Briefing MONTHLY #67 | October 2023
PM’s travels | Beyond China | Indian business | Made in Australia | Decoupling or not | Asian economic outlook
Illustration by Rocco Fazzari. View the full animation here.
Asia Briefing LIVE special edition
BETWEEN BEIJING AND DELHI
Xiao Qian and Manpreet Vohra might have been separated by 900 kilometres but their competing visions for Australia’s prosperity and security were remarkably similar: choose us.
China’s ambassador made the first pitch in Melbourne: “China looks at Australia as a friend, as a partner and we do not see, I do not see, any reason that Australia should look at China as an enemy or as an adversary.”
Just twenty-four hours later in Sydney, India’s high commissioner was singing almost the same tune: “There is actually the real potential between India and Australia to create a higher level of what I am quite happy to say should be economic integration, integration of our economies and our industrial structures.”
With in-person programs in Melbourne and Sydney and the pandemic now just a distant zoom-framed memory, Asian Briefing LIVE (ABL) this year captured the new reality of Australian statecraft. How to straddle old and new regional powers. How to locate markets in a fragmenting world. How to find common cause in Southeast Asia. And how to build a more resilient economy at home.
While the words from the Chinese and Indian envoys may have gone some way towards providing a modern salve to Australia’s traditional fear of abandonment, Deputy Prime Minister and Defence Minister Richard Marles promptly pricked the bubble: “It’s not the same existential threat as the height of the Cold War. But I think the decisions before us today are more complex.”
This Briefing MONTHLY is devoted to drawing out the key themes from our sibling live event from the state of play in global fragmentation, to differences over manufacturing in the government, to some tips on making a dollar in India’s vibrant economy.
But we also examine Prime Minister Anthony Albanese's return to an intensive overseas travel schedule after the Voice referendum, with multiple trips planned to both the US and China.
Briefing MONTHLY editor
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Source: Jordan Roach Photography
Asian risks might have momentarily receded as the ABL sessions got under way with the new Gaza Strip conflict dominating the headlines. And as the United States Studies Centre’s Michael Green observed “this is highly significant for the Indo-Pacific because of the effect on energy prices and the global economy because of the obvious diversion of American resources and attention … If you're American, you keep getting pulled back in.”
But a survey of the regional horizon quickly produced a return to normal with the Asia Society Policy Institute’s Bates Gill, Macquarie University’s Lavina Lee and Green all identifying the January Taiwan presidential election as the key event to watch.
According to Gill the expected victory by the Democratic Progressive Party’s Lai Ching-tai will force China to think hard about how the more pro-China centre-right KMT alternative “may well have lost its position as a viable political force, at least at the national level in Taiwan.” But he thinks China will increase its attacks on Taiwan rather than find a way to live with the DPP. “That combined with the likelihood that the issue of China and Taiwan will be more prominent in the US election cycle than it's ever been in the last 50 or 60 years. That’s a recipe for some real potential instability,” Gill warned.
Meanwhile Green played down the idea of a new independence push provoking war although nonetheless noted that the Beijing government was already “catastrophising” the return of this government in Taiwan. But Macquarie University’s Courtney Fung, who is also Asia Society Australia’s scholar in residence, said that while the threat of war was real it needed to be read more carefully. She says the constant warnings about reunifying the Chinese motherland are about forcing a “large peacetime military to become focused and ready for real time, real world potential combat’ rather than setting deadlines.
And Green said the Taiwan election should not divert attention in Australia from the real wildcard possibility of a Chinese security agreement with a Pacific Island nation that results in military basing and a crisis for Australia and New Zealand. “I think that's not probable, but quite possible in the coming year,” he said.
Meanwhile inside China, Gill says President Xi Jinping is not yet facing a crisis with internal tensions and economic turmoil but is having a bad year as he tries to reassert his authority. “I think there are bigger holes and problems and challenges facing Xi Jinping then we probably realise,” he said. These range from elite rivalry seen in the removal of the foreign and defence ministers, to increasing tensions between the centre in Beijing and what it's expecting of its local governments, to strong evidence of increasing tension between the state, or party state, and the broader society.
