Briefing MONTHLY #19 | July-August 2019
Asia Briefing LIVE Special Edition | Plus: White Australia re-examined and the PM’s regional tour
AMERICA FIRST V THE CHINA DREAM
When Daniel Russel surveys the patch he once managed as US Assistant Secretary of State for Asia he sees two rivals who have lost the capacity to lead. “Leadership is not coercion, it’s about getting people to align with you. I’m not seeing much leadership from either of the two major powers at the moment.” But when outgoing Department of Prime Minster and Cabinet secretary Martin Parkinson traverses the same territory he sees China’s economic success as the “single greatest thing to have happened globally over the last three decades and is to be welcomed, not resented.” But he also, nevertheless, sees a superpower rivalry that will last for perhaps decades to come. These subtle differences only highlighted how rivalry between China and the US dominated the discussions at the second Asia Briefing LIVE conference to the extent that even the sudden tension over Kashmir didn’t make the agenda and new security issues like pandemics and counter terrorism were mostly only treated as casualties of the US-China rivalry. Russel neatly captured the way other countries feel they have been sidelined as spectators at a superpower clash by pointing out how the competing national visions of America First and the China Dream leave little room for neighbours or even friends. He said other countries didn’t want to choose between the US and China but they faced an additional dilemma when the rivals had visions without much credibility.
GEOPOLITICS: BIG MEN V INSTITUTIONS
A key theme that flowed through the discussions was whether the downward spiral in US-China relations reflects the strong willed or erratic behaviour of the two national leaders or a deeper change in the institutions of the two countries. Russel said he usually placed some faith in the “personal agency” of leaders to make wise decisions but he could not ignore the way the two societies seemed to be moving apart in a way that meant the safety nets of the past may not work. “What once looked like a pendulum now looks like a death spiral with voices of reason on both sides intimidated,” he said. And London School of Economics visiting fellow Shirley Yu said contact between Chinese social sciences academics and American colleagues had virtually shut down due to visa restrictions. Russel said military leaders and institutions appeared to be focussed on avoiding military conflict, but this would only be managed if the safety nets of cooperation alongside competition could be put back together. This discussion about the role of leaders and institutions only left a dilemma over what would happen if there was a fundamental institutional change on one side but a personality-led change on the other side.
BUSINESS: A SMORGASBORD OF DECOUPLING
The business and economic discussions saw a parallel debate about how much the decoupling between the US and China in trade would flow on around the world, eroding the common standards and rules which are at the heart of globalisation. Yu argued that decoupling between Chinese and US-led regulatory systems was entirely possible and was being actively sought by China as it pushed its technologies into the developing world. She predicted a comprehensive decoupling between the two superpowers would see the world “going back to an old-fashioned style of international relations.” AgFoodTech founder Jaleh Daie said that while this would take a while, it was starting to be seen in her California home base: “It doesn’t happen overnight. It takes a while. But Silicon Valley has finally woken up that China is misusing IP from the US.” China’s opaque infrastructure building Belt and Road Initiative (BRI) was at the heart of this discussion with Yu saying its focus on the fastest growing parts of the world meant China’s technology companies couldn't possibly survive without great exposure to western economies. While Russel called for much greater transparency from the BRI, he conceded that the once controversial Chinese-sponsored Asia Infrastructure Investment Bank “had turned out more benign than expected.” And while Parkinson raised big concerns about the fate of global trade if supply chains could not continue flowing through many countries, he took a more benign approach to challenges to existing rules-based global architecture. He noted that recent crises like the global financial crisis had reduced support for existing liberal institutions and sparked demands for new regional institutions. “We should expect, and even welcome, this kind of institutional smorgasbord if it means countries in our region stepping forward to ensure collective leadership and collective resilience,” Parkinson said.
Indonesia has made a comeback amid the geopolitical rivalry of the past year and Melbourne and Sydney have emerged with different attitudes to the China decisions roiling markets and decision makers alike. The audience polling overall at Asia Briefing LIVE has reinforced the more sceptical attitude towards China which was the most striking feature of the recent Lowy Institute foreign policy poll. Last year 90 per cent of participants thought Australia should try to work with China’s rising power in the Pacific. This year that figure declined to 73 per cent in Sydney but tumbled to 45 per cent in Melbourne, where a majority of people wanted Australia to push back against China’s influence. A similar trend was seen in the question about Australian government management of China policy. Last year 75 per cent thought the government had been clumsy and inconsistent and that view was the same in Sydney this year at 74 per cent. But only 50 per cent of Melbourne participants thought that, with 25 per cent saying government policy was good. Participants in Sydney were asked to choose which of five countries offered the best business opportunities for Australia. When the numbers settled Indonesia made a strong appearance at 31 per cent, suggesting that the recently signed bilateral trade agreement may be turning heads. Last year China overwhelmed at 55 per cent, but it was down to the same as Indonesia this year at 31 per cent. India was about the same as last year at 26 per cent. Japan and South Korea lagged at six per cent each. And with the US-China trade war intensifying as the conference was underway there has been a big rise in pessimism about the impact on Australia. Last year 66 per cent of Sydney participants said there would be limited damage to Australia from a trade war escalation. But now 68 per cent say it will be catastrophic.
