Australia could pay a steep economic price for its pro-American stance over militarization of the South China Sea if China decides to elevate its most recent diplomatic outburst into punitive trade retaliation.
The Global Times newspaper, a mouthpiece for Communist Party gripes and saber-rattling, warned in an article this week that China might “adopt strong countermeasures which will seriously impact Australian economic development” unless Canberra stopped “kissing up to the United States.”
Published with a drawing of a kangaroo stoking a bee hive, the article by Zhang Ye of the Chinese Naval Research Institute stated that China “won’t allow Australia to take a free ride and meanwhile make provocations.”
“Its bigoted actions have jeopardized not only China’s national interests, but also Australian long-term interests, bringing Canberra’s structural contradictions and strategic dilemma to a worse level. This will poison its relations with China, shake up foundation for its strategic balance between China and the US and reduce its independence of foreign policy.”
Bilateral relations have sunk to a new low since Australia released a foreign policy White Paper in November that pointedly warned against the militarization of atolls in the strategic South China Sea, claimed in part by China, Taiwan, Vietnam, Brunei, Malaysia and the Philippines.
Australian warships have crossed into the defensive zone declared by China under its claim during military exercises with the US and its allies. Though Canberra is neutral on the issue, it wants freedom of navigation in the contested maritime region.
In December, Australia passed new laws to counter foreign influence in government which were seen as mostly aimed at China. There were media reports of similar perceived as predatory Chinese behavior at local universities.
The research institute, an agency within China’s People’s Liberation Army, does not reflect official viewpoints, which are usually expressed via signed letters in the People’s Daily, the party’s newspaper of record.
However, such a letter was issued in mid-December by Party elite after the two countries had traded accusations of diplomatic meddling, and the article may be building a case for more direct Chinese actions.
There are plenty of options, as Australia has an unhealthy level of economic reliance on China and few countermeasures at its disposal. The question is how much pain China itself would suffer if it exacted economic penalties.
A free trade accord activated in late 2015 triggered a surge in two-way shipments of goods and services, worth a combined US$122 billion in 2016, and attracted US$68 billion of direct investment in Australia alone last year.
China buys 31.6% of Australia’s merchandise exports, worth US$63.7 billion in 2016 but sent only US$46.4 billion of goods to Australia, leaving a trade imbalance of US$17.3 billion — a possible economic motive for cutting shipments. Australia’s exports grew by 8.9% in 2015-2016, but China’s fell 3.3%.
Australia also exported services valued at US$8.7 billion in 2016, mostly in education and banking, while it bought only US$2 billion from the Chinese. China was Australia’s second biggest market for services in the same year.
The dilemma for China is that most of its Australian imports are raw materials — iron ore and concentrates (US$34.3 billion in 2016) and coal (US$6.2 billion), which fuel its power stations and industrial plants. Despite recent localization efforts, iron ore imports grew by 13.2% in 2016 and coal by a hefty 31.5%.
Demand for both ores is forecast to decline from 2020, but China is probably in too deep to sever the linkage with Australia entirely. Many of its own enterprises, including China Trust and Investment Company, Sinosteel and Yanzhou Coal, have direct stakes in Australian mining operations, and they were acquired specifically to underwrite these same import connections.
Two softer targets might be education and tourism, whose viability have also become increasingly reliant on Chinese cash and sustained goodwill.
About 120,000 Chinese are studying in Australia, comprising 30% of all international students and US$23.6 billion in income, including tuition fees. They account for nearly 20% of funding at some larger universities and 6% of all students, the highest dependency of any developed country.
About 1.1 million Chinese visited Australia in 2016, bringing US$6 billion into the country, or about 25% of all tourism revenues. At current growth 3.3 million Chinese will visit by 2026, becoming the biggest source of tourists.
China has shown little hesitation in using its economic clout for diplomatic purposes when the need arises, even with close trading partners.
Last year it launched an extraordinary offensive on South Korea for allowing the deployment of the US anti-ballistic missile Terminal High Altitude Area Defense system, costing the Korean economy at least US$6.5 billion.
South Korea was hit on all fronts, including a consumer trade boycott, investment curbs affecting its businesses in China and the cancelation of cultural visits. Lotte Group, which owns the land where the defense system was sited, lost an estimated US$1 billion from a specific state-driven campaign.
Australia’s spat with China is not in the same league, yet, but Beijing may want to send a message to other client states in an expanding zone of economic influence: challenges to its political authority and security interests will no longer be tolerated.
As American influence in Asia wanes and China begins to reshape regional institutions in its own image, it will become increasingly apparent that the nation’s diplomatic and economic objectives are really one and the same.
I think financial imperialism is real now……if we look at the world there are mainly 3 blocks A) East Asia China,Japan,Korea & city states singapore,hongkong,taiwan who have financialization of 70 trillion & household consumption of 10 trillion with extraordinary cash generating capacity of more than 10 trillion a year by way of savings,corporate profits,and government revenues B) Germany/France/UK who have household consumption of 5trillion but are unable to generate cash for investment in rest of the world C) US which has 13 trillion in household consumption & generates 2 trillion in corporate profits….so they need capital even to grow 3% a year.
