One possible explanation for the progress on barley focuses on foreign policy drivers. The barriers may have been removed due to warming bilateral relations under a new Australian government and a transition to a bargaining phase in the relationship. Another possibility is that Beijing dismantled the tariffs to avoid the potential reputational costs that might stem from the public release of a panel report adverse to China by the World Trade Organization (WTO). Here, we consider the logic of these two arguments, and introduce a third explanation that is largely missing from current analyses: the vested interests of groups within China, both government and non-government, and especially industry associations.

Examining the factors driving the removal of the barriers to Australian barley imports provides insight into a wider question which has received scant attention: when and why China removes sanctions. Although a burgeoning scholarly literature examines the termination of Western economic sanctions, it has not considered China. New insights on this issue may have significant policy implications. Most immediately, they are relevant to ongoing negotiations about the removal of China’s barriers on Australian wine. Many expect that the ‘template’ used in the barley negotiations — combining warming diplomatic relations with the concession of withdrawing a WTO case — will be successfully applied a second time. This appears to be playing out at the time of writing. On the back of some recent Australian decisions that may have sweetened the deal, Beijing has agreed to conduct a five-month review of its wine tariffs, and Canberra has temporarily suspended its WTO case. Unlike the case for barley, however, Beijing’s review may be complicated by substantially different underlying domestic political economy dynamics in the wine industry which could well determine whether the tariffs ultimately stand or fall.

The Imposition and Removal of the Barley Tariffs

The origins of China’s barriers on Australian barley go back to 2018. In October that year, the China Chamber of International Commerce (CCIC, 中国国际商会) requested that the Ministry of Commerce (MOFCOM, 商务部) investigate the dumping of Australian barley on the Chinese market. MOFCOM began its investigation in November. On 28 May 2020, after China-Australia relations had slipped into free fall, MOFCOM handed down its ruling and applied tariffs of 80.5 percent (73.6 percent anti-dumping, 6.9 percent anti-subsidy) on the import of Australian barley. The barriers reduced a trade of US$1 billion in 2018 to zero in 2021.

Against the advice of some commentators, the then centre-right Coalition government took the matter to the WTO dispute settlement system in December 2020. After two and a half years of deliberation, the WTO issued its draft panel report confidentially to the parties. This appeared to expedite bilateral negotiations for a resumption of trade, where Australia agreed to suspend its WTO complaint in April 2023 while MOFCOM undertook to conduct a three-month review of its tariffs. After extending the review to four months, China removed the barriers in August 2023. The WTO case was subsequently settled and within weeks large shipments of barley set sail from Australia for China.

What enabled this to happen?

Explanation One: Warming Bilateral Relations

The first explanation focuses on the state of the bilateral relationship between Australia and China. If imposition of the barriers, or at least a failure to negotiate their removal, stemmed from a range of political grievances on the part of Beijing, something was needed to enable a warming of the relationship. In this case, the election of a centre-left Labor government in May 2022 created the opportunity for both sides to move beyond positions hardened over the previous two years, first to resume high-level talks (previously rebuffed by Beijing) and later to negotiate the tariff’s removal. Critical of their Coalition predecessors’ rhetorical hostility toward China, the Labor government under Anthony Albanese stressed a change in tone even as it made clear there was no change in underlying interests. The goal was to ‘stabilise’ the relationship without making substantive concessions on any of the grievances believed to be motivating China’s sanctions. Canberra has, however, refrained from adopting new policies that may have been seen by Beijing as provocative, and which would have disrupted relations and the resolution of the trade disputes. A change in government and tone, and the resulting resumption of high-level contact, were likely major factors in causing Beijing to remove sanctions. However, the stabilisation of the political relationship alone cannot explain the removal’s timing and sequencing, nor does it provide confidence that the remaining barriers will be removed.

