The Chinese Journal of International Politics, Vol. 5, 2012, 369–394
doi:10.1093/cjip/pos016
Advance Access publication 11 November 2012
Counting On China? Australia’s
Strategic Response to Economic
Interdependence
James Reilly*y
Introduction
China’s remarkable economic growth has rendered its neighbours increasingly dependent upon China for their prosperity, even as China’s burgeoning
wealth and power raises security concerns around Asia, particularly among
states allied or aligned with the United States. The extent to which growing
economic dependence upon China is altering Asian states’ diplomatic and
security policies is one of the most interesting and important questions in
international relations today.
Influential theories generate divergent expectations of how middle powers
will respond to deepening economic dependence upon a rising power. One
set of Realist arguments suggests that negative threat perceptions towards
the rising power will exacerbate concerns over economic dependence,
encouraging balancing behaviour against the rising power. An alternative
political economy argument is that economic dependence upon the rising
power encourages closer alignment, or at least accommodation of the rising
power’s core interests. To date, scholarship on East Asian responses to
China’s rise has failed to fully address this issue, due in part to definitional
vagaries on alignment behaviour and a failure to distinguish hypothesised
causes from states’ policy choices. This study contributes to this debate by
assessing Australia’s strategic response to growing economic dependence
upon China since 2000.
Australia provides an ideal case study for examining the relative significance of security and economic factors in shaping alignment decisions.1
y
1
James Reilly is a Senior Lecturer in the Department of Government and International
Relations at the University of Sydney.
James Reilly and Jingdong Yuan, eds., Australia and China at 40 (Sydney: UNSW Press,
2012).
*Corresponding author. Email: [email protected].
ß The Author 2012. Published by Oxford University Press. All rights reserved.
For permissions, please e-mail: [email protected]
370 James Reilly
Strategically, Australia has almost no reason to shift its security alignment.
Australia enjoys a longstanding robust security alliance with the
United States, supported by public opinion, cultural affinity, and similar
political systems. It faces no direct security threat from China. Economic
factors point precisely in the opposite direction. Over the past decade,
Australia has become highly dependent upon China for its prosperity, due
largely to the boom in its mineral exports amid global economic uncertainty.
Accommodation of Chinese preferences makes good business sense for
Australia.
Following a conceptual overview, the article documents trends in
Australia’s economic relationship with China since 2000. It then measures
Australia’s strategic responses to China over the past decade, beginning
with the US alliance and security cooperation with other Asian states,
followed by enhancements of Australia’s military capacity and shifting
threat perceptions of China. The final section examines two key elements
in Australia’s China policy: regulations on Chinese investments in
Australia’s mining sector, and policy on Taiwan, Tibet, and China’s
human rights.
The results reveal that during the time Australia has become more economically dependent upon China it has simultaneously pursued a range of
internal and external balancing strategies in response to China’s rise: those
of strengthening security cooperation with the United States and its allies in
Asia while bolstering its military capacity. Although economic reliance upon
China exacerbates Australian security concerns, Canberra views closer economic ties with the United States and its allies as generating positive security
externalities. This case study suggests that, in dyads characterised by negative threat perceptions, economic dependence, and security alignment are
inversely related. In such cases, greater economic dependence encourages
balancing. Conversely, in dyads with close security alignment and low
threat perceptions, economic interdependence is seen as complementary to
security ties. To mitigate tensions between its diverging economic interests
and strategic alignment, Australia has relied upon diplomacy, namely by
largely accommodating China on the sensitive issues of Tibet and Taiwan.
As a result, Canberra has managed to deepen economic ties with China and
military ties with the United States while maintaining cordial diplomatic
relations with both Beijing and Washington.
Balancing in the Field
International relations theories raise divergent expectations of how middle
powers are likely to respond to economic dependence upon a rising great
power. Realists point out that although greater international trade enhances
national wealth, a rising power may use the gains from trade to bolster its
The Chinese Journal of International Politics, Vol. 5, 2012
Australia’s Response to Economic Interdependence
371
military strength and later threaten its trading partners.2 Wary of future
uncertainty, smaller states must beware of economic exchanges that enrich
a rising power that may pose a security threat down the road.3 Threat perceptions thus shape the extent to which economic dependence is seen as
potentially undermining national security, and so influence the alignment
choices of countries facing a rising power.4 Given the widespread uncertainty about China’s future intentions, this approach suggests that as US
allies in Asia become more economically dependent upon China, they will
tend to balance against China.
An alternative political economy argument yields precisely the opposite
prediction: the domestic imperative to maximise national wealth and power
will lead secondary states to align themselves with a rising power as their
economic dependence increases. Albert Hirschman argues that an economic
great power develops political power from the secondary state’s dependence
on its market for exports, which promotes economic growth, employment,
and political stability, so fostering an interest in accommodation. The larger
and more diversified economy of the economic power provides leverage over
the smaller state.5 Paul Papayoanou goes a step further. A status quo
power’s preference for bandwagoning with a threatening power will increase
in parallel with economic dependence. Even threat perceptions will decline
because domestic ‘vested interests with strong economic ties to states
deemed to be threatening powers by strategists are likely to be more reluctant to believe there is a danger given their positive relationship. They will,
therefore, be opposed to balancing’. If ‘the perceived threatening power has
non-democratic political institutions that prevent internationalist economic
interests from having much of a say in the political process’, then the status
quo power is likely to be even more reluctant to support balancing policies
that might undermine economic ties.6 Hirschman agrees that domestic
‘vested interests’ can become an influential ‘commercial fifth column’ promoting accommodation with a rising great power.7
2
3
4
5
6
7
Andrew G. Long and Brett Ashley Leeds, ‘Trading for Security: Military Alliances and
Economic Agreements’, Journal of Peace Research, Vol. 43, No. 4 (2006), pp. 433–51;
Joseph M. Grieco, ‘Anarchy and the Limits of Cooperation: A Realist Critique of the
Newest Liberal Institutionalism’, International Organization, Vol. 42, No. 3 (1988), pp.
485–507; Jowanne Gowa, Allies, Adversaries, and International Trade (Princeton, NJ:
Princeton University Press, 1994).
Barry Buzan, ‘Economic Structure and International Security: The Limits of the Liberal
Case’, International Organization, Vol. 38, No. 4 (1984), pp. 597–624; Kenneth N. Waltz,
‘Globalization and Governance’, PS: Political Science and Politics, Vol. 32, No. 4 (1999),
pp. 693–700.
Stephen M. Walt, The Origins of Alliances (Ithaca: Cornell University Press, 1987).
Albert O. Hirschman, National Power and the Structure of Foreign Trade (Berkeley:
University of California Press, 1980), pp. 16–31.
Paul A. Papayoanou, ‘Economic Interdependence and the Balance of Power’, International
Studies Quarterly, Vol. 41, No. 1 (1997), p. 119.
Albert O. Hirschman, National Power and the Structure of Foreign Trade, p. 16.
The Chinese Journal of International Politics, Vol. 5, 2012
372 James Reilly
East Asia provides an ideal testing ground for these divergent theoretical
expectations. ‘Asian states do not appear to be balancing against rising
powers such as China’, David Kang insisted in 2003, ‘Rather they seem to
be bandwagoning.’8 He later described Asian states as ‘accommodating’ a
China-led regional hierarchy.9 Evelyn Goh instead places the United States
atop the regional hierarchy, arguing that Asian states accept US hegemony
under a kind of ‘social contract’ rooted in a combination of material and
ideational motivations.10 Simple geography explains Asian responses, according to Robert Ross. Confronted with overwhelming Chinese military
power, South Korea and Taiwan have accommodated China, while
Southeast Asian states, facing weaker Chinese military power, have
balanced. Dismissing economic dependence as insufficient to generate accommodation, Ross reaffirms ‘traditional realist and neorealist arguments
that secondary states respond to great power capabilities rather than to a
threat assessment that incorporates an assessment of a great power’s intentions’.11 Jae Ho Chung also downplays economic factors, highlighting instead security alliances with the United States, regime characteristics and
territorial disputes with China to explain alignment choices.12
A similar divergence exists across studies of Australia’s response to the rise
of China. Joshua Kurlantzick warns that China has ‘wooed Australia’ by
‘aggressively promoting the importance of China’s demand for natural resources to the Australian economy’.13 ‘Australia is tilting towards China and
away from the United States and other democratic powers in the region’,
claims Robert Kagan.14 Although more cautious, Baogang He agrees that
‘economic interdependence has driven the politics of accommodation in
Australia and several Asian countries. The Australian accommodation of
China is not submissive and unprincipled; rather it is strategically selective in
that it accommodates some demands but refuses others’.15 Others suggest
that Australia provides a valuable ‘lesson’; namely that ‘there is nothing
inconsistent in supporting an American-led order in the Asia–Pacific and
8
9
10
11
12
13
14
15
David C. Kang, ‘Getting Asia Wrong: The Need for New Analytical Frameworks’,
International Security, Vol. 27, No. 4 (2003), pp. 57–85.
