Briefing MONTHLY #73 | May 2024
China redux | India votes | Budgeting for Asia | Thaksin’s return | The other Wong | Disaster zone
Illustration by Rocco Fazzari.
BALANCING ACT
As the Albanese government prepares for the first visit by a Chinese leader in seven years the past month has provided telling insights into the diplomacy of cooperating, disagreeing, and engaging.
From the driver’s seat the Federal Budget’s Future Made in Australia theme is all about joining the global industrial policy renaissance to fend off China’s subsidised manufacturing might. But inside the engine room is more complex.
Treasury’s background paper acknowledges that Australia’s energy transition may actually benefit from Chinese products like solar panels and the economic forecasts warn about the impact of the slowest Chinese growth in five decades. Meanwhile the National Foundation for Australia-China Relations has received a higher budget than the newer centres focused on India and the ASEAN countries which are often promoted by the government as more reliable security and economic partners. See: ASIAN NATION and ON THE HORIZON for Premier Li Qiang’s visit in the middle of June.
Nevertheless, Prime Minister Anthony Albanese declared China’s confrontation with a Royal Australian Air Force helicopter in the Yellow Sea to be “unprofessional and unacceptable”, seemingly paving the ground for the release of a new report by the US National Bureau of Asian Research, funded by the Australian Department of Defence. It argues for a more robust cooperative response by nations, like Australia, facing increasingly aggressive military challenges by Chinese forces. However, the Prime Minister quickly rebalanced by telling farmers “China is vital, and we are making great progress in resolving agricultural issues”.
Another report from The Australian National University’s East Asian Bureau of Economic Research casts a wide net to find new ways of cooperating productively with the region’s biggest economy driven by the idea that the two countries still have “massive economic complementarities”. But the quest for economic cooperation initiatives was not helped by a Productivity Commission study of Asian trade deals which finds little economic reason for Australia to support China joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. See: DEALS AND DOLLARS
While it is hard to beat the diplomatic acrobatics over China, this month we also examine how managing India is becoming a juggling act as the government has launched new bilateral relations initiatives amid spying allegations and a bruising election campaign.
Greg Earl
Briefing Monthly editor
NEIGHBOURHOOD WATCH
INDIA: one vote, many voices
Prime Minister Narendra Modi appears set for a substantial third successive national election victory on June 4 making him only the second leader after founding prime minister Jawaharlal Nehru to do so. But perhaps more tellingly, the campaigning has unleashed many opinions about the country’s future.
Shifting voters: “Voters have agreed to trade political freedom for perceived progress, but this deal is with Modi. It is likely to last only as long as he is in office and keeps delivering on the economic front.” – investment banker and election watcher Ruchir Sharma
One too many: “Unofficial readings of voter sentiment strongly indicate that things are not going the BJP’s way. The public, it seems, has simply not been given enough reason to vote for the party a third time.” – Congress Party MP Shashi Tharoor
Defining democracy: “India is no longer the model free-market democracy that Westerners spent years imagining, encouraging and touting. Its markets and its politics are becoming less free – and ever more entwined. This election is yet another manifestation of this drift.” – To Kill A Democracy author Roy Chowdhury
Rising Bharat: “There is a growing realisation, especially among the youth, that while the role of the government as a facilitator is essential for their economic progress and well-being, it is their effort and struggle that will ultimately bear fruit. There is also an attitudinal change, where the people of Bharat are becoming increasingly conscious of their culture and heritage and are now proudly attached to their roots.” – India Foundation director Dhruv Katoch
Rich or poor: There is indeed a way for India to grow rich before it grows old. But it will not be easy, and it will require a change in vision at the top. That, ultimately, is what the ongoing election is about. – former Reserve Bank of India governor Raghuram Rajan
Australia relations: “India as a balancer of China makes much less sense if it is no longer a liberal democracy. Australia wants to see China balanced because it is an authoritarian state which seeks to become the regional hegemon. An authoritarian India is a much less credible balancer than a liberal democratic India.” – former DFAT secretary Peter Varghese
And see: DIPLOMATICALLY SPEAKING
THAILAND: Thaksin's back
It didn’t take long for former prime minister Thaksin Shinawatra, 74, to shift from prison hospital to apparently pulling the strings of Thai politics with this month’s Cabinet reshuffle.
While analysts are still unclear about the real nature of the deal that allowed him to return to the country from 15 years of exile after last year’s election, the more important question is whether he can restore his political party to the reformist, majority position it had two decades ago.
