WHY CHINA AND AUSTRALIA ARE PLAYING NICE / GEOPOLITICAL FUTURES

Why China and Australia Are Playing Nice

Pragmatic policy has trumped animosity. 

By: Victoria Herczegh

Chinese Premier Li Qiang is set to pay a widely publicized and highly anticipated visit to Australia this weekend. 

He will be the first person in his office to do so since 2017, when tensions came to a head between China and U.S. allies over Beijing’s territorial claims in the South China Sea, its growing influence in the Indo-Pacific and its cyberwarfare activity. 

As a result, bilateral relations between China and Australia reached historic lows over the past few years, culminating in a trade war in which Beijing imposed stiff and highly costly barriers on Australian goods. 

Li’s visit is expected to end with the final removal of those barriers and thus restore their relationship.

Even so, the two will need to address a number of security-related issues, including Australia’s increasingly active role in the AUKUS alliance and China’s recent provocations in the South China and Yellow seas. 

They won’t be able to solve all their problems, of course, but the fact that Beijing is willing to set their economic relationship back on track is a sign of future malleability and, potentially, mutual benefit.

It’s difficult to overstate the intensity of their recent diplomat spat. 

It started when China began increasing its military activities in its near abroad and when Australia joined the Quadrilateral Security Dialogue, a U.S.-led initiative expressly made to counter Chinese influence. 

This led to hardline anti-China policies by then-Australian Prime Minister Scott Morrison, under whose leadership Canberra banned Chinese companies from participating in Australia’s 5G network construction over national security concerns and, later, joined AUKUS. 

In response, Beijing banned minister-to-minister communications with Australia and imposed trade barriers on products such as beef, barley, coal, wood and wine, costing Australia roughly $13 billion per year. 

In 2022, the United States – Australia’s closest ally – reopened communication channels with China, undertaking high-level talks meant to ease tension and improve bilateral relations. 

Meetings between Chinese and Australian officials also resumed. 

And though ties improved, they didn’t yield tangible economic success.

Meanwhile, the intense tit for tat that characterized Sino-Australian relations under Morrison continued under current Prime Minister Anthony Albanese. 

As Chinese military activities intensified in the Indo-Pacific, other regional powers like Japan and India started to step up their game to contain Beijing, so Canberra followed suit by becoming a more active member in the U.S. security alliance. 

In March, Australian spy chief Mike Burgess shocked the nation with a statement about a Chinese spy ring operating in the country and selling state secrets, triggering an intense and ongoing investigation of Chinese espionage in Australia and making society even more wary of the threat China poses to national security. 

Then in May, Chinese and Australian fighter jets clashed over the Yellow Sea, leading to an exchange of accusations of dangerous aerial conduct. 

Just two weeks ago at the Shangri-La Dialogue in Singapore, Australian Deputy Prime Minister Richard Marles expressed concern over Beijing's aggression toward the Philippines and its provocations over Taiwan. 

Chinese personnel there criticized Australia’s security conduct in the region, specifically its intensified activities in the AUKUS alliance.

China has every reason to monitor Australian activity in AUKUS. 

Though the federal government is still debating the utility of the nuclear-class submarines AUKUS provides for, the government of South Australia recently signed a deal with U.S. shipbuilder Huntington Ingalls Industries that will allow companies there to enter supply chains for U.S. nuclear-powered vessels. 

The deal marks a new level of security involvement with the United States – something that would have been a nonstarter for China even just a couple of years ago.

AUKUS aside, Australia’s current national defense strategy places a strong emphasis on naval capabilities. 

In February, the government unveiled plans for the largest naval buildup since World War II, allocating more than $35 billion for the project over the next 10 years. 

The plan allows for eight nuclear-powered attack submarines, nearly two dozen frigates and destroyers, six missile-armed large optionally-crewed surface vessels, six offshore patrol vessels and eight patrol boats. 

This kind of project is clearly meant to counter Chinese maritime power and indeed would have resulted in some kind of retaliation not so long ago. 

Instead, Beijing is making gestures of goodwill, as evidenced by Li’s upcoming trip, to ease tensions.

It’s no coincidence that Li is heading a massive business delegation, or that their chosen destination is the state of Western Australia. 

Western Australia’s total exports to China reached $96 billion in the 2022-23 fiscal year. 

Some 85 percent of the state’s iron ore went to China, as well as almost all its lithium. 

For China, it is extremely important to strike more business deals during Li’s visit. 

Despite the strain on political ties in recent years, total Australian investment in China was valued at $49.7 billion in the first half of 2024. 

Indeed, Australia is still one of the few major nations that has a high number of businesses looking to expand their presence in China. 

(Banking and wealth management are leading sectors of Australian foreign direct investment.) 

Australia is China’s top supplier of iron, and going forward Beijing will be itching to buy rare earth elements and other important resources needed for the transition to green energy, even if it faces stiff competition from the West.

If China were economically more stable, it almost certainly would not be trying to smooth ties with Australia. 

But as it stands, its slowdown is forcing it to engage as many markets as it can, especially large ones like Australia’s. 

More important, it needs trade with Australia to be able to develop its electric vehicle sector, which is intended to be a pillar of its economic rebound. 

China and Australia complement each other economically, and that they are opening back up to each other shows they both understand as much. 

Of course, Australia will need to consider other factors before striking deals with China; South Korean and Japanese companies are also seeking lithium, and Australia cannot afford to alienate these large markets.

Still, Li’s visit demonstrates a pragmatic approach from both countries. 

They won’t solve all their security problems this weekend, and they will still find ways to verbally clash with each other going forward. 

But the world today is different from what it was in the mid-2010s, and China seems to be taking what it can get.