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    Greater China
     Dec 16, '13

Canberra risks more by crossing China
By Brendan O'Reilly

All is not well in the relationship between Australia and its largest trading partner. Canberra's long-standing political alliances are beginning to contradict its commercial interests, as tensions mount in the East China Sea and China's economy continues its strong expansion, albeit at what might be its slowest rate in 23 years.

Beijing has been accused in the past of using economic leverage to further its geopolitical goals. [1] China's leaders could use this strategy again if they feel sufficiently aggravated by perceived Australian interference in China's territorial disputes.

Australia and the United States were the only countries outside of China's immediate periphery to openly condemn Beijing's recently announced East China Sea Air Defense Identification Zone (ADIZ). The ADIZ covers the airspace over the disputed Diaoyu/Senkaku

Islands, which are claimed by China but administered by Japan.

Following Beijing's establishment of the ADIZ, Canberra summoned China's ambassador to lodge a complaint. Australian Foreign Minister Julie Bishop denounced the Chinese move, saying "the timing and the manner of China's announcement are unhelpful in light of current regional tensions, and will not contribute to regional stability ... Australia has made clear its opposition to any coercive or unilateral actions to change the status quo in the East China Sea." [2]

Chinese officials responded by condemning Australia for "taking sides" in the territorial dispute between Beijing and Tokyo. However, Australian Prime Minister Tony Abbott was unapologetic, saying: "We are a strong ally of the United States, we are a strong ally of Japan, we have a very strong view that international disputes should be settled peacefully and in accordance with the rule of law and where we think that is not happening, or it is not happening appropriately, we will speak our mind." Abbott brushed aside concerns over potential harm economic ties by saying "China trades with us because it is in China's interest to trade with us." [3]

Bishop's trip
Australian denunciations of China's ADIZ cast a shadow over newly appointed Australian Minister for Foreign Affairs Julie Bishop's inaugural visit to China. During her visit to Beijing, her Chinese counterpart publicly criticized Australia's stance on the ADIZ issue, saying: "Australia's words and actions on the issue of China's establishment of the East China Sea Air Defense Identification Zone has damaged the mutual trust and affected the healthy development of the relationship between the two countries." [4]

Bishop tried to play down the dispute and focus on economic affairs. Referring to the ADIZ spat, she said, "We moved on to other serious issues that overshadow that regional issue." [5] Amongst the "serious issues" discussed were Iran, Syria, North Korea, and of course, trade.

Australia and China have been negotiating a free trade agreement (FTA since 2005. Prime Minster Abbott, in office since September, has pledged to establish three new FTAs within a year of his election, and has so far delivered one, concluded in early September, with South Korea.

After talks with Chinese Vice-President Li Yuanchao, Foreign Minister Bishop was upbeat on the possibility of signing a Sino-Australian FTA: "There are many opportunities for our economic relationship to be broader and deeper and more diversified and the potential for a free trade agreement was discussed. Indeed, the Vice-President indicated that he thought we had the opportunity to conclude a free trade agreement in the very near future." [6]

The bottom line
Prime Minister Abbott's assertion that China does trade with Australia out of self-interest is entirely correct. Trade between the two countries has increased roughly 10-fold in the past decade, as China's booming economy draws in raw materials such as iron ore. China is Australia's largest trading partner by a substantial margin.

However, China's trade with Australia is worth roughly 1.5% of China's gross domestic product, while Australian trade with China is worth about 8.4% of the Australian economy. China trades with Australia out of interest, but Australia trades with China out of necessity. Coalmines and cattle ranches exist all around the world, but currently no country can match the combination of sheer size and rate of expansion of the Chinese economy.

Tourism between the two countries is also expanding rapidly. The number of Chinese tourists visiting Australia increased 17.3% in the past year. These travelers generated A$4.5 billion (US$4 billion) for the Australian economy. [7]

According to a report from Allen Consulting, annual trade with China is worth over US$12,500 per Australian household. [8] Both sides would be harmed in any trade war, but Australia clearly stands to lose more. If Beijing wants to leverage its economic heft and link any economic integration with Australia's strategic stance, Canberra may find itself in a difficult position.

Australian pivot
The Sino-Australian relationship is vitally important in its own right. It is also a microcosm of ties between China and many of America's allies in the Asia-Pacific.

