Briefing MONTHLY #50 | May 2022
Election special & new ministers | Marcos and China | Japan-Korea relations | Asia’s economic noodle bowl | PMs on Indonesia
Animation by Rocco Fazzari.
Former Prime Minister Paul Keating encapsulated the expectations about changed Asian engagement under a new Albanese Labor team when he once observed if you change the government you change the country.
Below are three images which capture how Australia’s face to the world suddenly changed in a week.
Changing face: Independent Dai Le is the first ethnic Vietnamese member of the Federal Parliament.
But whether the electoral system which many Australians fondly call a “democracy sausage” has taken on a hint of satay will require longer to emerge, as the new government faces up to a changing economic outlook which will likely constrain new spending on Asian engagement and an already fluid strategic outlook which wrong-footed the defeated Morrison government during the election campaign.
ASIAN NATION is devoted to how much the election changed the country and foreign policy, from the role of ethnic Chinese and other Asian voters, to the new government’s first outing to the Quad summit in Japan. Plus: a wrap of the new ministerial team and the key policies on Asian relations.
DIPLOMATICALLY SPEAKING features the new international relations ministerial team speaking on the campaign trail.
DATAWATCH deconstructs the jigsaw puzzle of economic arrangements in the region after the newly released US Indo-Pacific Economic Framework.
CHANGING THE COUNTRY: THE TEAM
Changing face: Malaysian-born Penny Wong (pictured in Fiji) is Australia's first non-Anglo foreign minister. Image: Pita Simpson/Getty Images
The new ministry has left the international relations team from Opposition substantially intact which should make for a smooth transition to government.
Richard Marles: The biggest notional change is the shift by deputy prime minister Richard Marles from employment and national reconstruction in Opposition to defence in government. But Marles was earlier the defence spokesman and has maintained a significant involvement in Labor foreign policy since taking on employment, for example by nurturing contact with China. He has a longstanding interest in the Pacific since before politics and published a book on the region last year. He was variously, for short periods after 2010, the Parliamentary Secretary for the Pacific and also junior foreign affairs and then trade minister in the Gillard and Rudd governments. This background perhaps makes him well placed to end the high ministerial turnover which has occurred in the defence job for the past two decades.
Penny Wong: After becoming the first Asian-born Australian Cabinet member as climate change minister in the Rudd government, Penny Wong will be the first non-Anglo foreign minister and the government’s third ranked member. She later served as finance minister in the Rudd government and became the first female Labor leader of the Senate. She took over from Tanya Plibersek as Labor’s foreign affairs spokesperson after the 2016 election loss. As a close factional ally of Albanese, she will arguably now be Australia’s most politically powerful incoming government foreign minister since Alexander Downer (who was a former Opposition Leader) in the Howard government. But Wong has more previous years in both Parliament and government than Downer had, and significant international experience as climate change minister. So, she can be better compared to Andrew Peacock in the late 1970s Fraser government as one of Australia’s best-prepared foreign ministers.
Don Farrell: The more surprising rise up the ranks of the international team is the new trade and tourism minister Don Farrell, a right-wing factional power broker from South Australia who is now also back as the deputy Senate leader. As a result, his rank in the government has risen from 13 to six. Farrell already held the tourism and special minister of state responsibility in Opposition and had various responsibilities for tourism, science and sport in the final months of the Gillard-Rudd government. He also retains the traditional Mr Fixit responsibility as the Special Minister of State. This combination of responsibilities, as well as his factional management roles, might raise some questions about his capacity for the travel and technical detail that comes with the trade job. But as a politician with small business interests in winemaking in South Australia, he might bring the same practical approach to trade negotiations that former Liberal minister Andrew Robb had. Adelaide has been overlooked as a venue for international visits to Australia in recent times, but with Wong and Farrell in charge at DFAT it may be back in fashion.
Pat Conroy: After being overshadowed in Opposition by Penny Wong’s public carriage of Labor’s aid and Pacific policies, Conroy will now have the tough job making scarce Budget money go further in fields where Labor has promised more. The Minister for Defence Industry, International Development and the Pacific (but just outside the 23-member Cabinet) largely keeps his Opposition responsibilities. The combination of a junior defence, aid and Pacific role in the government plays to the growing demand for a better integration of defence, development and diplomacy from international relations commentators as Australia’s strategic circumstances become more challenging. It’s a role that was played for a short time by the once-rising Liberal minister Alex Hawke in the former Morrison government. Conroy entered Parliament when Labor lost government in 2013 and is a leader of the left faction after an earlier career in unions and as a Labor staffer.
Other international changes: One of Labor’s rising stars from Opposition with aged care responsibility, Clare O’Neill has been given the most significant elevation to the Cabinet as Home Affairs Minister and thus becomes a key member of the national security committee which ultimately manages international relations.