David C. Kang, China Rising: Peace, Power, and Order in East Asia (New York: Columbia
University Press, 2007).
Evelyn Goh, ‘Hierarchy and the Role of the United States in the East Asian Security
Order’, International Relations of the Asia-Pacific, Vol. 8, No. 3 (2008), p. 360.
Robert S. Ross, ‘Balance of Power Politics and the Rise of China: Accommodation and
Balancing in East Asia’, Security Studies, Vol. 15, No. 3 (2006), p. 358.
Jae Ho Chung, ‘East Asia Responds to the Rise of China: Patterns and Variations’, Pacific
Affairs, Vol. 82, No. 4 (2009), pp. 657–75.
Joshua Kurlantzick, Charm Offensive: How China’s Soft Power is Transforming the World
(New Haven, CT: Yale University Press, 2007), p. 214.
Robert Kagan, ‘The September 12 Paradigm: America, the World, and George W. Bush’,
Foreign Affairs, Vol. 87, No. 5 (2008), p. 38.
Baogang He, ‘Politics of Accommodation of the Rise of China: The Case of Australia’,
The Journal of Contemporary China, Vol. 21, No. 73 (2012), pp. 53–70.
The Chinese Journal of International Politics, Vol. 5, 2012
Australia’s Response to Economic Interdependence
373
close economic relations with China’.16 James Manicom and Andrew O’Neil
concur. ‘While there is some evidence of Australia accommodating Chinese
strategic preferences in Asia, there is no indication that it is realigning itself
strategically towards China and away from its long-standing ally, the US.’17
O’Neil subsequently warned, however, that Australian policymakers ‘will
find it increasingly difficult to avoid accommodating Chinese policy preferences on key security issues in order to maintain an upward trajectory in the
economic relationship’.18
Varying definitions of alignment concepts, however, have impeded effective comparisons across East Asia. As Manicom and O’Neil note, Kang
defines balancing in purely military terms and finds no evidence of East
Asian states adopting pure balancing strategies against China. Goh, meanwhile, defines balancing in non-military terms, and finds ample evidence of
soft balancing strategies.19 Balancing and bandwagoning are often used as
ideal types, developed deductively and described in extreme terms.
‘Balancing’, Randall Schweller declares, ‘requires that states target their
military hardware at each other in preparation for a potential war’.20 This
is a high bar. Most Asian states prefer a middle road, frequently defined as
either hedging or accommodation.21 Yet defining hedging broadly, as ‘engagement, binding, and balancing’, including ‘cooperative and competitive
policies’, as Evan Medeiros does, leads to a rather obvious conclusion.
‘Most nations in the region are themselves hedging their security bets by
seeking positive relations both with Beijing and Washington, to varying
degrees.’22
Lacking reliable indicators of the key dependent variable—alignment behaviour—scholars have turned to comparison: placing states on a spectrum
according to their alignment behaviour and explaining variations. Yet the
absence of reliable measurement standards still results in diverging assessments. Ross, for instance, describes Taiwan as accommodating China, while
16
17
18
19
20
21
22
Derek Scissors and Walter Lohman, ‘Australia–China Economic Relations: A Lesson for
the U.S., Not a Threat’, Heritage Foundation WebMemo #3186, March 9 2011.
James Manicom and Andrew O’Neil, ‘Accommodation, Realignment, or Business as
Usual? Australia’s Response to a Rising China’, The Pacific Review, Vol. 23, No. 1
(2010), pp. 23–44.
Andrew O’Neil, ‘Conceptualising Future Threats to Australia’s Security’, Australian
Journal of Political Science, Vol. 46, No. 1 (2011), pp. 19–34.
James Manicom and Andrew O’Neil, ‘Accommodation, Realignment, or Business as
Usual?’, p. 27.
Randall L. Schweller, ‘Bandwagoning for Profit: Bringing the Revisionist State Back In’,
International Security, Vol. 19, No. 1 (1994), p. 65.
Gilbert Rozman, ‘South Korea and Sino-Japanese Rivalry: A Middle Power’s Options
within the East Asian Core Triangle’, The Pacific Review Vol. 20, No. 2 (2007), pp. 197–
220.
Evan S. Medeiros, ‘Strategic Hedging and the Future of Asia-Pacific Stability’, The
Washington Quarterly, Vol. 29, No. 1 (2005–06), p.159. Baogang He defines accommodation equally broadly, including ‘opinion, policy, and strategy’ and noting that it can range
from ‘moderate to extreme variants’. Baogang He, ‘Politics of Accommodation’, p. 57.
The Chinese Journal of International Politics, Vol. 5, 2012
374 James Reilly
Chung labels Taiwan a balancer. Chung explains: ‘Taiwan, Japan, Australia
and Mongolia have occasionally expressed security concerns with China
and, therefore, are placed on the balancing end of the spectrum.’23
Although Ross and Chung both agree that Australia is balancing against
China, Baogang He describes Australia as accommodating China.
A third problem is the tendency to confuse causes and effects. Ross uses
two indicators of alignment choices by secondary states: positions on issues
of war and peace, and trends in the rising power’s soft power.24 Yet soft
power, measured by Ross with survey data, does not reflect policy choices.
Aside from the numerous problems in measuring soft power,25 public attitudes are more likely to present a potential (alternative) explanation for
policy choices than a reliable indicator of alignment behaviour. Manicom
and O’Neil add a third indicator: ‘degree of economic interdependence in the
relationship and the extent to which this has enhanced China’s ability to
exercise influence over Australia’.26 Economic dependence, however, is more
likely to be an independent factor shaping alignment decisions. In order to
test the claim that economic dependence encourages strategic alignment it is
essential to maintain a clear distinction between economic drivers as hypothesised causal variables and security policy decisions as indicators of the
dependent variable.
As noted above, Australia is an ideal case study for testing the relative
significance of security and economic factors in shaping alignment choices.
Facing no direct Chinese threat and enjoying a robust security alliance with
the United States, Australia has become far more economically dependent
upon China over the past decade. Previous studies have sought to explain
variation across states. In contrast, this study examines change over time.
The single-country approach usefully controls for alternative explanations
suggested by national variation. My hypothesis is simple: as Australia has
become more economically dependent on China over the past decade, it is
likely to shift its strategic alignment closer to China. Two alternatives exist:
that greater economic dependence encourages balancing against China; or
perhaps that economic and security policies are independent of each other.
The primary test is for correlation between trends in economic dependence
and security policy over the past decade augmented, where possible, with
indicators of causation.
23
24
25
26
Jae Ho Chung, ‘East Asia Responds to the Rise of China: Patterns and Variations’, p. 662.
This definitional vagueness undermines Chung’s statistical analysis, which seeks to explain
countries’ rank ordering on his alignment spectrum through multivariate analysis.
Robert S. Ross, ‘Balance of Power Politics and the Rise of China’, pp. 367–8.
James Reilly, ‘Soft Power in Chinese Foreign Policy’, in Emilian Kavalski, ed., Ashgate
Research Companion to Chinese Foreign Policy (Surrey: Ashgate, 2012), pp. 192–219.
James Manicom and Andrew O’Neil, ‘Accommodation, Realignment, or Business as
Usual?’, p. 25.
The Chinese Journal of International Politics, Vol. 5, 2012
Australia’s Response to Economic Interdependence
375
One might argue that China’s military drive, not economic factors, shapes
Australian responses to China. Papayoanou, however, claims that increased
economic dependence will ameliorate these concerns; as Australia becomes
more economically dependent upon China, it will view Chinese security
policies as less threatening and be less likely to balance against China.27
The alternative explanation is that becoming more economically dependent
upon China renders Australians more concerned about China’s security
enhancements and more likely to balance against China. The competing
explanations hence predict opposite outcomes from the same cause, rendering Australia an effective test case. We begin with economics.
Tradeoffs in the China Trade
Although usefully understood as a relationship of asymmetric interdependence, Australia’s trade dependence upon China has risen substantially since
2000.28 Australia–China bilateral trade volume surged 9.8 times from 2001
to 2010—nearly double the growth in China’s overall trade volume (5.8
times). The bulk of the gain came from Australian exports to China,
which skyrocketed from US$5.4 billion in 2001 to US$60.9 billion by
2010.29 China is now Australia’s largest trading partner, accounting for
19.1% (A$105.3 billion) of total trade in 2010. China is both Australia’s
largest export market, accounting for 22.6% (A$64.4 billion) of total exports, and largest source of imports (15.3%: A$41.0 billion), leaving
Australia with a sizeable trade surplus.30 The payoffs have been substantial.
