Sino-Australian relations in crisis

By Sushil Seth  / 

Wed, Jul 29, 2009 - Page 8

Who would have thought that Australia’s relations with China would nose-dive under Mandarin-speaking Prime Minister Kevin Rudd?

When Rudd took office, expectations were high on both sides. He believed that as a friend of China, and one well-versed in Chinese culture, he had some latitude to speak to Beijing frankly about issues that would annoy them, like Tibet.

China also seemed inclined toward Rudd, the only leader of a Western country known for his fluency in Mandarin.

Beijing naturally thought that he would be sympathetic to Chinese interests.

But things soon started to go wrong.

Although he chose China among the first countries (and the first in Asia) that he visited — rattling Japan particularly — Beijing was not amused by a Peking University address in April last year when Rudd said that “there are significant human rights problems” in Tibet and advised China to recognize the fact and deal with it.

Even as he claimed to be China’s friend, Rudd continued to emphasize the primacy of Australia’s strategic alliance with the US.

Beijing, of course, wasn’t expecting any sudden change in Australia’s primary political and security relationship with the US, but it did expect that under Rudd Canberra wouldn’t stand in the way of Chinese investments in the crucial resources sector, particularly iron ore.

China is now Australia’s top trading partner, ahead of Japan, devouring the country’s exports, particularly iron ore.

One estimate said iron ore comprised A$18 billion (US$15 billion) of Australia’s A$32.5 billion exports to China last year.

With the global economy spiraling and high commodity prices, China’s insatiable demand for iron ore helped Australian exporters like Rio Tinto reap huge profit.

China was not happy. It wanted to control both the supplies and pricing of iron ore.

Beijing sought to take advantage of Rio Tinto’s debt problems and double its share in the company.

However, Rio Tinto made up with BHP, another Australian mining giant that had only recently wanted to gobble up the company, and Rio Tinto backed out of the Chinese deal at the last moment.

China was left high and dry — and fuming, it would appear.

Beijing feels that Canberra played a role in scuttling China’s investment by delaying its approval.

Whether or not the Australian government forced Rio Tinto’s hand is not the question, as most countries — and especially China — would prefer not to have another country having a controlling share in its strategic resource sector.

As things were heating up over the refusal to sell shares in Rio Tinto, the global economic crisis lifted the pressure on commodity prices.

However, China wanted Rio Tinto to reduce its iron ore prices by more than 40 percent, refusing to accept a 33 percent reduction as agreed with Japan and South Korea.

With the wrangling over the price of iron ore continuing, Chinese authorities arrested Stern Hu (胡士泰), a Rio Tinto executive in China carrying an Australian passport, and three Rio Tinto employees who are Chinese citizens.

They are accused of bribing executives of Chinese steel mills and attempting to damage China’s economic security by stealing state secrets, but have not been formally charged.

Australia is being largely ignored, with its approaches in the matter dismissed as interference in China’s “judicial sovereignty.”

The arrests have become highly charged in Australia’s domestic politics, with the opposition taunting Rudd to pick up the phone and talk directly with the top man in China, obviously referring to President Hu Jintao (胡錦濤) or Premier Wen Jiabao (溫家寶).

The implication is that Rudd made much politically of his magic touch with China, and now is the time to deliver.

However, Beijing has virtually told Canberra that it should forget about Stern Hu and his colleagues, who have already been branded guilty, with Chinese bloggers calling them traitors.

There are two schools of thought on the question of dealing with China. Those sympathetic to Beijing would like Canberra to cave in, not only because China is a regional giant but also because commodity exports are increasingly the bread and butter of Australia’s economic lifeline.

This school includes a good number of Australian Sinologists, as well as some strategic analysts.

The second school, reflected in government policy on the issue so far, acknowledges the growing importance of China’s economic connection but argues, as did Rudd in a recent statement, that the importance of Sino-Australian economic relations cuts both ways, because China needs the resources that Australia has to offer.

If Canberra were to make a humiliating backdown on the iron ore issue (ignoring the arrest of Stern Hu and his colleagues), it would mean that its economic policy toward China would be increasingly dictated by Beijing. In a larger sense, Australia would become part of China’s regional sphere of influence, undercutting its US alliance and much more.

As Australian columnist Paul Kelly has written: “Australia’s greatest strategic challenge: how to manage a successful relationship with China as a repressive state that rejects our values, legal system, governance and US alliance.”

In addition to the Rio Tinto problems, China is unhappy with Rudd’s Australia for a variety of other reasons, including its softness toward the Dalai Lama.

This annoyance must have turned into anger after a bipartisan parliamentary delegation recently made an unofficial visit to the Dalai Lama in his Dharamsala headquarters in India.

To complicate things further, the Melbourne International Film Festival is screening a documentary about Rebiya Kadeer, the Uighur leader in exile in the US. Beijing calls her a terrorist and blames her for recent unrest in Xinjiang.

A Chinese consular official reportedly called the director of the film festival, demanding that the documentary be dropped. Kadeer is coming to Australia for the premier of her documentary and has plans to canvass her people’s cause with the Australian government.

Chinese directors have withdrawn some films that were to screen in the festival, and Chinese hackers have been at work to damage the Web site of the Melbourne festival.

At a strategic level, the new Australian defense White Paper has apparently angered Beijing even more by suggesting that a rising China could threaten Australia’s security when it overtakes the US as the world’s largest economy, as it is predicted to do around 2020.

“By 2030, any changes in economic power will affect the distribution of strategic power,” it said.

It would seem that Sino-Australian relations are in for a rough ride for quite some time. How it will be resolved is anybody’s guess.

Sushil Seth is a writer based in Australia.