Tim Watts, one of Labor’s parliamentary group of Indonesia enthusiasts and an Asia Society Asia 21 Alumni member, has been appointed Assistant Foreign Minister. Watts has a large ethnic Vietnamese community in his Melbourne electorate. He shifts from previous assistant roles in cyber security and communications.
Tim Ayers, a close Albanese factional ally, seems set to be a key figure in developing Labor’s supply chain resilience and domestic manufacturing strategy as the newly-appointed assistant minister for both trade and manufacturing.
Marles will be backed up in the defence responsibility by Matt Keogh as Minister for Veterans Affairs and Defence Personnel after an Opposition role as defence industry spokesman. Matt Thistlethwaite seems likely to look after defence industry as Assistant Defence Minister.
It was probably inevitable that Madeleine King’s Opposition role as trade and resources spokesperson would be split due to the bureaucratic structures of government. But as the Cabinet level Minister for Resources and Northern Australia from the emerging significant Labor stronghold of Western Australia, King will have an important role nurturing Australia’s biggest export sector and the efforts to develop northern Australia for strategic reasons.
CHANGING THE COUNTRY: THE POLICIES
Changing face: The Aboriginal and Torres Strait Islander flags now fly at government events under new Prime Minister Anthony Albanese. Image: AAP
Labor took far fewer new promises to this election compared with 2019 as part of its small target strategy. But here are the key items on the new Asian policy agenda.
The big picture: Then Opposition leader Anthony Albanese declared Indonesia and India to be priorities when he delivered his main foreign policy speech at the Lowy Institute on March 10.
He sought to claim relations with the Association of Southeast Asian Nations (ASEAN) as a Labor strength by saying he would elevate engagement with Southeast Asia “building on our legacy as the Party that secured Australia as ASEAN’s first dialogue partner in 1974.”
He said his government would work with Indonesia to deliver a $200 million climate and infrastructure partnership and deliver on the opportunities from the Indonesia Australia Comprehensive Economic Partnership Agreement that have “not yet been delivered.” (It is not clear whether the $200 million is from existing aid or lending resources as it is not in the Labor election costings).
The speech was mainly framed to avoid being tagged as weak on security by the then government, and so was built on Labor’s history of turning to the US in 1941 paving the way for the ANZUS Alliance.
But he did characterise that legacy as: “An assertion of Australia’s right and indeed our Australia’s responsibility to act in our own interests, to make our own alliances, to decide our place in our region, for ourselves.”
He said regional engagement was critical to how Australia managed China, and Labor’s approach to China would be determined by Australia’s interests and values; a commitment to international law, rules-based trade, and respect for human rights; and bolstered by our regional partnerships and alliances.
And to underline Labor’s broader focus on climate change as a diplomatic issue, he said he would commission the director general of National Intelligence and the Defence Department secretary to do a risk assessment of the implications of climate change for national security.
Southeast Asia: Labor has promised more development aid and more diplomatic attention delivered in a variety of ways. The $470 million aid increase over four years also appears to include Asian developing countries outside Southeast Asia and so amounts to an average annual increase of $117 million on top of the existing annual $1.33 billion contributed to developing Asia directly or through global programs. There appears to be about $10 million over four years in the Labor election costings for the other non-aid aspects of the Southeast Asia initiatives.
The new government will also create an Office of Southeast Asia within DFAT along the lines of the Office of the Pacific to achieve greater coordination of regional activity and commission an ASEAN Economic Strategy to 2040 modelled on the previous 2018 India strategy. DFAT’s Southeast Asia divisions have already been through restructurings in recent years to accommodate changing regional and bilateral priorities.
Labor will appoint a roving regional ambassador to “cut through bureaucratic blockages” in addition to the existing Ambassador to ASEAN. This last occurred during the Rudd government when an envoy was appointed to discuss the proposed Asia Pacific community, which never went ahead.
There will be a pilot program on in-country language study in Vietnam, based on the existing Australian Consortium for In-Country Indonesia Studies (ACICIS) model. This could become a signature new Labor approach to aligning language study and business opportunities, because something similar was proposed for India in the trade policy (see below). Indonesia, India and Vietnam are key trade diversification priorities already.
South Pacific: Labor’s Pacific policy got the most attention in the campaign because it was released quickly after the emergence of the security agreement between Solomon Islands and China, allowing Labor to seize the political high ground.
While the aid increase of $538 million over four years drew the headlines, the breakthrough initiative was really the embrace of permanent migration from the Pacific through the allocation of 3,000 permanent residence issued via a ballot. This has no budget impact because it is intended to come from within the existing migration program and is modelled on an existing New Zealand scheme. There will be further changes to the Pacific labour schemes to allow family members to come to Australia and to better integrate the former government’s agriculture visa aimed at non-Pacific countries.
