Shock of the new

A more mature relationship may follow the present unease, writes Editor-at-large Paul Kelly | August 22, 2009

Article from:  The Australian

A PARADOX has befallen China. Its vindication from the global financial crisis is mocked by internal political tensions, frustrations with resource suppliers such as Australia, worry about keeping its economic growth and paranoia over ethnicity and human rights.

China is a case study in success breeding new and challenging tensions. Its public declarations and private complaints are shrill and counter-productive. It is impossible to discern the internal dynamics that drive China's behaviour but the consequences of that behaviour are unmistakable.

Since coming to office the Rudd government's management of Beijing has been confused and often inept. But chief responsibility for the present tensions rests with China, not Australia. In the past few weeks Kevin Rudd and Foreign Minister Stephen Smith have got the tone right with their measured, low-key yet firm stance, notably in the drama over Uighur leader, RebiyaKadeer.

The present story is that political relations have deteriorated while economic ties have taken another leap forward. The contrast is stunning. The deepening Australia-China trade bond has its own momentum separate from political strains. It reminds of China's huge energy demands and that its regime legitimacy depends upon its economic growth. But the freeze in diplomatic ties testifies to the serious limits on the Australia-China political relationship.

China is trapped between vindication and frustration. It has just witnessed the greatest crisis in Western capitalism since the Depression, an event assumed to empower Beijing. Yet China's own vulnerability is now exposed and orthodoxies that China is the real winner from the global crisis seem too shallow and misjudge the adjustments required of Beijing.

The Kadeer issue has become the accumulated focus of China's agitation towards Australia. Such agitation has been building for a long time regarding Rudd's comments on Tibet, the failed Chinalco deal, our defence policy white paper and iron ore negotiations leading to businessman Stern Hu's seizure. This week, as Rudd announced Australia's triumph at the new $50billion liquefied natural gas contract with China from the Gorgon project off Western Australia, Smith told a different story.

Smith put the tensions on the table: China at various levels including Foreign Minister Yang Jiechi had asked him to prevent Kadeer's visit as president of the World Uighur Congress. When Australia refused, in Smith's words, China signalled it was "most unhappy" and retaliated by cancelling the proposed visit by Vice-Minister He Yafei which, in turn, torpedoed an Australia-China senior officials meeting.

Smith does not expect any quick end to these tensions. He warns such "difficulties" will periodically occur. The Rudd-Smith strategy, in Smith's words, is to manage ties "in a calm, sensible, careful way". Australia wants to put short-term problems into a long-run context. Smith anticipates that Beijing may take further retaliatory action and, if so, "that will be for us a matter of regret". This comment foreshadows the upcoming visit to Australia of the Dalai Lama, another likely flashpoint.

The real message is that relations with China are entering a more complex era. The balance Australia seeks to strike is maintenance of its values (witness the granting of Kadeer's visa) while stressing the economic positives and mutual interests. Smith mocked the opposition for declaring ties with China were at their lowest ebb when the two nations have just finalised the greatest resources deal in Australia's history. It is a telling point.

Rudd hailed the Gorgon project as "the largest resources project ever undertaken in Australia" and said "we are on the threshold of an unprecedented expansion of the LNG industry in Australia".

Not to be excelled, West Australian Liberal Premier, Colin Barnett, said his state would become the "Saudi Arabia of natural gas" with Gorgon set to supply both Asia and Europe and the state had a "whole series of projects queueing up." Indeed, the previous week's announcement of a $25bn contract to supply India from the same project constitutes a strategic shift in Australia-India relations into a large-scale trade and energy partnership for the first time.

(There is an amusing sideline to such announcements given Rudd's repeated accusation that the Howard government's economic success was a function of the resources boom, not its own work.)

China's state media applied a de facto blackout on the gas deal. The editorial in China Daily, the party's English-language paper, accused Australia's politicians of leading the world's "anti-China chorus" and in the case of Kadeer, of "siding with a terrorist".

Trying to project calm in this whirlwind the Rudd government ran hard on the Gorgon deal, not just for electoral kudos but to keep before the public the huge mutual benefits in the China partnership as the public inevitably becomes more suspicious of Beijing.

Resources and Energy Minister Martin Ferguson visited China for 1 1/2 days for the announcement of the gas deal and saw the chairman of the National Development and Reform Commission, Zhang Ping, a senior Chinese minister.

The multiple strains in China are obvious. Its Security Ministry has moved against domestic steel companies as well as overseas suppliers such as Rio and individuals such as Hu. Its post-crisis economic challenge is huge in that China must restructure its economy away from exports and towards domestic consumption as part of its financial rebalancing with the US. Beijing seems highly sensitive about its energy and mineral dependence on other nations though this probably assists Australia because it is such a reliable supplier. China's misjudgment when Chinalco sought an 18 per cent holding in Rio and two board seats finished as a national humiliation. And China's political system seems even more resistant to liberalisation and more agitated about ethnic tensions.

Its reaction to Kadeer has seeded a public backlash against China's bullying tactics. From the time of French President Nicolas Sarkozy's meeting with the Dalai Lama last December, Beijing has escalated its protests about meetings with the Tibetan spiritual leader, a message that Australian officials have also detected in discussions with their Chinese counterparts.

This is a collection of different tensions without a universal source. It is apparent, however, that clashing expectations lie at the heart of this Beijing-Canberra tension and this is linked to Rudd's personality and hisChinese expertise including his skills in the language.

Rudd came to power with competing views of China. Convinced of its strategic centrality, he wanted to signal a new Australia consciousness and priority towards China yethe seemed simultaneously possessed by a psychological need to show he was no patsyfor Beijing and was keen to demonstrate a hard-headed suspicion of China's military power and its potential for diplomatic bullying.

Australia's challenge is to restore consistency and stability to relations. This will not be easy given the dysfunction and dogmatism embedded in much of China's response. The Faustian bargain that defines Australia's relations with China will remain intact, and as the prosperity of Australian households becomes more dependent upon China the national interest will oblige any Australian government to seek a tolerable diplomatic accommodation with Beijing.

In a speech last week Treasury secretary Ken Henry said: "China and India are only in the early stages of catching up with the living standards of the developed world. That catch-up presents substantial opportunities for oureconomy." With export income from China having risen from 5 per cent to 15percent during the past decade, any Australian government will seek to maximise future gains.

These China "shocks" may deliver a long-run dividend. They will drive an adjustment in expectations on both sides. Handling these tensions Smith as Foreign Minister is growing in stature just as his colleague Wayne Swan has grown in stature from his management of the far more severe problem of the global financial crisis and its impact upon Australia.