One report estimates that in 2010, 4.6% of Australia’s gross domestic product (GDP) was generated by exports to China.31 The average Australian
household generates an additional A$3,400 a year from trade with China,
according to the Australia China Business Council.32
The disparity between China, the world’s second largest economy, and
Australia, the 19th largest, is reflected in Australia’s greater trade dependence. In 2010, Australia took only 1.7% of China’s exports (rank 14), while
providing 4.3% of its imports (rank 6). Conversely, China was Australia’s
largest export market, accounting for one-fifth of all exports.33 On the
27
28
29
30
31
32
33
Paul A. Papayoanou, ‘Economic Interdependence and the Balance of Power’, p. 199.
Yu Chang Sen, ‘Sino-Australian Economic Relations: A General Review’, in James Reilly
and Jingdong Yuan, eds., China and Australia at 40, p. 119.
Derek Scissors and Walter Lohman, ‘Australia–China Economic Relations’.
Department of Foreign Affairs and Trade, ‘Composition of Trade 2009-10’ (Canberra:
Department of Foreign Affairs and Trade, 2011), p. 5.
Stewart Partners, ‘Why China is So Important to Australia & Our Stock Market’,
Strategic Wealth and Investment, August 8 2011, http://www.stewartpartners.com.au/
why-china-is-so-important-to-australia-our-stockmarket.
Australian Trade Commission, ‘China’s Strength Bodes Well for Australia’s Trade Future’
(Canberra: Austrade, 2009).
Department of Foreign Affairs and Trade, ‘China: Fact Sheet’ (Canberra: Department of
Foreign Affairs and Trade, 2010).
The Chinese Journal of International Politics, Vol. 5, 2012
376 James Reilly
Fig. 1 Australian Exports to China as a Percentage of Total Australian Exports:
2000–2010.
Source: DFAT Annual Composition of Trade Reports, in terms of AUD value.
whole, trade with China increased an average 24.8% between 2000 and
2010.34 As a result, the significance of China to Australia’s exports has
risen sharply over the past decade (Figure 1).
At the core of the burgeoning trading relationship is a high level of complementarity. Mining and agricultural products dominate Australia’s merchandise exports, while China exports to Australia light manufactured
products such as clothing, electronic components, and computers. Since
2004, trade in minerals and fuel has grown at an average annual rate of
38.8%. By 2010, they made up over half of all Australian goods exported to
China.35
Australian commodity exports are certainly important to China. Almost
40% of China’s $80 billion of iron ore imports in 2010 came from
Australia.36 These exports, however, are of even greater significance to
Australia. Iron ore made up one-quarter of all Australian merchandise exports to China in 2010, having increased 37% that year. By 2010, coal exports to China exceeded the value of all service exports to China combined.
Indeed, resources accounted for seven of the top 10 Australian exports to
China in 2010.37 China now takes over a quarter of all Australia’s exports,
including 72% of its iron ore exports. China is moreover Australia’s largest
34
35
36
37
Australian Trade Commission, ‘China’s Strength Bodes Well for Australia’s Trade
Future’.
Department of Foreign Affairs and Trade, ‘Composition of Trade 2009–10’, pp. 30–31.
‘China’s Iron Ore Imports Drop Last Year as Production Costs Rise’, Xinhua, February 24
2011.
Department of Foreign Affairs and Trade, ‘Australia’s Top 10 Two-way Trading Partners
and Australia’s Top 10 Exports, Goods and Services’ (Canberra: Department of Foreign
Affairs and Trade, 2010).
The Chinese Journal of International Politics, Vol. 5, 2012
Australia’s Response to Economic Interdependence
377
Table 1 Australia’s Top Mineral Exports to China: 2009–2010
Rank
Relative to
All Exports
Commodity
1
2
Coal
Iron ore and
concentrates
Aluminum ores
and concentrates
Copper ores and
concentrates
Copper
Zinc
Nickel ores and
concentrates
Nickel
6
7
13
25
28
42
Total Share
of Export
Commodities
(%)
18.2
17.5
Value
Exported
to China
Exported
to China
(%)
5,602
25,185
13.9
71.77
China’s
Rank
of Export
Share
3
1
2.5
143.7
2.85
1
2.2
1,200.9
26.61
1
1.3
0.5
0.4
910.0
256.1
296.1
36.21
26
35.68
1
1
1
0.3
304.2
46.4
1
Source: Australia Department of Foreign Affairs and Trade, ‘Composition of Trade 2009–10’. All figures in A$
million.
market for iron ore, copper, nickel, aluminium, zinc, wool, and cotton, and
a major and growing market for natural gas (Table 1).
Thanks largely to Chinese demand, Australia has become the world’s
leading producer of bauxite and coal, second largest producer of gold,
iron ore, lead, uranium, and zinc, third largest producer of silver and
nickel, fourth largest of manganese, and fifth largest producer of aluminium
and copper.38 In 2010, resources accounted for 58% of total Australian
exports, up from 35% a decade earlier.39 The coal industry alone contributed A$55 billion to the Australian economy from 2008 to 2009, employing
some 137,000 people.40 Bearing in mind that China accounts for one-fifth of
the world’s total steel production—with production growing at 13% despite
volatile financial markets—China’s vociferous appetite for Australian resources has sustained, and indeed transformed, the Australian economy.41
Thanks in no small part to trade with China, Australia was the only
advanced economy in 2009 to record GDP growth (3.1%).42
38
39
40
41
42
Minerals Council of Australia, The Australian Minerals Industry and the Australian
Economy, MCA Minerals Industry Factsheet, May 2007.
Stewart Partners, ‘Why China is So Important to Australia & Our Stock Market’.
Australian Coal Industry, ‘Creating Value for Australia’s Future’, Australian Coal,
October 26 2010, http://www.aprs.com.au/australian-mining-news/the-australian-coalindustry-creating-value-for-australias-future.
Embassy of China, ‘‘‘Australia and China: An Iron Ore Partnership for the Future’’,
Ambassador Dr Geoff Raby speech at 10th China International Steel & Raw Materials
Conference 2010’, Beijing, September 28 2010, p. 3, http://www.china.embassy.gov.au/
files/bjng/100927_Ambassador%20Speech%20at%20Iron%20Ore%20Conference_Final.
pdf.
Sean Crean, ‘Trade at the Centre of the Global Recovery’, Speech to the Foreign
Correspondents’ Association, Sydney, February 16 2010.
The Chinese Journal of International Politics, Vol. 5, 2012
378 James Reilly
Although less significant than trade, China’s total investment in Australia
has increased six-fold over the past decade, from A$3.1 billion in 2001 to
A$19.5 billion in 2010, with sharp increases since 2005.43 China provides
only a small portion of total overseas direct investment (ODI) in Australia,
yet this investment is highly concentrated in the mining sector and closely
integrated with the burgeoning trade levels. Total approved
Chinese-investor projects since 2005–2006 were valued at slightly more
than A$60 billion, of which A$53 billion (nearly 90%) was in minerals or
resources processing.44 Australia’s economic relationship with China took
on greater significance after the onset of the global financial crisis. While
global FDI flows fell in 2008 by 20%, Chinese outflows doubled—to an
estimated $41 billion.45 In Australia, while total Federal Investment Review
Board (FIRB) approvals for projects from all countries fell after the financial crisis—from 8,354 between 2007 and 2008 to 604 between 2008 and
2009—the value of Chinese approved investments rose to more than A$16
billion between 2009 and 2010.46 Indeed, Australia has emerged as the single
largest ultimate destination of China’s direct investment—larger than the
United States or any other single country in the world.47
Australia’s economic dependence upon China, however, should not be
overestimated. Clearly, the relationship is one of mutual dependence. As
Ambassador Geoff Raby asserted in 2010: ‘China’s heavy reliance on
Australia’s mineral and, increasingly, energy resources is a significant national asset for Australia in our diplomatic dealings with China. It gives us a
level of influence well beyond our size in terms of population or geo-strategic
importance.’48 Furthermore, although China is important to Australia’s
economy, Australia is hardly isolated. The United States is Australia’s
third-largest trading partner, its largest source of foreign investment, and
largest recipient of Australian investment.49 Japan is Australia’s
second-largest trading partner and export market, and third-largest source
43
44
45
46
47
48
49
Australian Bureau of Statistics, ‘Foreign Investment in Australia’, International Investment
Position, cat. no. 5352.0 (Canberra: Australian Bureau of Statistics, 2011).
Christopher Findlay, ‘Australia–China Economic Relations’, in Jane Golley and Ligang
Song, eds., Rising China: Global Challenges and Opportunities (Canberra: Australia
National University E-Press, 2011), pp. 181–202.