Labor will create an Asia Pacific Defence School but at no cost because it will build on existing Defence programs. A $12 million commitment to expand aerial surveillance of Pacific fisheries – which would appear to partly slot into the last week’s Quad maritime domain initiative in this area – will also be funded from existing resources.
A promised Pacific Climate Infrastructure Financing Partnership which has been talked in the context of new Pacific engagement will be paid for from within the existing $3.5 billion Australian Infrastructure Financing Facility for the Pacific, which the former Morrison government boosted with a new $1.5 billion in March. The other major climate initiative to host a United Nations Conference of the Parties with Pacific nations is, as yet, uncosted.
Development cooperation: In addition to the roughly $1 billion in increased aid over four years to the Pacific and mostly Southeast Asia, Labor has provided $32 million over four years to increase the role of non-government organisations in aid. This can be seen as a small reweighting of the growing reliance on private contractors and multilateral organisations in recent years.
Incoming International Development Minister Pat Conroy said in Opposition that the new Pacific spending would be on top of the supplemental aid spending the Morrison government had used in the past two years to avoid locking in COVID “temporary” spending as long-term aid spending.
Given Labor’s overall tight budget situation, Conroy appeared to strongly support the trend under the last government to turn to non-cash aid initiatives, and this is underlined by the introduction of new permanent worker visas under the Pacific aid initiative (above). He said there was growing global interest in innovative approaches including guarantees for investments and equity stakes and DFAT would review new options for Australia.
Trade: Labor’s trade diversification policy picks up key themes already underway in response to the downturn in trade relations with China and concerns about supply chain reliability post-COVID. But it will all be funded from within existing resources. It tends to reflect the focus on Asia and more activity in multilateral settings which were seen under the last two federal Labor Hawke/Keating and Rudd governments.
But the striking thing about the policy is that while finding alternatives to China is prudent and sensible, the same old options tend to keep coming to the surface both geographically and sectorally.
The export diversification pillar involves early ministerial visits to Indonesia, India, Japan, Korea, Malaysia, Singapore and Vietnam with a focus on emerging strengths such as digital health and financial services. There will be a Trade 2040 Taskforce to identify future export strengths with a focus on services. There is a heightened emphasis on more cross departmental/ministerial cooperation on trade barriers and opportunities.
The second pillar focussed on India will do another update on the 2018 India Economic Strategy which Labor has long criticised the government for failing to implement quickly. As already noted, it seeks to draw business opportunities and language skills together by piloting an in-country Indian language program.
The third pillar focussed on Indonesia promises to give an annual economic ministers meeting a specific focus by bringing in specific ministers such as those responsible for infrastructure to help implement the bilateral trade deal.
The fourth pillar aims to bolster regional trade arrangements by supporting various new countries to join existing agreements which could become a broader strategic initiative to weld the emerging web of agreements into a more coherent whole. See DATAWATCH for the changing membership of existing agreements.
Defence: The Defence part of Labor’s national security policy is funded from within existing resources and doesn’t have much detail about new regional initiatives. Apart from incorporating the Southeast Asian and Pacific policies it says: “Labor will deepen our engagement with our closest neighbours. And we will ensure that the Quadrilateral consultations deliver in our relationships with India, Japan and the United States. We will also support new arrangements, such as AUKUS.”
The framework: For a broader insight into how Labor will try to manage foreign policy, it’s worth returning to Penny Wong’s speech to the National Security College last November. She said there would be three drivers for expanding Australia’s power and influence.
- Projecting modern Australia to the region and the world through the lens of features like multiculturalism. The three images above indicate a strong start to that.
- Fostering genuine partnerships grounded in trust by reinvigorating creative middle power diplomacy and having a genuine respect for other countries’ positions. The swift visit to Fiji can be seen as a small step down that path.
- Enhancing our capability in navigating international relations, through both a greater role for diplomacy and a review of the way the diplomatic and security services provided advice to the last government. Wong’s senior role in the Labor government should give momentum to this and the above policies provide some immediate benchmarks.
- Read Asia Society Australia’s suite of pre-election policy suggestions from ten experts here.
AND THEN THERE WERE SEVEN
Membership of the House of Representatives with an Asian background has more than doubled as a result of the election, with a significant diversification away from the mostly Chinese heritage which had been seen in the past.
But that is less than five per cent of the House, which is only about a third of the roughly 15 per cent of the population which traces its ancestry to Asia.