Explanation Two: the WTO Dispute and Aversion to Hypocrisy Costs

A second explanation is specific to barley itself and relates to the confidential draft panel report that was released to the Chinese and Australian governments shortly before the parties announced the suspension of the WTO dispute and Beijing’s review of the duties. The content of the draft report is not known and unlikely ever to be released. However, the decision was likely favourable to Australia due to significant weaknesses in China’s arguments that Australia had been dumping barley on its market.[1]

This explanation, also rooted in foreign policy logics, attributes Beijing’s removal of the barriers to the impending adverse decision. But why would the Chinese government be so reluctant for the panel report to be released? After all, China has lost WTO disputes in the past.

One possibility is that policymakers were particularly sensitive about this case given it related to measures which had openly been characterised as coercive sanctions. Although China is alleged to have deployed economic coercion in multiple cases over the past two decades, none of the underlying measures have ever been formally ruled upon by the WTO. The only case to come close — one concerning Canadian canola — was also resolved via negotiation before a panel report was issued.

The panel report would not have ruled on whether China’s measures were ‘coercive’ or ‘sanctions’, but rather likely presented a detailed critique of the compatibility of China’s approach with WTO anti-dumping rules. Nevertheless, Beijing may have wished to avoid a formal rebuke of its measures, which would give even more ammunition to critics arguing that the tariffs were ‘blatant economic coercion’, rather than legitimate trade measures. In other words, it may have sought to avoid ‘hypocrisy costs’. Chinese officials have annually denounced the use of sanctions — so-called ‘unilateral coercive measures’ — as a violation of international law at the United Nations General Assembly (UNGA) and other international forums since the 1990s. Policymakers may have had concerns that to be seen to be using sanctions might damage China’s credibility and reputation in world politics (especially with states who sign onto its anti-sanction UNGA resolutions).

According to this explanation, the draft WTO panel report created the space for a negotiated solution. It generated additional incentive for Beijing to find an alternative and avoid a formal and public ruling against it, thereby aligning with the goals of Australian industry and government to resume exports as soon as possible. Both sides preferred an outcome in which barriers were amicably removed.

One might think this explanation would generate optimism about wine, given Beijing agreed to conduct a similar review in tandem with Australia suspending its WTO case. However, it is possible that leverage from the WTO ruling alone was insufficient in achieving this outcome for barley, as we explain in the next section.

A Third Factor: Domestic Drivers of China’s Barrier Imposition and Removal

One factor that is often overlooked in analyses of China’s use of politically motivated trade barriers is the role of domestic interest groups and domestic policy objectives. As we have argued elsewhere, these factors are key to understanding the logic of the sanctions imposed on Australia. Likewise, they may help explain their removal.

The Imposition of Barriers on Barley

Policymakers: While China’s barley tariffs may have been partly motivated by a coercive objective when they were imposed in 2020, the original 2018 anti-dumping investigation was driven by agricultural protectionism. In particular, as revealed in legal case documents and other substantive reports on the issue, Chinese policymakers were acutely concerned with issues of food security or the ‘choke point’ 卡脖子 in China’s barley supply.

From a peak in the mid-1990s, China’s domestic barley production has undergone a long-term decline. By the period of anti-dumping investigation (2017–18), domestic supply accounted for an exceptionally low 11 percent of total barley supply. At the same time, barley imports for brewing and livestock feed accelerated, especially after 2015, with Australian companies accounting for 75 percent of all imports in some years (Figure 1). Chinese officials argued the imports led to losses in farmers’ incomes in the less developed areas of China where most barley is grown.

The barriers appear designed to arrest these trends, driven by a range of party and state units that have an interest in food security, including the Ministry of Agriculture and Rural Affairs (MARA, 农业农村部), which assisted with the investigation.

Industry associations: Like other products, barley is grown both as an agricultural commodity and an industrial input (for brewing and livestock feed). This brings into competition sectoral interests which need to be adjudicated at a higher level. Industry associations and chambers of commerce are key players, both as representatives of their industries and conduits for the interests of the party-state.

