China is Australia’s dominant trading partner and Xi was spot-on in identifying the mutual benefit to both countries. But in recent years, China has increasingly been viewed by Canberra as a security threat. The Australian Security Intelligence Organisation first warned in 2017 of an increase in China’s attempts to interfere in domestic affairs.

‘China should make a plan to impose retaliatory punishment against Australia, a plan that should include long-range strikes on military facilities and relevant key facilities on Australian soil”, said Hu Xijin, editor-in-chief of the stridently pro-communist Chinese newspaper Global Times, last week. While these words are not necessarily echoed by Beijing, the Global Times is widely seen to be the mouthpiece of the Communist dictatorship and they would not have been published without the blessing of President Xi Jinping. So presumably he agrees.
These alarming comments were made to warn off Australia as tensions heightened over Taiwan, while China’s air force carried out repeated forays into Taiwan’s air-defence zone. Beijing is clearly concerned by the resurrected Quad becoming a defensive organisation, with Australia joining forces with the US in defending the island, which China claims as its own. The Global Times’ editorial also reflects the worrying nosedive in relations between China and Australia. “The drums of war are getting louder”, said Mike Pezzullo, Australia’s chief national security advisor.
Last week, the relationship plummeted to new lows, making the “deep freeze” of recent times seem almost balmy. An angry Beijing announced that it was “indefinitely suspending” all activities under the China-Australia Strategic Economic Dialogue (SED) because of Australia’s latest move that had infuriated Beijing. The SED was formed in the headier days of 2014 and is the main bilateral economic forum, used to encourage investment between the two nations and smooth trade and financial talks. Beijing’s move was seen to be a “tit-for-tat” retaliation at Canberra’s cancellation of two Belt and Road Initiative (BRI) deals last month, claiming that the cancellation was due to “a Cold War mindset and ideological discrimination”.
These deals, which had been struck bilaterally with China by state governments in Australia in 2018 and 2019, were vetoed last month under new laws that give the federal government power to overrule international agreements by lower-level administrations that violate the national interests. “I consider these arrangements to be inconsistent with Australia’s foreign policy or adverse to our foreign relations”, said Foreign Minister Marise Payne. Beijing saw it differently: “Australia faces serious consequences for unreasonable provocation against China”, came the response. Chinese government ministers are now refusing to take phone calls from their Australian counterparts. Trade between the two countries has become further disrupted, all widely seen as China imposing economic punishment.
It was all so different back in November 2014 when Xi Jinping addressed a special joint sitting of Australia’s Federal Parliament on the day that a free trade agreement between the two countries was announced. The deal removed tariffs on dairy beef, wine, minerals and horticultural products, as well as education, health and financial services. In his speech, Xi hailed the agreement as boosting relations between the two countries, mutually beneficial and a win-win for both sides.
China is Australia’s dominant trading partner and Xi was spot-on in identifying the mutual benefit to both countries. But in recent years, China has increasingly been viewed by Canberra as a security threat. The Australian Security Intelligence Organisation first warned in 2017 of an increase in China’s attempts to interfere in domestic affairs. The same year a senator resigned over his connections with a Chinese political donor. In 2018, Australia passed laws aimed at curbing foreign interference and, citing security risks, it then became one of the first nations to ban the Chinese firm Huawei from building its 5G network in the country. It was, therefore, seen as no coincidence that Australia was soon hit by a series of cyber-attacks on its federal parliament, political parties, universities and science agencies. China was the chief suspect.
