How China Overreached in Australia

How China Overreached in Australia

Australia is not the first, and will not be the last economy, to endure Chinese displeasure. But Australia is showing that smaller nations still have agency and options, and that it is no easy matter for China to cow liberal democracies into subservience.

IF THUCYDIDES’ observation that the strong do what they can and the weak suffer what they must is true, then American allies are presumably in strife given that a belligerent Chinese Communist Party is increasingly resorting to coercive economic approaches to bludgeon smaller nations into submission. China’s gross domestic product (GDP) in nominal terms is about 60 percent larger than the combined GDPs of America’s five treaty allies in Asia—Japan, South Korea, Thailand, the Philippines, and Australia. Beijing spends more on defense each year than the rest of Asia and Oceania.

At the same time, China, in targeting Australia, is picking on a country with a population of under twenty-six million and with whom it has no territorial or historical disputes. What is Beijing trying to achieve and will it eventually succeed? Or will Aussie defiance harden the resolve of other American allies and partners to withstand Chinese coercion in the future?

There is some way to go before we know how it will pan out. But there are some signs that we are witnessing Chinese hubris and overreach rather than Australian contumacy or pigheadedness. Beijing’s malice is proving that the Trump and Biden administrations got it right in nominating China as the comprehensive challenge of their times. Importantly, Australia is showing that smaller nations still have agency and options and that it is no easy matter for China to cow liberal democracies into subservience.

IN A competition to choose the American ally most susceptible to Chinese economic coercion, Australia would be the leading candidate. Prior to the COVID-19 pandemic, Australia enjoyed twenty-eight years of consecutive economic growth, a record among developed economies. During turbulent economic events such as the bursting of the dot-com bubble earlier this century and the 2007–2008 Global Financial Crisis, its economy was buffeted by increasing exports to China and ever improving terms-of-trade (i.e., ratio of export prices to import prices.) By the end of 2020, more than one-third of every Australian export dollar was earned from the Chinese market. This meant Australia had become the most China-reliant advanced economy in the world from a trading perspective. 

Digging deeper only emphasizes Australia’s dependency. It is primarily a commodities exporter of minerals, energy, and agricultural products. In 2020, iron ore, coal, and natural gas made up almost 44 percent of all exports with most of these commodities being sold to China. With respect to Australian iron ore, which is the country’s top export earner, about 80 percent of earnings come from China. Even when it comes to leading export services such as education and tourism—8 percent and 5 percent respectively of total exports—Chinese students and visitors are the largest revenue source for these two industries.

The assumed Australian economic vulnerability to Chinese coercion also stems from the fact that while Beijing is Australia’s largest trading partner by some distance, the reverse is not true. While more than one-quarter of the value of Australian two-way trade—imports and exports—is with China, the latter’s two-way trade with Australia is less than 2 percent of its total trade. The tyranny of these numbers suggests Beijing has leverage: trade with China seems to matter much more to Australia than the reverse.

Leverage is one thing. Willingness to use it is another. In this regard, Beijing has form. According to a count by the Australian Strategic Policy Institute, China has used “coercive diplomacy” more than 150 times against foreign governments and firms since 2010. These mainly involve threatening or carrying out investment and trade restrictions in addition to encouraging popular boycotts. The restricting of rare earth exports to Japan in 2010 following incidents in the East China Sea and the targeting of South Korean firms in 2016 due to Seoul’s decision to participate in the American-led Terminal High Altitude Area Defense (THAAD) anti-missile program are well known.

However, more than half of the instances of Chinese coercion have occurred over the past two years. And most of these instances are being directed against Australia. Since 2018, China has refused to accept cabinet-level meetings with Australian counterparts, and for the past year is refusing to even accept phone calls. Since 2020, Beijing has imposed punitive measures against Australian barley, coal, timber, beef, cotton, sugar, copper, wool, lobsters, wine, and liquefied natural gas. These export sectors bring in around $15 billion a year from China. State authorities have issued arbitrary travel and safety warnings to Chinese students hoping to study in Australia.