While there is an array of industry organisations in China, the more established and influential organisations are a vestige of the central planning era, where government departments with specialised economic functions managed the operations of state-owned enterprises under their control. During administrative reforms in the 1990s, many specialised economic departments were devolved to become industry associations, comprised of enterprise members that pay membership fees for representation and services. Reforms starting in 2016 and implemented through to 2019 aimed to further administratively decouple associations and chambers of commerce from the party-state, with caveats. The key powers of party-building in associations were to be centralised and led by the Party Committee of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC, 国务院国有资产监督管理委员会), while foreign affairs were more clearly placed within the purview of the relevant (party-state) organs. A framework of state corporatism has been used to describe the ties that bind the party-state to associations and their enterprise members.

Barley provides an interesting case study in industry representation. Barley is grown in China by a multitude of individual households not represented by any industry organisation and so, by default, by government. Jurisdiction over barley production and farmer incomes from agricultural activities like barley lies with MARA. The ministry has long been concerned about China’s balance of production, consumption, and trade for barley.

Government units rarely make anti-dumping applications.[2] The organisation chosen to apply for the dumping investigation on Australian barley was the China Chamber of International Commerce (CCOIC), which has a mandate to represent the interests of Chinese enterprises in international trade and investment. CCOIC falls under the umbrella of the China Council for the Promotion of International Trade (CCPIT, 中国国际贸易促进委员).[3] CCPIT has a vast network of branches within China, a legal affairs department and a network of overseas law firms used for dealing with anti-dumping, subsidy and safeguard issues. It also runs the Economic and Trade Friction Early Warning System 中国国际贸易促进委员会经贸摩擦预警管理系统, which includes an international agricultural branch 中国国际商会农业行业经贸摩擦预警中心.

While the CCOIC notionally represents enterprises with foreign interests, the barriers on Australian barley are contrary to the interests of enterprises that use it for brewing and livestock feed. This is particularly the case for beer brewers that are members of the China Alcoholic Drinks Association (CADA中国酒业协会). CADA has origins as a department within the former Ministry (and then Bureau) of Light Industry before being moved into SASAC. It gained more administrative independence in the 2016–19 association reforms but retains links to the party-state.

CADA has been a participant in at least five international trade cases, either to support trade barriers (Australian wine, EU wine, US distillers’ grains) or oppose them (Australian barley, US sorghum). The differing positions reflect differences in the characteristics of alcoholic drinks including the inputs and outputs used in manufacturing and the relationship with adjacent products (ethanol and various livestock feeds). Different interests are expressed through branches within CADA, representing at least eight types of alcohol including baijiu, beer and wine. Barley is of primary concern to the CADA Beer Sub-Association (CBSA, 中国酒业协会啤酒分会) and the Beer Raw Material Expert Committee 中国酒业协会啤酒原料专业委员会. With seventy-three members, CBSA is powerful and has a strong interest in maintaining supplies of Australia’s malting barley. The attraction of Chinese brewers to Australian barley was not just access to consistent supplies of high-quality malting barley, but also access to a lower-priced grade of barley (‘Fair Average Quality’) permitted under China’s food laws for use in food (including beer) rather than being relegated to feed use.

CBSA made a forceful submission against the tariffs on Australian barley in the initial anti-dumping investigation in 2020, but to no avail. Policymakers concerned with agriculture and food security and the foreign policy preferences of the central government held sway in the initial round leading to the imposition of barriers. There was no prospect for an early reversal in 2020–22, a period of high tensions from COVID-19, strained international relations, the dual circulation policy to promote self-reliance and heightened concerns about food security, including for non-staple foods.