Negative sentiment towards China has also grown recently with Beijing’s arrest of Australian citizens, one of whom is a high-profile news anchor, 49-year-old Cheng Lai, detained on suspicion of “illegally supplying state secrets overseas”. The journalist was born in China but moved to Australia with her parents as a child. Chinese Australians make up nearly 6% of Australia’s population of 25 million, some with deep roots going back to the mid-19th century gold rushes. They are beginning to feel the effect of the animosity between Beijing and Canberra, demonstrated by a recent survey which found that nearly one in five had been physically threatened or attacked in the past year because of their Chinese heritage. Most of those surveyed used the Chinese social media platform WeChat to read Chinese language news and saw China more as an economic partner to Australia than a security threat. But at the same time, two in three in the sample said they would support imposing travel and financial sanctions on Chinese officials associated with human rights issues. They clearly had Beijing’s genocide of the Muslim Uyghurs in mind.
It was Canberra’s criticism of China’s “repressive measures” of the Uyghurs and its attack on human rights in Hong Kong that really hit a nerve in Beijing last September. This, together with Prime Minister Scott Morrison’s call for an international enquiry into the origins of the coronavirus that caused Covid-19, resulted in an explosion of anti-Australian sentiment in Beijing and an avalanche of trade measures against Canberra. Then in November, a Chinese Foreign Ministry spokesman tweeted an edited “fake” image of an Australian soldier holding a knife to the throat of an Afghan child, a barbed reference to an ongoing war crimes probe. Relations reached a nadir.
China quickly slapped crippling tariffs on a range of Australian products: barley, beef, wine, cotton and lobsters. Timber exports were banned and at least $500 million of coal was delayed for months at Chinese ports, an act which paradoxically led to local blackouts. Sales of iron ore, Australia’s largest cash cow, however are still booming. Over recent years the mining boom has brought a substantial boost to Australia’s export earning power and there are now concerns that if China’s BRI infrastructure investments expedite the supply of resources from locations other than Australia, such as Guinea or Brazil, this could be a serious blow to Australia’s economy. There are few other customers for iron ore at current volume.
To give some idea of the damage to Australia’s winding back of trade with China, a recent simulation of shutting down trade by 95% exposed that there would be a reduction of 6% of the country’s GDP and a drop of 14% real disposable income per capita of its population. The shock to Australia would be large, while the damage to China’s large economy would be insignificant. As one Australian commentator put it: “Big damage to us, a mozzie bite for China”!
Can Australia turn away from China and take advantage of emerging markets? Possibly, as Australia is far less reliant on exports, which make up 20% of GDP, than many countries. But those proceeds flow directly into jobs and welfare, making China a significant driver of Australian welfare. India is often cited in Canberra for its potential. Australia has set a goal to send $31 billion in annual exports to India, but last year it sold more than $120 billion to China alone. Experts believe that no other options come anywhere near to making up China’s numbers.
So, is some form of reconciliation between the two countries possible? In the short term, probably not. “I see no prospects on the horizon for this relationship back on track”, an Australian expert on China, James Laurenceson, told CNBC last week, adding “as Australia and China are blaming each other for the breakdown in dialogue”. Currently, both sides appear to be doubling down and hardening their stance, which makes it particularly difficult to identify a way out of the crisis. Mutual understanding is almost non-existent. Australia was contented with a rising China, as China’s rise gave Australia economic growth. But now China has economic power, and with power comes influence, something that makes China-hawks in Canberra extremely uncomfortable. These hawks should be reined in by Prime Minister Morrison, argue the pro-China camp in Canberra, suggesting that Australia needs to be more strategic in its diplomacy. Australia could criticise China from within a group of like-minded countries rather than striking out on its own. Others argue that Australia hasn’t changed but China fundamentally has, becoming more assertive and authoritarian. At the end of the day, however, Canberra, like other democracies, can no longer overlook political reality for economic gains as the risk of economic retaliation is becoming the new normal in the relationship.
A respected Sidney-based polling organisation, the Lowy Institute, posed the question to Australians last year; “Would you support or oppose the government working to find other markets for Australia to reduce our economic dependence on China?” A whopping 94% of the sample said “support”. So, Canberra, it’s over to you. But be careful not to support the US over Taiwan, or else…!

John Dobson is a former British diplomat, who also worked in UK Prime Minister John Major’s office between 1995 and 1998.