Australia's export optimism, more security tensions, and China's CPTPP numbers
Fortnight of 29 April to 12 May 2024
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Beef business and a leader-level visit
Prime Minister Anthony Albanese speaking at the Rabobank Beef Industry Awards dinner in Rockhampton on 6 May:
“China is vital, and we are making great progress in resolving agricultural issues and getting fully loaded ships once again leaving Australian ports for China.”
Quick take:
During a jovial visit to Queensland for Rockhampton’s Beef2024 expo, Prime Minister Albanese sent out a pair of upbeat signals about the ongoing repair of the Australia-China relationship. The reference on the trade front to “resolving agricultural issues” didn’t specify whether it related to restrictions on red meat only or lobster as well. Still, the use of the plural seems to suggest that barriers against both exports will tumble soon. Other messages at Beef2024 also pointed in that direction. Minister for Agriculture, Fisheries and Forestry Murray Watt echoed Prime Minister Albanese’s optimism and said on 7 May that the pressure had been “kept up … on the Chinese government to really fix all of [the trade blockages on lobster and red meat] as quickly as possible.” The exact timing for the removal of these remaining trade restrictions is still unclear. But as I’ve previously suggested, it seems likely to happen in the next few weeks either before or soon after Premier Li Qiang’s visit.
Prime Minister Albanese also confirmed the next step in the repair of diplomatic ties while he was enjoying Beef2024. Coming on the back of a stream of increasingly confident media reporting, Prime Minister Albanese said on 7 May that Premier Li will indeed come to Australia in June. Subsequent reporting suggested that the visit will happen around 16 June. So, on top of some recent high-level engagements, including in the trade portfolio and at the state level, next month will see China’s first leader-level visit to Australia in more than seven years. (The last such trip was March 2017 when the now-deceased Premier Li Keqiang called on the then Prime Minister Malcolm Turnbull.) Premier Li’s impending visit and the easing of trade restrictions will likely see bilateral ties push past the four-year anniversary of China’s economic coercion campaign with a head of steam. As with wine, this doesn’t mean that red meat and lobster will immediately experience boomtimes in China (see, for example, here, here, here, here, and here). But it at least suggests that the trade and diplomatic aspects of the bilateral relationship are fast approaching normalisation in the minimal sense of a return to trade flows unimpeded by economic coercion and the resumption of the regular pre-2020 rhythm of high-level contact.
Military manoeuvrings and moderate bilateral expectations
Shadow Minister for Defence Andrew Hastie speaking to Sky News on 8 May:
“This is basic schoolyard stuff here – if you’re getting pushed around by a bully, you’ve got to push back and you’ve got to draw a line in the sand. That’s why it’s so important the Prime Minister leads in this moment and picks up the phone to President Xi.”
Quick take:
For all the signs of more trade and diplomatic relationship repair, there are also many reasons to be cautious about the longer-term trajectory of bilateral ties. The last fortnight saw yet another dangerous encounter between the People’s Liberation Army (PLA) and the Australian Defence Force (ADF). On 4 May, a PLA Air Force fighter aircraft intercepted an ADF helicopter and released flares across its flight path. The Australian helicopter was embarked on HMAS Hobart, which was contributing to United Nations Security Council sanctions enforcement against North Korea at the time. This is just the latest example of a pattern of dangerous actions by the PLA against the ADF and other militaries, including incidents involving Australia in November 2023, May 2022, and February 2022. In a manner similar to last year’s incident, this latest dangerous military encounter was met with criticisms from Prime Minister Albanese (here, here, here, here, here, and here) and his ministers (here, here, here, and here), while also leading to Ambassador Xiao Qian and Chinese officials in Beijing being “spoken to.” China in turn rejected Australia’s account of events (here and here), while also taking issue with negative Australian media coverage of the incident.
This news of a dangerous in-air encounter coincided with the publication of fresh details on 6 May about Chinese state-backed hacking group APT31 targeting six Australian parliamentarians in 2021. This cyberattack was apparently part of a broader intelligence gathering exercise against members of the Inter-Parliamentary Alliance on China—an international network of lawmakers critical of the Chinese government. And as if these military and cyber tensions weren’t enough, they were followed by news this week of fresh details of China’s efforts to monitor, intimidate, and rendition Chinese government critics in Australia and globally. The forecast for bilateral ties in the coming days isn’t especially sunny either. The Chinese Embassy on 15 May firmly rebuked Australia in response to the decision by up to four Australian federal parliamentarians to attend Taiwan’s presidential inauguration on 20 May.
As well as putting in stark relief just a few of the many deep and enduring points of disagreement between Australia and China, these recent events underscore the difficulties for Beijing of getting Canberra to back a broader cooperative agenda. These and other incidents are likely to further fuel already intense distrust of the Chinese government in many quarters of Australian society. Yes, Canberra wants trade flowing freely between Australia and China and is keen for the normal rhythm of bilateral diplomacy to continue apace. But while the PLA regularly engages in dangerous conduct and more details emerge of Beijing’s cyberattacks and transnational repression, Canberra will likely remain reluctant to embrace the kind of broader cooperative bilateral agenda that China seems to want. This apparently includes, among other things, deeper military engagement and more science and technology collaboration. Of course, this doesn’t means that there are no concrete areas of potential cooperation to explore or that Canberra will necessarily baulk at all new collaboration with Beijing. But for a range of national security, diplomatic, and domestic political reasons, among others, it seems as if China’s assertive in-air, cyber, and espionage actions will further encourage the Albanese government to mostly say ‘thanks, but no thanks’ in response to Beijing’s entreaties for “something more … beyond stabilisation.”