The Removal of Barriers on Barley

For Chinese policymakers, the tariffs had generated mixed success by 2023. As shown for the period 2020-22 in Figure 1, the tariffs successfully stopped Australian barley imports, forcing brewers and livestock companies to diversify inputs to other sources (Argentina, France, Canada, Ukraine). However, total imports in the period increased significantly, mainly for livestock feed. The trade barriers on Australian barley did not in themselves provide the protection that would generate an increase in Chinese barley production. China did however use the period to pursue new domestic policy measures including breeding, research and revised industry standards as well as the building of new barley production areas for breweries in China.[4]

Official statistics report a doubling of Chinese barley production over the period in which Australian barley was blocked (2019 to 2022) but this is a statistical quirk. From 2020 onwards, reporting on Chinese barley production (damai 大麦) included a different variety, highland barley (qingke 青稞) grown in Tibet, Sichuan, Yunnan and Qinghai: this doubled the reported planted area and production of ‘barley’. Nevertheless, with increased reported domestic production and diversification away from Australian barley, policymakers may have concluded that the barriers had served their purpose. Accordingly, when discussion of relaxing the barriers occurred in 2023, there could be expected to have been less resistance from interests within the Chinese party-state.

Simultaneously, domestic industry groups continued their opposition to the barriers. In fact, a submission made by CBSA earlier in the year became the centrepiece of the MOFCOM review. The submission argued China’s domestic barley production programs were unsuccessful and that, with the barriers in place, international supplies were expensive, inconsistent and did not meet requirements, all of which hurt the viability of Chinese beer companies. It also argued the tariffs were counter-productive to China’s own policy objectives in three areas: industrial upgrading and international competitiveness; increasing consumer confidence and spending; and meeting national standards (guobiao 国标) on beer and malting barley. The MOFCOM ruling to drop the barriers also included consideration of submissions from the China Feed Industry Association and Australian industry organisations. Chinese industry groups have similarly been active in government decisions to drop barriers on US sorghum and on lucerne, an item subject to China-US tariff escalations from 2018.

To sum up, in 2020, opposition to the barriers on Australian barley from domestic industry groups was overridden by the preferences of the central government and parts of the Chinese bureaucracy that favoured the introduction of the tariffs — either to achieve domestic agricultural policy objectives, or foreign policy objectives vis-à-vis Australia. By 2023, there was a realignment of interests in favour of the removal of the barriers, which helps to explain when and why the tariffs were dropped.

Implications for Australian Wine

The three conditions that allowed for the lifting of barriers on Australian barley — improved bilateral relations, leverage from WTO proceedings, and an alignment of industry and policy interests in China — provide some guidance on prospects for a similar outcome for Australian wine, on which China has applied similar anti-dumping tariffs. Certainly, negotiations are occurring within a similarly conciliatory bilateral environment. Moreover, given China’s case for imposing tariffs on wine appears even more tenuous than barley, the recently issued confidential draft panel report may motivate Beijing to settle if it is deemed to raise the spectre of hypocrisy costs.

However, unlike barley, there is no alignment of domestic interests in China against the barriers on wine. To the contrary, both industry associations and industry-oriented policymakers have vested interests in continuing the ban.

In the case of barley, the users of Australian product had close links to the state system and a strong stake in the resumption of the trade. But the buyers of Australian wine — importers, retailers and consumers — are not an organised group. Wine is also a luxury product that is not a priority for the party-state.

China’s wine growers, meanwhile, are in an influential position. China has for many years sought to develop a large domestic wine sector as a pillar industry with high potential for value-adding, to raise farmer incomes including in rural and undeveloped areas with grape-growing potential (Ningxia, Xinjiang and Gansu) and to promote ‘ecological’ land use and eco-tourism. Importantly, Chinese wineries are represented by an established industry organisation that falls under the same parent association that opposed the barriers on Australian barley — CADA — but a different branch, the CADA Wine Sub-Association (CWSA, 中国酒业协会葡萄酒分会). CWSA — which comprised 119 domestic wineries in 2022 — was the applicant in the investigation into the dumping of Australian wine and compiled the information for the case. In the lead-up to the investigation, the association said that imports were ‘robbing’ Chinese wineries of the domestic market, especially in the higher-value, cold-weather reds. Thus, unlike the breweries of the CBSA that benefit from Australian barley imports, the wineries of the CWSA compete with Australian wine imports and have an interest in establishing and maintaining the barriers.

