Belted and railroaded: Victoria’s trade deal with China is a dud

Victorian Premier Daniel Andrews says his decision to sign on to China’s Belt and Road Initiative (BRI) will help Victoria attract foreign direct investment (FDI) and promote business links with China. Is this actually so?

Launching the BRI agreement in October 2018, Andrews highlighted the trade and investment opportunities the BRI promised to deliver to the state. In the face of recent public criticism of the state signing on, when the Commonwealth did not, he defended his decision by citing trade data.

Let’s look at the data

Over the last five years, exports to China have increased by 62%, tourists visiting Victoria increased by 70%, and the number of international students from China had grown by 50%.

The figures certainly sound good, and the premier has put a lot into the relationship. In addition to signing on to the BRI, he regularly signs up to attend China’s national day celebrations, new year functions, and other major events hosted by China’s Consul General in Victoria. He has made six trips to China over the past five years — two of them in 2019.

Of course, the premier visits other countries as well. According to his departmental website the premier has been to the US twice over these five years and once to Israel, Greece, India, Vietnam and Japan. All up though he has visited China about as often as all other countries combined.

So how well has the premier’s loyal attendance at consular events and visits to China assisted in promoting Victorian exports to China and attracting Chinese FDI into Victoria? As Andrews and the local Chinese consulate often point out, China is Victoria’s greatest two-way trading partner. They neglect to note that two-way merchandise trade favours China almost four to one and growing. According to DFAT trade data, in 2018/19 Victoria’s merchandise exports to China were valued at $6.5 billion and the imports from China were $23 billion.

The balance is deteriorating. Victoria’s merchandise exports to China showed no growth at all between 2017/18 and 2018/19, but China’s exports to Victoria grew 13.9%.  

The premier made three formal visitsov er that period. It is difficult to avoid concluding that the more often Andrews visits China, the more China’s producers benefit and the less Victorian ones do.

As it happens, Victoria’s merchandise exports to the US grew 33% year-on-year and the state’s exports to Japan rose 12% over the same period, with no fanfare and little acknowledgement from the Andrews government. And in the other direction, imports from Japan fell at a time when China’s exports to Victoria grew almost 14%. 

Services trade has been morerobust, but no more than Victoria’s nearest peer state, NSW. The number of Chinese tourists visiting Victoria has increased over the past five years but NSW has consistently done better in raw numbers. Proportionally speaking, Victoria’s Chinese tourist numbers have been tracking at around 70% of NSW figures since before Dan Andrews won office and have shown no significant variation since.

The growth in the number of students from China who have chosen to study in Australia is nothing short of phenomenal. The number has grown 20-fold over the past 20 years, and Victoria continues to attract more than its share. Again, there is no evidence that the premier’s strategic engagement with China has added anything of value to the state’s student recruitment efforts beyond that which the appeal and placement of Melbourne’s highly regarded universities and colleges can offer.

And for the all the hullabaloo about the BRI and investment, Japan remains Victoria’s largest source of FDI in Asia.

How does the BRI fit into all this?

The BRI does not appear to be helping with jobs, trade, or investment.

In fact, trade and investment have never been the primary purpose of China’s BRI. It is, instead, Chinese leader Xi Jinping’s signature geopolitical initiative to place China in a dominant strategic position in Eurasia and the Indo-Pacific.

How do we know? Before Xi became head of state in 2013, China had long been involved in country-to-country investment and infrastructure deals with neighbouring states and other countries, often on generous terms, to secure good will and diplomatic advantage. At that time China’s foreign aid and investment strategies were not unlike those of Japan and the US — self-interested, to be sure, but not particularly strategic.

In 2013, Xi incorporated these bilateral deals into a trans-continental strategy which he called the BRI. From then on, countries wishing to enter into major infrastructure deals with China needed to sign on and share Xi Jinping’s vision for his “new era” in their part of the world.

That’s what a geopolitical strategy looks like. Victoria’s agreement makes explicit reference in its opening paragraphs to this strategic “new era”.

Criticisms of the BRI for offering so-called “payday loans”, debt-for equity swaps, and access to new deep water ports for China’s naval and air forces around the Indo-Pacific region may be warranted, but they are misleading in suggesting the BRI has nothing to offer those who sign up. Xi wants his big play to work and he is likely to make a number of generous gestures along the way to win converts to his vision.

But these generous gestures are unlikely to come Victoria’s way.

In our region, far and away China’s biggest geopolitical play is to break the US alliance network by enticing Japan, South Korea, Australia, the Philippines and others to embrace the opportunities China offers and sever their ties with the US.

This play worked with spectacular success in the Philippines where President Duterte declared his country’s separation from the US during a visit to China in 2016. He unilaterally abrogated the Visiting Forces Agreement with the US in February this year.

Until very recently, Beijing was hoping to pry Australia away from of its alliance commitments as well. Some in Australia don’t appear to mind China’s approach. They are aggrieved over excessive US military force around the world and deeply troubled by the incumbent US president. But breaking alliance agreements with the US is not the position of Australia’s major political parties and is not yet, at any rate, supported by a majority of Australian voters.

Beijing was initially misled into thinking its prospects in Australia were good when it found political parties, business leaders, retired ministers and other thought leaders willing to speak on its behalf in return for rewards and opportunities. After its clandestine United Front operations were exposed, and Canberra moved on to take up outspoken positions on the South China Sea, on Huawei, on mass incarcerations in Xinjiang, and so on, China’s foreign policy circles and local consulates went into an Australia panic.

China’s Australia watchers began labelling Australian critics of Xi Jinping’s strategies as racists and bigots, and swore to wipe Australia from beneath their boots. In September 2019 Australia was branded the leading instigator of a global anti-China campaign and warned informally that it would suffer in consequence. 

This is the larger geopolitical picture of Victoria’s engagement with Xi Jinping’s BRI. Not much good is likely to come of it and practically speaking there is not a lot to be done about it.

Where to next?

By signing on to the BRI, Andrews has arguably placed his state in peril.

Although the BRI deal has brought little or no benefit to Victoria, the fact remains that once a government signs on to an agreement with Beijing, the consequences of reversing the agreement can be far worse than not signing on in the first place. In this sense, the premier has hung an albatross around the neck of his own and any future government of Victoria.

Rather than withdraw from the agreement, Andrews could consider spreading the good will by investing more effort in trade and investment agreements with the other countries that he has visited — with India, Japan, and Vietnam in particular.

In weighing up the costs and benefits of the immense effort Victoria has expended in building trade and investment links with China, for no appreciable value added, we have to consider the opportunity costs of not investing comparable effort in relations with Japan and India and other countries in the region.

This would have positioned Victoria far better for the tough times ahead. Fortunately, there is still time to act.