China, Australia and Global Change: Why a European Agreement Now?

By Robbin Laird

Recently, I had a chance to talk with Ross Babbage, a leading Australian strategist about the pressure Beijing is applying down-under. Australia and its close partners are looking to build a regional coalition to reinforce national resilience, better protect national sovereignty and encourage a change of course in Beijing.

Question: How would you describe the current Chinese policies towards Australia?

Ross Babbage: “In recent months the Chinese government has imposed heavy restrictions or bans on the importation of Australian barley, wine, copper ore, sugar, cotton, timber, lobsters, coal and a range of other products. These Chinese sanctions have been imposed in retaliation for Australian steps to prevent foreign interference in the country’s internal affairs and Canberra’s call for an independent international investigation into the origins of COVID 19. In consequence, we are currently under some pressure.

“But the challenge we face is not really a trading dispute. What we are seeing is Beijing pressuring the Australian government and people to give away some of their sovereignty. And frankly, both the government and the political opposition in Australia are not prepared to give much ground.

“In its attempts to coerce Australia, the Chinese are actually using a much wider range of instruments than just trade sanctions.  The regime has substantially ramped up propaganda against us, expanded the coercive operations of a range or front organizations in Australia and substantially increased its cyber operations. The level of espionage against Australia now is more intense than it was at the height of the Cold War.

“The Xi regime perceives Australia’s trading relationship to be a weakness that they can exploit simply because China buys more than a third the country’s exports.

“There are many people in Europe, the United States and elsewhere who still think that the regime in Beijing is a normal government that can be treated like any other international player. In my view our friends abroad need to take a closer look at Beijing’s track record, its recent behavior and the nature of the challenges the Chinese regime is likely to pose to them in coming years.

“The official community in Australia takes a different view and believes that the Chinese regime is anything but benign.  Largely because of the coercive behavior of the Chinese party-state, Canberra has been forced to tighten legislative frameworks, restrict foreign influence operations, restructure foreign investment controls and strengthen a wide range economic, community and national security defenses.”

Question: How would you characterize the evolving Australian position compared to some of its allies?

Ross Babbage: “Within the Australian official community there’s very little dispute about the nature of the challenge posed by the Chinese regime. What tends to be debated is the range of measures that deserve priority, how they can be delivered most effectively and with whom we should coordinate our actions most closely internationally.”

Question: How has Australia been working the global circuit to inform allied opinion and behavior?

Ross Babbage: “Australian diplomats and others have been working closely with partners across the Indo-Pacific, in Europe and elsewhere to discuss ways of jointly dealing with the Xi regime. One of the catalysts for this activity was the stark conclusion that the Australian government reached about four years ago that the security risks of permitting Chinese involvement in Australia’s 5G network were so high as to require firm and immediate action.

“When the Malcolm Turnbull-led government became concerned about what Huawei might be able to do with 5G, the Australian Signals Directorate was asked to do some work on the potential impact of involving Huawei in the Australian telecommunications network.

“The results were stark and horrifying. The analysis had a big impact on the cabinet. The Australian government was united on the need to strengthen the country’s electronic and broader infrastructure security and to move immediately.

“These events also generated a need to explain to our allies, security partners and friends why Australia had taken such a quick and very firm stand. Briefings were soon delivered in Washington and most U.S. agencies quickly came on board. Australian officials have since been active in briefing many governments across the Indo-Pacific, Europe and elsewhere.

“A number of European countries have come to conclusions similar to Australia about the potential risks of Chinese involvement in 5G networks.”

In effect, what Babbage is describing is the formation of a coalition of the willing to work together to achieve a desired security outcome, rather than relying on multinational organizations or formal alliances to deliver the desired outcome.

It is in this context that Australians and others in the Indo-Pacific see the draft European agreement with China on investment as being unhelpful and short-sighted.

Question: How do you view the new European agreement with China?

Ross Babbage: “The proposed agreement sends the wrong messages and I think it’s a very poor move. In particular, it displays no sort of solidarity with the democracies in Asia and the broader Indo-Pacific.

“It’s not only Australia that has been pressured by Beijing. Look at what the Chinese regime has been doing to the Indians, the Vietnamese, the Indonesians, the Malaysians, the Filipinos and also the Japanese, the South Koreans and the Taiwanese. There is also the Chinese regime’s behavior in the island states of the South Pacific.”

“Some influential Europeans seem not to regard this track record as being terribly important in their calculations.

“Look at how the Xi regime has performed in keeping its obligations under the WTO, and also their obligations under the free trade agreements they have with Australia and other countries. What faith can Europeans have that the regime in Beijing will abide by any of the agreement’s terms?

“There is also the question of helping President Xi out when he is under political and economic pressure at home. The Chinese regime pushed hard for this agreement so as to demonstrate to its own public that it was making good progress internationally. Does Europe really want to give this authoritarian regime such a break?