In this situation since east asia alone has the money they will demand board level representation in many central banks be it australia,india,UK or france or other countries to secure their investment…..they will just not give money without structural changes they demand…if you refuse those demand you will invite poverty in to your country with falling government revenues
Australians need to ask why when USA has begun selling LPG to China, their politicians and media is running a anti propaganda campaign against doing business with China and introducing risks of being an undependable supplier. China is sensibly developing mines in Russia and elsewhere to reduce its exposure to Australia. Such efforts will be intensified in view of the current irrational beligerence from Australia .
It is another time and age – Australian government has to come to this realization.
I would suppose that it is just a matter of time for countries such as Japan, Australia, South Korea et all to come to the realizationThat offending the biggest economy on the block in exchange for a couple of military bases and questionable air defence systems is a losing strategy. China offers economic growth, infrastructure and a dynamic outlook for the future of all of Asia and Urasia. What are the US and the UK offering in return? Military bases, conflict, domination and poverty-
The choice for Australia and all other countries should be a no brainer.
I read this article and its comments and I smirk that Trump has been criticized for complaining that countries which get free money from us and are not our friends will have their welfare payments reduced.
Just like all the other PLA operatives on this site, your cover, ‘works in London’ is BS.
The trade threat works two ways guys.
China stops buying cheap raw materials from Oz, like LNG, Coal and Iron Ore, then Chinese factories have no more materials to make their cheap copies.
Communist Party China, listen to your great Chinese People, and stop trying to be a big boss country. Chinese way is to work hard and build trust.
Yeah no brains go to China.
The Chinese offer the same future to Australia as they offer to Tibet.
That is NO future only a takeover.
Spying on plans, ripping them off and manufacturing cheap copies, is easy.
China lost the economic and intellectual edge, long ago, due to poor leadership, this is still the case.
Chinese Communist One Party, wants historical rights over the sea and land?
NO, China wants easy and lazy access to raw materials, and hacks Western countries for intellectual prizes, because laziness breeds laziness.
Australia needs to wake up and wean itself off the American alliance. We are in a prime position to be an independent force in the world, a force of reason and reconciliation. It’s in China’s interest to keep shipping lanes open in the South China Sea, it has nothing to do with Australia. Austrlia should focus on its own backyard and stop supporting US meddling in international affairs.
China does not think like a Westerner. The whiteman plays chess. The Chinese plays weiqi or gomaku. They are two different mindsets altogether.
So for now, nothing will happen in the open public market forum.
There is a Chinese saying tha goes along the lines of friendship is friendship and business is business i.e. short of guns being pointed directly at it as in the South Korean situation, China will continue to trade even with its enemies or even those it personally finds obnoxious.
And even in the South Korean situation, the Chinese Government did not get directly involved. It was the netizens of China and their WeChat grapevine call for retaliation which spelt the doom of South Korean business.
Upset the Chinese Government by any means but it will continue to be inscrutable in its weiqi moves behind public view.
But upset the netizens of China and hell shall have no anger or fury like the scorn of the Chinese consumers. And that trigger can be the mistreatment of Chinese students or tourists or consumers.
Suppose hypothetically speaking a radical Sinophobic Australian were to somehow taint or sabotage the quality of the dairy or meat or supplementary pharmaceutical exports to China? Or a drunken Australian lout were to give a king hit punch on an elderly Chinese grandmother tourist outside the Opera House?
What I am saying is that articles like this can only plant seeds of discontent in the mind of radicals and terrorists out to create conflict and mayhem.
Having said that the Australian politicians and advisers should know better than to indulge in Aussie frankness when subtle French etiquette in diplomacy is still the order of the day. Be like the Chinese and put on a smiling inscrutable poker face playing weiqi like the way ninjas and samurais do. You show your hand as in poker i.e. what you are, and that is good but has the Chinese shown their hand? Is that good poker by Australia? And Australia has not even started playing weiqi yet!
The stupid Australian’s have not figured out one of the "GOLDEN RULES" of life.My mother always said "Understand who butters your bread" The Middle Kingdom continues to march forward!!
You do know China is broke, right?
Chinese Australia policy reminds me of a type of Chinese cooking:
Sweet – rich economic rewards for prime trading partner.
& sour – spy hackers steel plans of our new submarine and bribes one of our politicians.
20th century conflicts were mainly between Western powers. America faced European conflicts in the 2 great wars and the Soviet Union during the cold war. As the century came to an end Asia emerged as the center of conflicts for America.
But unlike Europe Asia presents a new and challenging world. She is
-home to the bulk of mankind
-All the major faith come from Asia
-If one includes Empires Asia’s economies dominated the common era.
With the collapse of the Soviet Union the rise of regional powers mainly is occuring in Asia with several new nuclear powers. Asia is going to be more challenging to America than Europe was
Stealing a state secret like the design of our next generation of submarines is NOT the act of a friendly government. Nor is annexing disputed islands in the South China Sea a friendly act towards its neighbours to the south. With rising economic strength China is becommng too damned jingoistic proud and aggressive for my liking. A good deflating of its collective ego is in order.
I think that Australia has sound reasons to want to ensure its own international security. I only wish that we had a superpower ally abroad that was not led by idiots.
Yes; and going by the propensity for Asians to engage in violent conflict with one another, it is going to be worse there than Europe ever was.
Frank Burton Yes we could pay off the Federal Government debt, which is about $600 billion, and the $160 billion the states owe.
The elephant in the room howevever is the private debt.
All up Australia owes $6 trillion.