While the loss of income from the Chinese measures is difficult to accurately quantify given opportunities subsequently opening up in other markets, they already amount to at least hundreds of millions of dollars. As it is estimated a total trade ban imposed against Australia would amount to around 6 percent of GDP, the imposition of selective punitive measures and the threat of more to come creates profound apprehension in the country. It is also the cascading series of measures which are unsettling.

AUSTRALIA IS not the first, and will not be the last economy, to endure Chinese displeasure. It is also arguable that the economic pain inflicted on South Korea after Seoul installed the THAAD anti-missile system was worse. This is not to ignore the distress for those businesses unable to find alternative buyers for products such as lobsters, timber, and wine. But for the moment, the value of Australian exports to China has increased to record levels due to high iron ore prices and its seemingly insatiable demand for the commodity. Until Chinese-funded mines in the Western African country of Guinea start producing significant amounts of high-quality ore, which is perhaps a decade away, the Australian economy might have more breathing space than is widely assumed.

What then explains the unusual international interest in China punishing Australia if Beijing has done similarly to other nations? For a start, Beijing is using a very different approach when it comes to the diplomacy and strategic messaging accompanying the measures against Australia. There is no doubt that previous coercive economic moves against countries such as Japan, the Philippines, and South Korea were punishment for policies taken by these countries over disagreements regarding the East and South China Seas and a decision to install the THAAD anti-missile system, respectively.

However, Beijing left itself room to deny there was any link between decisions made by these countries and the punitive measures. For example, the rare earths restrictions against Japan were attributed to a Chinese decision to reduce the domestic processing of rare earths for environmental reasons. Boycotts against South Korean firms were said to be initiated by angry Chinese citizens rather than the Communist Party. Filipino bananas were banned on the basis that pests were found by Chinese quarantine inspectors. In all these and other cases, Chinese state-owned media publishers and outlets made it clear that these countries had offended Chinese interests and feelings and that the disruptive effects of the apparently unrelated measures were nevertheless timely and deserved.

This artifice, initiated and coordinated by the Communist Party, allowed Beijing some degree of deniability even if it was hardly plausible. But deniability decreased the chances of any country winning a favorable determination against China through World Trade Organization dispute mechanisms or the victim successfully arguing that China was in violation of bilateral or regional trade agreements. The allegedly non-governmental basis for punishment also meant additional arbitrary measures could be added on, thereby creating a sense of heightened apprehension amongst other vulnerable sectors that they could be next. Perversely, the impossibility of irrefutably proving that these were state-based instances of economic coercion created room for pro-Chinese lobby groups within the victim countries to put the blame on their government for mismanaging the relationship with Beijing as there was no formal finding of Chinese illegality. It also becomes more difficult for other countries to condemn Beijing’s actions in the absence of an official verdict of illegal behavior. If it could not be proved that Beijing did anything illegal, then better to stay out of the fray.

The targeting of Australia is different. To be sure, the old playbook was adhered to initially. During the time I served in the Australian government from 2016–2018, Chinese officials were constantly warning of “unspecified consequences” for Australian positions on issues such as criticizing Chinese policies in the South China Sea and moving to ban Huawei from the country’s 5G network. This was always done behind closed doors. At the same time, state-owned newspapers such as the Global Times would act as a proxy for Beijing by running editorials warning that Australia would suffer from its increasingly “anti-Chinese” policies. 

The Chinese approach changed from 2020 onward. In April of that year, Beijing’s ambassador to Australia, Cheng Jingye, publicly suggested Chinese citizens might grow reluctant to study, travel, or consume Australian wine as the country was not “so friendly to China.” The following month, four major Australian beef exporters were banned indefinitely for  “repeated violations of inspection and quarantine violations” according to a notice issued by Chinese customs. In June, China’s Ministry of Education issued an alert to Chinese students planning to travel to Australia due to supposed “racially motivated incidents targeting Asians in Australia.” In August, China launched an anti-dumping investigation into Australian wine imports. The point is that while none of these individual decisions were explicitly portrayed as punitive measures as payback for Australian policies, the forewarning by the Chinese ambassador was issued beforehand to make it clear Australia was being economically punished for the policies of its government and Beijing was behind it.