The new members are (pictured clockwise from top right): Dai Le (Vietnam) Independent in the seat of Fowler (Sydney); Michelle Ananda-Rajah (Sri Lanka) Labor in Higgins (Melbourne); Zanetta Mascarenhas (India) Labor in Swan (WA); Sally Sitou (Laotian/Chinese) Labor in Reid (NSW); Sam Lin (Malaysian Chinese) Labor in Tangney (Perth); and centre, Cassandra Fernando (Sri Lanka) Labor in Holt (Melbourne).
While Labor is reported to have had less candidates of an Asian background (at nine) than the Coalition (at 20), it had a much better strike rate with five of them winning. The Coalition will now only have the incumbent Liberal candidate for Moore (in WA) Ian Goodenough, who is of Chinese background, in the new House after losing Gladys Liu (Hong Kong Chinese) from Chisholm in Melbourne, and Dave Sharma (of Trinidad Indian heritage) from Wentworth (Sydney).
Depending on definitions of what constitutes an Asian background, this is probably the largest single new injection of people from the Asian diaspora into Australia’s Parliaments.
- Read Dai Le’s essay on cultural diversity in politics in the first edition of Asia Society Australia’s Disruptive Asia series in 2017.
The national security election focussed on China appears to have backfired for the former Morrison government, with the Liberal Party suffering a distinct vote loss in electorates with a significant number of ethnic Chinese voters.
This possibility was raised as the election got under way (See Briefing MONTHLY here) despite various government efforts to separate the diplomatic conflict with China from the role of the substantial ethnic Chinese diaspora in Australia.
But in the end the swing against the Liberal Party in several seats with a large ethnic Chinese population in Sydney and Melbourne was up to three times larger than the state-wide swing. Three of those seats Bennelong and Reid (in Sydney) and Chisholm (in Melbourne) changed hands making a substantial contribution to Labor’s net seat gain of about eight.
Former minister Alan Tudge, who suffered a 11 per cent swing against him in his Melbourne seat of Aston, conceded “members of the Chinese community interpreted some of our language as being too strong and we had a backlash from that”.
Centre for Asian-Australian Leadership director Jieh-Yung Lo told The Sydney Morning Herald that Chinese voters had made their feelings heard after feeling like “collateral damage”.
But Liberal Party member Jeffery Wang, writing in The Australian, argues that the ethnic Chinese diaspora is too diverse for one issue to explain the swings in substantially ethnic Chinese seats. He says: “Perhaps Chinese-Australians just like backing winners? Or perhaps they are more influenced by the news of the day than any ethnic loyalties?”
The election swing coincided with the results of a poll by the Australia-China Relations Institute which showed 60 per cent of respondents thought Australia should continue to try to build strong connections and ties, and have a strong relationship with China. The level of support was effectively the same since 2021.
However, research by data analytics consultancy Microburbs, based on early Australian Electoral Commission results, questions the idea that Chinese voters swung to Labor any more than other migrant groups. It shows East Asian voters more generally swung by 10-14 per cent against the former government.
Microburbs founder Luke Metcalfe told The Australian Financial Review: “It was migrants in general who swung away from the LNP, not just Chinese. The most Chinese electorates swung against the Coalition 10 per cent, but electorates with more people from elsewhere in Asia [Thais, Indonesians, Malaysians, Japanese, South Koreans] swung even more, 14 per cent.”
“Overall, the swing was just as strong for Hong Kongers, Taiwanese and Japanese as it was for mainland Chinese, so it suggests that Asians weren’t looking at things based on the geopolitical side for their nationality.”
MEETING THE NEIGHBOURS
Anthony Albanese’s second day at work as prime minister may be best remembered for a folksy stand-up routine with US President Joe Biden staging a mock walkout after the new prime minister recalled vising the National Rifle Association on a trip to the US as a young politician.
But the contrast with Biden apparently forgetting former Prime Minister Scott Morrison’s name during the AUKUS submarine announcement last September, provided Albanese with the gentle introduction to global diplomacy at the Quadrilateral Security Dialogue summit that he needed before concentrating on bedding down his government at home.
And before having to deal with persistent, more difficult issues – from US trade protectionism to restoring some communication with China and Quad’s actual performance on its agenda – Albanese met three key world leaders and won global media attention.
He also managed to be associated with a firming up of the Quad group’s language on climate change before coming under pressure from a tight Parliament at home and rising expectations in Pacific neighbours about stronger Australian action. And his new fellow regional leaders gave him the necessary domestic cover by declaring in their communique: “We welcome the new Australian Government’s commitment to stronger action on climate change, including through passing legislation to achieve net zero by 2050 and lodging a new, ambitious Nationally Determined Contribution.”
- Brahma Chellaney, at Nikkei Asian Review, argues the Quad is running out of time to make a difference in the region.
