have also increased distrust and animosity between the countries. In December 2020, things took a turn for the worse when a Chinese artist released a doctored image of an Australian soldier holding a knife to the throat of an Afghan child, in response to the Bereton war crimes inquiry, which was an investigation into alleged war crimes committed by Australian forces in Afghanistan.
Prof Lu states that although the government claimed it was drawn by an internet cartoonist who posted it of his own volition, thereby dissociating themselves from him, it is clear that the image is "more for their bureaucracy and Chinese nationalists than normal communication with the world."
Prime Minister Morrison demanded that Beijing issue an apology for the image. However, China blocked his appeal on all Chinese social media platforms. Prof Lu points out the asymmetry of the situation, stating that "China can block any hostile information, but Western countries cannot force Twitter to do the same thing. That puts Australia in a very disadvantaged position; Their voice cannot be delivered to the Chinese people, so there is no pressure on the Chinese government."
Is there any potential for recourse?
It does not appear as if things will improve anytime soon. Economic disputes seem to have extended into a diplomatic freeze, with a number of Australian reporters having been detained in China in recent times. While most have been released, Australian citizen Cheng Lei has been detained since August. She was formally arrested in February on suspicion of supplying state secrets overseas.
As to whether Cheng Lei is merely a political pawn, Prof Lu says this is unclear, as the more influential case of Yang Hengjun, an Australian-Chinese writer charged with espionage, is currently still underway. He says what is clear however, "is that both countries' intelligence agents are exposed to much higher risks than before."
Prof Lu also believes it will be difficult for Australia to pull China back into negotiations unless Canberra concedes to its demands, which is unlikely to happen. As he points out, if it does happen, "it means that the Quad coalition will face disintegration, which is something that the US cannot tolerate."
According to Prof Lu, it will be difficult for Australia-China relations to improve until fundamental change occurs between China and the US. In the meantime, Australia will require the support of other allies and investment from other countries. It appears as if they are already working towards this alternative, as seen by the government's ongoing negotiations for trade deals with the United Kingdom and the European Union.
(Photo: Andrea Schaffer)