What’s Next For The Relationship Of Australia And China?

The main facilitator of a closer political relationship of Australia and China has been Chinese investments in Australia. These investments have caused both approval and discontent in Australia. Will the negative consequences of Chinese investments continue in Australia, or is it possible to expect a new level in the Chinese-Australian relationship?

Chinese investments and relationship with China is a contentious topic in Australia. Chinese investments in Australia (from individuals and companies) have created an endless discussion about the benefits and drawbacks of them. The Australian society has been separated into two parts over this question. The proponents of Chinese investments laud their economic benefits. The opponents of the investments express their worries about rising housing prices and the increasing influence of China in Australia.

Chinese investments in Australia, like mining and real estate acquisitions by Chinese nationals, have positively contributed to Australia’s economy. These contributions include growing GDP and FDI. These contributions were important to Australia, because of the economic problems they helped to solve. The problems include low GDP growth and very low inflation.

However, the negative consequences of Chinese investments have created less than positive reactions to them. Some of the negative consequences include increasing real estate prices, and hiring of foreign, instead of local, workers.

Australia’s largest cities (5 cities in the list of 20 least affordable), are already some of the least affordable in the world. With a new generation looking to settle down, or at least rent at affordable prices, there’s zero surprise that foreign money buying up properties would cause negative reactions. However, just one factor never is powerful enough to change the whole landscape. Putting blame on only one input out of many (specific real estate taxes, lack of developed space), would be an irrational move.

Australia’s unemployment rate has been steadily dropping since 2016. Hiring more local workers for projects would be a nice decision. Yet, a look at the unemployment problem tells that it is actually decreasing, even with Chinese-backed projects preferring to hire foreign workers.

Australia is now at the crossroads of dealing with Chinese money problem. The Labour party would have taken a softer position on the investments, while the Liberal-National coalition have released legislation to combat the possible negative consequences. An example is legislation against the Huawei’s 5G network (because of the company’s alleged involvement with the Chinese government).

The most rational action would be to incentivise the positive outcomes related to Chinese money inflows, and use legislative means to reduce the negative consequences. Yet, the negative consequences associated with foreign investment inflows, no matter where they come from, are inevitable. As long as a state doesn’t turn to complete protectionism, outcomes like rising real estate prices and foreign ownership of important companies will inevitably appear.

China and Australia could become even closer neighbours if one of three scenarios will materialize: a party supporting free trade will come into power in Australia; the benefits of Chinese money inflows will start to outweigh the drawbacks; China will become an even more important trade partner of Australia. The earliest upcoming elections in Australia will be held in 2022. Labor party and Liberal-National coalition are predicted to be the main competitors in them. If the Labor party will win the elections, a softer stance with China will happen. One of the factions of the Labour party positions supports businesses and free trade. Labor winning the elections could lead to better foreign relations with China.

After all, the main problem of the strained relations is a matter of perspective from which to view the negative consequences. For one party, they would be worth the positive outcomes, because of the brought economic development. For the other, they would be unacceptable because of China’s foreign policy.

The benefits of investments from businesses and individuals from China are becoming more and more visible. The benefits include rising incomes, capital for business development, and more opportunities for growth. However, currently they directly impact only few groups of the Australian society. Groups like real estate and business owners, have been able to see the positive of the money inflows far more easily than the general Australian population.

This situation is bound to change with the increasing impact of the investments to other societal groups. The money from FDI from China is bound to create a transfer of income to other groups, like labourers and services workers. When this impact will occur, the public opinion could become more positive.

2010s have been the decade of new trade agreements. EU signed trade agreements with Japan, Canada and the Mercosur block. USA signed agreements with Mexico and South Korea. And Australia tended to only sign trade agreements with its closest neighbours, like Malaysia and Japan. It would be amiss to say that Australia hasn’t signed trade agreements with countries farther apart in distance, in the past. These include Chile and Thailand. However, as decades pass, Australia’s exports have seen less and less geographic diversification.

Increasing exports to China seems like an inevitable consequence of decreasing export destination diversification, and newly natural discovered resources in Australia. China is the ideal market for newly discovered resources in Australia (e.g. oil). Exporting higher quantities of goods to China would also let Australian producers to increase the diversification of their export destinations, and to avoid the negative consequences of focusing on only few trade partners.

The question “What does Australia have that China needs?” is the question that requires answering when deconstructing the Chinese-Australian relationship. Australia’s and China’s relationship and its future course become clearer when Chinese plans and needs are put into perspective.

Australia’s geographic location, and the benefits that come with it, is one of the things China needs. Chinese geographic location and its terrain are a good defence against any hostile foreign powers. However, in times of peace, the location and the terrain of China, and its closest neighbours, don’t contribute to easier transportation of goods.

Through its eastern coast, China only has access to the 4th and 5th largest trading partners, like Japan and South Korea. Farther into east, only the vast Pacific Ocean remains, with a distance of over 10,000 kilometres to the USA, the most important trade partner.

The western part of China, and its closest western neighbours (Kazakhstan and Pakistan), is composed of mountainous areas and deserts. With only older transport networks, transporting goods through these areas requires significant temporal quantities.

The Belt and Road initiative is undertaken not only because it will generate investment returns for China, or increase China’s soft power. The Belt and Road initiative, through its infrastructure projects, also creates ports, roads, and railroads, through which Chinese goods can be transported in a quicker and safer manner.

The relationship of China with Australia becomes far clearer when, arguably, the most important goal of China in this decade is considered: securing fast and safe trade routes for its goods.

China’s base in Djibouti and a possible new military base in Pakistan – all have been built or will be built near important trade routes. Australia is a country and a continent entirely surrounded by seas. Although trade routes of secondary importance surround Australia, there is one factor that makes Australia important to China in securing trade routes. That is its access to alternative shipping routes.

Australia’s northern coast surrounds the second-busiest route from Southeast Asia. If anytime where will be problems for ships sailing through strait of Malacca, using the route with an exit near Australia would be the preferred alternative.

Trade with Australia from China’s side steers from the usual Chinese exports schema. Contrary to that, China’s exports and imports from Australia show the high value of this relationship.

China exports far more articles of iron and steel and mineral fuels to Australia than to other countries. Although one of China’s goals has been to produce and export more high-added value goods (Made in China 2025 plan), moving towards this goal will take up time. Until then, Australia will stay as a desirable market for the exports of some of Chinese natural resources.

Can these countries become even closer, and achieve the goals of both sides, or will disputes related to Chinese foreign policy prevent that? The issues working against a closer relationship of Australia and China are the unyielding Chinese political position, conflict over South China Sea islands, Australia’s prioritization of non-economic issues, and simply different value systems.

A movement to a closer relationship between these two neighbours has been influenced by mutual goals. These goals have been mutual economic growth and business development, a growing Chinese population in Australia, and trade of needed resources.

Australia’s prioritization of non-economic issues and the unyielding Chinese political position are far more powerful factors in determining the course of Australia’s and China’s foreign relations than the positive influences. There is a high probability that the public and political opinion in Australia will change over time, and with the Labor party winning the elections. Until then, the Chinese investments and foreign policy will be viewed with suspicion.