- After struggling to deliver on its vaccine promises, Susannah Patton says in The Australian Financial Review the Quad now risks being overburdened by new initiatives.
- Watch Asia Society Policy Institute fellows from all four member countries dissect the Quad summit on YouTube here.
PACIFIC: AGREE OR NOT
The Chinese-Samoan discussions. Image: Samoan Government
Between climate change and China’s rise there may be little agreement over the long-term outlook for the South Pacific, but agreements are nevertheless still the order of the day.
Five days after winning government, with a Pacific Climate Infrastructure Financing Partnership promised in the election campaign, foreign minister Penny Wong was in Fiji seeking a new agreement on how to co-host a meeting of the United Nations Conference of the Parties on climate change.
Meanwhile fresh from the Solomon Islands where this latest diplomatic showdown started during the election campaign with the Solomons-China security pact, Chinese foreign minister Wang Yi met Kiribati’s president, Taneti Maamau. The discussions covered fisheries, education, tourism and health with the country reportedly signing ten documents with China across a wide span of areas.
About the same time the Biden Administration announced that Fiji would be the first Pacific islands country to join the new US Indo-Pacific Economic Framework (see below). This fixes a hole in the IPEF announcement ahead of the Quad meeting in Tokyo – the absence of an actual heartland Pacific country.
Then on Saturday Samoa announced the signing of agreements with China on economic cooperation, an arts centre and additions to a Chinese-built police academy. It said the two countries would “continue to pursue greater collaboration that will deliver on joint interests and commitments, and address key priorities.” Samoa’s relatively new government had previously been seen as China sceptic after rejecting a port deal
By Monday Fiji had signed three agreements with China which Wang was reported as saying would expand cooperation over the economy, trade, agriculture, fisheries, tourism, civil aviation, education, law enforcement, and emergency management. These follow a security agreement between the two countries in 2011 which predated the Solomons one and has received scant attention.
But later that day the agreement signing at least paused after an online meeting between Wang and Pacific foreign ministers to discuss China’s proposed sweeping regional security deal. China announced that there had been “general support” but “some concerns on specific issues” which it would address in a position paper.
Fijian prime minister Frank Bainimarama hinted at dissent saying the Pacific countries had a “consensus-first approach”. But with Wang still due to visit Tonga, Vanuatu, Papua New Guinea and Timor-Leste later this week, China still appears to be winning the competition for agreements.
And it says something about China’s impact on regional affairs that it is roiling internal political debate in multiple countries apart from Australia.
For example, both sides of the PNG election battle now underway have taken to accusing the other of playing the China card. Immigration minister Bryan Kramer told ABC radio that former prime minister Peter O’Neill was pro-China but O’Neill told The Australian that incumbent Prime minister James Marape should not meet Wang on Thursday during the election.
Meanwhile, as Australia has notionally turned to Labor to deal with the challenge from China, the longer standing Labour government in New Zealand is coming under criticism for not doing enough.
Amid criticism from several former NZ diplomats for not directly responding to Wang Yi’s regional tour as Australia’s Wong has done, foreign minister Nanaia Mahuta last week blamed COVID for limiting travel. Ironically that was the same reason advanced by ministers from the former Morrison government.
China appears to be stepping up its efforts to re-engage with Australia ahead of this year’s 50th anniversary of diplomatic relations, with a series of initiatives during the election period.
Its move to reopen ministerial contact with Australia after more than two years via a message to Anthony Albanese from Premier Li Keqiang, follows a steady charm campaign by the new Chinese ambassador to Australia Xiao Qian.
Then in the past week foreign minister Wang Yi said during his Pacific tour that China wanted to work with Australia in the region and Xinhua newsagency said the anniversary provided a “rare opportunity” to strengthen ties.
Before the election Xiao again drew on the 50th anniversary of diplomatic relations between the two countries in December to hint at some form of easing in the breakdown in relations over the past four years.
Writing in The Australian Financial Review ahead of the election, he pointedly noted how five more distant former prime ministers – Gough Whitlam, Malcolm Fraser, Bob Hawke, Paul Keating and John Howard – had “kept in close contact and participated in exchanges with the Chinese leadership over the years.”
“Looking back at the China-Australia relationship over the past half-century, despite many twists and turns, we have always managed to follow the general trend of history and seek common ground while resolving differences, which has promoted the bilateral relations to advance in the right direction.
“The co-operation achievements made by our countries in wide-ranging areas have brought tremendous benefits to our people. It is fair to say that the main theme throughout the development of China-Australia relations is one of mutual benefit.”
But Albanese’s response from Quad meeting in Tokyo suggests there is still some way to go before the contact becomes more personal. “It is China that has placed (trade) sanctions on Australia. There is no justification for doing that. And that’s why [the sanctions] should be removed,” he said.