The reshuffle was notionally about Prime Minister Srettha Thavisin, who heads the Pheu Thai successor to Thaksin’s old Thai Rak Thai Party, handing over the finance minister job to a separate more seasoned finance official. But it appears to have also elevated ministers connected to Thaksin to the detriment of both the old former governing military-linked parties and the new reformist Move Forward Party. And in a new threat to the country's political stability, Srettha is facing a Constitutional Court review of the Cabinet reshuffle.
Thaksin was the first democratically elected prime minister to serve a full term at the height of his popularity in the early 2000s when he presented as a tough but economically populist outsider taking on the old Bangkok military/royal elite. But now he has to weave a path between that old elite which allowed him to return, young voters who favour the successful new reformist Move Forward Party and a Pheu Thai Party which may not want to be ordered around so much by the old patriarch.
- At Asian Sentinel, former ambassador Pithaya Pookaman says Thaksin has a huge challenge trying to regain popularity against Move Forward.
SINGAPORE: 4G rises
Everyone matters … Lawrence Wong Picture: Straits Times
Leadership changes don’t happen very often in the island state, but they still come with a kabuki-esque quality that belies the existential angst of a People’s Action Party (PAP) that has never been out of power.
So, in a display of stability following change outgoing Lee Hsien Loong, 72, becomes Senior Minister after 20 years as prime minister while incoming Prime Minister Lawrence Wong, 51, has appointed two deputy prime ministers who are older than him and will retain the finance minister’s job himself.
Nevertheless, to reinforce the idea there has actually been a change to the so-called fourth generation (4G), there is much talk about “writing the next chapter of the Singapore story,” Wong’s passion for playing the guitar, and the apparent absence of any more Lee family members in the political pipeline.
Wong says he wants to build a Singapore where “everyone matters” but concedes that he has no particular model in mind to address the apparent concerns that the country is less unified. Playing up the idea that there has been generational change, he said in his inauguration address: “We will lead in our own way. We will continue to think boldly and to think far.”
But in an interview he said Singapore had once aspired to a Swiss standard of living but now did not have any such benchmark: “In this new phase, we are in uncharted territory. We have to find our way forward. We have to still learn from the best, find best practices, but we have to break new ground. We have to find fresh solutions for our problems and challenges.”
Before entering politics in 2011, Wong spent 14 years as government official covering trade, industry, finance and health, after studying economics and public administration in the US. He was in effect annointed the next prime minister in 2022 when he was acknowledged by his peers as the leader of the 4G group.
- Donald Low argues in The Straits Times that Wong will be more open to criticism and diverse ideas than his predecessors, but the PAP still does not see much merit in what its critics have to say.
ASIAN NATION
BUDGETING FOR ASIA
First it was development aid, then it was statecraft, and now it is economic security. The Albanese government’s three Budgets have also been a window on its changing way of viewing the region.
This month’s version is more about winning the looming election with the jobs promised to flow from the Future Made in Australia (FMIA) initiative and keeping up with new industry policy around the world. But it also impacts on regional relations.
China: While China’s manufacturing might is driving the push towards industry policy, the Budget treats this issue delicately. The Treasury paper on FMIA does highlight China’s dominance in industries such as solar panels but also points out that Australian consumers will benefit from any improvement in supply chain diversity and competition funded by the taxpayers in the competing countries from China to the US. China’s continued importance as a trading partner is underlined by new spending to help farm exporters get back there and help Chinese tourist groups to return to Australia.
Aid: Spending is slightly higher than was forecast in last year’s Budget at $4.96 billion, but still on a long-term trajectory down as a share of the economy. The Pacific share continues to rise to 44 per cent compared with 42 per cent this year and 23 per cent a decade ago. Southeast Asia gets 25.3 per cent (25.7 per cent last year) and South/Central Asia 6.8 per cent (7.9 per cent) further underlining the Pacific shift. The key increases are $87 million ($17 million last year) for Tuvalu to implement the Australia-Tuvalu treaty; Fiji gets an additional $35 million for budget support and a port expansion; and Indonesia gets an extra $27 million for a climate and energy initiative.
Southeast Asia: The government is spending $505.9 million over five years implementing the regional Economic Strategy to 2040 and initiatives from the ASEAN Summit, but most of this money was already embedded in the forward estimates, with only small additions in this Budget. The largest amounts go to the Mekong-Australia Partnership ($230 million), the Partnerships for Infrastructure program ($153 million), and the Marine Resources Initiative ($68 million). The flagship $2 billion Southeast Asia Investment Financing Facility has no impact on the Budget because it hasn’t been used. But the Budget shows it has been notionally funded for ten years with the administrative funding weighted towards the latter years.
