Defence Minister Linda Reynolds and Foreign Affairs Minister Marise Payne, who was the first female Defence minister (Image: AAP/AP/Rick Rycroft)

This is part two of an Inq series on China-Australia relations in the age of Trump. You can read the first part here.

Is there a chance there might be armed conflict between the United States and China — even by accident — before the US elections in 90 days? 

Former Australian prime minister Kevin Rudd thinks so and has described the “strident, uncompromising, and seemingly unending” sabre-rattling between the two countries as creating the most dangerous moment in the relationship since the Taiwan Strait crises of the 1950s. 

The prospect of conflict with China is also the theme of a major security speech today by Prime Minister Scott Morrison, who is pointing to the dangers of unprecedented militarisation in the Indo-Pacific region while calling for relations to be governed by agreed rules and norms.

As Rudd, writing in Foreign Affairs magazine, said: “The speed and intensity of it all has desensitized even seasoned observers to the scale and significance of change in the high politics of the US-Chinese relationship.”

Amid the fevered hostility between the two — fomented by an unmoored US President Donald Trump — Australia’s business community fears where the China-Australia relationship is heading.

Record trade results yesterday show the tension is yet to translate into a loss of business.

However, in a recent survey, 72% of Australia-China businesses nominated tension in Sino-Australian relations as their greatest risk. In 2018 the number was 45%, according to member surveys by the China-Australia Chamber of Commerce in Beijing.

‘A steadily unravelling relationship’

The spike in tension is linked at least in part to the uncertainty which has infected the relationship. “Businesses like having a predictable environment,” one business operator active in China told Inq. “But when you don’t know what Australia will say and how China will react then it becomes difficult.”

The changing mood on the ground is also the culmination of a steadily unravelling relationship, starting from Australia’s decision in late 2018 to ban Huawei. The Morrison government’s call earlier this year for an independent international investigation into the origins of COVID-19 and China’s trade retaliation accelerated the trend.

A Lowy Institute poll published in mid-June underlined the collapse in the public’s view of China. It found Australians’ trust in China was at its lowest point in the history of the poll. Only 23% said they trusted China a great deal or somewhat “to act responsibly in the world”.

It also found that nine in 10 Australians (94%) wanted the government to find other markets to reduce Australia’s economic dependence on China.

The question of Australia’s economic dependence on China loomed large at AUSMIN defence consultations in Washington last week attended by Defence Minister Linda Reynolds and Foreign Affairs Minister Marise Payne.

Australia and the US agreed on a mix of soft and hard power actions including:

  • Stepping up health efforts in the Pacific islands to combat COVID-19 and more investment in infrastructure 
  • Countering the “infodemic” of disinformation around the pandemic
  • Establishing a US-funded strategic military fuel reserve in Darwin and ramping up installations for US military “platforms and components” in Australia.

But there was a key focus on securing sources for critical goods should China decide to use its dominance and, in the worst case, cut off supply to Australia and the US. These goods include essential medical equipment, pharmaceuticals and “critical technologies”. 

The communique also rings the bell on the supply of rare earth minerals which, as Reuters explains, are essential to a vast range of products — from rechargeable batteries for electric and hybrid cars to fibre optics and superconductors.

Some are also essential in military equipment such as jet engines, missile guidance systems and missile defence systems. Every F35 fighter reportedly uses half a tonne of rare earth products.

China has a near monopoly on the world’s production of rare minerals because of, the US-Australia statement alleges, “market-distorting practices”, including attempts to drive out competitors and deter market entrants.

In a belated move to counter this US Department of Defense has commissioned the Australian ASX-listed rare earths mining company Lynas to do a feasibility study for production in the US.

The rare earths example shows that if it came to a trade war, China holds any number of aces against Australia beyond tariffs on barley which it used earlier this year. It also shows how slow Australia’s industry and government has been to act to secure essential resources.

There is a rare earths industry in the Northern Territory but over the past decade China has been the main investor. Analysts warn it may take several years for Australia and the US to produce the volume of rare minerals industry needs. 

Australian industry has no real plan B

The coronavirus-induced strains on the Sino-Australian relationship, exacerbated by US election politics, reveal the extent to which Australian industries have taken the China option — from Chinese students to Chinese tourists to Chinese property buyers — with no real plan B. 

In the battle between think tanks to shape public opinion, China hawks — supported by defence contractors and defence-friendly former politicians (as we reported yesterday) — are in the ascendancy. 

A growing panic has beset the China business lobby. China Matters — a group of industry, academics and old China hands — argues Australian business can ill-afford to stand silent as others shape what it calls “a more hostile approach” to relations. 

“Media commentators and defence and security analysts do not have a monopoly on the political judgement required to manage relations with the PRC,” its chief executive Michael Clifton wrote last month. “They simply have a different view.”  

(Clifton might have had in mind a piece by Australian Strategic Policy Institute head Peter Jennings under the headline “Party’s over for the Bullies of Beijing”.)

Bottom-line message is: ‘Get real’

China Matters has some big names on its board. The chairman is Kevin McCann, once chairman of Macquarie Bank and impeccably connected with Liberal politics. Professor Stephen Fitzgerald was Australia’s first ambassador to the PRC. Its backers include mining company Rio Tinto, management consultants PwC, and rail freight company Aurizon. It also receives federal government funds. 

It has a blunt bottom-line message: Australia needs to get real because China will “most likely” be more economically powerful than America, which will “fundamentally change” the foundations of Asia’s strategic order as it exercises “more power and influence”. 

“Our leaders need to say this out loud,” the group says. “A new narrative must provide a guide for how we can start trying to shape this order to our advantage.”

For its part the Business Council of Australia (BCA)wants Australia to pursue a “China and” rather than “China or” policy: developing other Asian markets.

But China Matters and the BCA never really address China’s ugly side: building a surveillance state; attacks on democratic values; mass detention and enforced slavery of Uyghurs; increasing cyber attacks on Australia; meddling in Australian politics and academic freedom. 

Inq asked the BCA to say how it suggests handling China’s growing authoritarianism, the elephant in the room when it comes to the business relationship. We got nothing back.

China Matters insists that advocating for ongoing engagement with the PRC does not make it a stooge of the Communist Party of China: “One can call out the government in Beijing and at the same time strongly support — in the national interest — engagement with the PRC.”

One might want to ask Hong Kong about that. Or businesses such as the University of NSW which rescinded criticism of China’s actions in Hong Kong this week, under pressure from Chinese nationals.

Are we at a moment of history? Are the tectonic plates shifting as the US sinks under Trump? Maybe. Maybe not.  But a Joe Biden victory might at least restore hopes of predictable diplomacy and, perhaps, the “rules and norms” Morrison is advocating to replace a series of power plays.