Yes, we're too dependent on China, but changing that is easier said than done

After the COVID crisis, what will be the “new normal” in Australia’s relations with China?

The short answer is, probably both worse and more complicated than pre-COVID.

This week has seen a fresh low point, with the Chinese government threatening economic retribution in response to the Morrison government’s call for an independent international inquiry into the origin and handling of the virus.

More generally, the pandemic has put front and centre two questions. The first is long-standing: has Australia become too dependent on China? The second has taken on a new urgency: can the dependency be reduced?

Appropriately, in the health crisis this dependency has been highlighted by the issue of medical supplies, much of which we import from China, including the vital but simple product of masks.

At a Wednesday news conference, Health Minister Greg Hunt celebrated mining magnate Andrew “Twiggy” Forrest’s securing for the federal government of 10 million COVID-19 tests from China (for which the government will pay).

Forrest stressed his close relationship with, and gratitude to, the Chinese company that provided the $320 million worth of testing gear. Unbeknown to Hunt until the function, “Twiggy” had repaid the favour by inviting along the Chinese consul-general to Victoria, Long Zhou, who was accorded a platform to defend his country’s handling of the pandemic (which was “open and transparent”, he said).

Hunt had been ambushed; the government was furious.

Forrest is one of many in the business community who don’t want the China boat rocked.

Media magnate Kerry Stokes was quoted this week saying, “If we’re going to go into the biggest debt we’ve had in our life and then simultaneously poke our biggest provider of income in the eye it’s not necessarily the smartest thing you can do.”

Former resources minister Matt Canavan, usually on-song with business, declared that “too many of our business elite are concerningly vague about whether we should have an independent foreign policy”.

A separate strand of criticism of the government has come from those who argue its call for an inquiry lacked diplomatic acuity. They say it was made without lining up international partners to reinforce it, and came too hard on the heels of President Trump’s announcement he’d stop funds to the World Health Organisation.

Be that as it may, the inquiry proposal is logical enough, given the enormity of the pandemic’s consequences, and sub-optimal performances by both China and the WHO.

No doubt the government expected China to react, but the bite-back was ferocious, with the Chinese threat of retribution delivered by ambassador Cheng Jingye followed by the leaking of a conversation between him and Frances Adamson, secretary of the foreign affairs department.

Sources say Morrison feels personally affronted by China’s bullying. Also, they say, he has toughened his attitude towards China in the past year.

As well as showing its defensiveness over COVID-19, the Chinese reaction is just the latest manifestation of its approach in foreign relations.

It is a familiar playbook. In his recently-published memoir Malcolm Turnbull, referring to China’s “bullying tactics”, writes, “If a foreign nation disappointed China – for instance by criticising its conduct in some manner – then it could expect both criticism and economic consequences”.

COVID-19 has simply brought to the surface, in dramatic fashion, the deep and long-term bind Australia is in. As China has become more powerful, and in recent years its regime increasingly assertive and diplomatically aggressive, the problems of Australia’s dependency are more obvious.

The pandemic has sparked calls for diversification of both our export markets and import sources, and greater self-sufficiency.

Liberal backbencher Andrew Hastie, chair of the parliamentary intelligence and security committee, urges a review of “all industries and sectors that are vulnerable to supply chain disruption and that are also essential to our strategic resilience as a country”.

Canavan said the pandemic had clarified that “we must reduce our dependence on one country”. He wants to see Australia working with other countries to “diversify the world’s production of materials critical to the international economy. This is already happening with the processing of rare earths”.

Canavan says Australia, as the world’s largest producer of iron ore and the largest exporter of coking coal, has “a strategic interest in developing alternative customers for those products”.

But diversification is achievable only to a degree. Australia’s high level of economic reliance on China will inevitably continue for the foreseeable future. Most immediately, for instance, Australia’s recovery from the looming recession will need the help of the Chinese economy.

China’s purchases of iron ore and coal are bedrocks of our exports. Wider markets for them would depend on demand in other countries.

Nevertheless, the pandemic will lead to some rethinking and changes.

For example, the over-reliance of many Australian universities on Chinese students has been recognised for some time. It is now obvious this should be rectified.

It may be COVID will do that anyway, with the border closure producing a longer-term reset.

On the import side, Australia needs to address the issue of certain medical supplies. This is a matter of national security, broadly defined.

Beyond such products however, Australian consumers are best served by markets operating: the last thing we want is a return to protectionism.

Foreign investment is an interesting area.

To protect Australian companies made vulnerable during the crisis, all proposals (not just those above certain thresholds) currently must go to the Foreign Investment Review Board.

This is temporary but post crisis, there is likely to be public pressure to have a tougher approach to certain Chinese investment bids.

For some time, however – probably since the controversy around a Chinese company acquiring the lease of the Darwin port - Chinese investment proposals affecting key areas, such as energy and infrastructure, have been scrutinised more critically.

Crucially (although not a FIRB matter) Huawei was excluded from the 5G network.

At the same time as COVID is highlighting some harsh realities of the China relationship, it is also providing a reminder that the nature of the regional situation Australia will face in the next few years is something of a lottery.

Trump’s behaviour during the pandemic has been worse than erratic. Can anyone doubt if he is re-elected, his conduct would likely become even more unpredictable? The consequences for the US’s engagement in the region – or disengagement from it – are deeply worrying for Australian foreign policy.

If Joe Biden wins in November, there’d be considerable relief around Canberra’s foreign policy establishment. Morrison, wooed by Trump as a “bestie”, would have to do something of a pivot, but we know he’s the ultimate pragmatist.

Biden would mean US policy in the region would be more predictable and thus better for Australia.

But it would not make Australia’s long-term relationship with China any more straightforward.