Peter Drysdale and Christopher Findlay, ‘China’s Foreign Direct Investment in the
Australian Resource Sector’, in Ross Garnaut, Ligang Song and Wing Thye Woo, eds.,
China’s New Place in a World in Crisis: Economic, Geopolitical and Environmental
Dimensions (Canberra: Australia National University E-Press, 2009), pp. 349–88.
Christopher Findlay, ‘Australia–China Economic Relations’.
Peter Drysdale, ‘Australia: Time to Adapt’, East Asia Forum Quarterly, Vol. 4, No. 2
(2012), pp. 31–2.
Geoff Raby, ‘The Rise and Rise and Rise of China: Implications for Australia’, Keynote
Address to the Future Summit, May 24 2010, http://www.china.embassy.gov.au/bjng/
spch24may.html.
Department of Foreign Affairs and Trade, Fact Sheet: United States (Canberra:
Department of Foreign Affairs and Trade, 2011).
The Chinese Journal of International Politics, Vol. 5, 2012
Australia’s Response to Economic Interdependence
379
of foreign direct investment.50 Australia’s economic dependence upon
China, however, has grown significantly over the past decade. Given the
speed of this change, coming amid severe global economic uncertainty, we
might expect Australia’s economic alignment with China to influence its
security and foreign policies. Indeed, Hugh White’s controversial 2010 recommendation was for Australia to acknowledge this economic reality by
edging away from the United States and closer to China.51
Allying with America
Australia has strengthened its support for the US alliance over the past decade.
Australian dedication has no clearer signal than its willingness to commit
troops to US-led wars in Iraq and Afghanistan. Following Prime Minister
John Howard’s evocation of the ANZUS alliance in the wake of the
September 11 2001 attacks, Australia committed 1,500 Australian Defence
Force (ADF) personnel to the invasion of Afghanistan.52 Unlike most US
allies, Australia sustained these force levels; at the end of 2010, 1,550 ADF
personnel were still deployed in Afghanistan.53 As Bruce Vaughn reminded the
US Congress, ‘The United States has found few friends that have been willing
to work as closely with the United States in its efforts to contain militant
anti-Western Islamists as Australia has proven to be.’54 The Howard government was also an early supporter of the US war in Iraq, committing some
2,000 soldiers despite vociferous domestic criticism.55 ‘By so ardently supporting the ANZUS banner’, William Tow argues, ‘the Howard government
assumed the greatest foreign policy risk of any Australian government in
living memory’.56 Yet Australian governments have repeatedly been willing
to bear these costs ‘even when US actions do not suit our interests’, as the
2003 White Paper Advancing the National Interests explained.57
50
51
52
53
54
55
56
57
Department of Foreign Affairs and Trade, Annual Report 2010–2011 (Canberra:
Department of Foreign Affairs and Trade, 2011), p. 29.
Hugh White, ‘Power Shift: Australia’s Future Between Washington and Beijing’, Quarterly
Essay, Vol. 39 (2010), pp. 1–74.
Anthony L. Smith, ‘Still Great Mates: Australia and the United States’, Asian Affairs, Vol.
30, No. 2 (2003), pp. 114–21.
Department of Defence, Australia’s Commitment in Afghanistan: Fact Sheet (Canberra:
Department of Defence, 2011).
Bruce Vaughn, ‘The United States and Australia Treaty on Defense Trade Cooperation’,
DISAM Journal, Vol. 30, No. 1 (2008), p. 94.
Mark Beeson, ‘Australia, the US and East Asia: Are Close Ties with the Bush
Administration Beneficial?’ Pacific Affairs, Vol. 79, No. 4 (2006/07), p. 597.
William Tow, ‘Deputy Sheriff or Independent Ally? Evolving Australian–American Ties in
an Ambiguous World Order’, The Pacific Review, Vol. 17, No. 2 (2004), p. 286.
Department of Foreign Affairs and Trade, Advancing the National Interests: Australia’s
Foreign and Trade Policy White Paper (Canberra: Department of Foreign Affairs and
Trade, 2003), p. 115.
The Chinese Journal of International Politics, Vol. 5, 2012
380 James Reilly
Intelligence cooperation, which Desmond Ball deems ‘the fundamental
basis of the US-Australian alliance’,58 has also steadily expanded, as have
cyber security cooperation and arms sales.59 By July 2011, US military sales
to Australia reached $3.7 billion for the year.60 The Obama administration’s
‘pivot’ back to Asia has been welcomed by Australia, facilitating a rapid
deepening of their security ties. In June 2011, the two sides announced an
agreement ‘making it very clear to those who would threaten us that we are
going to stick together’, as Defence Minister Stephen Smith declared, promising ‘more ships in, ships out; more planes in, planes out; more troops in,
troops out’.61 President Obama’s November 2011 visit sealed the agreement
to base up to 2,500 US Marines in Darwin on regular rotation.62
Unlike the anxiety wrought by deepening economic ties with China,
Australian policymakers describe economic ties with the United States as
augmenting Australia’s security position.63 Canberra’s willingness to reach a
free trade agreement (FTA) with the United States in February 2004, the
first treaty ally in the Asia-Pacific to do so, signalled this determination.
Australia signed the agreement despite the United States’ refusal to include
key agricultural sectors (where Australia holds a comparative advantage),
even though Australia provided immediate access to its manufacturing and
service sectors, reduced quarantine requirements, and committed to ‘harmonising’ its regulatory environment.64 As a result, Australia’s entrenched
trade deficit with the United States worsened after the deal; in 2005, US
exports to Australia grew 4%, while Australian exports to the United States
fell by the same amount.65 Despite withering criticism of the FTA deal
within Australia, both Liberal and Labour governments have defended
the deal as providing strategic benefits that render the short-term economic
costs worth bearing. As Beeson notes, ‘No ally of the United States could
claim to be more enthusiastic, reliable or obliging than Australia.’66
58
59
60
61
62
63
64
65
66
Desmond Ball, ‘The Strategic Essence’, Australian Journal of International Affairs, Vol. 55,
No. 2 (2001), p. 236.
‘All the Way with the US in the Fifth Domain of Warfare’, Sydney Morning Herald,
September 20 2011, p. 1.
‘Deal Near On More US Military Access In Australia’, Associated Press, September 15
2011.
Ibid.
‘Obama’s Pacific Punch’, Sydney Morning Herald, November 19–20, 2011.
Department of Foreign Affairs and Trade, Annual Report 2010–2011, p. 47.
Linda M. Weiss, Elizabeth Thurbon, John Alwyn Mathews, How to Kill a Country:
Australia’s Devastating Trade Deal with the United States (Sydney: Allen & Unwin,
2004); Ann Capling, All the Way with the USA: Australia, the US and Free Trade
(Sydney: UNSW Press, 2004).
Mark Beeson, ‘Australia, the US and East Asia’.
Ibid., p. 597.
The Chinese Journal of International Politics, Vol. 5, 2012
Australia’s Response to Economic Interdependence
381
Aligning with Japan
Australia has also enhanced security cooperation with Japan over the past
decade. The Howard government established annual political–military and
military–military consultations with Japan in 1996, and an annual Prime
Ministers’ meeting the following year.67 A trilateral dialogue with the
United States, begun in response to a 2001 Australian proposal and upgraded
to ministerial level in 2005, led to the 2007 Japan–Australia Joint Declaration
on Security Cooperation.68 Bilateral security relations then rapidly intensified
(Table 2).69 The ongoing bilateral and trilateral dialogues ensure regular meetings at the ministerial levels, thus strengthening personal relationships, easing
negotiations, and facilitating functional cooperation.
Functional military collaboration has also grown stronger. An Australian
general commanded Japan’s Self-Defence Forces (SDF) in their first UN peacekeeping operations in Cambodia in 1992. The SDF also worked with the
Australian army during its 2002–2005 deployment in East Timor, and again
in the wake of the 2004 Tsunami.70 Australia then committed hundreds of
troops to protect Japanese SDF personnel deployed for reconstruction in
Iraq, causing the ‘greatest transformation in Australian attitudes towards
Japan’, according to Purnendra Jain.71 The two sides continue to collaborate
in the US-led RIMPAC (‘Rim of the Pacific’) exercises and the US Navy’s
Ocean Surveillance Information System, a worldwide network of airborne maritime surveillance platforms. The 2007 Defence Update declared: ‘Australia has
no closer nor more valuable partner in the region than Japan.’72 The 2009
Defence White Paper described Japan as a ‘critical strategic partner’.73
As in the US case, Australian officials see economic cooperation with
Japan as enhancing national security. As part of the 2006 agreement on a
Comprehensive Strategic Partnership, they began discussions on an FTA.
Although an agreement has remained elusive, foundering on Japan’s reluctance to open up its agricultural sector to Australian imports, the motivations appear as much strategic as economic. As Bisley notes, ‘the intention
67
68
69
70
71
72
73
Pranamita Baruah, ‘Japan and Australia: Convergence of Security Interests’, Global
Politician, January 14 2010, http://www.globalpolitician.com/26157-australia-japan.