“In addition, the regime has been eager to conclude the European agreement to give some diplomatic maneuver space, vis-à-vis Washington. They wanted to be seen to be not beholden entirely to the new U.S. administration, no matter what direction it takes.  I think they have been very keen to get an agreement with someone to give them extra leverage in Washington. And if that someone was the EU, terrific.”

How then should Australia proceed in building coalitions in the Indo-Pacific region to deal with the Chinese assault?

Our discussion focused on shaping coalitions of the willing to address specific challenges posed by China, rather than relying on a classic alliance framework. It is about finding ways to protect the national sovereignty of neighbors and friends through cooperation on specific issues.

This is how Babbage described a way ahead for Australia: “What we really need is a broader international partnership, a security coalition which can operate with great flexibility to help all Indo-Pacific countries maintain their sovereignty and security.

“We can help them a lot. The U.S can obviously play a big role in such an effort. The Japanese are already committed to strengthening security partnerships across the region.  And the Indians and others are doing some useful things as well.

“We don’t want to call this loose network an alliance. That doesn’t resonate well in most parts of Southeast Asia and the South Pacific.  We need to build a coalition of like-minded countries who share our concerns about reinforcing national sovereignty and security.   And I think we’re starting to make some progress.

“That’s where the future really lies, and that’s what we’ve got to make work. If we do, we’ll be changing the environment markedly. We’ll be reinforcing national and regional security and we will also be bolstering political and economic cooperation and confidence.”

Question: Putting pressure on Xi’s regime is important rather than letting him simply shape an influence and pressure campaign against the liberal democracies. How do you envisage this side of the equation?

Ross Babbage: “Much of the pressure being felt by Xi and his regime is self-inflicted. One example amongst many is the regime’s action in ceasing the importation of Australian coal.

“I don’t think that too many Americans are aware that these measures are starting to cause the Chinese serious problems. In several parts of China, they’ve had to ration electricity and reduce markedly the heating of apartments and many facilities in mid-winter.

“The Chinese operate a large number of new-generation coal-fired power stations, many of which are tuned to burn high-quality Australian thermal coal. These plants can’t run properly without it.

“And then there’s another problem that has arisen with metallurgical coal, where we are also a leading supplier to China. If you don’t use high-grade Australian coal and you use lower grade coal sourced from elsewhere, you have to use much higher-grade iron ore in the blast furnaces to compensate.  But higher-grade iron ore is more expensive, and this has helped drive a doubling of iron ore prices in recent months.  This, in turn, has increased the cost of Chinese iron and steel and reduced China’s international competitiveness.

“So, the regime’s ill-considered actions are imposing serious costs on Chinese businesses and the Chinese people more generally. The lack of heating and the halting of elevators in twenty-story apartment blocks has imposed unnecessary hardships. Several industries have been forced cut their power use and suffer a reduction in productivity. If this goes on indefinitely, there may be consequences for the regime’s domestic reputation and legitimacy.

“The real difficulties confronting Xi’s regime underline the reality that although the Chinese economy is large, its outlook is cloudy, and it is not quite as attractive to foreign investors as many assume. Few informed analysts now see China as ‘the factory of the world’ now and certainly not in a decade’s time.

“Part of the reason is that China’s national debt is now around 335% of GDP and still rising rapidly. The head of the Chinese central bank has made it clear that the country can’t keep spending large sums of money on unnecessary building works and incurring yet further debt just to maintain a sense of economic normality.

“Other serious problems are the rapid aging of the population and the declining size of the workforce. These deteriorating demographic trends are starting to be felt as major social and economic problems which the regime has little scope to influence.

“In short, Xi has promised a great deal but his international policies and his domestic mismanagement could be his undoing.

“The Chinese regime is the cause of many of the security problems now faced by the United States, its European and Indo-Pacific allies and their many security partners. There is a need for genuine solidarity in the face of Chinese interference and coercion. That is why there is a need for enhanced international consultation. cooperation and coordination.

“In this environment the draft European agreement with China on investment looks to be out of place and poorly timed. There is a need for the European Parliament to give this draft agreement much deeper thought.”

Featured Photo: Chinese President Xi Jinping meets with German Chancellor Angela Merkel, French President Emmanuel Macron, President of the European Council Charles Michel and President of the European Commission Ursula von der Leyen via video link in Beijing, capital of China, Dec. 30, 2020. During the meeting, Xi and the European leaders announced that the two sides have completed investment agreement negotiations as scheduled. (Xinhua/Li Xueren)

Editor’s Note: For an interesting look at the transformation of China under Xi, see the article by the Der Spiegel correspondent to China, now the correspondent in Hong Kong.

For our recently published book on the evolution of Australian defence strategy which provides the historical context for the strategic shift highlighted by Dr. Babbage, see the following:

Joint by Design: The Evolution of Australian Defence Strategy