The barriers on Australian wine may not have fully allayed the concerns of Chinese industry and policymakers. Chinese wine production and consumption continued to decline in 2022 and the proportion of domestic production in total supply decreased (to 54 percent, see Figure 2). China’s Minister of Commerce Wang Wentao 王文涛 relayed concerns about the production and profitability of the Chinese wine industry as a potential obstacle to his Australian counterpart in discussions about lifting the trade barriers on wine. The potential for this to be a snag was also reflected in a cautious statement from the peak Australian industry group earlier in the year. As a way of addressing the concerns of Chinese industry and interest groups, the largest Australian exporter of wines to China entered into a joint venture in 2022 to produce Australian wine in China. The venture involves an agreement with CWSA, which sees the venture as an opportunity to transfer expertise and build China’s domestic industry.

Nevertheless, the process used to resolve the barriers on Australian barley appears under way for wine. Following the circulation of the WTO panel’s draft report on the wine dispute in October, China and Australia reached an agreement to suspend the panel while Beijing conducts a five-month review of its barriers. It is unclear where the review will land, though the expectation in Canberra on the eve of Prime Minister Albanese’s visit to Beijing in early November was for a favourable outcome. Chinese policymakers may again wish to avoid a potentially adverse WTO ruling and signal their commitment to improving the bilateral relationship. However, it may also be possible that the relationship is sufficiently ‘stabilised’ and instead in a ‘bargaining’ phase, with Beijing therefore adopting a more transactional logic where it looks to extract concessions from Canberra as quid pro quo.

One possible concession is closing a separate WTO dispute with Australia. In September it was reported that Canberra had rejected a proposed ‘package deal’ in which the wine barriers would be removed if Australia dropped anti-dumping duties it had earlier imposed on Chinese wind towers. A statement from China’s Ministry of Commerce in October, however, linked the new wine review to progress on that exact issue. Canberra denied this linkage, and anti-dumping duties are normally determined by an independent Anti-Dumping Commission that would not consider foreign policy interests in its decision. However, even if coincidental, the timing is hard to ignore — the commission released a preliminary report indicating a willingness to let the wind tower duties expire in the same week that Canberra decided not to cancel a lease held by a Chinese company over the port of Darwin, just prior to the announcement of the deal on wine. Furthermore, the week prior Australian citizen Cheng Lei had been allowed to return to Australia following three years in detention. Both sides pocketing ‘wins’ in the month prior to the first visit by an Australian prime minister in seven years speaks to a new phase in the relationship.

At the same time, unlike the barley case, the fact that there remains robust support for the wine barriers within China suggests the policy calculus is more complex. The fact that the wine review period is longer than that for barley might suggest Beijing anticipates a longer internal debate to reconcile unaligned interests, although it may also be designed to coincide with the expiration of the wind tower duties. It may be that domestic concerns are ultimately overruled, not merely by the shadow of a potentially adverse panel report, but a broader deal in an increasingly transactional relationship. In the end, if China does eventually remove the barriers, it will indicate the prioritisation of foreign policy goals and other equities over the preferences of the affected domestic industry and interest groups.

Broader Implications

It is well-recognised that domestic interest groups play an important role in trade formation, processes, and the resolution of trade conflicts. While this is borne out in the case of China-Australian barley and wine, analysis of interest group representation has largely been absent from commentary both inside and outside of China on Beijing’s politically motivated trade barriers. Such analysis can be challenging given the sprawling and opaque nature of party-state and societal linkages in the Chinese ‘leviathan’, but is nevertheless crucial for informed public debate.