Japan’s decision to remove its notional western alliance ally South Korea from its most favoured list of trading partners – once known as its white list - has yet again highlighted how Australia’s once settled regional landscape is under serious stress. The growing tension between the two countries over old colonial era grievances gets surprisingly little attention in Australia because it is at odds with the dominant paradigm of fostering cooperation amongst regional democracies to manage the challenge from China. Japan did reportedly approve an export licence in early August and efforts were made to maintain intelligence sharing agreements. But the po-faced images of Japanese and Korean officials meeting to resolve their differences over the past month show this is a serious faultline in the Indo-Pacific which shouldn’t be ignored.
- This article from Vox provides a nice summary of how a colonial era grievance has disrupted the supply chain sinews of the modern digital economy.
ABE ON TOP
Japan’s Prime Minister Shinzo Abe won an expected victory at Japan’s upper house election on July 21 paving the way for him to become the country’s longest serving elected leader. But the real election story is contained in two contradictory figures: 6 and 49. The first is the number of elections Abe has now won since his remarkable comeback in 2012 from an earlier failed year in the top job. The second is the proportion of Japanese registered voters who actually bothered to vote which is now at the second lowest level on record. Somewhere in between might measure the real level of Abe’s ascendancy despite his campaigning success, with voters tuning out of politics despite big national challenges. This contradiction was underlined a day after the election when a new opinion poll showed more than half of the voters opposed constitutional change to allow Japan to play a more assertive military role abroad. That was despite Abe using the election to seek support for such a change.
- Former economy minister Heizo Takenaka says Abe failed to attract voter interest with constitutional revision and instead should focus on the country’s growing economic challenges, in this Japan Times commentary.
Before North Korea’s nuclear capacity potentially made northern Asia the world’s most worrying hotspot, the long disputed territory of Kashmir was often referred to as the most dangerous place in the world. India and Pakistan have fought three wars partly over this throwback to their cathartic partition in 1947 and came close again earlier this year. Now the description may well be back after India’s sudden decision to end the special autonomy status for its part of the disputed territory. This came only weeks after Donald Trump inexplicably tried to buy into the dispute angering India which has always resisted foreign interference.
- This Foreign Policy analysis draws together several commentators to ask: “Is Kashmir about to blow?”
The Regional Comprehensive Economic Partnership (RCEP) is increasingly presented as a fiendishly secretive trade negotiation (echoing its cousin the Trans-Pacific Partnership) or the saviour of the region’s economy (echoing the old ambitions for the Asia Pacific Economic Cooperation (APEC) group). Whatever your taste, expect a lot more of it over the next few months as the 16 member countries try to complete an agreement for signing next year. A statement released after the ministerial meeting in July said two thirds of market access negotiations were complete and three annexes covering telecommunications, financial services and professional services had been finished. But the number of complete chapters appears not to have moved from the seven completed last year.
- Peter Drysdale and Mari Pangestu argue on East Asia Forum that finishing the negotiations is crucial to defending the global trading order.
It took only two weeks for Papua New Guinea Prime Minister James Marape to go from rugby mate of Prime Minister Scott Morrison to a riverboat gambler on new funding for his country. The new leader was given the full diplomatic red-carpet treatment on his first visit as PM to Australia, delivering this thoughtful speech to the Lowy Institute and taking in a Cronulla Sharks game with Morrison. Australian policy towards PNG started out similarly well when former PM Peter O’Neill took over in 2011 and mostly continued despite O’Neill’s domestic controversies. But Marape’s reported preparedness to contemplate a deal with China to refinance the country’s entire debt (since partly denied) so soon after getting such serious treatment in Australia has raised the uncertainties about the relationship to new levels. See Ben Packham’s coverage of the latest PNG financial saga here. And the Lowy Institute’s Jonathan Pryke here.
