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John C.K. Daly

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China Warns Australia -- Choose Between Us or the United States

Posted: 06/04/2012 6:08 pm

It is rare in diplomatic circles for governments to speak bluntly, particularly in the east, where manners are highly prized.

The exceptions to this rule are retired military officers, who are often able to voice sentiments too impolitic for other channels.

One of the more startling pronouncements in this vein occurred recently when Song Xiaojun, a former senior officer of the People's Liberation Army, warned that Australia cannot juggle its relationships with the United States and China indefinitely and "Australia has to find a godfather sooner or later. Australia always has to depend on somebody else, whether it is to be the 'son' of the U.S. or 'son' of China. (It) depends on who is more powerful, and based on the strategic environment." Noting the rising importance of China as an export market Song added that Australia depended on exporting iron ore to China "to feed itself," but "Frankly, it has not done well politically."

What is also notable about Song's remarks is that they coincided with Australian Foreign Minister Bob Carr's first official visit to China, where Foreign Minister Yang Jiechi urged Australia to dismiss its alliance with the United States, a decades-old bipartisan and central pillar of the nation's foreign policy, as ''the time for Cold War alliances has passed.''

The year 2012 is significant for the two nations, as it marks the 40th anniversary of the establishment of Australian-Chinese diplomatic relations.

Australia is one of the few countries to actually run a trade surplus with China, which for the period January-November 2011, amounted to $15.15 billion, a 274.2 percent increase over 2010. Last year Australia-China bilateral trade rose to $80.73 billion, up by 44.2 percent. Australia's exports to China were worth $47.94 billion growing 59.7 percent over the previous year, accounting for 25 percent of Australia's total exports. Last year Australian imported $32.79 billion of goods from China.

China is now Australia's largest trading partner, as well as its single biggest export market and import source, while Australia is now China's seventh-largest trading partner. While iron ore is Australia's single largest export item to China, worth $35 billion in 2010, energy exports are also significant as in 2010 Australia exported 17 million tons of coking coal to China, accounting for 37 percent of China's total coking coal imports, a trade that is expected to increase by around 20 percent by 2015 as new mining and infrastructure investments in Queensland and New South Wales come online.

Such trade can only increase in the future, as both Australia and China are moving towards concluding a Free Trade Agreement.

What has been rattling the Chinese leadership are recent remarks by the Obama administration that the Pentagon will shift its focus to Asia. Last month the first contingent of 2,500 U.S. Marines to be deployed in the country arrived in the northern city of Darwin. China criticized the deployment as proof of a "Cold War mentality," but worse may be to come, as Australia has indicated it may also allow the United States to use its territory to operate long-range spy drones and reportedly station aircraft carriers and nuclear-powered attack submarines in the western Australian city of Perth.

A further trade card that China can play against Canberra is the strong growth of Chinese investment in Australia over the last several years. For the period 2007-2010, the Australian government approved over $50 billion in Chinese investment, including in businesses and real estate.

So, stripped to its essence, the Chinese government has some significant economic cards to play against Australia deepening its defense ties with the U.S. What is most notable about China's new policy as embodied in Song's remarks is that it represents a new level of Chinese diplomatic "pressure," which up to now has been primarily limited to expressing their "concerns" to their Asian neighbors over the status of the South China Sea.

So, for Australia, which will it be, Beijing or Washington? Probably the one that makes Canberra "an offer it can refuse."

Cross-posted with Oilprice.com

John C.K Daly is the chief analyst at the energy news site Oilprice.com. Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European Studies, University of London.

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