The new president in Melbourne. Image: SBS
Ferdinand Marcos Junior has demonstrated he will be a challenging new leader in the region for Australia with the curious juxtaposition of his first notable foreign actions after he won office. He flew to Melbourne to enrol his son in university and then declared he wanted to build on his father’s relationship with China.
Marcos was proclaimed the new president by a joint session of the Filipino Congress last week after winning a landslide election triumph 36 years after his namesake father was forced from office by a pro-democracy uprising. He will take office on June 30.
Marcos made few comments about foreign relations during his election campaign, leaving analysts divided over whether he still resents the way the US turned against his father at the end and has provided legal platforms for pursuing the family’s wealth. Since he won office, he has talked of boosting ties with China, which were initiated by his father in 1975, but also asserting the Permanent Court of Arbitration ruling against China’s South China Sea claims.
The changing positions appear to suggest that he is already torn between China’s investment in the Philippines on one hand and the country’s strong military ties to the US alongside growing popular opposition to China due to its activities in the South China Sea.
The Philippines is the only major Southeast Asian country without a bilateral trade deal with Australia or an elevated diplomatic standing via a comprehensive strategic partnership. But ties have grown in recent years with extensive anti-terrorism cooperation, Australian companies outsourcing business processing to the Philippines, and Filipino diplomats finding an alignment with Australia’s efforts to balance connections to the US and China. Filipinos are also Australia’s largest Southeast Asian diaspora community.
- Cleve Arguelles argues on Medium that the Marcos family’s “anti-peoples power project” took 30 years, massive resources and political discipline to succeed.
SRI LANKA: SIX LIVES
Sri Lanka’s new emergency prime minister Ranil Wickremesinghe has already held the job five times since the 1993 sometimes not staying around for long. But now with the added job of finance, economic stabilisation and national policies minister but no political party in the national assembly, the politically and economically devastated country will be hoping that he can stay the distance this time.
Wickremesinghe’s appointment as finance minister suggests the Rajapaksa family influence continues to wane as they had reportedly been trying to keep a grip on the job after being forced to give up the prime ministership but not yet the presidency after a long stranglehold on power.
Sri Lanka declared it was unable to meet its international debt repayments in April after the COVID pandemic devasted both inbound tourism and foreign worker remittances. But it unleashed pent up public dissatisfaction with the Rajapaksa family which had held power on and off since 2005 and until recently had five members in top government positions.
After Chinese lending played some role in the debt crisis, Sri Lanka is being forced back to conventional economic assistance from the International Monetary Fund, but with India also in the spotlight as an emergency provider of support.
- In an insightful assessment of what has gone wrong in the one time “pearl of the orient” in The Straits Times, Ravi Velloor writes: “The nation that once fetched comparisons with Scandinavia's social indices is increasingly looking like a Peronist nightmare.”
Defence ministers from the US, Japan and South Korea are set to meet in June in the first such meeting for almost three years, indicating that the leadership changes in all three countries may be paving the way for a new attempt at easing tensions between Japan and Korea.
The meeting will follow several years of declining relations between the two erstwhile US security partners in North Asia over trade and security matters fanned by old colonial tensions.
But with a new, somewhat less-nationalistic prime minister in Japan’s Fumio Kishida and a new more conservative president in South Korea’s Yoon Suk-yeol, a re-alignment may be in place for resolving the tensions.
The final piece of the potential reconciliation puzzle may have been planted by US President Joe Biden visiting Korea before going to Japan for the Quad summit, eight years after he was there as US vice-president trying to nurture relations between the two US allies. The visit, so soon after Yoon’s inauguration, would have served to salve Koreans feelings about the US prioritising Japanese links over Korea.
But with local government elections in Korea in June and upper house elections in Japan in July, both sides are likely to want to firm up their political foundations before embarking on public actions that will only provoke nationalists on both sides. Asia Society Policy Institute fellow Takako Hikotani says a strong performance by Kishida in the Japan election could allow him to take action on the Korean tensions.
- Daniel Sneider writes in The Oriental Economist: “Senior American officials believe there is a window open, but the question remains whether all the parties, including the US, will do enough to capitalise on it.”
DEALS AND DOLLARS
MITSUI’S GREEN EXPANSION
Japanese trading company Mitsui has stepped up its exposure to climate change mitigation assets in Australia with separate investments in carbon farming and forest management.
The company has reportedly acquired a one-third stake in Adamantem Capital’s Climate Friendly which helps farmers, foresters and indigenous custodians of land to reduce greenhouse gas emissions and regenerate the landscape through carbon farming. Mitsui has been investing and trading in carbon markets offshore since the 2000s and the investment will add to its broader Australian portfolio of energy, resources, forestry and agriculture investments.