Pacific: The recent focus on security and infrastructure in the Pacific outside the aid budget is continued with $206 million over four years mostly to beef up Australia’s diplomatic presence including a $40 million new Consulate General in Hawaii. There is also new communications infrastructure for the Solomon Islands and $100 million over three years to fund small scale climate and disaster projects in association with Pacific country leaders.
Public diplomacy: The Budget sets up a new hierarchy of public diplomacy priorities in the region with the establishment of the new Centre for Australia-ASEAN Relations with $23.6 million over four years. That compares with $29.9 million for the National Foundation for Australia-China Relations, $16 million for the Centre for Australia-India Relations, and $65.4 million for the Pacific Sports Program.
IMMIGRATION 101
After graduating from being a source of diplomatic soft power to being a university cash cow, the Albanese government is running the risk of now tossing international students into the much more uncertain position of being election fodder.
The decision to make an immigration numbers reduction a key part of the Federal Budget resulted in Opposition leader Peter Dutton almost inevitably taking up the opportunity to be even tougher on immigration cuts which will require a sharp reduction in foreign students.
And while those students might have once found sought support from a foreign minister focused on diplomatic soft power from educating future Asian leaders or an education minister focused on funding universities, international students now have some unlikely defenders. Treasurer Jim Chalmers says he stopped a hard cap on numbers being imposed as opposed to institution specific caps due to the value of education as an export revenue source. And Nationals leader David Littleproud is defending foreign enrolments at smaller regional universities because farmers need labour.
In the firing line is the long-term policy aim to diversify the source of students since the dominant Chinese students are a reliable and well organised source of students and continue to have high visa acceptance rates. And at the same time, a sharp reduction in revenue from fewer foreign students may disrupt the other long-term objective of having Australian education institutions providing more classes offshore in the home countries of students who now come to Australia.
The rebound from the pandemic cuts drove the value of Australia’s education exports to an all-time record of $48 billion in 2023, well above the 2019 pre-Covid peak of $40 billion. But the Opposition immigration spokesman Dan Tehan is talking about limiting the international student share at universities to as low as 25 per cent compared with reported levels above that at about a dozen institutions.
INDIA RELATIONS
Penny Wong at the Centre for Australia-India Relations launch Picture: DFAT
Foreign minister Penny Wong has used the cover of the launch of a new centre to promote closer relations with India to raise concerns about the treatment of religious minorities and the media in the country the government hopes will become a closer security and economic partner.
She said challenges to pluralism and democracy around the world had become more acute since she first raised the issue during discussions with Indian ministers last November.
“There is less tolerance of the very freedoms, including for media, and religious practice, that are integral to open societies. In that context, the next generation of Indians and Australians have a special responsibility to nurture and strengthen the institutions that we hold dear,” she said opening the Centre for Australia-Indian Relations in Parramatta.
The government had been noticeably cautious about addressing both allegations of Indian spying in Australia and pressure on opposition groups in India during the election as India emerges as a closer security partner and Indian background Australians have become the country’s biggest foreign-born diaspora. (See: DIPLOMATICALLY SPEAKING.) But Wong offset the veiled criticism by noting that she had met her Indian counterpart Subrahmanyam Jaishankar more times than any other foreign minister and Prime Minister Anthony Albanese had met Prime Minister Narendra Modi eight times.
Wong also announced details of the Centre’s Maitri scholars and fellows program under which Indian researchers and academics will be placed in Australian institutions, including Asia Society Australia, to work on strategic and regional issues, climate change, and areas of economic cooperation.
In other initiatives aligned with the Centre launch, the government has started consultations on a new bilateral economic roadmap to build on the 2018 India Economic Strategy, established a CEO and Director Network to draw on knowledge from Indian-Australian business leaders, and provided an additional $14 million over four years to expand the Australia India Business Exchange program of business missions.
PLAYING DEFENCE
As the Albanese government moves to fill growing personnel gaps in the Australian Defence Force (ADF) by recruiting from neighbouring countries, it is playing down the risk of draining skills amid security upheavals like the recent civil conflicts in Noumea and Papua New Guinea.
The latest Budget showed that the ADF size would only grow by 358 people next year despite a shortfall of about 5000 and a 2040 goal of boosting the numbers to 80,000.