Source: Jordan Roach Photography
As the world’s newly most populous country and also its fastest growing large economy, India has become the new partner of choice for a long waiting list of other nations. But the big question is who makes the choice?
Brookings Institution senior fellow Tanvi Madan used her “fireside chat” on India’s role in the world to explore the complex dynamics of India’s coming out of foreign policy neutrality with some positive assessments of Australia’s prospects. “This is an India that wants to be an independent pole, wants to make its own choices as much as possible, but recognises that it cannot do that alone,” Madan observed.
But it would do this very much on its own terms by not viewing China through a US lens, not accepting conventional hierarchies of the West, by remaining a member of BRICS (Brazil, Russia, India, China and South Africa) group, and not accepting interference in its domestic politics. “I think we expect India to behave like a western ally but don't necessarily treat it in some ways as a western partner.”
However, Madan said the now sustained interest in India across several Australian governments had been noted in New Delhi and Australia had become partner of choice in Indian minilateral groups in recent years. “India judges partnerships according to who are going to be useful in achieving Indian objectives. And I think Australia meets that and is being seen as a country that is responsive to India's objectives as well … I can't recall a for India that has moved at such speed (on a diplomatic relationship) in such a short period of time,” she said. Nevertheless, while Australia was investing heavily in the STEM (science, technology, engineering and maths) side of the relationship from a business perspective, it would need to invest more in understanding Indian politics and history to make the overall relationship work.
Speaking separately, Manpreet Vohra argued that the growing Indian diaspora in Australia would play a major role in filing this gap by bringing a better understanding of Indian culture to both boardrooms and the community. “The sheer numbers are attractive enough, significant enough by themselves they mean that Indians are now much more visible throughout Australia in different walks of life and different professions and locations,” he said, “so it's already a very, very significant player as it were in the relationship.’
Source: Man With A Camera Photography
Geopolitical fragmentation and the future of the supply chains at the heart of the old global economy has become such a common topic these days that the search is on for new fissures and perhaps slivers of light.
Asia Society Australia policy director Richard Maude kicked off the ABL debate by characterising “a degree of economic fragmentation” in the global economy that’s being driven by de-risking, the now increasingly replacement term for decoupling. “It’s a phenomenon that’s being driven not just by America but by China as well. Neither great power wants to be overly dependent on the other, especially for the kinds of technologies that are going to shape the future of economic and military advantage,” he said.
But Courtney Fung opened a window on the way the academic sector is being decoupled by US rules making scientific and research collaboration more difficult even for third party academic players in Australia with collaborators based in mainland China. “I think long-term, especially for a state like Victoria that's very proud of its education exports, this is something to keep an eye on as the way that decoupling and de-risking spreads into different economic sectors,” Fung said.
La Trobe Financial chief executive Chris Andrews conceded supply chains had become fragile because they were “excessively optimised” but argued there was still plenty of scope to pursue free trade despite national security concerns. The alternative was “a world where we were all poorer, where the world generally would be less dynamic and more fearful.” And the chief executive of infrastructure company Aurecon, Louise Adams, said the diaspora of Australian educated students across the region provided an under recognised resource for fending off the rise of fragmentation for Australian interests in Asia.
But it was Asian Development Bank chief economist Albert Park who provided the most positive outlook on geo-fragmentation by turning to the institution’s database of regional integration for a “slightly optimistic counterpoint”. While there was a sharp decline in foreign direct investment into China, there was much less evidence of fragmentation in the trade data. “China is still a very attractive partner because it is so efficient, has such efficient supply chains in so many sectors and can really bring valuable know-how and help support value chains that are very globally competitive,” said Park. At the same time most Asian leaders “take a very pragmatic attitude and support open multilateral trade and investment”.
Source: Man With A Camera Photography
The ABL sessions in Melbourne and Sydney straddled the surprise release of Australian journalist Cheng Lei from three years of detention in China and so expectations around the planned visit by Prime Minister Anthony Albanese expected next month only grew.
