Even though Australian ministerial visits to Beijing have restarted under the Morrison government and Chinese demand for Australia’s key exports of iron ore and coal remains strong, the burrs in the relationship will only become more uncomfortable to manage.
There have been several periods of tension in the Australia-China relationship over the last decade. The Chinese were particularly unimpressed with public admonitions on human rights by Kevin Rudd during a prime ministerial visit, for example. But the Free Trade Agreement signed off by the Abbott government signalled a high point, backed by enthusiastic expressions of mutual benefit and trust in the relationship.
The difference now is the acceptance any optimism that China would become more open politically as well as economically has evaporated. Instead, the fear is more the reverse, while Chinese criticism of Australia is often intense.
The latest Canberra warnings of a cyber assault on Australian political parties and Parliament are not naming China as the “sophisticated state actor” responsible. The suspicion is obvious – leading to Chinese complaints about media coverage.
Under chairman David Irvine, FIRB makes it clear national security assessments will evolve “in recognition of the risks and threats that emerge”. Louise Kennerley
Australia is certainly not the only country becoming more cautious about Chinese investment and intentions, particularly given Xi Jinping’s aggressive approach to expanding China’s influence abroad and enforcing strict party control and repression of dissidents domestically.
Whether it’s the level of Chinese investment in German industry or concerns about the impact of China’s loans in the South Pacific, countries that traditionally welcomed Chinese money are beginning to push back against the growing perception of excess influence.
Nor are US accusations about China’s theft of intellectual property and unfair competition confined to the extremes of the Trump administration. This new more antagonistic mood in America is now widespread throughout its political, business and academic establishments.
Other countries followed suit
The Australian decision to block Huawei from 5G may have been strongly encouraged by US security agencies. But Canberra’s move only pre-empted that of several other countries that have followed suit, including New Zealand – although the UK is now suggesting it may continue to allow Huawei‘s participation.
Canada has also aroused Chinese outrage by detaining Huawei’s CFO and daughter of its founder while she was in transit in December in order to comply with a US request for her extradition. That case is now being heard in a Vancouver court with the extent of China’s potential retaliation still to come if she is not freed.
The Australian economy, however, is particularly dependent on our major trading partner. Nor is it only our resources revenue that is so significant. International education – mainly Chinese students willing to pay big money to attend universities here – is now a huge export earner for Australia as well as underpinning all university budgets due to the higher fees charged.
Chinese tourism is also in overdrive – as evidenced by the streets of Sydney or Melbourne or holiday spots like Hamilton Island. Then there are all the Australian businesses desperate to sell services and products to the greater Chinese middle class – and at risk of Chinese displays of irritation.
The sector that has attracted most public attention has been Chinese investment in the Australian property market. This is not necessarily logically consistent. So alarm that Chinese buyers were unfairly driving up the price of Sydney and Melbourne apartments has now become mixed up with concern about house prices falling too far.
Decline in Chinese demand
According to the FIRB report, approvals for proposed foreign investment in residential real estate fell to $12.5 billion last financial year, down from $30 billion in 2016–17 and big increases over the previous two years. These figures are not only due to Chinese investment, but even with a big decline in Chinese demand, Chinese purchasers still make up the majority of real estate approvals.
But the tightening of regulations and financing in Australia coincided with the determination of Chinese authorities to restrict the outflow of capital. The continuing decline in prices and potential capital losses in property here also has a dampening effect on prospective Chinese investors as well as Australian buyers.
This drop in Chinese investment extends far more broadly than property. The FIRB annual report details a decrease in overall proposed investment from China last financial year to $23.7 billion, down from $38.9 billion in 2016-2017. That can be partly explained by the lumpiness of major projects in areas like energy and infrastructure. But under chairman David Irvine, FIRB also makes it clear national security assessments will evolve “in recognition of the risks and threats that emerge” – and have already led to blocking some big Chinese bids for Australian infrastructure.
US trade sanctions are just the headline act for a much more nuanced but awkward relationship with China to play out here over the next several years.
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