Nick Bisley, ‘The Japan-Australia Security Declaration and the Changing Regional
Security Setting: Wheels, Webs and Beyond?’ Australian Journal of International Affairs,
Vol. 62, No. 1 (2008), pp. 38–52.
Kazuhiko Togo, ‘Regional Security Cooperation in East Asia: What can Japan and
Australia Usefully Do Together?’ Australian Journal of International Affairs, Vol. 65,
No. 1 (2011), pp. 40–60.
Pranamita Baruah, ‘Japan and Australia: Convergence of Security Interests’, Global
Politician, http://globalpolitician.com/26157-australia-japan.
Purnendra Jain, ‘Japan–Australia Security Ties and the United States: The Evolution of
the Trilateral Dialogue Process and its Challenges’, Australian Journal of International
Affairs, Vol. 60, No. 4 (2006), p. 524.
Pranamita Baruah, ‘Japan and Australia’.
Department of Defence, Defence White Paper 2009: Defending Australia in the Asia Pacific
Century: Force 2030 (Canberra: Department of Defence, 2009).
The Chinese Journal of International Politics, Vol. 5, 2012
382 James Reilly
Table 2 Key Events in Australia–Japan Security Cooperation
Date
Event/Agreement
July 2003
Australia–Japan Joint Statement on Cooperation to Combat International
Terrorism
September 2003
Memorandum of Defense Exchange
2005–2006
Joint Deployment in Iraq of ADF and SDF
March 2006
First Trilateral Australia–Japan–US Foreign Ministerial Summit; Joint
Statement on Building a Comprehensive Strategic Partnership
March 2007
Japan–Australia Security Declaration
June 2007
Japan–Australia Joint Foreign and Defence Ministerial Consultations
(first ‘2 þ 2’ dialogue)
June 2008
Establish Comprehensive Strategic, Security and Economic Partnership;
Third Trilateral Strategic Dialogue
December 2008
Second Japan–Australia Joint Foreign and Defence Ministerial
Consultations
December 2009
May 2010
Action Plan to implement the Japan–Australia Joint Declaration on Security
Cooperation
Acquisition and Cross Servicing Agreement
Nov 2010
Joint statement on nuclear issues
Source: ‘Japan–Australia Relations’ (Ministry of Foreign Affairs of Japan); and ‘Japan Country Brief’
(Department of Foreign Affairs and Trade, Australia).
is for improved security cooperation to sit alongside governmental efforts to
increasingly link the two economies’.74 Terada adds: ‘Should the
Japan-Australia FTA occur, it might be Japan’s first bilateral FTA that is
promoted primarily on the basis of political and strategic consideration
rather than economic consideration.’75
Security Cooperation Beyond Tokyo and Washington
Australia has also pursued closer security ties with India and South Korea.
The 2009 Defence White Paper acknowledges shared democratic values and
‘similar strategic interests’ with India, highlighting common security interests and praising defence cooperation, foreshadowing the Australia–India
Joint Declaration on Security Cooperation of November 2009.76 A few
months earlier, Canberra reached a similar security agreement with South
Korea, proclaiming a ‘broad-based partnership’ grounded in ‘shared
74
75
76
Nick Bisley, ‘The Japan-Australia Security Declaration and the Changing Regional
Setting?’, p. 41.
Cited in Thomas S. Wilkins, ‘Japan’s Alliance Diversification: A Comparative Analysis of
the Indian and Australian Strategic Partnerships’, International Relations of the
Asia-Pacific, Vol. 11 (2011), pp. 115–55.
Department of Defence, Defence White Paper 2009.
The Chinese Journal of International Politics, Vol. 5, 2012
Australia’s Response to Economic Interdependence
383
democratic values’.77 Following a detailed ‘Action Plan’ in December 2009,
cooperation with South Korea in law enforcement, border security,
counter-terrorism, disarmament and counter-proliferation, defence, and disaster response rapidly expanded.78 Reflecting this tightening relationship,
Australia stood close to South Korea in 2010 as tensions rose with North
Korea, sharply criticising the North’s reputed sinking of the Cheonan submarine and shelling of Yeonpyeong Island.79
‘This strengthening of Australia-ROK security relations’, Yu Hyun Seok
notes, ‘seems to go hand-in-hand with economic relations’.80 Indeed, John
Howard’s 2000 proposal to establish an FTA has finally begun to gain
momentum in concert with deepening security ties. Bilateral FTA talks
got underway in March 2009. On April 25 2011, Prime Minister Julia
Gillard and President Lee Myung-bak agreed that the talks were at their
final stage.81 Once again, economic cooperation with a US ally was seen as
enhancing Australia’s national security.
While steadily deepening its military engagement across Asia, Canberra
has been careful to avoid antagonising Beijing. The ‘Quadrilateral’ initiative
is a good example. In early 2007, Japanese Prime Minister Abe Shinzo
proposed this initiative linking Australia, Japan, the United States, and
India, quickly receiving support from US Vice President Dick Cheney. In
April 2007, the first-ever trilateral naval exercises were held among the
United States, Japan, and India in the Western Pacific, followed by
large-scale multilateral exercises in the Bay of Bengal involving the United
States, India, Japan, Australia, and Singapore. To some observers, the
four-way alliance was quickly becoming a reality.82
China reacted by denouncing the quadrilateral initiative and joint naval
exercises as reflecting ‘a cold-war mentality’, marking ‘the formation of a
small NATO to resist China’.83 Cognisant of Beijing’s concerns, Australia
moved cautiously. Australian Foreign Minister Alexander Downer insisted
in April 2007 ‘there is not going to be some sort of quadripartite security
alliance’, later reassuring Beijing that any collaboration would be confined
77
78
79
80
81
82
83
Carl Ungerer and Simon Smith, ‘Australia and South Korea: Middle Power Cooperation
and Asian Security’, Strategic Insights, Vol. 50 (Canberra: Australian Strategic Policy
Institute, 2010).
Action plan available at: http://www.dfat.gov.au/geo/rok/security-action-plan.html.
William T. Tow and Ajin Choi, ‘Facing the Crucible: Australia, the ROK, and
Cooperation in Asia’ Korea Observer, Vol. 42, No. 1 (2011), p. 14.
Hyun Seok Yu, ‘The Korea-Australia Free Trade Agreement and Its Security
Implications’, Korea Observer, Vol. 32, No. 1 (2011), p. 47.
Department of Foreign Affairs and Trade, Action Plan for Enhanced Global and Security
Cooperation Between Australia and the Republic of Korea, December 2009, http://www.
dfat.gov.au/geo/rok/security-action-plan.html.
Purnendra Jain, ‘Westward Ho! Japan Eyes India Strategically’, Japanese Studies, Vol. 28,
No. 1 (2008), pp. 15–30; David Brewster, ‘The Australia–India Security Declaration: The
Quadrilateral Redux?’, Security Challenges, Vol. 6, No. 1 (2010), pp. 1–9.
David Brewster, ‘The Australia–India Security Declaration’, p. 3.
The Chinese Journal of International Politics, Vol. 5, 2012
384 James Reilly
to promoting ‘cultural and economic’ ties between the four parties.84
Following Abe’s fall from power in late 2007, Australia became the first
country to announce that it would no longer be involved. As Manicom and
O’Neil note, ‘Revealingly, the announcement was made by Australia’s foreign minister, Stephen Smith, at a joint media conference with China’s foreign minister and prefaced by the observation that it had been an initiative
about which ‘‘China had expressed some concern’’.’85 This combination of
pragmatic accommodation of Chinese sensitivities while continuing to bolster military capacity is also evident in Australia’s domestic policies.
Bulking Up Australia’s Defence Capacity
Australia has significantly enhanced its military over the past decade.
Galvanised by the East Timor Intervention in 1999, September 11 attacks,
2002 Bali Bombing, and the Australian-led Regional Assistance Mission to
the Solomon Islands (RAMSI) in 2004, Australia began to revamp its strategic posture.86 The 2000 Defence White Paper signalled the shift towards a
more proactive military strategy.87 Defence spending soon began to rise. In
2001, spending was A$14.3 billion—up 13.9% on the previous year, far
exceeding GDP growth of 2.6% and taking up 8.6% of nominal government
spending. These levels stabilised for several years before substantial
jumps occurred again from 2006 to 2008, far exceeding GDP growth rates
(Figure 2). Despite the global financial crisis, the 2009 White Paper committed to 3% real growth in the defence budget from 2017 to 2018, 2.2% real
growth from 2018 to 2019 and 2.5% fixed indexation to the defence budget
until 2030.88
Australia has used these greater resources to enhance its military capabilities, particularly air and naval forces. In 2005, the army began a substantial
force expansion and revamped force structure, supported by an additional
outlay of A$1 billion.89 In 2007, the ADF purchased three Air Warfare
84
85
86
87
88
89
William Tow, Tangled Webs: Security Architectures in Asia (Canberra: Australian
Strategic Policy Institute, 2008), p. 22.
