The Sino-Australian Rising Rivalry in the Indo-Pacific

The announcement of the AUKUS agreement signed between the United States, United Kingdom, and Australia gave rise to mounting tensions between Australia and China. Under the agreement, Canberra will purchase nuclear-powered submarines from the United States, a deal that China believes is targeted against it, particularly given the growing international criticism of the Chinese approach in the South China Sea. 

Further cracking down on China, Canberra approved China’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) conditioned by Beijing’s lifting its freeze on Australian high-level political contacts. 

Competition for Influence in the Indo-Pacific

Over the past 20 years, China has managed to become the third largest aid donor in the Indo-Pacific, made large investments in the region, and expanded trade with many Indo-Pacific countries. Perhaps this explains what analyses over the past two years suggested about Australia becoming one of China’s rules of the game in the region. 

Australia did not nod in agreement. Prime Minister Scott Morrison calls the Indo-Pacific countries their “Pacific family” given the geographical, historical, and cultural connections that made Australia the largest aid donor in the region. The Chinese growth in the Indo-Pacific raised concerns of Australians over China’s plans particularly given its intense activity this year than in previous years.

Australia may be left with a real cause for concern if China decides to build a military base in the pacific under its “warrior wolf diplomacy”, as this would change Australia’s strategic environment. China’s expansion of its economic influence is aimed at promoting dependence on it, weakening the US military influence, strengthening regional integration, and limiting the role of external forces. However, questions remain about whether the US military influence will counterweight China’s economic influence.

A poll by Lowy Institute revealed that Australians’ perceptions of China dropped in all categories of the poll except in “China’s response to Covid-19 pandemic”, where 45 percent of respondents rated China’s response as very good relative to 30 percent in 2020. However, over 90 percent of respondents said China’s military activities in the Asia-Pacific have had a negative impact on their perceptions of it, relative to 79 percent in 2016. Also, 20 percent of participants said the Chinese investment in Australia had a positive impact on their country, down from 37 percent in 2016.

How the Sino-Australian Dispute Escalated

Power shifts in the Pacific region were not the only source of tensions between China and Australia. Indeed, disagreement between the two countries had roots that extended back for years.   

• Years back, there has been talk of Chinese interference in Australia and several individuals, particularly Chinese Australians public servants, were accused of having links with the Chinese Communist Party.

• In November 2020, China shared a list of 14 grievances it had against Australian Media, accusing them of “spoiling” the relationship between the two countries.

• The China-Australia Strategic Economic Dialogue was suspended indefinitely, given the rising tensions between the two countries.

• The Australian Intelligence Agency deemed the Chinese tech giant, Huawei, a security threat and banned it, along with ZTE, from involvement in the construction of the 5G network in Australia.

• Australia has always been critical of China particularly regarding Hong Kong, Xinjiang, China’s presence in the South China Sea and Taiwan, and human rights abuses.

• Currently, Covid-19 pandemic has become among the drivers for escalation between the two countries when Morrison called for an independent international investigation into the origins of the novel coronavirus without prior diplomatic consultations. This call came following a phone call between Morrison and the US President Donald Trump after direct evidence of the Chinese government glossing-over Covid-19 emergence at the beginning was found.

For China, this call marked Australia’s taking an aggressive stand against it by openly criticizing it. Wrangling between the two countries over Covid-19 is still going on. As part of the efforts of both countries to help other states confront the pandemic, China has accused Australia of sabotaging the Chinese vaccine, Sinopharm, in Papua New Guinea, using coercion and political manipulation by threatening senior officials in Papua Guinea not to receive the Chinese vaccine. In parallel, Australia has had plans to provide up to 15 million Covid-19 vaccine doses to countries of the Pacific region by mid-2022. China maintains that its efforts are for the global public good and are aimed at building a healthy global community.

• Fracture between the two countries extended, resulting in halting student exchanges and interrogating nationals of both countries. Travel Advisories in both countries warned citizens against traveling to the other country. China warned students and citizens, who are the top source of tourism and international education for Australia, against travelling to Australia due to the increasing racism and discrimination against Chinese and Asians. Australia, too, warned its citizens against arbitrary detention in China, particularly after Australian citizens in Beijing and Shanghai were interrogated, having been suspected of engaging in a criminal activity that threatens Chinese national security and homes of Chinese journalists in Sydney were raided in June 2020 by the Australian authorities and their visas cancelled. In October 2020, there were calls for a parliamentary inquiry in Australia to denounce the Chinese Communist Party. Chinese researchers specializing in Australian studies were also affected by the dispute, which raised concerns about the future of academic exchange.

China’s Use of Trade Power

China is Australia’s largest trading partner. The two countries signed the China-Australia Free Trade Agreement (ChAFTA) which entered into force in 2015. The volume of bilateral trade between the two countries has amounted to about $171 billion. However, in November 2020, amid the escalated dispute between the two countries, China made a huge move against Australia and introduced tariffs and ban on Australian products, including beef, lobsters, wine, barley, cotton, copper and coal, in what was regarded as a use of trade as a “strategic weapon.”

A look at the volume of trade exchange between the two countries would reveal the impact of these measures on the Australian economy. In 2020, Australia’s exports to China dropped by 2 percent to record $112.3 billion while the Chinese investments in Australia fell by 61 percent. Below are the drivers of this decline. 