Climate Friendly said the investment was a recognition of the quality and growth potential of the Australian carbon market as the country capitalises on its natural advantage of its vast land area. Climate Friendly has more than 130 registered carbon projects across Australia, and wants to have offset 100 million tonnes of carbon by 2025.
Meanwhile, Mitsui has joined with Japanese investment house Nomura to buy 90 per cent of New Forests, a global investment manager of nature-based real assets and natural capital strategies. The price wasn’t disclosed but was reported to be a couple of hundred million dollars. Mitsui has been a shareholder in New Forests since 2016 and the new combined investment will increase the investment manager’s distribution capability in Asia. Mitsui Performance Materials Business Unit chief operating officer Hiroshi Kakiuchi, said: “Mitsui’s investment in New Forests is part of our sustainability strategy to invest in companies who are at the forefront of climate change mitigation and who are positively contributing to communities.”
CHINA WINE EXPORTS
Treasury Wine Estates is working on the basis that the tariffs imposed on the Australian wine industry by the Chinese government in late 2020 are permanent, and says it is ahead of schedule in diversifying to other markets in Asia. The tariffs imposed by China on Australian wine companies are scheduled to run for five years. Treasury chief executive Tim Ford told The Australian Financial Review the company’s strategy was built around the Australian export market to China being gone forever, and on fulfilling the demand for the Penfolds brand in China with country-of-origin Penfolds wines from France and the United States, which do not attract tariffs. The company also wanted to eventually make a Penfolds brand in China using grapes from that country. “I spend zero time thinking about it coming back,” Mr Ford said. “I spend 100 per cent of my time on the country-of-origin strategy and the French, American and Chinese wines.”
ASIAN PROPERTY INVESTMENT
Asian commercial property investors are back in Australia and spending up big, pushing yields to near-record lows. The Australian Financial Review reported Southeast Asian investors were now a significant presence in the commercial property market with, for example, Vietnamese investors buying a Coles supermarket in Lalor, Melbourne, for $13.77 million. Asia practice partner for Stonebridge Property Group Kevin Tong said: “Traditionally it’s always been China, but we’re seeing a lot more capital from Vietnam, Singapore, Malaysia, and Hong Kong coming into the country. A lot of these Asian groups are coming to invest in Australia because they’re planning to move the family here long-term.”
CHINA LITHIUM DISPUTE
The manouvering over China’s access to Africa’s critical minerals has embroiled ASX-listed AVZ Minerals, forcing it to suspend trading amid claims it could lose control of a major lithium project in the Democratic Republic of Congo. AVZ says it owns 75 per cent of the Manono lithium deposit in the country from a complex set of deals with the deposit’s original DRC-based owners back 2016. But AVZ’s claim to control of Manono has been challenged by Hong Kong-listed Zijin Mining, a state-backed company that has been one of China’s most aggressive players in lithium and other critical minerals.
In early May, Zijin said it had bought a 15 per cent stake in Manono from DRC-based Cominiere, one of the original owners of the deposit, in September last year. AVZ disputes that claim, saying it had pre-emptive rights to Cominiere’s holding in the deposit. The trading halt was extended on May 20, with Zijin pressing its claim in arbitration proceedings.
COAL TO CHINA
Mining company Yancoal seems set to return to full Chinese ownership after its parent Yankuang Energy Group told the Hong Kong Exchange it was considering offering convertible bonds to wrap up the 37.7 per cent stake in Yancoal it does not own. It has appointed a committee of independent directors including former China ambassador Geoff Raby to consider the Yankuang offer.
Yancoal is the largest listed Australian coal miner with an $8 billion market capitalisation, which is almost $3 billion larger than the closest peer, Whitehaven Coal. It was founded when the Yanzhou Coal Mining Company bought the Austar mine in 2004 and then listed in 2012 in the midst of the Chinese foreign investment boom.
Yankung will virtually reach the 90 per cent compulsory takeover level if only three shareholders agree to sell. Cinda Asset Management owns about 15.9 per cent of Yancoal stock, with Glencore holding 6.4 per cent and China Shandong Investments 5.4 per cent.
"The search for false distinctions between the Government and Opposition on China is not in Australia’s national interest, as both current and former leaders of our security and intelligence agencies have stated so clearly. We have the same position on the South China Sea, Taiwan, Hong Kong and human rights abuses against Uighurs and Tibetans. I was a member of the Gillard Government that brought US Marines to Darwin. And as Shadow Infrastructure Minister I opposed the sale of the Port of Darwin."