More generally, our analysis has implications both for policy and emerging research on the political economy of China’s power in world politics. Concerned about China’s apparent use of international trade as a ‘weapon’, several governments have recently announced plans to coordinate their responses to Beijing’s behaviour. If these coalitions are serious about influencing when and how China uses different international economic policies, they need to pay attention to the domestic micro-foundations that underpin them.

Since the Australia episode, China has continued to impose trade restrictions during political disputes. Notable instances have involved Lithuania, Taiwan and Japan. In each case, as with Australia, governments have looked to WTO dispute settlement as a mechanism to have the barriers removed. Brussels, Taipei and Tokyo should carefully study the domestic politics behind the when, how, and why of China’s removal of barriers in earlier cases — including those involving Australian barley and wine — and look for any parallels that could help them resolve their own disputes.

In terms of research, our findings illustrate the importance of exploring the mechanics and consequences of ‘fragmented authoritarianism’ in the trade domain. It is well understood that the Chinese party-state is not unitary — even in the Xi era. But there remains considerable scope to further illuminate the mechanisms and conditions by which domestic interest groups shape China’s international economic policies.

The authors are grateful to Pru Gordon, Benjamin Herscovitch and Paul Hubbard for helpful comments.

Notes

[1] Such as using the price of Australian shipments to Egypt — a very minor export market — to determine the ‘normal value’ of Australian barley, and the claim that Australian barley imports damaged Chinese barley production, even though it had been in decline for decades (see Figure 1).

[2] One exception was on sorghum from the United States.

[3] In 2022, the spokesperson of the CCPIT was the Secretary-General of the CCOIC.

[4] Wary of the distortions caused from previous interventions in the corn market from 2015, China has since refrained from large-scale, direct interventions in feed grains.

The post When Does China Terminate Sanctions? Lessons From the Case of Australian Barley appeared first on The China Story.

Chief among these was brokering a deal between Saudi Arabia – a long-time staunch US ally – and Iran on 10 March 2023 in Beijing for the two countries to restore diplomatic relations. This achievement shocked Washington. The United States had long been dominant external force in the Middle East and had brokered key developments there from the Camp David Accords in 1978 to the Oslo Agreement between Israel and the Palestinian Liberation Organisation (PLO) of 1993. The last three years had seen the Abraham Accords where the United States brokered the establishment of diplomatic relations between Israel and Bahrain, the United Arab Emirates (UAE), Morocco and Sudan.

China, a long-time observer and trader in the Middle East, is now suddenly a key player and peacemaker in the region, a mark of its rising position and influence in the world. The Saudi-Iran deal signals that the United States cannot take its dominance in the diplomatic sphere for granted. Many other countries are prioritising good relations with Beijing and hedging their diplomatic strategic bets.

This has been most marked in the Global South, particularly in the Middle East, Africa and Latin America. In South East Asia, much of ASEAN seeks to avoid choosing between China and the United States as tension has developed between the two major powers. Other regional players, including Australia and Japan and increasingly the Republic of Korea (ROK) and the Philippines have strengthened their alignment with US strategic goals while continuing to build and stress the importance of economic and other ties with China. Though China’s role as a de facto supporter of Russia in the Ukraine war has strained relations with much of the European Union, during his 5-7 April 2023 visit to China, French president Emmanuel Macron said that Europe should not automatically follow the United States get ‘caught up in crises that are not ours’. On the subject of Taiwan, Macron advocated a course of ‘strategic autonomy’ for the European Union.

A second significant example of the development of an alternative non-Western grouping is the BRICS, comprising of the large developing countries Brazil, Russia, India, China and South Africa. At the BRICS meeting in South Africa in late August, the BRICS grouping announced the admission of six new members in a decision widely interpreted as an attempt to reshape the international order and provide a counterweight to the United States and its allies. From January 2024, Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates (UAE) will join the grouping in a move described by China’s President Xi Jinping as ‘historic’. The significance of this expansion is the development of a non-Western grouping with significant political and economic power and with China as one of its central members. According to the International Monetary Fund (IMF), the BRICS grouping will collectively account for 32.1 percent of global Gross Domestic Product (GDP) in 2023, more than the G7’s share of 29.9 percent of global GDP. With addition of the six new members in January 2024, the GDP of BRICS will grow to 36 percent of global GDP. The grouping with its focus on de-dollarisation, promotion of local currencies for global trade and finance, and the admission of new members, mostly accords with Beijing’s agenda.

