China's Taiwan tactics, duelling preconditions, and coal exports
Week of 15 to 21 November 2021
A Chinese government adviser on Taiwan affairs, quoted in the South China Morning Post (SCMP) on condition of anonymity on 20 November:
“[Beijing] is saying that there is no need to worry [about war in the Taiwan Strait] as long as we are in control of the overall situation.”
This is an interesting datapoint suggesting that Beijing’s preferred option remains achieving its goals in Taiwan without resorting to large-scale military conflict. As well as the potentially existential risks for the Chinese Communist Party (CCP) of initiating an unsuccessful military campaign in the Taiwan Strait, Beijing’s preference for avoiding war also appears driven by the wide scope to ramp up and expand its use of grey zone tactics—activities designed to coerce Taiwan while also avoiding military conflict. As Yu Xintian from the Shanghai Institutes for International Studies put it in the same SCMP article: “Some think that ‘opposing Taiwan independence’ is either a question of whether to fight or not to fight. It is not that simple. There are many steps to take and we have a lot of tools in our toolbox which haven’t been used yet.”
The grey zone tactics that China could/is likely to use more frequently and forcefully include, among others: increasing the diplomatic pressure on the international community to limit Taiwan’s participation in multilateral fora; pushing countries to downgrade their official and unofficial diplomatic and economic engagement with Taiwan; more coercive economic measures against Taiwanese exporters; and additional PLA air and maritime presence around Taiwan. Given these and other means of incrementally isolating Taiwan, testing and straining the Taiwanese military, and intimidating foreign governments, caution vis-à-vis the use of military force would still seem to make compelling strategic sense for China.
China’s tactical options in the grey zone have immediate policy implications for Australia. Canberra has a long-term goal of delivering a high-end military deterrent in the Taiwan Strait via nuclear-power submarines, which can remain on station proximate to Taiwan for longer periods. But Beijing’s grey zone activities impact Taipei today. Although the range of grey zone tactics reduces Beijing’s incentive to pursue the option of large-scale military conflict, it equally means that China has immediately available methods to ratchet up the pressure on Taiwan and the international community. Beyond Australia’s efforts to support Taiwan’s productive involvement in multilateral fora and pursue shared trade interests, what can Canberra do to assist Taipei manage this pressure in the short-term? Although I’ve previously suggested potential areas of collaboration in the defence space, economic statecraft is another possible arena for more cooperation between Canberra and Taipei. Especially considering some of the shared Taiwanese and Australian experiences with China’s politically motivated trade restrictions.
What might Australian and Taiwanese cooperation on economic statecraft look like? A few possibilities come to mind:
Working-level exchanges between relevant Australian government departments and agencies and their Taiwanese counterparts on their experiences with China’s economic coercion and how to develop effective policy responses.
Closer coordination on diplomatic messaging and agenda setting in key multilateral economic fora of which both Taiwan and Australia are members, including the World Trade Organization (WTO) and Asia-Pacific Economic Cooperation (APEC).
Establishing a de facto Strategic and Economic Dialogue with Taipei that builds on Minister for Trade, Tourism and Investment Dan Tehan’s ongoing conversations with his Taiwanese counterpart.
The Australian government might already be pursuing elements of the above without public fanfare. But to the extent that Canberra isn’t, it’s worth emphasising that the above initiatives would be consistent with the government’s efforts to ensure Australian policymaking can navigate the current collision of trade and economic policy with national security and geopolitics. This integrated approach to economic and security policy has been advocated explicitly in recent months by both the Treasurer and Trade Minister. Beyond broad alignment with Australian moves to develop its own economic statecraft, the above measures would also dovetail with what appears to be a renewed focus in the Department of Foreign Affairs and Trade (DFAT) on managing and responding to economic coercion and other emerging challenges at the intersection of economic and security policy.
Although the above initiatives would be politically sensitive for Beijing, they could be pursued quietly and discreetly to minimise diplomatic blowback. It also seems prima facie plausible that, for example, exchanging notes on experiences with economic coercion would not diverge from Australia’s one-China policy given that such initiatives could be framed as engaging with Taiwan as an economy. But even if these types of initiatives were pursued, the economic and strategic benefits of cooperation with Taipei would need to be balanced against the costs of potentially provoking (more of) Beijing’s ire. For your consideration, Canberra.