- Prime minister Anthony Albanese at Lowy Institute 10/3/2022
"Closer to home, it means that we have to step up within the alliance and work with partners and across groupings to uphold the rules of the road, respond to urgent needs and build a region that is resilient to future threats. This has been at the heart of Labor’s approach to the US alliance since Curtin looked to America – our right and our responsibility to act in our own interests, to make our own alliances, to decide our place in our region, for ourselves. Being self-reliant within the alliance, to quote Bob Hawke. It is up to Australia to lead within it – to demonstrate our value-add by being a partner of choice in the region."
- Foreign minister Penny Wong at US Studies Centre 16/3/2022
"There is considerable interest globally in innovative approaches to development finance, including guarantees for investments in development projects, provision of insurance and/or first loss cover and equity stakes in development projects. These are seen as having the potential to boost the effectiveness of grant funding by leveraging investment in development from the private sector, financial institutions and multilateral institutions. Australia must help shape these opportunities."
- International development minister Pat Conroy at Development Policy Forum 16/5/2022
"In China I made a speech where I criticised the Chinese in terms of their handling of Hong Kong, in terms of their human rights record with the Uighurs . How many government ministers have gone to China and in China publicly criticised the Chinese government? That’s actually what I did … I let the people know what I was going to say so there were no surprises. There were no changes whatsoever made to a speech that I made in China, criticising China, in public … The assertions that being made by the government is just another desperate attempt to divert from their failings in the Pacific."
- Deputy prime minister and defence minister Richard Marles 23/5/22
ASIA’S ECONOMIC NOODLE BOWL
The launch of the Biden Administration’s Indo-Pacific Economic Framework (IPEF) has added to the diverse array of region wide frameworks and multi-country trade agreements each with different approaches to membership and rules. This heatmap reveals the wide range of conceptions of the Indo-Pacific in its economic institutions.
Notes: Countries listed by market GDP size. The CPTPP has been through several guises after starting as a four- nation group in 2005 and faltering as the Trans-Pacific Partnership when the US withdrew in 2016. The Quad also stopped meeting in 2008, before being revived in 2018. After starting as a strategically oriented group, it has taken on a increasing economic focus. ASEAN only really became an economic entity in 1992 with the signing of the ASEAN Free Trade Agreement. Fiji became the first Pacific island member of IPEF last week.
ON THE HORIZON
Prime minister John Gorton with Indonesian President Soeharto in 1968. Image: NLA
CALLING ON INDONESIA
Leaders don’t get a second chance to make first impressions abroad, so Anthony Albanese has the chance for a bit more creativity in what was planned to be his first visit to Indonesia.
This visit has become a rite of passage for incoming Australian prime ministers since Paul Keating went to Jakarta in 1992 laying the foundations for a golden period of engagement with Indonesia in the remining four years he was in power. He also set a modern precedent for future prime ministers – John Howard, Kevin Rudd (to the Kyoto agreement signing in Bali), Tony Abbott and Scott Morrison all making the trip, but with varying degrees of future successful bilateral engagement.
A swift visit to Australia’s nearest Asian neighbours actually has an earlier genesis, with Harold Holt touring Southeast Asia, but not Indonesia, in 1966. He was followed by John Gorton in 1968, who did visit Jakarta but only after Vietnam (where Australia was involved in a war) and then Singapore. Gough Whitlam made the journey to Indonesia in September 1973, nine months after his election.
Albanese will now visit Indonesia next week after having his plans for a first trip to Jakarta overtaken by the timing of the Quad meeting in Tokyo. This will be a bid to catch up with the Keating model and no doubt reinforce Labor’s argument that the Morrison government did not pay enough attention to the country. Treasurer Jim Chalmers on Monday has already reinforced the symbolism by making his first international call to his Indonesian counterpart Sri Mulyani Indrawati on Monday.
After making his first trip abroad to Tokyo, Albanese has the opportunity to craft a different approach. He could have tried to balance Australia’s different (and somewhat competing in terms of resources) relationships with Southeast Asia and the South Pacific. The previous Labor leader he says he most wants to channel, Bob Hawke, sought to do this in 1983 when he went to Port Moresby and then straight on to Jakarta. But Hawke had a particular personal connection to PNG because he had worked there as a union advocate, and there is currently an election underway there.
Albanese has already sought to craft his own personal Indonesia story by pointing out he travelled to the country more than any other country as transport minister in the Rudd government working on safety issues, and visited there first as Opposition Leader.
This time he could dive deeper into the bilateral relationship to suggest a new approach by seeking a meeting with President Joko Widodo in eastern Indonesia, nearer to Australia – potentially Makassar where Australia has opened its newest Indonesian diplomatic outpost.
Development of eastern Indonesia, and protection of the country’s maritime resources, is a high priority for Widodo and an important Australian connection to the country that Indonesia’s other diplomatic partners mostly don’t share.
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