China’s Diplomatic Initiatives

A suite of major initiatives serves as the basis of China’s new approach to diplomacy. These include the Global Security Initiative (GSI), the Global Civilisation Initiative (GCI), the Global Development Initiative (GDI) as well as the Belt and Road Initiative (BRI). The GSI opposes Western ‘hegemonic’ dominance in the areas of international security, promoting a central role for the United Nations and emphasising non-interference in other countries’ internal affairs and sovereign equality under international law. The multi-billion dollar BRI launched by Xi Jinping in 2013 aims to improve China’s connectivity with the world through infrastructure and investment. The United States and other Western countries have criticised the BRI as merely a mechanism to spread China’s geo-political and financial influence throughout the world. The success of many of the projects have been mixed, but it is certain that the BRI has expanded China’s influence, especially in the Global South. Of the 152 countries that signed BRI memorandums of understanding, 52 are in Africa, 40 are in Asia with the rest in the Middle East, Latin America and Europe. The BRI also appears to have increased Chinese exports to the member countries.

Taken together, these initiatives aim both to enhance China’s global influence and build a diplomatic and security architecture to rival the US-led system of multilateral alliances, and institutions. They also aim to enhance China’s role as mediator or peacemaker in regional conflicts.

Other important bodies that are non-Western focused in which China plays a significant role in include BRICS Plus, the Shanghai Cooperation Organisation (SCO), and a range of summits that China holds with groupings such as the China-Arab League Summit, the China Gulf Cooperation Council (GCC) Summit and the China-Africa Summit.[1] There is also the Asia Infrastructure Investment Bank (AIIB), which China put forward to the World Bank in 2016; by 2023, it had over one hundred members, including Australia, a Triple-A rating and some US$100 billion in capitalisation. These are all part of a suite of organisations and initiatives which are beyond US and G7 influence. The GSI and the other initiatives together with the BRI provide an alternative to the US-led rules-based order and are attractive to many countries especially in the Global South.

Riyadh and Tehran to Beijing

In the past, China was satisfied to trade and observe in the Middle East, an area where US influence was politically and militarily dominant. However, China is now the largest trading partner of most GCC countries, including Saudi Arabia. China has backed this economic influence with active diplomacy. Xi Jinping made a high-profile visit to Riyadh in December 2022, during which he participated in the first China-GCC Summit on 9 December and the first China-Arab States Summit that same afternoon. Most participants at these meetings were expressly focused on building relations with Beijing as a hedge against dependence on the United States. Most countries, however, were conscious that the United States was still the most significant defence partner in the region. There have also been several announcements recently of large scale Saudi-Chinese investment deals worth more than US$10 billion. On 5 September 2023, the Bank of China (BOC) opened its first branch in Saudi Arabia in a move to expand the use of yuan in the growing number of economic deals between the two countries. Saudi Arabia is China’s largest source of crude oil imports, with 87.5 million metric tonnes (641 million barrels) shipped in 2022. BOC is the second Chinese bank to open branches in Saudi Arabia after the Industrial and Commercial Bank of China (ICBC), which has branches in Riyadh and Jeddah. Iranian President Ebrahim Raisi went to Beijing for 14-16 February 2023.

Many Middle Eastern countries, including Saudi Arabia, admire China’s four-decade record of deploying state capital to achieve profound economic change while tightly managing social and political change. China’s experience challenges US insistence that only liberal systems can produce economic growth and stability. As Saudi Arabia’s largest trading partner, with growing economic influence in the Middle East and friendship with Iran, China was a logical partner for the mediation process.