China’s case for caution on the CPTPP
From the Productivity Commission’s research report Modelling Asian trade integration:
“The seven CPTPP [Comprehensive and Progressive Agreement for Trans-Pacific Partnership] economies that are also members of RCEP [Regional Comprehensive Economic Partnership] – Australia, Brunei, Japan, Malaysia, New Zealand, Singapore, and Vietnam – already have removed their tariffs on bilateral trade with China and gain little under this scenario [of China joining the CPTPP].”
Quick take:
As BCB has previously documented (here, here, here, and here), China has elevated entry into the CPTPP to a long-term policy priority. But despite Beijing’s determination, this Productivity Commission study underscores China’s gloomy prospects for membership. Among other concerns, Beijing’s extensive and ongoing track record of trade malfeasance means sustained doubts about admitting China. And one would imagine that such scepticism will get an especially sympathetic hearing in 2025 with Australia chairing the CPTPP. But in addition to all those and other issues that already make China’s CPTPP accession unlikely, it now looks as if the economic benefits of welcoming China in would be modest to net-negative for most members. For Australia, for example, China’s CPTPP membership would see real GDP and export volumes both fall by 0.01%. For other CPTPP member economies like Japan, Malaysia, and Singapore, the fall in real GDP and export volumes associated with China joining would be between 0.01% and 0.08%. To be sure, economic modelling isn’t beyond critical scrutiny. But even granting that, the Productivity Commission study provides at least prima facie grounds for strong scepticism of the economic rationale that China has offered for bringing it into the CPTPP.
Not only would most CPTPP members reap uninspiring returns from China joining, but Beijing’s bid will likely get a mixed reception even among the economies that stand to benefit the most. With China’s CPTPP membership leading to relatively modest economic benefits for Chile and Peru, Canada and Mexico stand to benefit by far the most. But considering Ottawa’s deepening distrust of Beijing and recent experiences of China’s hostage diplomacy and economic coercion, it seems unlikely that the Canadian government will look favourably upon Beijing’s bid. That leaves Mexico as the sole CPTPP member that both stands to benefit significantly from China joining and seemingly isn’t deeply distrustful of Beijing. Mexico’s real GDP and export volumes would go up by 0.33% and 1.69%, respectively, in such a scenario. Given that trade pact membership is rarely (if ever) just about the economic numbers, none of the above necessarily means that China won’t ever get in. Most signs suggest that Beijing will keep banging hard on the CPTPP’s door. And regardless of the largely unpersuasive economic case, Beijing might be able to persuade CPTPP members to back its bid with a range of threats and inducements. But with the economic logic for most member economies not swinging behind Beijing’s bid, and many other factors counting against letting China in, its pathway for joining the CPTPP looks vanishingly narrow.
As always, thank you for reading, and please excuse any errors (typographical or otherwise). Any and all objections, criticisms, and corrections are very much appreciated.
Thanks for the update! Two niggles:
1. "Another dangerous encounter between the People’s Liberation Army (PLA) and the Australian Defence Force (ADF)"? Our guys were dropping sonobuoys in their EEZ, which China claims as sovereign waters. Aeronautical warning flares are fully approved by, inter alia, the US FAA.
2. "Among other concerns, Beijing’s extensive and ongoing track record of trade malfeasance"?
Since China’s entry into the World Trade Organization (WTO) in 2001, of the 23 cases on which the US has taken China to the WTO, Washington has won 22.
Opponents of China’s WTO accession had suggested that China would use discriminatory product standards to keep out imports of industrial products; “however, there is no evidence that these practices have become a major constraint to trade in the affected categories” (USTR 2004). China was “in full compliance with its WTO commitments on trading rights for all Chinese- foreign joint ventures, wholly foreign-owned enterprises, and foreign individuals” (USTR 2005: 75).
By 2005, in advance of proposed WTO deadlines, China had eliminated all quotas, licenses, tendering requirements, and other nontariff barriers to imports of manufactured goods (Branstetter and Lardy 2006: 20). Reality contradicted “the notion that large swathes of the Chinese economy were effectively closed off to foreign competition provided the intellectual foundation for the belief that credible implementation of China’s WTO commitments would generate destabilizing shocks” (Branstetter and Lardy 2006: 5).
Since the founding of the WTO in 1995, legal action has been taken against the US 147 times, the highest number for any member. Since China joined in 2001, it has seen just 42 cases, less than half of the 91 that the US faced in the same period.
Of the seven cases in which the WTO has authorized reprisals by the winning party, six were due to the US refusing to comply with the ruling.
Particularly concerning is the US government’s malicious blocking of WTO Appellate Body appointments because it has ruled against it in multiple lawsuits. The US has not only repudiated its debts from those cases, it has also ousted the judges and is attempting to shut down the court entirely..