James Manicom and Andrew O’Neil, ‘Accommodation, Realignment, or Business as
Usual?’, p. 36.
Michael Horowitz, ‘Don’t Take Canberra for Granted: The Future of the U.S.-Australian
Alliance’ Orbis, Vol. 48, No. 3 (2004); Alan Dupont, ‘Transformation or Stagnation?
Rethinking Australia’s Defence’, Australian Journal of International Affairs, Vol. 57,
No. 1 (2003), pp. 55–76.
Department of Defence, Defence White Paper 2000: Our Future Defence Force (Canberra:
Department of Defence, 2000).
Department of Defence, Defence White Paper 2009, p. 11. See also Jack McCaffrie and
Chris Rahman, ‘Australia’s 2009 Defence White Paper: A Maritime Focus for Uncertain
Times’, Naval War College Review, Vol. 63, No. 1 (2010), pp. 61–76.
Department of Defence, Australia’s National Security: A Defence Update 2005 (Canberra:
Department of Defence, 2005), p. 22.
The Chinese Journal of International Politics, Vol. 5, 2012
Australia’s Response to Economic Interdependence
385
Fig. 2. Growth in Australian Defence Spending versus Growth in GDP (annual %
change).
Source: Australian Defence Development, ‘Defence Economic Trends in the Asia
Pacific, 2010’, available at: www.defence.gov.au.
Destroyers and 24 F/A-18 Super Hornet multi-role aircraft.90 The 2009
White Paper announced Australia’s determination to invest over A$70 billion in improving armaments over the next 20 years, including plans to
double the size of the submarine force (12 new submarines), replace the
Anzac class frigate with eight larger and more capable Future Frigates,
upgrades to the F/A-18A/B fighter fleet, and 100 F–35 Joint Strike
Fighters. In an effort to bolster its strategic strike capabilities, the ADF
began to pursue maritime-based land-attack cruise missiles.91 The army
received promises of new troop-lift helicopters, artillery, and deployable
protected vehicles. The 2009 White Paper also announced the establishment
of a Cyber Security Operations Centre, and investments in electronic warfare.92 Australia’s 2011 force posture review underscored the government’s
determination to expand its strategic presence in the Indian Ocean and to
respond to enhanced military power projection capabilities by regional
powers, most significantly China.93 Although the Gillard government’s determination to achieve a modest budget surplus by 2013 exerted modest cuts
90
91
92
93
Department of Defence, Australia’s National Security: A Defence Update 2007 (Canberra:
Department of Defence, 2007), p. 50.
Department of Defence, Defence White Paper 2009, p. 81.
Ibid., pp. 82–3.
Sam Bateman, ‘Looking West: Australian Defence Force Posture Review’, RSIS
Commentaries, July 27 2011.
The Chinese Journal of International Politics, Vol. 5, 2012
386 James Reilly
on these ambitious plans, the broad trend is clear: over the past decade,
Australia has steadily boosted its defence capacity.94
To what degree are these enhancements driven by concerns about China?
Official threat perceptions of China, which have grown stronger over the
past decade, provide a telling indicator. Australia’s 2000 Defence White
Paper confidently predicted: ‘No country in the world will have the military
or economic power to challenge US global primacy over the next few decades.’95 It referred to China only 13 times, as opposed to 34 times in the 2009
White Paper.96 The 2003 Defence Update was even more optimistic. ‘As a
result of a combination of factors including greater stability in major power
relations and increased US strategic dominance, the threat of direct military
attack on Australia is less than it was in 2000. . .While China’s economic rise
will pose challenges for some countries over the next decade, notably Japan,
the consequences for regional stability could be greater if growth stalled or
there was social breakdown within China.’97 In 2003, Australia did not seem
to be threatened by economic success within China, only its failure.
Two years later, the next Defence Update sounded a more cautious tone.
‘The path of China’s economic modernisation and growth will provide significant challenge.’ For the first time, it warned that ‘the pace and scale of
China’s defence modernisation may create the potential for misunderstandings, particularly with the development of new military capabilities that
extend the strike capability and sustainability of its forces. It is important
that the development of China’s military capability is transparent and that
its capability decisions remain consistent with its legitimate security needs.’98
The 2007 Defence Update reiterated this concern regarding the ‘pace and
scope of (China’s) military modernisation’ which ‘could create misunderstandings and instability in the region’.99
The landmark 2009 White Paper identified, for the first time, ‘the beginning of the end of the so-called unipolar moment; the almost
two-decade-long period in which the pre-eminence of our principal ally,
the United States, was without question’. Including the first distinct section
on the strategic implications of the rise of China, it warned: ‘China will also
be the strongest Asian military power, by a considerable margin. Its military
modernisation will be increasingly characterised by the development of
power projection capabilities.’ Although such capacity is to be expected,
‘the pace, scope and structure of China’s military modernisation have the
potential to give its neighbours cause for concern if not carefully explained,
94
95
96
97
98
99
‘Gillard Defends Defence Spending Cuts’, The Age, May 4 2012.
Department of Defence, Defence White Paper 2000, p. 8.
Ibid., pp. 37–8.
Department of Defence, Australia’s National Security: A Defence Update 2003 (Canberra:
Department of Defence, 2003), pp. 7–8.
Department of Defence, Defence Update 2005, p. 6.
Department of Defence, Defence Update 2007.
The Chinese Journal of International Politics, Vol. 5, 2012
Australia’s Response to Economic Interdependence
387
and if China does not reach out to others to build confidence regarding its
military plans’. 100 It went on to question ‘the long-term strategic purpose of
(China’s) force development plans, particularly as the modernisation appears potentially to be beyond the scope of what would be required for a
conflict over Taiwan’.101 The White Paper further issued a new determination ‘that no major military power, that could challenge our control of the
air and sea approaches to Australia, has access to bases in our neighbourhood from which to project force against us’.102 Realistically, only one
major power could potentially pose such a threat: China. As Carlyle
Thayer notes, the White Paper ‘proceeds to recommend the largest peacetime defence expenditure since World War II’, reflecting the views of ‘senior
officials in the Department of Defence who saw China’s military modernisation as posing a potential challenge to Australia’s security interests’.103 In
his private comments to US Secretary of State Hillary Clinton, Prime
Minister Kevin Rudd explained that the strategy laid out in the 2009
White Paper reflected Australia’s concerns over China’s military
modernisation.104
Defence Secretary Nick Warner sought to soften the White Paper’s blow,
insisting: ‘We don’t see China as a threat. We see China as an opportunity.’105 Even though Australian officials insisted publicly that China had
raised ‘no particular concerns’ over the White Paper, they later told US
diplomats privately that Beijing had threatened that Australia would
‘suffer the consequences’ if references to China in the White Paper were
not watered down.106 Despite Beijing’s veiled economic pressure, however,
Canberra held its ground. One place where this tension between economic
and security interests is particularly evident is Chinese investment in
Australia’s mineral sector.
Chinese Investment: Opportunity or Threat?
The growing Chinese investment in Australia’s minerals sector forces policymakers into a zero-sum decision. Restraining Chinese investment undermines Australia’s economic growth, while encouraging it provides China
with potential strategic leverage over Australia. The diplomatic costs of
100
101
102
103
104
105
106
Department of Defence, Defence White Paper 2009, p. 9.
Ibid., p. 34.
Ibid., p. 12.
Carlyle A. Thayer, ‘China’s Rise and the Passing of U.S. Primacy: Australia Debates Its
Future’, Asia Policy, No. 12 (2011), pp. 20–21.
‘US Embassy Cables: Hillary Clinton Ponders US Relationship with its Chinese
‘‘Banker’’’, The Guardian, December 4 2010.
‘China ‘‘Not Concerned by White Paper’’: Air Chief Marshall Angus Houston’, The
Australian, May 7 2009.
‘China’s Fury at Defence Paper’, The Age, December 10 2010. On China’s use of economic
pressure, see James Reilly, ‘China’s Unilateral Sanctions’, The Washington Quarterly, Vol.
35, No. 4 (2012), pp. 121–33.