China is set to overtake the US as Australia’s main university research collaborator over the next year, according to a survey of Australian peer-reviewed academic journal articles which included a co-author affiliated with a Chinese institution. The Australia China Relations Institute report comes amid the growing debate about whether China is misusing its foreign university research collaboration to access sensitive military research. The report says that in 1998, only one percent of Australian peer-reviewed journal articles included a Chinese co-author but by last year this had risen to 15 per cent, just behind US research collaboration. It says: “Despite the growing importance of collaboration with China for Australia, the future trajectory is uncertain, reflecting concerns around the security and ethnical outcomes of joint research, the erosion of academic freedom in China and funding pressures on Australian universities.”
The growing tension over how to manage Australia’s strategic and economic engagement with China has now prompted a call to split trade policy out of the Department of Foreign Affairs and Trade. Former top trade negotiator Alan Oxley and Australian Industry Group Chief Executive Innes Willox say such a move would allow Australia to pursue greater economic engagement with China free of other strategic considerations. “Australia needs a way to talk openly with China – our biggest trading partner – about trade. Differences over security have shut out our officials in Beijing for several years, turning them from players into passengers,” they wrote in The Australian Financial Review. The proposal underlines the growing flux in the policy making establishment over how to balance economic and security interests with some efforts to achieve greater integration.
NEW CHINESE LIBERALISM
How the debate about whether China represents a threat similar to Nazi Germany has unfolded within the federal government.
“Like the French (before World War 2) Australia has failed to see how mobile our authoritarian neighbour (China) has become” Joint Committee on Intelligence and Security Chairman Andrew Hastie
“I thought it was a bit clumsy and inappropriate. It detracts from what – broadly – is an important conversation” Finance Minister Matthias Corman
“There's no sense pretending that there's nothing to see here" Home Affairs Minister Peter Dutton
“I would certainly encourage any colleague or indeed anybody making comments around sensitive foreign policy matters to pose a couple of questions … Is it helpful to Australia’s national interests” Trade Minister Simon Birmingham
“We need to remove the blinkers from our eyes, recognise reality, and act accordingly” NSW backbencher Dave Sharma
DEALS AND DOLLARS
LONG TIME BETWEEN DRINKS
Asahi Breweries’ $16 billion proposed takeover of the Anheuser Busch-owned Carlton and United Breweries (CUB) ends a 30 year quest for a major business in Australia. Asahi had a stake in CUB’s then owner Elders IXL back in 1990 but it was later bought back by the renamed Fosters Brewing Group. The purchase means that Australia’s brewing industry is now dominated by Japanese investors with Kirin owning CUB’s main rival Lion.
With Asahi drawing attention to the flood of Japanese money into Australia in recent years, this analysis by David Jacobs of the latest figures on Japanese investment offers some insight into the future. Drawing on the 54 most recent mergers and acquisitions involving Japanese companies, the Australia Japan Business Cooperation Committee analysis suggests what future Japanese investors will look like. They will have been in existence for as long as 75 years; will have a multi-billion A$ turnover; already have operations outside Japan especially in South East Asia; and be looking to acquire Australian expertise.
DAIGOUS LOSING LUSTRE
The backdoor export channel into China provided by tourists – or daigous – is not sustainable in the long term, according to vitamins and health food company Star Combo Pharma. Chairman Richard Allely says the company’s strategy is based on a declining use of the daigous who buy in Australian shops and then resell online in China. He told The Australian Financial Review the Chinese government would gradually tighten regulation on these backdoor export channels and estimated they only accounted for about five per cent of Star Combo’s trade.
MORE INFANTS NEEDED
A2 Milk chief executive Jayne Hrdlicka has outlined plans to expand the business both geographically and by product lines after the company’s dependence on China was exposed by a Chinese announcement that the country wanted to become more self-sufficient in infant formula. She told The Australian Financial Review the company would focus on other Asian regional markets after achieving its sales goals in the two big markets of China and the US.
LYNAS WINS MALAYSIAN REPRIEVE
Rare earths miner Lynas Corp appear to have won a reprieve in its long running battle with the Malaysian government over disposal of radioactive waste from its manufacturing plant. Malaysia will now allow the company to create a permanent waste disposal within the country instead of forcing it to send the waste back to Australia as it had originally demanded. The compromise required Prime Minister Mahathir Mohamad to overrule anti-Lynas environmental activists within his ruling coalition which may only add to the tensions over the power he has within the sprawling coalition.
Fortescue Metals Group has established a new entity in China to allow it to sell smaller volumes of iron ore to customers. The new office is part of a company attempt to broaden its customers and will accept payment in renminbi rather than just US$. Chief executive Elizabeth Gaines told The Australian: “It’s really to access segments of the market that weren’t previously available. … Particularly around regional customers who may not have access to the seaborne market.”
