Counting on a Chinese olive branch

Tony Abbott and his foreign policy team might now be humming the line in John Lennon’s Beautiful Boy: “Life is what happens to you when you’re busy making other plans.”

First came the phone tapping revelations from 2009, which put a fly in the ointment of the Coalition’s ‘Jakarta not Geneva’ policy. Now it is China’s declaration of the Air Defence Identification Zone over disputed areas of the East China Sea (which I wrote about last week here) which has caused early ruptures with our largest trading partner.

It is also rumoured that further leaks by Edward Snowden will reveal Australian espionage activity against China, although this will hardly be a surprise to Beijing. 

Some worry that all this will fatally jeopardise Canberra’s hopes for the quick conclusion of a free trade agreement with Beijing. Conventional logic would suggest that these strategic and political disagreements with China can’t be good for the economic relationship.

But my guess is that a counter-intuitive logic will actually hold. China has traditionally used FTAs as diplomatic instruments to improve its standing in the region after a rough period with neighbours. Ongoing disputes with multiple other capitals that will remain unresolved might well mean that it will seek to conclude an FTA with Australia sooner rather than later.   

Let’s start with a recap of what has happened over the past week and a bit. Two weekends ago, China’s declaration of the Air Defense Identification Zone in disputed areas of the East China Sea led to Foreign Minister Julie Bishop to formally place a protest to Chinese Ambassador Ma Zhaoxu, and publicly stating that “Australia has made clear its opposition to any coercive or unilateral actions to change the status quo in the East China Sea.”

Remember that in his first trip to Asia, Abbott described Japan – the other claimant of the Senkaku-Diaoyu Islands – as our “best friend in Asia”.

In response, Chinese Foreign Ministry spokesperson Qin Gang warned Bishop that "it is completely a mistake for Australia to make irresponsible remarks on China’s establishment of an ADIZ in the East China Sea, and the Chinese side will not accept it". Qin urged “Australia to correct its mistake immediately to prevent damaging Sino-Australia relations”. Bishop, and other senior ministers such as Treasurer Joe Hockey, subsequently stood by the original comments and offered no such ‘correction’.

This is hardly a promising start to an important bilateral economic relationship. So how could it possibly be of benefit to a speedy FTA process? It comes down to the reasons why Beijing ratifies FTAs in the first place.

It is widely recognised that Beijing readily uses trade in general, and FTAs in particular, to achieve political and diplomatic goals in addition to economic gains. While the most obvious example is Chinese economic policy towards Taiwan which is designed to win the hearts and minds of the latter’s citizens, the political motivations behind Chinese trade policy in the region are also clear.

Indeed, Chinese proposals for FTAs and other trade agreements coincided with its era of ‘smile diplomacy’ and ‘win-win’ rhetoric from the late 1990s onwards. This followed a period in the early to mid-1990s when aggressive Chinese diplomacy in the Taiwan Straits and South China Sea caused many countries in the region to band together in expressing alarm about China’s rise – something which is happening again currently.

It is worth noting that China’s offer of an FTA with the Association of Southeast Asian Nations countries must also be understood within the context of Chinese and Japanese competition for political leadership in East Asia in that period, alongside the desire to assure neighbours that China’s ascension to the World Trade Organisation would not cause them economic hardship.

Critical to the success of Chinese diplomacy was the argument that its rise would be peaceful and create opportunities for nervous neighbours. In particular, Beijing has long promoted the China-ASEAN FTA, or CAFTA, as evidence of China’s peaceful and cooperative commitment to prosperity and mutual gain in the region.

Evidence that CAFTA was heavily informed by political and strategic considerations on the Chinese side is reinforced by the fact that China voluntarily gave concessions to ASEAN on agricultural trade through the Early Harvest Program. Complaints by local officials and farmers in southern China who stood to lose out from the EHP provision were explicitly overruled and dismissed by central ministries on the basis that the EHP would bring wide non-economic benefits for the whole country.

In more recent times, China is using the ASEAN Economic Community– which aims to create a single market and production based amongst ASEAN 3 countries in the region (the ten ASEAN member states plus China, South Korea and Japan) – as a counter to the American-led Trans-Pacific Partnership. As the TTP has gained momentum, China’s advocacy for the AEC has strengthened.

Back to contemporary Australia-China relations. On issues such as disputed claims in the East and South China Seas, Beijing has pursued a familiar pattern of diplomatic assertiveness, followed by periods of reassurance – even as it consolidates creeping control over these territories.

Its establishment of the ADIZ has caused countries to collectively raise concerns over the move. Even South Korea – no diplomatic friend of Japan – has flown military aircraft over the ADIZ in defiance of Beijing’s demand that all aircraft inform Chinese authorities of their flight plans. The United States and Japan has done the same. Other countries such as Singapore and the Philippines have joined Australia in condemning the move. China is well and truly isolated on this issue.

China cannot take on the whole region diplomatically. It is neither powerful nor confident enough to do so. Sooner or later, history suggests that Beijing will offer some diplomatic olive branches to the region, though some might understandably consider it more a fig leaf. In any case, if the Abbott government play its cards smartly, and continues to offer the hand of economic friendship, concluding an FTA with an American alliance partner will look increasingly attractive to Beijing for political and diplomatic reasons.

Bear in mind that even if this occurs, it will not be a comprehensive FTA. Any agreement is more likely to codify what is already taking place between the two countries, with few meaningful or significant concessions from either side. The aspiration in any future FTA will far exceed actual concessions – like China’s FTA with ASEAN.      

None of this is to say that Canberra should not sign a FTA with China. The point is that the Abbott government’s firm line on the ADIZ is not only correct in principle and consistent with that of other major countries in the region. It may also advance the leverage of our trade negotiators, and expose the fallacy that countries need to choose political and diplomatic submission to China in order to achieve progress in the economic relationship.     

Dr John Lee is the Michael Hintze Fellow and adjunct associate professor at the Centre for International Security Studies, Sydney University. He is also a non-resident senior scholar at the Hudson Institute in Washington DC and a director of the Kokoda Foundation in Canberra.