Australia has a very special relationship with the United States. Close cultural, political, and military ties bind the two nations together. George W Bush famously described Australia as America's collaborative "sheriff" in the Asia-Pacific. [9] As to China's arch-rival in Asia, Prime Minister Abbott has said very bluntly: "Japan is Australia's best friend in Asia." [10]

However, given the current economic and strategic realities of the region, these relationships are being called into question. Hundreds of Australian soldiers died supporting American military efforts in Vietnam. Australia's participation in the American invasion and occupation of Iraq became unpopular with a majority of Australians. In the (highly unlikely) event of a war in the East China Sea, would Australian marines be sent to fight and die against their nation's largest trading partner for the sake of Japanese control over a small group of uninhabited islands?

China is not alone in casting a wary eye on Australia's unwavering support of US dominance in the Asia. After the announcement of a plan to permanently base thousands of American marines in Northern Australia, Indonesian Foreign Minister Marty Natalegawa warned, "What I would hate to see is if such developments were to provoke a reaction and counter-reaction precisely to create that vicious circle of tensions and mistrust or distrust ... That's why it's very important when a decision of this type is taken there is transparency of what the scenario being envisaged is and there is no misunderstanding as a result." [11]

Indonesian concerns are reflective of many of the Southeast Asian countries situated, both literally and politically, in between China and the Austro-American alliance. Indeed, given the realities of global interdependence and intercontinental nuclear weaponry, regional military posturing seems equally dangerous and ridiculous.

Besides freedom of navigation, or a very paranoid fear of a "dominoes theory" of Chinese expansion, it is hard to see where Australia's interests lie in the East China Sea. Of course, freedom of navigation the West Pacific is of vital importance to Australia. It is, however, even more important to Beijing. China does more trade than any other country. The vast majority of this trade travels through the West Pacific, under the watchful eye of America's formidable navy. China's leaders would have to be outlandishly incompetent to risk decades of economic growth for a few desolate isles.

Hugh White, a professor of strategic defense studies at Australian National University, has warned that Australia's leaders " ... didn't comprehend China's growing power and confidence ... They want to believe that Asia can be fundamentally transformed economically but remain completely unchanged strategically, with American power still calling all the shots ... As we grow rich on China's growing economy, we must learn to live with its growing power." [12]

Herein lies the real crux of the issue. American and Japanese regional policy (and therefore by extension, the policy of Australia) treats China as though it is a second-rate power with little capability for economic or strategic force projection. These policies are based on a very outdated worldview.

Numerous international financial institutions expect China to overtake the United States as the world's largest economy in the not-too-distant future - though others question if that will happen this century. Efforts to contain China's military capabilities to China's immediate shores will not only be difficult, but also downright dangerous as Chinese economic growth translates into expanding maritime capabilities. A recent standoff between China's new aircraft carrier and a US Navy vessel underlines these risks. [13]

Furthermore, China is the largest trading partner of every single one of America's closest Asia-Pacific allies, with the exception of the Philippines. Australia, Japan and South Korea, will face some level of internal contradiction if they continue to strongly back America's "pivot to Asia" while relying on Chinese trade for economic stability.

Beijing poses only a very hypothetical threat to Australia, just as Australia has little capability to significantly alter the balance of power in the East China Sea. Australia's denunciation of China's ADIZ, like Beijing's tough rebuttal, has more to do with domestic politics than geopolitical necessities.

Diplomatic rhetoric is nevertheless important. If Australia chooses to remain America's sheriff and Japan's best friend, it may find its relationship strained with an ever more economically vital and geopolitically ambitious China.

1. Beijing blocks bananas from Philippines as dispute continues, Want China Times, May 11, 2012.
2.Australia summons Chinese ambassador over airspace announcement, Reuters, November 26, 2013.
3. Tony Abbott refused to back down over China comments, The Age, November 28, 2013.
4. See here
5. See here
6. See here.
7. Australian tourists flock to China, The Sydney Morning Herald, December 15, 2013.
8. Our trade with China is worth $14,480 to average household, The Australian, August 13, 2013.
9. Anger as US pins sheriff badge on Australia, The Telegraph, October 17, 2003.
10. Tony Abbott invites Shinzo Abe, saying Japan is Australia's 'best friend' in Asia, The Guardian, October 9, 2013.
11. China, Indonesia wary of US troops in Darwin, Australia Broadcasting Corporation, April 26, 2011.
12. The Australian government doesn't appreciate China's growing confidence, The Guardian, November 28, 2013.
13. US Navy China Showdown, Washington Times, December 13, 2013.

Brendan P O'Reilly is a China-based writer and educator from Seattle. He is author of The Transcendent Harmony. He may be reached at oreillyasia@gmail.com.

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