For more in-depth Australia-China analysis read the essays from Asia Society Australia’s 2019 China Edition of Disruptive Asia.
IAG INDIA SALE
Insurance company IAG has confirmed it is talking with potential buyers of part or all of its 26 per cent share of Indian general insurer SBI General. The statement followed speculation in the Indian Economic Times that six private equity funds are shortlisted to pick up IAG’s stake. “As advised at its 1H19 result…IAG continues to assess options for its joint venture interests in Asia, including its interest in SBI General,” IAG said.
"Look, you can sell your soul for a pile of soybeans, or you can protect your people . . . We think it’s possible to achieve both of those outcomes.” US Secretary of State Mike Pompeo
WHERE ASIA'S BIGGEST COMAPNIES ARE
This chart shows the location of Asia’s share of the world’s 5000 largest companies by value in 2015-17.
WHAT WE'RE READING
STRANDED NATION: WHITE AUSTRALIA IN AN ASIAN REGION by DAVID WALKER (UPWA Scholarly)
When the colourful travel writer Frank Clune produced the last of seven books about his jaunts around Asia in 1958, he had an uncharacteristically downbeat tone. After having made a tidy living from his regional travels, Clune described Singapore and Hong Kong as “the last footholds of the white man in Eastern Asia – toeholds on a volcano.” Clune emerges in David Walker’s book as an archetype mid-century Australian dealing with the rise of more independent Asian nations and opinions about Australia. Stranded Nation picks up Walker’s life work as one of our leading historians of Australia’s relationship with Asia from his earlier Anxious Nation which charts the emergence of the Federation era White Australia Policy (WAP) as a response to nationhood. Stranded Nation is a more gritty narrative as Australians, like Clune, wrap themselves in a series of contortions clinging to the WAP while recognising the region had changed and rising Asian could not be ignored. “There is a deeper, richer more tangled history than is commonly acknowledged. In generating these commentaries, we project ourselves onto Asia, making any study of Australian understandings of Asia at the same time a commentary on Australian preoccupations,” Walker writes. “Contemporary concerns about boats, borders and unwanted foreigners suggest that past anxieties live on. Alluring visions of vast markets and handsome profits from trade with Asia’s millions, have fuelled different modes of ‘Asia dreaming’ over the decades in a constant interplay of threat and opportunity.” At a time when the Australian government is again involved in a substantial amount of overseas promotion activity to offset negative opinion about policies on things like climate change, Walker reveals some fascinating details about similar efforts to downplay the WAP while allowing it to remain in place. “Image-building projects in Asia were generally much better funded than programs designed to expand Australian knowledge of Asia,” he asserts with an implied nod to modern times. One of the interesting narratives in this book are the impressions of some foreign visitors to Australia from Indian High Commissioner K.M. Cariappa to US Consul General Jay Pierrepont Moffat about the still young nation’s adjustment pains. Walker says the now commonplace term “Asian literacy” first come to public attention in 1988 in a speech by former Prime Minister Bob Hawke. Back then Walker observes that Australia was being forced to accept that it was no longer a newly minted nation innocent of history, but instead was a settler society with questions about its regional identity. Some things don’t seem to change much.
ON THE HORIZON
TIMOR LESTE 20 YEARS ON
Celebrations to mark the 20th anniversary of the independence referendum in Timor Leste already started at the end of July. But the main events are clustered at the end of August when Prime Minister Scott Morrison is expected to visit. The Australian Parliament ratified the new maritime boundary treaty agreed with Timor 16 months ago on July 29 but this has only triggered a new debate about whether Australia should repay the royalty revenue from the Bayu Undan oil and gas field. It has still been collecting this revenue while waiting to ratify the treaty which returns those fields to Timor. The actual formalisation of the treaty won’t take place until Morrison exchanges notes when he visits for the anniversary. In the meantime, Morrison is facing a significant challenge to his Pacific Step-up policy as Pacific nations demand more Australian domestic action on climate change at the Pacific Islands Forum this week.
VIETNAM 46 YEARS ON
Prime Minister Scott Morrison is also set to visit Vietnam later this month picking up the pieces of a trip by his predecessor Malcolm Turnbull which was cancelled due to last year’s leadership turmoil. But the rescheduled visit will underline how the country has emerged as one of Australia more reliable new diplomatic interlocutors in the region and a growing trading partner, 46 years after Australia pulled out of the Vietnam War. The rapid evolution of the relationship was detailed in last year’s Briefing MONTHLY Special ASEAN Summit edition here. And don’t miss Cat Thao Nguyen’s personal account of the re-engagement in the Disruptive Asia Special ASEAN edition here.
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