Albanese will be making the first such prime ministerial visit to Beijing in seven years with a distinct shift in sentiment towards Australia’s China diplomacy from the ABL audience polling. While the question has changed slightly this year from past years, an average of more than 80 per cent of respondents in Sydney and Melbourne think the government is handling China fairly well or very well. Over the past years an average of about 70 per cent of audience members thought China policy was being handled poorly.
Speaking after the release of Cheng Lei, Lavina Lee said the Albanese government had consistently described its policy towards China as a stabilisation process rather than a reset, and so the visit should still be seen in that context. “It’s not a softening. And there are, I think, even less areas of collaboration and cooperation that are possible,” she said, “I was a little bit worried with the new government that the word reset would be used because if you use the word reset, then you are really potentially backsliding from taking hard decisions.”
But speaking before the release, Xiao Qian embraced the language of stabilisation as the way to characterise the past year but forecast the next year would be one of “exchange, visits, dialogue and improvement.” Using the context of the next 50 years of diplomatic relations, he said the Albanese trip would “not only be important for now, but important for the years to come, maybe even the decades to come.” He emphasised the prospects for the two countries to cooperate more in renewable energy and green infrastructure. “There’s a lot of areas where we share common grounds and these common grounds are so important to our two countries,” he said. Xiao has since expressed optimism the Chinese impediments to Australian wine exports will be lifted soon in the latest move to pave the way for the prime minister’s visit.
Also speaking before the release, Richard Maude said the visit would not be a time to “escape the constraining realities of the age” but there were still lots of positive things that could be discussed. The prime minister could not duck hard issues and needed to be both polite but direct ranging from the Ukraine war to human rights. He needed to avoid the “obvious traps” of, for example, in some way allowing Australia to be “peeled off from the Western alliance broadly”. And he needed to “work hard on the public narrative of the visit”, where Maude, said Albanese could take some pointers from the way European Commission president Ursula von der Leyen had been handling China with de-risking language.
But none of this was easy. “I have sat in these kinds of meetings and it’s pretty hard, even with the closest of partners, it’s quite hard to talk to great powers actually when you’re a middle power,” Maude reflected.
MADE IN AUSTRALIA
Source: Man With A Camera Photography (left) and Jordan Roach Photography (right)
The internal differences inside the Albanese government over industrial strategy were on display in the ministerial addresses with Richard Marles emphasising high tech manufacturing while assistant Treasury minister Andrew Leigh warned against over reliance on manufacturing.
Perhaps reflecting the industrial cooperation second phase of the AUKUS submarine pact, Marles declared that the biggest economic reform challenge facing Australia was infusing the economy with science and technology. Referring to the much-debated Harvard Index of Economic Complexity, which gives Australia a low rating for complexity, Marles said: “The National Reconstruction Fund is very much at the heart of the kind of policy agenda to try and change this. That's where we actually need to go in terms of building a human capital-based economy, which takes us more on the cutting edge of modernity.”
However, Leigh argued that the trend towards reshoring manufacturing trend seen in the US, Europe, China and India was “dangerous”. “An economy of hundreds of millions of people or billions of people can afford to do much more onshore,” he said, “An economy like Australia's is most at threat from a world which splits and becomes hostile towards the open trading regime that’s been a key source of our prosperity.” See: DIPLOMATICALLY SPEAKING
The ministers also took subtly different approaches to engagement with China with Males emphasising the need to be taken seriously by China, while Leigh stressed that Australia could not avoid accepting the economic significance of China.
Marles said that his interactions with China had made clear it understood countries acted in their own interests. “I think us being a more capable country in terms of our hard power builds the space for diplomacy and trade … Getting a higher power equation right, is how we actually maximize the space in which we engage diplomatically with China and in which we engage in a trade … that is, I think, for us the guiding light in terms of how we walk this path.”
