China’s moves Down Under have strategic lessons

EVEN as a US Congressional delegation has riled China by meeting the Dalai Lama in Dharamsala, Australia and New Zealand are engaging with Beijing on the trade front.

Chinese Premier Li Qiang visited New Zealand last week and Australia earlier this week. Then Premier Li Keqiang had toured Australia in 2017. The prospect of Australia’s re-engagement with China has been evident since 2022, when the Labour government was re-elected. PM Anthony Albanese visited Beijing in November last year to unfreeze the relationship. Evidently, China’s economic strictures were hurting Australia.

China had taken umbrage at Australia seeking an inquiry into the origin of the Covid-19 pandemic. Thereafter, Australia adopted a more strategic approach to China, expressing concern over covert foreign interference in Australian politics, excluding Chinese telecommunications companies like Huawei from the 5G network and the recent clashes between naval ships in the South China Sea and the Yellow Sea.

With New Zealand, the strategic concerns are less direct. Both Australia and New Zealand feel the heat of the Chinese challenge in the South Pacific.

During Li Qiang’s visit, both countries sought to manage their differences with China, revive economic ties and draw benefits from more trade and investment while nudging compliance with their strategic priorities.

New Zealand was the first Western country to have a free trade agreement with China since 2008. It was the first to recognise China as a market economy and sign an agreement under the Belt and Road Initiative. China is its largest export destination for milk and agricultural products. New Zealand has a bilateral trade of $23 billion which, though not large, is significant for it. The Australia-China trade is to the tune of $216 billion. Australia, China and New Zealand are all part of the Regional Comprehensive Economic Partnership. And now, China is wooing them to enter into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

New Zealand PM Christopher Luxon aims to balance the relationship from a focus on economic opportunity to greater resilience and de-risking. New Zealand is painfully aware of cyberattacks on its Parliament website, but it cannot ignore its essential focus on trade. Since January this year, New Zealand dairy products have entered China free of duties and quotas.

New Zealand also benefits from the footfall of Chinese tourists. In April this year, 10 per cent of the 2,25,000 tourists in New Zealand were Chinese, ranking second behind those from the neighbouring Australia, which saw 5,35,000 Chinese tourists in 2023. China, in a classic case of ‘relaxed coercion’ diplomacy, promises to include New Zealand among the countries for which visa exemptions would be granted. In return, New Zealand would be more flexible in granting visas for the Chinese.

Australia is by far the bigger catch for China, which has been its single largest trading partner for both exports and imports since 2009. In 2023, their trade increased by 4 per cent. Australian investment in China grew by 11.7 per cent over 2022. The number of Australian companies in China has increased by 40 per cent. In April, Australia concluded its anti-dumping measures against Chinese windmill towers after it lost its case in the World Trade Organisation against Chinese steel products. China reduced its anti-dumping measures on Australian wine and barley and lifted restrictions on many Australian exporters of beef and lamb.

Australian analysts struggle to justify this, saying, “How do you cut off your biggest customer? Will Australian friends make up for the lost income and investment?” Australia China Business Council president David Olsson expects China’s ban on Australian seafood to be lifted as well and hopes for better mutual grant of visas. In return, China wants its foreign direct investment in Australia to face lesser scrutiny.

Australia is China’s top supplier of iron ore. But it is the competition for Australia’s rare earths, which are important for electric vehicles and renewable energy, which draws the most Chinese interest.

China already has investments in lithium factories in Australia, but subsequent efforts have been thwarted as Australia took a more strategic view.

At present, critical minerals and rare earths are the focus of the new great game, and everybody is seeking these from known sources. Some African countries have got significant Chinese, and now Korean, interest. Australia, a Quad member, should be working with the US, Japan and India for greater collaboration on this front. The idea that Japanese technology, Australian rare earths and Indian manufacturing could come together under a Quad initiative facilitated by the India-Australia-Japan Supply Chain Resilience Initiative is attractive but nascent.

With Australia’s rare earths at the core, the prospect of engaging it more robustly by non-Chinese partners emerges from Canberra’s more determined partnership with Quad. It was also pushed by the Chinese trade restrictions, which were curtailing Australian economic activity.

When India and Australia signed the Comprehensive Economic Cooperation Agreement in 2022, it was evidently a strategic effort to create complementarities. What will happen to these slow efforts, given the revival of Australia’s China trade and economic partnership? At the time of Quad 1.0, it was the Australian turnabout on China that slowed down Quad. What about Quad 2.0? Will Australian interest in it diminish?

Australian statements seem to indicate that they know what they are doing. They are cognisant of their responsibilities to the Quad and AUKUS (the alliance between Australia, UK and US), which will augment their nuclear submarine capacity, whose target is the Chinese.

The Aussie-Kiwi tie-up with China does not draw strategic lessons from what China is doing in the East Asia Sea with Japan, in the South China Sea (particularly with the Philippines), and with India in the Indian Ocean Region.

The trade-first approach of Australia, therefore, needs cautious understanding. While India is aware that since the Covid-19 pandemic, all its Quad partners and ASEAN have all done record-breaking trade with China, it is Beijing’s diplomatic manoeuvring to reduce economic pressures on individual partners that should worry the others.