Minister Tehan speaking at the Bloomberg New Economy Forum 2021 on 17 November:
“So, we would need some sort of ministerial dialogue to be able to work through that market accession [to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)]. Obviously economic coercion, trade disputes, those types of things, would all have to be dealt with and we’d have to work through those but also there would have to be that firm commitment to those gold standard rules.”
The challenges of CPTPP accession should now be clear for China. For Canberra, it’s a nonstarter unless Beijing is willing to restart ministerial dialogue and map out a path towards ending its politically motivated trade restrictions. But the trouble doesn’t end there for China. As Minister Tehan recently reemphasised, any eventual Chinese accession must be a “consensus-based decision”. The implication of this seems to be that Canberra reserves the right to unilaterally render Beijing’s accession bid futile. And that’s even before questions are asked about whether China can meet the CPTPP’s “gold standards” on goods and services trade liberalisation.
But not to be outdone, Beijing has its own preconditions for dialogue. As China’s Chargé d’Affaires in Canberra, Wang Xining, put it recently when speaking to The Guardian’s Daniel Hurst: “First, we need to prepare for concrete results. We need to find a real solution for certain problems between certain ministers, and we need an atmosphere. When you see top-tier officials keep on saying that China is a threat, and Australia may get involved in a military conflict in certain parts of China, this is not a conducive environment for engaging in ministerial talks.” In other words, ministerial dialogue depends on preconditions, including a deliverable of some kind and a shift in the tenor of public statements from Australian ministers about China.
So, where are we at in this story of duelling preconditions? We’re likely left with no ministerial dialogue for now and little chance that China’s bid for CPTPP accession will progress. The impasse looks something like this:
Canberra won’t consider China’s CPTTP accession until (at minimum) ministerial dialogue with Beijing recommences.
But Beijing won’t restart ministerial dialogue with Canberra unless the atmospherics of the bilateral relationship improve and concrete deliverables are on the table.
However, Canberra won’t agree to dialogue with Beijing that comes with such preconditions. And there seems little reason to conclude that Canberra’s threat perception of Beijing or willingness to speak about it will change.
Is it possible that Beijing and Canberra might agree to a compromise solution in which ministerial dialogue recommences and the deliverable that this provides China is simply the announcement that the two countries are discussing Beijing’s CPTPP accession? This would be a pretty meagre “concrete result” for China and Australia might still judge that it amounts to an unacceptable precondition for dialogue. But given that Canberra in any case wants dialogue with Beijing, and it remains unclear whether China requires results that are any more substantive than talking about possible CPTPP accession, such a compromise solution might just work. So, perhaps we’ll see high-level dialogue restart in the form ministerial contact on the topic of China’s possible CPTPP accession? Yet given all the preconditions above and the gloomy bilateral atmospherics, it’s equally possible I’ve gone way too far down a chain of hypotheticals. We might yet reach the two-year anniversary of the January 2020 telephone call between foreign ministers Marise Payne and Wang Yi without any ministerial contact between Beijing and Canberra.
China keeps door closed to (Australian) coal
The monthly value of Australia’s coal exports (to China, the rest of the world, and total, May 2020 to September 2021):
So far, coal is by a wide margin the most valuable Australian export to China that has been hit with politically motivated trade restrictions. After reaching a near-record high in May 2020, the value of Australia’s coal exports to China declined precipitously between May and December last year. Notwithstanding reports in October of small amounts of Australian coal being release into the Chinese market, the September data still has Australian coal exports to China flatlining at zero. Despite the gloomy story of the value of coal exports to China, the value of coal exports to the rest of the world has boomed. Although being driven in part by surging coal prices, the value of these exports to alternative markets is now far higher than the combined value of Australia’s total coal exports before Beijing introduced trade restrictions. The monthly value of these exports to the rest of the world is also approaching previous past highs.
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.