Why is China annoyed with Australia?

It is unrealistic to hope that such open opposition and criticism across a wide spectrum of issues would not be hurtful towards a country.

Dr Dan Hu (Deputy Director, Australia Studies Centre, Beijing Foreign Studies University)
First published in The La Trobe Asia Brief Issue 2 on 1 July, 2019.

Speaking at a recent La Trobe University public debate on Australia-China relations, and in spite of other arguments he tried to make, author of the controversial Silent Invasion Professor Clive Hamilton rightly admitted “we’re leading the world in the push back... and the rest of the world is coming to us to see what we’re doing, how we’re doing it”.

This widely understated fact is particularly true in the foreign investment domain. Controversies surrounding Chinese investment in Australia and Australia leading the way amongst advanced economies in the backlashes against China’s Belt and Road Initiative (BRI) and high-tech mergers and acquisitions have contributed to the Chinese government’s discontent over Australia and their role in spearheading an ‘anti-China’ campaign.

I have been leading an ongoing comparative study across G7 countries on their foreign investment policy and regulation changes, which are widely seen as responses to China’s BRI and acquisition of technology companies overseas. Our findings indicate that Australia (which is not a member of the G7 group) pioneered this wave of regulatory responses.

Amongst the G7 countries Germany was the first to update its regime in July 2017, entitling its Ministry of Economic Affairs and Energy to review inbound transactions by foreign investors based outside the EU or the European Free Trade Association, and to prohibit or restrict a transaction if it poses a threat to the German ‘public order or security’.

In reality it was merely instituting what has been in place in Australia since the mid 1970s, as well as in the US and Canada at around the same time.

These three resource-rich countries adopted a less liberal approach of foreign investment regulation at that time by establishing authorities like Australia’s Foreign Investment Review Board (FIRB) and America’s CFIUS (Committee on Foreign Investment in the United State) to screen individual foreign investment proposals against ‘national security’ or ‘national interest’ concerns.

Canada and the US, however, are lagging behind Australia in this initiative by still engaging in a debate over what regulatory changes have to be made, with most of their responses having been in the form of tightening on a case-by-case basis, as demonstrated by Canada’s recent blocking of the CCCI-Aecon deal.

Australia, on the other hand, effected institutional changes first and immediately, well before G7 countries started pondering action.

As early as March 2016, amid controversies towards Chinese investment in the infrastructure sector, notably Darwin Port, the Federal Government reaffirmed its jurisdiction over foreign acquisition of local critical infrastructure, guarding against future cases of state/ territory governments prioritising economic performance over ‘national security’.

In January 2017, a full six months before the first G7 country took action (by establishing the authority to review foreign investment proposals), Australia had already founded a sector-specific ‘Critical Infrastructure Centre’ to assess ‘national security risks from foreign involvement in Australia’s infrastructure, including espionage, sabotage, and coercion’.

In December that year, the Security of Critical Infrastructure Bill was introduced and passed four months later. But ahead of all these responses, the Treasury quietly placed David Irvine, a long-time head of Australian intelligence agencies ASIS and ASIO, on the FIRB in December 2015. He took the seat as Chairman in April 2017, signifying the priority of ‘national security’ in evaluating foreign investment proposals.

Advanced technology has not really been a major area for Chinese investment in Australia but the same readiness can be detected in dealing with Chinese communications company Huawei. Australia was the first to explicitly ban Huawei and ZTE from providing 5G technology in their national networks as early as August 2018 – a move US President Donald Trump and seemingly more economies intend to follow.

These actions may be seen inside Australia as merely responding to challenges brought about by capital inflow and concerns in the domestic sphere over foreign ownership and control. But when put together, they amount to rather clear evidence of hostility when compared with other countries and thus seem to point to a shocking (to the Chinese side of course) determination to lead a campaign against China.

It is unrealistic to hope that such open opposition and criticism across a wide spectrum of issues would not be hurtful towards a country, let alone one such as China with whom substantial economic ties have been forged.

Though reservation and caution over more sensitive areas like advanced technology may be understandable in a time like this, maintaining an open attitude towards Chinese investment in other sectors would not only benefit the Australian economy but also demonstrate flexibility and good will to the Chinese side, which are particularly necessary against Australia’s openly harsh stances in virtually all other issues.

The dampened interest of Chinese capital in areas other than health care for the past two years is clear indication of Chinese investors’ concern over ‘regulatory and political risks surrounding controlling acquisitions’, as illustrated by the latest Demystifying Chinese Investment in Australia report by KPMG and the University of Sydney.

Putting aside the falsehood and weak reasoning occasionally found in the ongoing debate, the essence of virtually every suggested solution to the current policy conundrum would have to be this: how is Australia going to strategise its China policy, which has been neither clearly articulated or consistently implemented for at least the past decade? How would issues be prioritised and balanced, if possible?

As Hugh White, the ANU Professor of Strategic Studies who proposed The China Choice in 2013, neatly commented in the aforementioned debate with Clive Hamilton, “we do have to choose our battles wisely”.

Photo: Huawei technology booth in the M2M area at the Embedded World fair 2016 in Nuremberg, 23 February 2016 (Wikipedia User: Ordercrazy).