A perfect storm in Australia–China bilateral relations

Author: Jane Golley, ANU

Australia’s prime minister, Tony Abbott, announced recently that his party has ‘no intention’ of reviewing the former government’s decision to block Huawei out of the National Broadband Network (NBN). This contradicts comments made just one week earlier by Communications Minister Malcolm Turnbull and Trade Minister Andrew Robb, who respectively described the Chinese telecommunications company as a ‘credible business’ with a ‘big future in Australia’.

The divide in the Coalition government over whether or not Huawei poses a national security threat to Australia spills over into a larger divide in political circles and the community: Australians are asking whether, how much and what kind of Chinese investment should be allowed into the country. These ongoing and unresolved debates, in turn, may seriously impinge on a successful conclusion to the Australia–China Free Trade Agreement, on which Tony Abbott has put a 12-month deadline. More importantly, however, they could severely damage the Australia–China bilateral relationship in the year ahead.

As evidenced by the Lowy Institute Poll 2013, the majority of Australians think there is too much Chinese investment in Australia, and they are most uncomfortable with investment by state-owned enterprises (SOEs) and purchases of Australian farmland. It was shortly after the release of similar findings in the 2012 poll that Abbott declared at an Australian Chamber of Commerce speech in Beijing that: ‘It would rarely be in Australia’s national interest to allow a foreign government or its agencies to control an Australian business’. He subsequently made a pre-election pitch to rural voters promising to lower the current Foreign Investment Review Board (FIRB) threshold on overseas purchases of agricultural land from A$248 million (US$232 million) to A$15 million (US$14 million).

Welcome to the FTA negotiating table, at which the Chinese side will likely be offering to lift import restrictions on agricultural products into China only if Australia provides some concessions on land investment — in particular, a higher FIRB threshold. China’s negotiators will also be pushing for higher thresholds than the current A$0 on SOE investments, and the A$248 million on non-SOE investments, which they would like to see raised to A$1 billion (US$935 million), in line with investments from New Zealand and the United States.

Australia clearly has to offer something in the negotiation process, and the Coalition government has already indicated that a higher threshold on agricultural investments is a possibility, despite its pre-election promise. However, with changes to the SOE threshold off the table (effectively ruling out close to 90 per cent of all Chinese investments based on last year’s data), and given the miniscule share of agriculture in China’s total Australian investment portfolio, this will not be enough to secure an FTA deal.

While a decision to lift the ban on Huawei would not in itself have ensured a smooth and rapid conclusion to the FTA, it wouldn’t have hurt. Instead, Abbott’s decision has disappointed Chinese officials and business leaders, with one Chinese diplomat asking: ‘Why should we allow Australian companies better access to China when Australia stops one of the most respected Chinese companies from doing business here?’

It is perfectly reasonable for governments to protect ‘national interests’, and Abbott’s Huawei decision may genuinely be doing just that — but the renewed ban also comes at a time of rising geopolitical tensions. Accusations that the Huawei ban has more to do with American protectionism and the Australia–US alliance have coincided with reports that Australia has been involved in a US-led spy network involving the use of its embassies in Southeast Asia. China, alongside its Asian neighbours, with whom President Xi Jinping is actively promoting a ‘new security concept’, featuring mutual trust, mutual benefit, equality and cooperation, is unlikely to take kindly to these reports.

Nor will China appreciate Prime Minister Abbott’s recent declaration to Japanese prime minister Shinzo Abe that: ‘As far as I’m concerned, Japan is Australia’s best friend in Asia and we want to keep it a very strong friendship’, just as tensions between China and Japan over the Senkaku/Diaoyu islands are at an all time high. Add to this the possibility that leading Uighur activist Rebiya Kadeer will visit Australia later this year, and recalling the stir this caused last time — one may start to wonder whether the perfect bilateral storm is on the horizon.

Huawei itself has no intention of contributing to this storm, should it eventuate. While being ‘mystified’ and ‘disappointed’ by Abbott’s decision, Huawei Australia’s director, John Brumby, has stated publicly that the NBN is not crucial for Huawei’s operations in Australia, where the company plans to be ‘for the long haul’. Nevertheless, the unfolding Huawei story is illustrative of the fact that Australia’s enormous economic ties with China can no longer be considered in isolation from other aspects of the bilateral relationship.

Australians face an important choice in deciding whether to welcome more Chinese investment. That choice will not only impact on the amount of investment flowing into Australia and on the likelihood that a ‘mutually beneficial’ FTA deal will be reached. It will almost certainly shape the broader Australia–China bilateral relationship as well.

Dr Jane Golley is associate director at the Australian Centre on China in the World, College of Asia and the Pacific, Australian National University.