Speaking after the Budget, Defence Industry and Pacific Minister Pat Conroy emphasised Australia was looking at training people out of school in Papua New Guinea rather than trying to woo them from the country’s defence force.
He said: “We’ve got a lot of infantrymen and women. The challenges are around skilled trades like diesel mechanics and fitters and turners. So, recruiting non-citizens, giving them a trade, serving in Australia, contributing to the ADF as a full and equal member of the ADF, then perhaps going back to the home country in retirement with a skill that they can start a business with in somewhere like PNG and a government pension. That is a win-win.”
But just as the Pacific labour schemes have raised some concerns about a brain drain from small neighbouring countries, the government is facing calls for more complex military staffing engagement from the creation of a Pacific Battalion to US-style integration through compacts of free association.
DEALS AND DOLLARS
TRADING UP
Australia would benefit more from removing all of its remaining tariffs on imports than from persevering with several options now under way for expanding Indo-Pacific based trade agreements.
Research by the Productivity Commission undercuts the economic case for Australia to accede to pressure from China to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which may be on the agenda for discussion with Premier Li Qiang visits in June. (See: ON THE HORIZON) However, it also undermines the basic economic case for Australia to keep urging the US to join the same agreement.
The PC has modelled a series of options for intensifying Asia trade integration from India and/or South Asian countries joining the Regional Comprehensive Economic Partnership (RCEP) to combining the 11 member CPTPP and the 15 member RCEP to turning the 14 member US-backed Indo-Pacific Economic Framework (IPEC) into a trade agreement. It only looks at trade liberalisation rather than broader reforms and doesn’t account for various security considerations.
The bottom line is that Australia benefits most from South Asian countries joining RCEP because it does not have comprehensive trade agreements with those countries. It benefits only marginally from the other options because it has trade agreements with many of those other countries bilaterally or through RCEP and CPTPP. But it benefits most from cutting all tariffs on all countries.
The biggest benefits from across the region from the various scenarios comes from the less trade exposed South Asian countries joining RCEP, followed by the combining of RCEP and CPTPP, and then the creation of an IPEF free trade zone. Often the country making the trade opening decision is not the biggest beneficiary which underlines why further reducing trade barriers in Asia is difficult.
The PC analysis points out: “Individual members of an existing trade agreements can gain or lose from new members joining. Whether a member gains or not depends on, in large part, whether the economies of the joining countries complement or compete with the economy of the member country.”
While Australia generally benefits slightly from the various options, the relatively modest benefits mean it is more likely to view the options though a broader diplomatic or security lens than from a purely trade perspective.
CHINA DREAMING
A new study of the Australia-China economic relationship argues that neither country can maintain its standard of living or sustainability of its growth without doing business together.
At a time when Australian governments have talked up business diversification due to China’s recent coercive approach to trade, the report argues that “even as China’s growth rate moderates, neither India nor Indonesia nor any other country could realistically grow fast enough to deliver the same contribution to global growth as the maturing Chinese economy.”
The Asian Bureau of Economic Research report points out that the long run growth prospects for large economies in the 2017 Foreign Policy White paper, which highlighted China’s growth significance for Australia, remain intact despite recent tensions. So, it highlights ten ways Australia can stabilise the relationship as the last trade impediments are removed within the respective current policy boundaries of each country.
They range from cooperating on sustainable finance taxonomies which can be applied across the region to a new framework for education and research cooperation to a joint assessment of how regional development banks are serving development.
TALKING FERTILISER
Incitec Pivot has blamed a one third fall in the value of a business it has been trying to sell to an Indonesian company for months on the rising price of gas – but says the negotiations are nearly complete.
The company wants to pull back to being an explosive manufacturer by selling its agriculture fertiliser arm to Indonesia’s Pupuk Kalimantan Timur which would be a significant diversification of Indonesian investment in Australia and a new agriculture supply chain link between the two countries.
Announcing profit results, the company’s new chief executive, Mauro Neves, said the $498 million value decline was not necessarily a pointer to any particular sale price because other factors come into play. Meanwhile in an apparent attempt to reassure the Foreign Investment Review Board (FIRB), government-owned PT Kaltim issued a statement saying “its intention would be to continue to supply fertilisers to the Australian market, support the retention of IPF’s workforce and grow IPF’s business in Australia”.
COTTON COUNTRY
In another test of Australian regulator attitudes to Asian investment in agricultural assets, Singapore-based Olam International is in a battle with Netherlands-based multinational Louis Dreyfus to buy the country’s biggest cotton processing company Namoi Cotton.