But Leigh argued against moves to restrict China’s access to materials to build low-cost batteries, low-cost solar panels, low-cost electric vehicles, because that meant Australia could use those products. “It is a good thing for the Great Barrier Reef that fewer Chinese citizens will be driving petrol vehicle cars in a decade’s time and more will be driving electric vehicles. Not only does the climate not care who builds batteries, the climate doesn't care where the emissions are being produced,” he said.
Source: Man With A Camera Photography
Amid recurring concern about the state of regional security due to superpower rivalry as well as leadership uncertainty at the top of both the US and China, panellists found one common refuge for Australian diplomacy – Southeast Asia.
Discussing the challenges of a second Donald Trump presidency in the US, Richard Maude said it would be “very, very difficult for Australia to manage” but it would present an opportunity for middle powers to work better together more directly. “There's an opportunity for Australia to do even more in Southeast Asia,” he said.
The enthusiasm for closer relations with Southeast Asia comes in the wake of the Albanese government’s new report on business prospects in this region and so the support extended beyond diplomatic opportunities. Chris Andrews said the focus on Southeast Asia was right because “these are our people, it's our geography, it's our past, it’s our future … So, it's an incredibly exciting opportunity for Australia.”
But he said the report, led by former Macquarie Group chief executive Nicholas Moore, had been right to identify impediments to taking up the opportunities like the different regulatory regimes across the 11-country region. “There's a lot of capital requirements, local directorship requirements, sometimes ownership requirements in local jurisdictions that do make it more difficult,” he said.
But while there was general agreement on the economic opportunities, there were differences about how well Australia’s diplomatic positioning in relation to the China-US tensions was going down in the near neighbourhood.
La Trobe Asia’s Bec Strating said that while Australia had taken creative new steps in the region such as joint patrols with the Philippines in the South China Sea, it was often seen as moving much closer to the US while most Southeast Asian countries were more focused on hedging between China and the US.
This line of thinking was reinforced by International Institute for Strategic Studies associate fellow Lynn Kuok who said regional countries were closely watching whether Australia really supported the strategic autonomy favoured by the region. “A question which arises is whether Australia's strategic environment with the west, most notably through its stance on China, the Quadrilateral security dialogue and the AUKUS submarine deal has caused or will cause the region to view Australia more warily?” She said the region was “watching to see if Australia adopts a position in China that is not necessarily confrontational, but targeted more narrowly at pushing back against unlawful and coercive Chinese action.” This would have “implications for the region's desire to forge stronger ties with Australia.”
However, Lavina Lee argued that the Labor government had done a successful job in explaining the AUKUS submarine partnership to Southeast Asian countries heading off a potential long term diplomatic issue. The Philippines, Singapore, and Vietnam were now either explicitly or tacitly supportive of AUKUS and even the once vocal critics in Malaysia and Indonesia had toned down their rhetoric. “I think Australia’s been quite successful in explaining that … the technology will be delivered in a black box capability and that the International Atomic Energy Agency will be able to inspect it,” she said.
DEALS AND DOLLARS
Source: Asian Development Outlook economic growth forecasts
BANKING ON CLIMATE
Source: Man With A Camera Photography
With the Asian Development Bank remaking itself as the “climate bank for Asia”, its chief economist Albert Park says renewable energy and climate change adaption will become one of the biggest economic growth areas in the region.
He said China was clearly the key country in this shift as the region’s leader technologically in solar, wind and other areas as well as being serious about meeting its net zero pledge. But other countries were following with their own plans. “So, this really taking on climate change in a serious way is now I think becoming more and more prevalent across the region. So, it’s a big opportunity.”
- Developing Asia's growth remains resilient supported by domestic demand and the region remains the world’s most dynamic region
- ADB has cut its 2023 growth cast from 4.8% to 4.7%, but kept next year at 4.8%
- Tourism has rebounded to 70% of pre-pandemic level, although Southeast Asia lags due to Chinese tourist dependence
- Remittances are boosting Pacific economies driven by Australia’s labour scheme
- Risks are rising due to concerns about China’s property market turmoil and financial stability
- Food security challenges have emerged as a key risk
The ABL audience has maintained its steady but volatile shift away from seeing China as Australia’s best business opportunity in Asia, with India now looking more stable and Vietnam proving an attractive newcomer.