The Chinese Journal of International Politics, Vol. 5, 2012
388 James Reilly
restrictions are significant, but the domestic political fallout from acquiescence can be even higher. Policy here thus illuminates how Australia
addresses the security-economy tradeoff. These stark choices emerged as
China’s demand for iron ore and coking coal to supply its burgeoning
steel industry soared. Between 2002 and August 2010, Chinese firms made
36 of their 49 investments in foreign iron-ore- and coking-coal-related projects in Australia, with a total value of A$27 billion. All but six of these
investments were made by state-owned enterprises (SOEs) and financed by
state-owned banks.107 In January 2008, Chinalco, a Chinese state-owned
mining conglomerate, attempted to prevent the takeover of Rio Tinto by
BHP Billiton through a massive A$15.5 billion ‘dawn raid’ on Rio Tinto
shares in the London stock market.108
Seventeen days later, the Treasury Department issued an updated set of
foreign investment review guidelines—the first changes in Australian FDI
mining policy since 1992.109 The new rules specified six national interest
criteria to be applied exclusively to investments from SOEs to determine
whether:
the investor’s operations are independent of the relevant foreign
government;
the investor is subject to and adheres to the law, and observes common
standards of business behaviour;
the investment hinders competition, or leads to undue concentration or
control in an industry;
the investment impacts on Australian government revenue or other
policies;
the investment impacts on national security;
the investment impacts on the operation or direction of an Australian
business, including its contribution to the economy and wider
community.110
The guidelines pointed to ‘the fact that investors with links to foreign
governments may not operate solely in accordance with normal commercial
107
108
109
110
Jeffery D. Wilson, ‘Resource Nationalism or Resource Liberalism? Explaining Australia’s
Approach to Chinese Investment in its Minerals Sector’, Australian Journal of
International Affairs, Vol. 65, No. 3 (2011), pp. 283–304.
Jeffery D. Wilson, ‘Resource Nationalism or Resource Liberalism?’; see also Drysdale and
Findlay, ‘China’s Foreign Direct Investment in the Australian Resource Sector’, p. 361.
Since 1992, the only Australian governmental intervention into foreign investment in the
natural resources sector was the 2001 rejection of a Shell takeover bid for Woodside
Petroleum. Jeffery D. Wilson, ‘Resource Nationalism or Resource Liberalism?’, p. 300.
Jeffery D. Wilson, ‘Resource Nationalism or Resource Liberalism?’, pp. 296–7.
The Chinese Journal of International Politics, Vol. 5, 2012
Australia’s Response to Economic Interdependence
389
considerations and may instead pursue broader political or strategic objectives that could be contrary to Australia’s national interest’.111
The government was quick to dismiss criticism of bias against Chinese
investment. ‘We run a non-discriminatory policy’, Trade Minister Simon
Crean insisted in October 2009. Yet Treasury officials admitted confidentially to the US embassy in late September 2009 that the new guidelines
signalled ‘a stricter policy aimed squarely at China’s growing influence in
Australia’s resources sector’. BHP Billiton chief Marius Kloppers told a US
consul-general, ‘Australia does not want to become an open pit in the southernmost province of China.’112 Indeed, since being promulgated, the revised
guidelines have only been applied to Chinese investments. In April 2008, the
FIRB required 10 Chinese mining investment applications to be resubmitted
in order to provide additional information on their state ownership.
Although the bulk of these applications was ultimately approved, between
April 2008 and June 2010 some four Chinese investments in the minerals
sector were rejected and another four approved, subject to governmentmandated behavioural conditions, such as excluding mines deemed too
close to sensitive defence facilities.113 For instance, the government rejected
(on security grounds) plans by the state-owned Wuhan Iron and Steel Group
to invest A$40 million in an iron-ore project near the Woomera missile test
range.114 In March 2012, the government barred Huawei Technologies, a
private Chinese corporation, from bidding on contracts for a national
broadband network. The attorney general’s office defended the decision as
necessary for ‘ensuring the security and resilience of Australia’s critical infrastructure more broadly’.115
Anxiety about foreign investment is hardly unique to Australia. Indeed,
Wilson’s exhaustive review insists that the new controls are consistent with
Australia’s traditionally liberal approach to FDI. ‘There is no evidence of a
targeting of Chinese investors on the specific basis of their nationality.’116
Drysdale and Findlay are less sanguine. ‘The additional tests on
government-owned entities appear to discriminate against Chinese FDI proposals, since so many of them involve government-owned entities.’117 Even
Wilson admits that the regulations are designed to ‘to strike a balance
111
112
113
114
115
116
117
Cited in Peter Drysdale and Christopher Findlay, ‘China’s Foreign Direct Investment in
the Australian Resource Sector’.
‘Labor’s Secret Curb on China’, The Age, March 3 2011.
Peter Drysdale and Christopher Findlay, ‘China’s Foreign Direct Investment in the
Australian Resource Sector’, p. 362.
‘Labor’s Secret Curb on China’.
Maggie Lu Yueyang, ‘Australia Bars Huawei From Broadband Project’, International
Herald Tribune, March 27 2012.
Jeffery D. Wilson, ‘Resource Nationalism or Resource Liberalism?’, p. 299.
Peter Drysdale and Christopher Findlay, ‘China’s Foreign Direct Investment in the
Australian Resource Sector’, p. 371.
The Chinese Journal of International Politics, Vol. 5, 2012
390 James Reilly
between the benefits of FDI and risks of strategic behaviour associated with
state ownership and control of the Chinese investors’.118
The economic risks of overstepping this balance remain substantial. As
Drysdale and Findlay note, ‘The confidence in Australia’s investment environment has been a crucial element in Australia’s ability to attract foreign
investment into its resources sector and to take advantage of burgeoning
opportunities in the international markets for raw materials—notably in
China.’ They warn that the new regulations render ‘Australia potentially a
less attractive location for investment and source of supply’.119 Findlay later
warned that an apparent decline in Chinese investment might ‘be linked to
the uncertainty in the application of Australian policy’.120 Australian businesspeople working with Chinese mining companies insist privately that the
new regulations have indeed deterred Chinese investment.121
To assuage Chinese concerns, the Australian government expanded
high-level dialogue with China, most notably in the Joint Declaration
released during Vice Premier Li Keqiang’s October 2009 visit to Australia,
and the establishment of a ‘high level forum’ of business, political and education leaders during Vice President Xi Jinping’s June 2010 visit. Xi also
signed agreements on Sino–Australian collaboration in the mining sector
worth approximately A$10 billion.122 Despite these major accords,
Australian sensitivity to risks associated with Chinese investment has
grown in concert with investment levels. Although all governments are
wary of foreign investment from non-allies into their strategic sectors, the
gap between Australia’s economic interests and its strategic alignment has
widened remarkably over the past decade. To mitigate the resulting tensions,
Canberra has relied upon careful diplomacy.
Delicate Diplomacy: Tibet, Taiwan, and Human Rights
Issues deemed by Beijing to be its exclusive internal affairs—Taiwan, Tibet,
and human rights—force Australian policymakers to chart the narrow
straits between domestic pressure and diplomatic pragmatism. The decision
on how to receive the Dalai Lama has been particularly fraught with controversy. Although awarded four visas to visit Australia over the past five
years, the Dalai Lama has not been received by a standing Prime Minster
since John Howard in 2007 (Table 3). In 2009, due to a ‘change in policy by
the Rudd government’, neither Prime Minister Rudd nor Deputy Prime
118
119
120
121
122
Jeffery D. Wilson, ‘Resource Nationalism or Resource Liberalism?’, p. 299.
Peter Drysdale and Christopher Findlay, ‘China’s Foreign Direct Investment in the
Australian Resource Sector’, p. 353.
Christopher Findlay, ‘Australia–China Economic Relations’.
Interview, Sydney, September 10 2011.
Department of Foreign Affairs and Trade, ‘Australia-China Joint Statement’, October 30
2009, http://www.dfat.gov.au/geo/china/joint_statement_091030.html.
The Chinese Journal of International Politics, Vol. 5, 2012
Australia’s Response to Economic Interdependence
391
Table 3 Dalai Lama’s Visits to Australia: 1996–2002
Year
Met the Prime
Minister?
Top Officials Who Met with the Dalai Lama
1996
Yes (John Howard)
Foreign Minister Alexander Downer
2002
No
2007
Yes (John Howard)
Opposition Leaders (Bob Brown; Kevin Rudd, Shadow
Foreign Minister)
Opposition Leader Kevin Rudd
2008
No
Opposition Leader (Brendan Nelson); Immigration Minister
(Chris Evans)
2009
No
Peter Garrett, Minister for the Environment and the Arts
2011
No
Opposition Leaders (Tony Abbott; Bob Brown)
Source: Drawn from various news reports.
