How Australia can find common purpose with China

Authors: Peter Drysdale and Shiro Armstrong

What could become the new normal in Australia’s relations with China is a major question for the new Albanian Australian government. There will be no simple reinvention of the old relationship. But the change of government in Australia presents the two countries with an opportunity to articulate and re-pursue common imperatives that stem from shared global economic interests.

The starting point is the recognition and support of multilateral principles and interests in the conduct of their trade and economic relations. It will also help strengthen the global economic order. The important economic and political relationship between Australia and China has been built on the commitment of both countries to this open multilateral system. China, as the world’s largest trading nation, has a huge stake in this. Despite its transgressions against Australia and other countries, China has largely complied with WTO trade law.

However, the commercial law is incomplete and inadequate in several respects that concern China. But the law that does exist has provided and still provides the framework for entrenching the country’s large-scale interdependence with the rest of the world and what does not exist is a common agenda for WTO reform.

The groundbreaking Geneva package last weekend at the WTO strengthens global governance and the rules-based order that protects Australia and of which China is a crucial part.

With the US alliance underpinning security, Australia’s economic and political priorities still lie squarely in the regional neighborhood. The new government signaled this with a state visit to Indonesia by Prime Minister Albanese and three trips to the South Pacific by Foreign Minister Penny Wong right after their trip to Tokyo for the Quad Summit.

Australia’s economic interests are heavily concentrated in East Asia, which accounts for 66% of all Australia’s foreign trade (compared to just 17% with trusted Five Eyes allies or 27% with industrial economies of the G7). All East Asian economies are deeply interdependent with China: a decoupling would have serious consequences for regional prosperity and security.

Chinese trade sanctions on Australian products, both explicit and through informal mechanisms, have been blunted in their effect because the multilateral trading system provides a buffer against such political shocks. Many Australian exporters have been able to find other markets in an open global trading system. The sanctions have been costly for Australian exporters, but a greater cost has been borne by China, politically and reputationally, causing a loss of confidence in China and mobilizing political support behind Australia.

Australia and China must change. Australia needs clear indications that China is not backing down from its multilateral commitments. This includes a commitment to lift trade sanctions.

The toning down of the unthinking anti-China rhetoric of the new Australian leadership and the engagement of Defense Minister Richard Marles on clear terms with his counterpart Wei Fenghe in Singapore are a start. Another small step would be to look at the more than 100 anti-dumping cases against China which predate the deterioration of the relationship but which are a burden on Australian industry and consumers, especially in a time of cost pressures , and run counter to multilateral standards Australia professes.

Much more is needed, including Australia’s recognition of China’s global and regional role.

Embracing China in multilateral arrangements, economically and politically, with regional partners is the best way forward for Australia and China to manage their great bilateral relationship. There are immediate opportunities in regional and global agreements – particularly within the Regional Comprehensive Economic Partnership (RCEP) and the G20 – to work on shared multilateral interests and overcome the trust deficit in bilateral relations.

Diversifying Australia’s trade shares away from China is not the solution. This would mean lower revenues and an increase in public debt. The recent Australia-India trade agreement will not fundamentally change the structure of Australia’s regional trade and economic ties. The hard arithmetic is that if China stopped growing tomorrow, India’s economy would not reach parity with it until 2050, even if it doubled its income every decade.

Instead of trying to combat the forces of economic gravity through a costly withdrawal from the Chinese economy which is highly interdependent with Japan and the entire East Asian economy, the economic interest and Australian national security is best served by a framework that effectively limits states’ abilities to exert economic pressure for strategic purposes. Multilateral engagements spread raw power. This interest is shared by Australia’s regional partners.

China’s interests in the established economic order are demonstrable. Along with Australia and two dozen other members, it is part of the EU-led Multi-Party Interim Arbitration Agreement, or MPIA, a substitute for the WTO rules enforcement body that United States neutralized. China is a member of RCEP and has declared its interest in joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). They are platforms for positive engagement with China and our partners in the region that can frame productive bilateral relations. If China can demonstrate its commitment to high-level rules — the very rules the United States has led with Australia, Japan and others, and with China in mind — it is in the Australia’s and the region’s interest that China work through the reforms that would qualify it to join the CPTPP.

The way forward is to pursue common interests with China, with as many partners as possible. The frameworks are already in place to do so. In addition to engaging on the CPTPP, the RECP has built-in mechanisms to engage ministers and leaders in an economic and political cooperation program that kicks off in November.

Australia’s neighbors have called for Australian action and leadership in multilateral affairs – from action on climate change to support for free trade – that embraces China. Doing so in the months ahead provides a safe and sure path to restoring common purpose in our bilateral relationship.

Peter Drysdale is Emeritus Professor and Director of the East Asian Bureau of Economic Research. Shiro Armstrong is Associate Professor and Director of the Australia-Japan Research Center at the Crawford School of Public Policy at ANU’s College of Asia and the Pacific.

Melvin B. Baillie