Belt and Road: Will Australia Miss the Train?

By Shen Yujia

After 40 years of reform and opening up, China has become the driver of the Asia’s economy. Australia and China formed formal diplomatic relationship in 1972, which almost coincided with the start of the opening up policy. China’s growth over the past 40 years has involved urbanization, growth in manufacturing, and investment in infrastructure. This has created demand for building materials, energy for electricity and transport, and raw materials for manufacturing. Australia was well placed to meet a lot of this demand, and it was a ready market for Chinese manufactured goods. China Australia relationship was based on pragmatic economic complementarity, culminating in 2016. In 2016, China and Australia signed the China-Australia Free Trade Agreement. Today, China is Australia’s largest trading partner both in terms of imports and exports. If anything that would launch Australia and China relation into the next stage, it would be cooperating on Belt and Road Initiative.  Last year at this time, the Belt and Road Initiative was the hottest topic revolving around the China-Australia relationship. The media and the government talked about the possible strategic consequence of joining the initiative. One year later, the mistrust between Australia and China only seem to grow stronger.  Despite Australia’s continuous suspicion over the BRI, it has expanded and 68 countries have signed the initiative including New Zealand and Papua New Guinea. Will the Australia government continue to be suspicious about the “agenda” behind the initiative?

The Lukewarm Response from the Australian Government

The Turnbull government has always had a lukewarm attitude towards the initiative. The Prime Minister declined to sign the Belt and Road MoU in March 2017 when Prime Minister Li Keqiang visited Australia.

Australia has also declined China’s offer to formally link the Northern Australia project to the Belt and Road Initiative. Instead, Australia established a public-private NGO known as the Australia-China OBOR Initiative to help businesses understand the challenges and opportunities arise from the initiative.

However, with strains in the China and Australia relationship, it is hard to foresee any welcoming message from China. If any progress is to be made at government level, the Australian government will take the first step, which, is unlikely to happen given the domestic political atmosphere. It is fair to say the current government is taking a departure from its previous approach to China. Richard Rigby, a prominent expert in China Australia relationship has pointed it out last week on The Saturday Paper. “It was the to the effect there’s been a fundamental change in the approach we are taking to China and people needed to realize this.” There is a shift to a more adversarial stance towards China.

Why is Australia Lagging Behind?

The BRI has provoked schism in the Department of Foreign Affairs and Trade, with trade bureaucrats broadly in favor of joining, while the diplomatic corps is less enthusiastic.

Many Australian academics are also reticent. Some are concerned that joining the initiative could draw Australia further into the China orbit. Also, they think it reinforces the Chinese strategic goal to dominate the world trade at a time when the U.S is withdrawing from the free trade world.

The strongest opposition comes from the security establishment, including Dennis Richardson, former head of the Department of Defense and Mike Puzzello, the head of the Department of Immigration and Border Protection. They have firmly advised the Turnbull government not to join. Their key concern lies in the strategic consequences. It has been widely speculated among Australian strategic thinkers that the Belt and Road is China’s “grand strategy”. Signing the MOU or joining could have serious consequences. It is perceived that the initiative clearly signals China’s intention to assume a more prominent global leadership role.

Business is Keen to be on Board

The Opposite to the lukewarm government reaction, the Australian business community has been enthusiastic. Malcom Broomhead, the director of Broken Hill Proprietary Billiton Ltd(BHP), an Anglo-Australian multinational company headquartered in Melbourne, is calling on the business community to support the initiative. He firmly believes that it is a huge opportunity for Australian business.

The logic behind this is clear: the BRI would generate huge demand for raw materials, labor and capital. Australian business, especially the resource and service sector, has already established a sound link with China. They would be well-positioned to make a profit in those infrastructure projects.

A report released by BHP Billiton showed that the infrastructure development promoted by the BRI would generate lucrative revenues for the steel industry. The gigantic plan would increase the demand for steel by 1.5 billion tons. This would lead to surging demand for iron ore and other resources. The resource sector of Australia would be a big winner if the BRI takes off. Morgan Stanley has predicted that the BHP share price would rise by 13.5%.  Another BHP study put a valuation of US$1.3 trillion on 400 projects in 68 countries out to around 2023, led by the power sector. This generates tremendous opportunities for banks and construction companies.

The Australian services sector has so far demonstrated the keenest interest in the initiative, especially finance and law. Three of the big four banks, law firms King Wood, and global engineering consulting firms Worley Parsons have already taken part in initiative-related projects.

According to figures provided by EFIC，an Australia’s export credit agency, if the BRI delivers on its promises, Australian exporters could benefit from plans to import US$2t of products and services from participating countries over the next five years. It would be fair to argue that cooperation on Belt and Road initiative would be of mutual interest of business from both Australia and China. However, with the absent trust in the bilateral relationship now it is unlikely to see any progress made on the government level.

It is worth noting that the recent ideological moves from the current government are a departure from the long history of pragmatic interests-based relationship between Australia and China. The current government is increasingly showing its determination in a more “value” oriented foreign policy. In Australia, the Turnbull government is developing a counter-interference strategy.

But will Australia and China’s mutual interest for a robust economic and trading relationship be at stake?

Will Australia miss the train?

Dr. Shen Yujia, research fellow at National Centre for Oceania Studies, School of International Relations, Sun Yat-Sen University

Editor: Cai Hairuo

Opinion articles reflect the views of their authors, not necessarily those of China Focus