Support for China has halved over the six years of audience polling from 55 per cent in Sydney in 2018 to 20-30 per cent in Melbourne and Sydney this year. Meanwhile India has fairly consistently ranked around 25 per cent, although there was a noticeable uptick in Sydney this year to almost 40 per cent perhaps boosted by the panel on Indian business.
Meanwhile despite the government’s recent focus on it, Indonesia has tended to trend down slightly from 31 per cent equalling China in 2019 to less than 20 per cent this year. But Vietnam, which was only included in 2021, is becoming a rival to Indonesia with support of 36 per cent in Melbourne possibly reflecting the state government focus on it. But it received much lower support in Sydney at 12 per cent.
And, although they are amongst Australia’s largest export markets, Japan and South Korea languish in the audience survey in single digits with Korea tending to overtake Japan, but both trending down.
Despite the slight decline in support for Indonesia in the long-term audience polling, Australian ambassador Penny Williams told the latest audience that she thought Australia had not fallen behind foreign business competitors in the country, although there was a lack of awareness of opportunities. Fresh from marking 50 years in Indonesia for Bluescope Steel and its predecessors, she said there were plenty of successful businesses prepared to “dispel the myths about operating there.” And there were emerging signs of a “pull through factor” with new players with, for example, health care investors possibly drawing on Australian education.
Opening the conference in Melbourne, Victorian Treasurer Tim Pallas, talked up the state’s commitment to building Asian business ties with 13 regional trade promotion offices compared with 8 for the next largest state presence. He said Victorian ministers had made a conscious effort to travel in the region since the pandemic underlined by his own visits to Vietnam, Indonesia, Singapore and Japan. “This trend will only continue. These links give us a strong foundation for growth and collaboration in key sectors including clean energy, education, tourism, health, and food and fibre,” he said.
Reflecting on the changing country preferences for business, Department of Foreign Affairs and Trade official Helen Stylianou argued that trade diversification shouldn’t be seen as a new thing because Australia had been focused on this for a long time in its multilateral approach to trade deals. “It gives the greatest number of options to businesses to trade into different markets by negotiating with a large number of countries at the same time,” Stylianou, who is now the lead negotiator on the Indo-Pacific Economic Framework, said.
And ANZ Bank chief economist Richard Yetsenga took up the diversification theme by arguing that the economic hierarchy in Asia was changing. “China’s not the capital vacuum cleaner for the region (anymore) and it really provides this opportunity for the rest. I just try and encourage business to say whatever your view about an economy in the region was before, you need to reassess that today.”
Source: Jordan Roach Photography
PASSAGE TO INDIA
With India on the rise as a new market Australian business diversification, Cochlear chief executive Dig Howitt has warned that it requires greater intensive development work than China because it is more politically and culturally diverse.
“English is widely spoken, we play similar sports and thinks it’s quite familiar. That can help in very narrow spaces of really good relationships, but it can actually mask the very broad diversity,” he told a panel on Indian business. “It’s a far more diverse country than China, both in terms of language, in terms of the way that the states work and the independence of states. China is obviously much more unified.”
And Howitt, who headed Cochlear’s hearing technology business in Asia before taking the top job, warned that Indian customers are particularly demanding. They had worked out his email address and “let me know exactly what they think of how well we're doing or how well we're not doing and that our prices are too high.”
A new audience poll for this session revealed that energy and education were the two sectors seen as most attractive in India at just below 40 per cent each, while services and food and agriculture were a distant second at round 10 per cent each. And investment ranked very poorly as an opportunity despite India’s promotion of a more open regime.
Centre for Australia-India Relations chair Swati Dave, who is also Asia Society Australia deputy chair, said her recent visits to the country had reinforced “the optimism, the energy, the desire to get things done, and a sense of place in the world and contribution to the world.”