• Iron ore tops the list of China’s imports from Australia. China purchases more than 80 percent of the Australian iron ore, accounting for 60 percent of its needs. Iron ore prices helped offset Australia’s weak trade with China in 2020. In June 2020, Australia recorded its highest monthly export value at about $7.1 billion and iron ore shipments reached record levels in the first half of 2020 given the rapid industrial recovery China witnessed following lifting Covid-19 lock down.

China’s search for alternative suppliers of iron ore, such as Guinea and the Brazilian Valley, may be faced with obstacles. In this respect, mention may be made to the crisis the Chinese real estate giant, Evergrande, is going through (which naturally affects iron, constructions materials, and furniture industries) with its accumulated debts amounting to about $305 billion due to the stagnation in the Chinese real estate market since 2018 which extended to include other countries of the world, a situation that made analysts anticipate a new financial crisis similar to that of 2008.

• In addition, in mid-May 2020, China made a decision to impose a 80 percent anti-dumping tariff on Australian barley exports, a major blow to the Australian barley sector which previously enjoyed zero tariffs under the ChAFTA. In response to this, the Australian Department of Commerce submitted an official complaint to the World Trade Organization in December 2020.

• China is the primary market for Australian beef, with its imports accounting for about 25 percent of Australia’s total beef exports, at a value of $1.9 billion in 2019. China’s imports of cotton accounted for 68 percent of Australia’s exports, reaching about $534 million.

• Beijing wine imports accounted for about 40 percent of Australia’s wine exports, amounting to approximately $712 million annually. Australian coal is also the third largest export to China after iron ore and natural gas, where China’s imports of it in 2018-2019 amounted to about $10.7 billion.

Australia’s Response: Passing the Foreign Relations Act

Despite the large number of Australian industries targeted by Beijing and China’s use of pressing measures against Australia causing the Australian economy to suffer losses of $15.2 billion, Australia didn’t respond with sanctions against China. So, the situation didn’t evolve into an official trade war between the two countries.

Yet, the Australian government announced drafting a Foreign Relations Act that allows for the federal government to use its powers to regulate all agreements concluded with foreign countries, including those signed by state and territory governments, local councils, and public universities, assigning to the federal government the exclusive responsibility of managing Australia’s foreign affairs, meaning any proposed or in force agreement may be subject to be terminated.

Based on this law, Australia announced, in May 2021, cancellation of two agreements signed by the state of Victoria under the Belt and Road Initiative (BRI), on the grounds that they are inconsistent with Australia’s foreign policy and national interests, considering that China is employing them in an attempt to expand its influence in the region bypassing the federal government. In August 2020, Australia’s Secretary of Treasury opposed a $600 million dairy deal with Lion and China Mengniu “for reasons of food security”. Not only does the Foreign Relations Act provide for mechanisms that allow the government to renege on the BRI, but it opens the door to termination of other agreements as well.

From China’s perspective, this may result in further deterioration of the Sino-Australian relations, particularly it contradicts with Australia’s declared desire to open the door for collaboration and dialogue with China. China promised a firm and resolute response if the decision isn’t reversed.  

Australia’s Alternative Outlets to Face China’s Pressure

Apparently, Australia is working to develop a more integrated economic and security strategy nation-wide to resist China. This strategy consists of three basic elements: achieving economic flexibility by getting into alternative markets, developing alliance initiatives with the United States, and deepening regional networks within the Indo-Pacific region. New alternatives available for Australia include:

• India’s Coming to the Fore 

In August 2021, former Prime Minister Tony Abbott visited New Delhi, as Australian PM’s special trade envoy to Australia to sign the free trade pact between Australia and India. Abbott stated that the pact marks the “democratic world’s tilt away from China”, noting that India will be the answer to every question about China. He pointed out that India’s taking its place among nations would be in the interest of everyone. In 2011, negotiations between India and Australia on a comprehensive economic cooperation agreement were initiated but were suspended in 2015. India’s interests in this respect are to liberalize trade in Australian agricultural exports and have less restrictive visas for Indian workers. 

• Joining the Blue Dot Network (BDN)

Australia’s joining the BDN in November 2019 in partnership with Japan and the United States and India’s inclusion to the BDN in February 2020 were among the opportunities Australia was looking for. The NDB was formed to counter the BRI and endorse infrastructure projects in the Indo-Pacific region and worldwide. While the BDN didn’t go far beyond its official plans, it managed – as a geopolitical mechanism – to mobilize federal governments and private equity, helping meet the massive need for infrastructure across the Indo-Pacific region.

• Consolidating US-Australia relations

Australia is striving to strengthen its relations with other super powers so as to take on the heavy burden imposed by confrontation with China. This has been evidenced by its participation in the Quadrilateral Security Dialogue (QSD) and signing of the AUKUS Agreement with the United States.

Also, the Australian-American ministerial consultations (AUSMIN) were also held as the first such dialogue between the two governments, contributing to supporting Biden’s aspirations in the Indo-Pacific region through practical decisions.

The Sino-Australian relationship seems to have reached the beginning of the end with no indication of improvement in the near future. Australia will seemingly be a tool for competition between China and the United States. Australia’s alliance with the United States is now the cornerstone of its security policies; so, Australia is no longer required to act as if obliged to choose between Washington and Beijing. 

However, contrary to what happened with the Soviet Union, the isolation of China in a globalized world is problematic. Sydney realizes that a powerful Australia is critical for it to move in a regional environment whose security is becoming increasingly complex due to China’s behavior, demonstrated by interference in Australian politics, which would, after all, undermine Australia’s influence in the Indo-Pacific region.