POLICY

Australia needs to have two relationships with China

Political Editor Canberra

January 20, 2016

This week the dark side of Australia’s efforts to meld regional security, traditional alliances and burgeoning trade agreements to our advantage made itself apparent.

It is a dark side Australia is going to have to master with new thinking, new rules of engagement and a more assertive regional position to ensure the vast advances made in trade agreements in recent years are not set back or our strategic alliances undermined. Australia is faced with balancing its economic interests and vital trade partnerships with its equally vital security interests in a region where the rise of China is testing the resilience of longstanding alliances, creating the need for more self-reliance and forcing new configurations of emerging security relationships.

Australia and our biggest trade partners and strongest allies in the region are all having to manage parallel and competing economic and security interests.

Japan, with which we have a special relationship that is growing in trade and security, provides a living example of the necessity — and cost — of that balance. As China has grown economically and projected its military influence, particularly in the South China Sea, Japan has adopted a more independent strategic position, changed the basis of its defence force, faced tensions with South Korea and Russia, and deepened its economic ties with China.

In Australia, in the last sitting week of parliament, the Turnbull government was able to pass the China-Australia free-trade agreement, following on the successful passage of the Japan and South Korea FTAs. The government also was able to point to the successful conclusion of the US-backed Trans-Pacific Partnership trade agreement involving a dozen nations.

Trade Minister Andrew Robb, who has become the trade deal ringmaster, also set off for India to further the negotiations for a nascent India FTA.

As a new Prime Minister, Malcolm Turnbull also organised to attend the G20 leadership summit in Turkey, the Asia-Pacific Economic Co-operation forum leaders meeting in The Philippines and the East Asia Summit in Malaysia. Turnbull is expected to meet US President Barack Obama and Japanese Prime Minister Shinzo Abe at some of those meetings.

While acknowledging the work of his predecessors, the new Prime Minister has put the unprecedented trade success at the centre of his projected economic growth and optimism for Australia as part of his economic narrative.

Then, on Tuesday, the thorny nature of this rosy outlook emerged when guided missile destroyer USS Lassen sailed within 12 nautical miles of at least one of the artificial islands created on reefs in the disputed Spratly Islands.

It was a US show of force in the South China Sea, fighting for the principle of freedom of navigation on shipping routes that carry most trade to and from Australia’s biggest trading partners and free-trade signatories China, Japan and South Korea. China immediately accused the US of “making trouble”.

Defence Minister Marise Payne quickly backed Washington’s determination to exercise its freedom of the oceans and airways, declaring: “It is important to recognise that all states have a right under international law to freedom of navigation and freedom of overflight, including in the South China Sea.”

In a matter of days the Turnbull government had gone from celebrating the prosperous future with China to join sabre rattling — along with Japan and Association of Southeast Asian Nations partner The Philippines — over rights of passage in the South China Sea.

As well as the incursion in the Spratly Islands, which Australia has signalled it has contingency plans to duplicate, historical and strategic differences over at least two other disputed “bits of rock” are creating regional tension that flow on to Australia.

Early this week Russia announced it would “militarise” some of the Kuril Islands that it took from Japan at the end of World War II. Japan wants the “Northern Territories” returned as part of an outstanding World War II peace settlement with Russia. Russia plays a vital role — and a competitive one with Australia — in supplying oil and gas to Japan.

All of this week Japan and South Korea have been playing diplomatic trick or treat over scheduled but still not formally agreed trilateral leadership meeting this Halloween weekend in Seoul between Japan’s Abe, China’s Premier Li Keqiang and South Korean President Park Geun-hye.

Three-way tensions, born of China’s rise and Japan’s changing defence attitude, have eroded the relationships in the past five years to the extent that the trilateral summit would be the first for three years and the first bilateral meeting between Abe and Park. The tensions between Japan and South Korea, which is causing the US deep concern, as well as the continuing tensions between China and Japan, are made worse, again, by disputed territories representing historical animosities and latter-day strategic control.

But for all this animosity arising from China’s rise, the pragmatic reality remains that China’s economy is in decline and Beijing cannot lord it over others or impose trade embargoes without risking hurting its own economy and business interests.

China’s refusal to supply rare earths for Japanese hi-tech industry in 2012 in an effort to gain ground on disputed territory ended up hurting China’s own trade and pushed away Japanese investment.

Japanese refusal to give in also had an economic cost on Japan but overall the impact was greater on China and continues to be blamed — along with orchestrated protests against Japanese companies in China — for falling Japanese investment.

But while China and Japan are opposed over security, there is a compelling common interest in maintaining mutual trade, business and investment.

Hence, China’s willingness, even more so than South Korea, to announce its intention to go ahead with this weekend’s trilateral summit as part of a campaign to repair the public relationship so that Japanese investment will return.

The economic interdependence of China and Japan means it is in the interests of both to operate on separate security and trade planes and not allow periodic tensions in the Taiwan Strait, the South China Sea or the Sea of Japan to threaten trade. If the Halloween party takes place in Seoul in the next few days, so soon after the US has tested freedom of navigation that Japan strongly supported, it will be an example Australia should follow keenly.

*Originally published on The Australian on October 31, 2015 12:00AM

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