The chief executive of renewable energy company Entura, Tammy Chu, said the potential for knowledge sharing on renewable energy innovation was one of the biggest opportunities for cooperation between the two countries drawing on businesses, researchers and the diaspora. “There’s certainly been positive dialogue regarding a renewable energy council between our two countries … I really do hope that that comes into fruition next year,” she said. “Australia and India also need to commit to building skill sets and expertise when it comes to renewable energy.”
Manpreet Vohra also nominated building two-way supply chains in renewable energy as the big unfinished task from his time as high commissioner. “I’d like to see much more economic integration between us … more co-production happening between our companies ... look at the potential of us getting together and creating those supply lines of photo voltaic cells and panels, of creating those supply chains of critical minerals and batteries and storage, of using our capital and resources and manufacturing in either country.”
Source: Jordan Roach Photography
"We have to have an economy which is more than mining and agriculture as important as those are. We need to be involved in high-tech manufacturing ... the National Reconstruction Fund is very much at the heart of the kind of policy agenda to try and change this … I think the robustness of the (US) Alliance over its journey gives us a sense of confidence that whatever happens in America, the Alliance and our relationship with America will be fine."
- Deputy Prime Minister and Defence Minister Richard Marles
"The (Biden Administration) inflation Reduction Act is a huge challenge for many of us economists … we need to be very careful about the notion that manufacturing is the only way of generating good jobs, or indeed that in the United States context, that there is some possibility of a return to the car manufacturing structure of Detroit to the 1950s. That’s just not how cars are made these days."
- Assistant Minister for Competition, Charities, Treasury and Employment Andrew Leigh
"Our relations really date back long ago and during the second World war, China and Australia were all the same side fighting against the Nazi aggression. And then after the Second World War, we were on the same side setting up the United Nations system … And ever since 50 years ago, when we established our diplomatic relations, we’ve been cooperating in so many areas where we share common ground."
- Chinese ambassador Xiao Qian
"We are a country with 1.4 billion opinions and therefore we are democratic … We are the youngest large country in the world …We can also in a larger geopolitical geostrategic sense today, be a net security provider rather than being a security demander, which we might have been for the first five decades of our independent existence."
- Indian High Commissioner Manpreet Vohra
ON THE HORIZON
BACK IN THE USA
Prime Minister Anthony Albanese is due to visit the US twice in the next month as he returns to international diplomacy after the Voice referendum campaign.
On Monday he travels to Washington for what will be his first official visit to the US in contrast to the previous working visit in March to cement the AUKUS submarine agreement. The trip will also effectively make up for the planned trip to Australia by President Joe Biden in September which was cancelled at the last minute when Biden scaled back his broader for the Group of 20 leaders meeting.
The prime minister will open new embassy in Washington is expected to announce new economic partnerships with the US including on climate change, critical minerals and defence cooperation.
Albanese will then return to the US for the Asia Pacific Economic Cooperation (APEC) group Leaders Summit on November 16-17 in San Francisco and before that will visit the Cook Islands for the Pacific Islands Forum leaders summit on November 6-10.
These commitments narrow the windows for the long mooted visit to Beijing to formally stabilise the Australia-China relationship with the first visit by an Australian prime minister since 2016. It will also mark the 50th anniversary of a visit by Labor Prime Minister Gough Whitlam, who established relations with the Peoples Republic of China. In the latest negotiations, China has been pressing for an easing of Australian restrictions on Chinese steel imports in return for removing its limitations on Australian wine exports.
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Briefing MONTHLY is a public update with news and original analysis on Asia and Australia-Asia relations. As Australia debates its future in Asia, and the Australian media footprint in Asia continues to shrink, it is an opportune time to offer Australians at the forefront of Australia’s engagement with Asia a professionally edited, succinct and authoritative curation of the most relevant content on Asia and Australia-Asia relations. Focused on business, geopolitics, education and culture, Briefing MONTHLY is distinctly Australian and internationalist, highlighting trends, deals, visits, stories and events in our region that matter.
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