Minister Gillard met with the Dalai Lama, in line with a firm commitment
given by Rudd to Beijing on this matter.123 Instead, the Minister for the
Environment and the Arts, Peter Garrett, met the Dalai Lama, and this was
only revealed afterwards. During his June 2011 visit, both Julia Gillard and
Kevin Rudd were (rather conveniently) out of the country. Green Party
leader Bob Brown thundered, ‘It should be happening. But here we have
another Prime Minister kowtowing to the communist bosses in Beijing
rather than standing up for this nation.’124
However, Kevin Rudd, a self-described ‘brutal realist on China’, moreover issued in his April 2008 speech at Peking University (delivered in
Mandarin) one of the strongest statements by an Australian leader criticising
China’s policies in Tibet.125 Rudd called on the Chinese Government to
‘recognise there are significant human rights problems in Tibet’, and
urged China to revise its policies within Tibet and undertake direct dialogue
with the Dalai Lama.126
Relations with Taiwan are equally vexed. From 1983 to 2007, Australia
did not go through an entire parliamentary term without sending a government minister to Taiwan. Conservative Australian journalists praised the
Howard government’s 2005 decision to send Minister Gary Hardgrave to
Taiwan as a ‘significant act that demonstrates a willingness to defy
Beijing’.127 In contrast, since 2007, Labour governments in Australia have
sustained a de-facto ban upon ministerial-level visits to Taiwan—a policy
123
124
125
126
127
Greg Sheriden, ‘Rudd’s Approach to China and Stern Hu, a Lesson in Cowardice’, The
Australian, March 20 2010, http://www.theaustralian.com.au/news/opinion/ruddsapproach-to-china-and-stern-hu-a-lesson-in-cowardice/story-e6frg6zo-1225842986389.
‘PM, Rudd Shun Dalai Lama’, The Age, June 14 2011.
‘US Embassy Cables: Hillary Clinton Ponders US Relationship with its Chinese
‘‘Banker’’’.
‘China Rebuffs Rudd over Tibet Dialogue’, The Australian, April 10 2008.
‘Australian Minister to Visit Taiwan Despite One-China Policy’, Kyodo News Service,
September 30 2005.
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392 James Reilly
that has come in for considerable criticism from the opposition. Labour
governments have instead sought alternative means to sustain and promote
economic cooperation with Taiwan. Heather Smith, the Deputy Secretary of
the Department of Foreign Affairs and Trade, travelled to Taipei in May
2011 to ratify an investment promotion accord. Both federal and state officials have continued to quietly promote economic ties, particularly in
Queensland, which lists Taiwan as its fifth largest trading partner.
Australia has also continued to issue visas to visiting Taiwanese officials,
including Ma Ying-jeou (Tapei Mayor, 2006), Lin Sheng-chung (Deputy
Minister for Economic Affairs, 2011), and an invitation letter to Ching-te
Lai (Hsinchu Mayor), for a visit in 2012.
Yet domestic politics have intruded here as well. In June 2010, the
Australian Senate passed a motion welcoming the signing of ‘bilateral agreements’ between China and Taiwan on expanded contact, while urging
‘increased opportunities for Taiwanese participation in international
forums and global policy dialogue, especially concerning international aviation and climate change’.128 Chinese ambassador Zhang Junsai quickly
fired off a public letter in response. ‘Obviously, it is inappropriate for the
Australian Senate to adopt a resolution and comment on the question of
Taiwan, an internal affair of China.’129 The 2009 approval of a visa for
exiled Uighur leader Rebiya Kadeer to visit Australia to participate in the
Melbourne International Film Festival sparked yet another diplomatic controversy. China responded furiously, cancelling a scheduled visit by Vice
Minister He Yafei. Foreign Minister Stephen Smith seized the opportunity
to score domestic points, reminding crossbenchers in Parliament, ‘I vaguely
remember the Leader of the Opposition saying to the government some time
ago that we should stand up to China. We did on the Rebiya Kadeer
issue.’130
As Smith’s comment suggests, Australia’s China policy is often shaped
with an eye on domestic public opinion. These attitudes closely mirror the
underlying tensions between Australia’s economic and strategic interests. In
the 2011 Lowy Institute Poll, three-quarters of Australians agreed that
China’s growth has been good for Australia—up 12 points since the question was first asked in 2008.131 Over half of all respondents (55%) felt that
China was the world’s leading power. Only 30% said the United States
(which actually has a nominal GDP more than twice the size of China’s),
and 10% said the EU. Yet popular cognisance of China’s economic contributions and heft appears only to have exacerbated Australians’ security
fears. In 2011, 44% of Lowy’s respondents agreed that it was likely that
128
129
130
131
‘Foreign Affairs: China and Taiwan’, Senate Journal, Vol. 129, No. 24 (2010), p. 3764.
‘Chinese Ambassador Admonishes Australia’, Sun Herald, September 28 2010.
‘Kadeer to China: Thanks for the Publicity’, ABC News Online, August 12 2009.
Fergus Hanson, Australia and the World: Public Opinion and Foreign Policy (Sydney: Lowy
Institute for International Policy, 2011).
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Australia’s Response to Economic Interdependence
393
China would become a military threat to Australia within the next two
decades (with only 20% seeing this as ‘very unlikely’). Over half (58%) of
respondents felt that Australia was not doing enough to pressure China to
improve its human rights. These attitudes are largely consistent with diplomats’ efforts to avoid either appeasing or antagonising Beijing.
Conclusion: Australia’s Low-Cost Hedge
This article identifies a link between Australia’s economic dependence upon
China and its strategic balancing behaviour. Although US initiative has also
propelled closer Australia–US security cooperation, Australia has simultaneously strengthened its security ties with Japan, South Korea, and India, as
well as bolstering its military capacity. A key factor linking these initiatives is
Australia’s deepening anxiety over China’s future military posture, evident in
recent Defence White Papers. Perhaps Canberra would have adopted a similar balancing strategy even in the absence of growing economic dependence
upon China. Although this counterfactual is impossible to disprove, evidence
strongly suggests that economic dependence has exacerbated Australian security concerns over China. Despite the contribution of Chinese investment to
Australia’s economy amid global economic uncertainty, Canberra’s decision
to put up new investment barriers reveals the extent to which Australian
policymakers are wary of economic reliance upon China.
The basic point is clear. Australia has responded to deepening economic
dependence upon China with classic balancing strategy: strengthening security ties with its Asian neighbours and the United States while bolstering its
military capacity. Security concerns have fostered investment restrictions,
fed by growing domestic anxiety over China’s economic impact. To mitigate
the risk that such steps will antagonise Beijing and undermine economic ties,
Canberra has selectively accommodated China on sensitive issues—Taiwan,
Tibet, and multilateral security alliances. This finding has important theoretical implications. Scholarly debates over how economic factors affect
alignment decisions have traditionally ranged from arguments that economic dependence encourages alignment to a null hypothesis that economic
dependence is irrelevant. The Australia case supports a third possibility: in
the event of negative threat perceptions, greater economic dependence encourages balancing behaviour. Economic dependence and security alignment, in other words, are inversely related. Conversely, in dyads with
close security alignment and low threat perceptions, economic interdependence is seen as complementary to security ties. Questioning classic commercial liberal arguments on the pacific effects of trade and investment, the
Australian case supports instead Walt’s emphasis upon threat perceptions
in explaining alliance patterns.132
132
Walt, The Origins of Alliances.
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394 James Reilly
What are the prospects for change—for greater Australian accommodation with China? If the United States becomes significantly weaker or begins
to retreat from the Asia-Pacific, Canberra’s calculus could change.
Alternatively, if the United States adopts a more assertive stance toward
China that increases the likelihood of US–China military conflict, Australia
might see its US alignment as more risky. Yet even in such circumstances,
Australia is more likely to double-down on its US bet. The possibility of an
economic slowdown in China further points towards US security alignment
as the smart hedge for Australia.
It has also been a low-cost hedge—at least so far. Contrary to Hugh
White’s 2005 assertion that ‘We have acquiesced to China’s demand that
a strong economic relationship is conditional on a measure of compliance
with Chinese wishes on key political and strategic questions,’133 China has in
fact been remarkably reluctant to impose high costs on Australia’s hedging
strategy. Iron ore imports from Australia, for instance, have not been held
hostage to Chinese demands for concessions on Taiwan or the US alliance.
Canberra has thus managed to straddle William Tow’s ‘meticulously fine
line between a China that is an increasingly integral part of Australia’s
economic and diplomatic agenda and an America that still expects allied
loyalty to be exercised in both the regional and international security environments’.134 Australia has enjoyed a relatively free hand to pursue its security policies while profiting from Chinese trade and investment. The
security issue on which Beijing did raise significant objections—the quadrilateral partnership—led to Canberra’s quick withdrawal. On the whole,
Australia’s low-cost hedge appears to be both successful and sustainable.
133
134
Hugh White, ‘The Limits to Optimism: Australia and the Rise of China’, Australian
Journal of International Affairs, Vol. 59, No. 4 (2005), pp. 479.
William Tow, ‘ANZUS: Regional versus Global Security in Asia’, International Relations
of the Asia Pacific, Vol. 5, No. 2 (2005), p. 213.
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