The Australian Competition and Consumer Commission (ACCC) has raised competition reduction concerns about the offer from Louis Dreyfus which already part-owns Namoi, since Louis Dreyfus is the only alternative buyer from cotton producers in some parts of the country. As with the Incitec Pivot sale, the FIRB will also have to approve the sale of Namoi Cotton amid rising public concern about foreign purchases of farmland.
Olam, a global agribusiness, is one of Singapore’s largest companies and substantially owned by state investment agency Temasek Holdings, but it also owns a stake in another Namoi competitor Queensland Cotton.
RENTAL RETURN
The mining and construction equipment supply company owned by businessman Kerry Stokes – Coates Hire – has exited Indonesia by selling its operations to Japan’s Mitsubishi Corporation.
Coates Indonesia had been operating in the country for 30 years with the tailwind of Australian mining and construction operations there and in that time became one of the largest industrial hire companies in the country. It has branches in several cities across Indonesia and also has staff working in neighbouring countries.
DIPLOMATICALLY SPEAKING
One of ASIO's investigations focused on a nest of spies, from a particular foreign intelligence service, that was operating in Australia. The spies developed targeted relationships with current and former politicians, a foreign embassy and a state police service.
- ASIO director general Mike Burgess (March 17, 2021)
The Washington Post this week reported that two members of the Indian intelligence agency known as the Research and Analysis Wing (RAW) were expelled from Australia in 2020 following an ASIO counter-intelligence operation.
- ABC News (April 30)
We don’t comment on intelligence matters. But at a level of principle about the democracy, I think you would have heard me … on many occasions assert the importance of our democratic principles, assert the importance of ensuring that we maintain the resilience of our democracy, including in the face of any suggestion of foreign interference.
- Foreign minister Penny Wong (May 1)
We’ve got a good relationship with India … it’s an important economic relationship, it’s become closer in recent years as a consequence of efforts on both sides, and that’s a good thing.
- Treasurer Jim Chalmers (May 1)
The report in question makes unwarranted and unsubstantiated imputations on a serious matter.
- Indian Ministry of External Affairs (May 1)
DATAWATCH
DISASTER AREA
Emerging Asia disasters (2000-23)
Source: OECD/Data from the EM-DAT database
The landslide in Papua New Guinea has only underlined how the countries of emerging Asia are located in the world’s most disaster-prone region. This data from the Organisation for Economic Co-operation and Development covers drought, earthquake, extreme temperature, flood, glacial lake outburst flood, mass movement, storm, volcanic activity, and wildfire.
ON THE HORIZON
BACK TO THE FUTURE
Mining mates … Prime Minister Bob Hawke and Chinese Communist Party general secretary Hu Yaobang in 1985
Chinese Premier Li Qiang’s is due to visit Australia in mid-June with a possible trip to a large Chinese-funded mining project in Western Australia to underline longstanding economic ties.
Prime Minister Anthony Albanese is likely to meet Li in Canberra first for bilateral talks on what will be the first visit by a Chinese Premier since March 2017 when the now-deceased Premier Li Keqiang met then Prime Minister Malcolm Turnbull.
Amid new diplomat spats with China this month over Australian politicians visiting Taiwan and the military clash in the Yellow Sea, Albanese took a noticeably positive positions on relations at a beef industry event saying: “China is vital, and we are making great progress in resolving agricultural issues and getting fully loaded ships once again leaving Australian ports for China.” With the agriculture trade tensions almost fully resolved, the government may now be facing new tensions over whether Chinese students will be curtailed under the immigration cutbacks.
A visit to a Chinese funded mining project in WA would attempt to underline how China still plays key role in funding Australian exports and economic growth despite the trade coercion of the past four years and the latest tightening of Australian foreign investment rules. The Business Council of Australia is also expected to host a chief executive meeting with Li in Perth.
Former Labor prime minister Bob Hawke - who Albanese regards as a role model – is strongly associated with the beginning of the export boom to China by hosting the then Chinese Communist Party general secretary Hu Yaobang at Rio Tinto’s Mount Channar mine in 1985.
One of the closest modern-day parallels to that project would be Rio Tinto’s $2 billion Western Ranges iron ore project in the Pilbara which is a joint venture with China Baowu Steel Group and the largest Chinese investment approved by the Foreign Investment Review Board under Treasurer Jim Chalmers.
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