China and the World, Talking Point

Diplomatic digs

Trade and tantrums: Beijing’s relations with Australia sour

Diplomatic digs

Flags at half mast: the current state of Sino-Aussie relations hits new lows

It seems to be a case of very mixed signals. On the one hand, politicians from Australia’s opposition parties are lamenting what they say is the lowest ebb in Sino-Australian relations for years. Punchy editorials in the Chinese press, which accuse Canberra of becoming a “champion leader of an anti-China chorus,” do little to improve the mood.

But on the other, there is a record $41 billion liquefied natural gas deal to celebrate. PetroChina will purchase 20 years of gas imports from the Gorgon shelf (off the northern coast of West Australia) in a deal promising to become Australia’s biggest resources project, generating tens of billions of dollars for state coffers.

What’s more, even as the mainland’s newspapers splutter at perceived slights, Chinese industrial demand is more-or-less rescuing Australia from the global recession.

Aussie export volumes are up this year in percentage terms, even as most other developed country experiences double-digit falls. This “truly remarkable” performance is overwhelmingly a function of Chinese demand, admits central bank assistant governor Philip Lowe.

So tension has increased?

Current relations are strained.

Australia is unhappy with the way the high-profile arrest of Stern Hu – a Rio Tinto executive and Australian national charged with commercial espionage – has been handled.

China’s own list of grievances is a longer one, including frustration at the collapse of the Chinalco-Rio Tinto tie up, bitterness at perceived price gouging in the iron ore market, and annoyance that Canberra has seen fit to comment on the charges against the Rio executives.

More recently things have come to a head with Canberra’s granting of a visitor visa to Rebiya Kadeer, a Uighur leader-in-exile, to speak at a local film festival.

This “siding with terrorists” was serious enough in its own right to derail bilateral relations, insisted the normally more circumspect China Daily. Beijing also cancelled a planned visit from He Yafei, the vice-foreign minister, in protest.

But trade still goes great guns?

The Gorgon deal highlights the practical limits of Beijing’s fury, even as it lobs some less-than-favourable commentary across the neighbourly fence. Or as The Australian newspaper put it: “What a relief. China may not love us any more, but it still loves what we dig up…”

In fact, this seems to be one instance in which, in a metaphorical hole, Canberra would be well advised to keep on digging.

That’s because – as most of us now know – China needs commodities to fuel its economic growth and Australia is one of the most dependable suppliers. Iron ore, copper ore and manganese in particular have been shipped north in increasing quantity (with more natural gas soon set to follow). China now accounts for 44% of Australia’s burgeoning mineral exports.

Chinese firms are also wooing Australian natural resources companies. Transactions in Australia account for about 29%, by dollar volume, of the country’s $31 billion of cross-border M&A so far this year, according to data provider Dealogic. The large majority of this investment effort is coming from state-owned firms, which is hardly a sign of a dramatic breakdown in bilateral relations.

A case of good business but poor politics?

Caijing magazine thinks so and reports on comments from Alison Broinowski, a former Australian ambassador, that both sides must work harder to ensure that business and politics aren’t mixed.

The problem, of course, is that separation of the two worlds is easier said than done.

The mainland reporting on the Gorgon deal is a case in point. Unusually, no Chinese media were invited to attend the signing ceremony and most headlines omitted mention of “Australia” completely, focusing on the role of LNG driller ExxonMobil Corp.

The tone of the whole coverage was subdued. And unsurprisingly so – it’s difficult to trumpet a flowering relationship on the business pages while, over in the editorial columns, Canberra continues to receive a stern talking to. Besides, issues like job creation or foreign control of “strategic” national assets can develop into emotive political issues. China buys a lot of the world’s commodities but feels shortchanged on pricing, for instance. Australia has mixed feelings about its colonial heritage and fears becoming dependent on its leading customer to the north.

So a little more empathy might be called for?

True enough, and on the Australian side Kevin Rudd – prime minister, Mandarin speaker and former diplomat – was expected to provide it. His knowledge of China and the Chinese was supposed to give him (and his country) the inside track.

So far, it hasn’t worked out. With the global slowdown bringing sensitive topics (like foreign access to commodities) to the surface, mutual understanding seems to be thinner on the ground.

For Rudd himself, this must be exasperating. His domestic political critics have bashed him at home as China’s patsy – “the Manchurian candidate” and “China’s roving ambassador” being two of the preferred epithets. But accusations of kowtowing look unfair. In April, for instance, he spoke publicly (in Mandarin) to students at Beijing University about “significant human rights problems” in Tibet – hardly evidence of pandering. But his political opponents at home then switched tack, slamming him for public grandstanding on issues better left to private dialogue.

What about Chinese attitudes to Australia?

Pre-conceived views of Australia as a “quarry and a farm” – as well as a place that might be worth a holiday – are commonplace in China, agrees Alistair Nicholas, principal at consulting firm AC Capital in Beijing. (Not necessarily a view unique to the Chinese, although some might add sporting prowess to the list of Australian assets. Although no longer in cricket, apparently.)

Perhaps Chinese expectations were also unrealistic. They may have thought that they had found in Rudd (to use Margaret Thatcher’s phrase) someone with whom they could do business.

So now there is confusion as to where he stands. The Global Times opined recently on “supposedly veteran Australia diplomats” who had failed to grasp the “rage” that Kadeer’s visa grant stirred in the Chinese people.

So further disagreement ahead?

It’s more than likely, says the Financial Times. But it doubts that the “marriage of convenience” between the two countries will ever hit the rocks completely. And it’s hard to disagree: China needs Australia’s abundant resources, Australia needs China’s resource-hungry customers. For all the bluster, the underlying commercial imperative is a binding one.

That is not to say that there won’t be some friction around the edges of the relationship. But, by the end of last week, both sides were talking up the common ground. Rudd was speaking of the “enormous common interests” shared with the Chinese, even though he recognised the likelihood of “continuous differences” too. The Chinese newspapers were also softening their stance, reporting the views of unnamed “experts” that both sides needed to be cautious in handling rows, and not over-interpret moves by the other.

Like many marriages going through a rough patch (even ones of convenience, perhaps) it seems that a cooling off period is sometimes in order.

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