China the Peacemaker?

Chinese officials describe facilitating the rapprochement between Saudi Arabia and Iran as a successful example of the GSI at work. The discussions that led to the 10 March 2023 accord began in the Middle East. Iraq and Oman hosted talks between 2020 and 2022, but the accord needed China’s imprimatur to finalise the deal. It was impossible for Washington to plays its traditional role of mediator in this case because, after four decades of mutual hostility, the United States still does not have diplomatic relations with Iran. Another factor was that, under Crown Prince Mohammed bin Salman, long-term US-ally Saudi Arabia is seeking a more independent foreign policy, and rebalancing its relations with the major powers including China.

Additionally, in contrast to the Trump administration and family’s close relations with and support for the Saudi royal family, which didn’t waver even after evidence linked the Crown Prince to the killing of journalist and US resident Jamal Khashoggi in 2018, the Biden administration has hardened its policy towards Saudi Arabia. While campaigning in 2019, Biden said he would make Saudi Arabia a ‘pariah’. When the Saudis cut oil production after Russia’s invasion of Ukraine, fuelling global inflation, Biden threatened ‘consequences’. US policy and rhetoric only helped to open the door for Beijing. Iran has good relations and a strong economic relationship with China. A close economic relationship with both countries based both on economics and China’s new ambitious foreign policy made China the natural partner to secure the deal. In addition, China’s new influence in the region was achieved without the use of military coercion, in contrast with the US record of the use of military force and coercion to resolve differences with Iraq, Iran, Lebanon and other countries.

China has relished its role bridging the gap between Saudi Arabia and Iran. Beijing continues to seek to pay the role of mediator and peacemaker. It has put forward a peace plan for the Ukraine War and is seeking to play a role in the Israeli-Palestinian conflict, although there are serious doubts it can achieve much in either case.

A Chinese emissary, Ambassador Li Hui, visited Kyiv and Moscow from 14 to 18 May 2023 with a plan announced by Beijing in April to end the fighting between Russia and Ukraine. As the plan did not call for the withdrawal of Russian troops from Ukrainian territory, Ukraine rejected the proposal. The proposal was politely received in Moscow but not accepted by President Putin. Although the Chinese intervention was broadly welcomed it did not provide a way forward for the ending the war. Nonetheless, again it was an example of China projecting itself on the global stage as a positive player.

On 18 April 2023, China offered to broker peace talks between Israel and Palestine. On 13-15 June 2023, Palestinian National Authority President Mahmoud Abbas visited Beijing, where he welcomed China’s involvement. Israeli Prime Minister Benjamin Netanyahu announced on 26 June 2023 that he will make his fourth visit to China as prime minister at the invitation of Beijing before the end of 2023. However, the Israeli-Palestinian dispute is a vexed one and despite having good relations with both Israel and the Palestinians, the Chinese are unlikely to make much progress. The gesture is undoubtedly also aimed at strengthening the positive perception of China in the Arab World and the Global South.

China’s Power is Rising Globally

China’s power and influence is also rising in Central Asia. On 18 May 2023, at the inaugural China-Central Asia Summit attended by the leaders of Kazakhstan, Kyrgyzstan, Turkmenistan, Tajikistan and Uzbekistan, Xi Jinping announced 26 billion yuan (US$3.8 billion) of loans, financial support and non-reimbursable funds for the five Central Asian republics and a new gas pipeline to China from Turkmenistan. Xi also met individually with each of the five presidents. Each of the five republics are active members of the BRI. Bilateral trade between China and the Central Asian republics reached US$70.2 billion in 2022. As China’s power has risen in Central Asia, it has remained careful to not cut across vital Russian interests. China’s centrality to the power structure in Central Asia is also ensured by the Shanghai Cooperation Organisation (SCO) and the fact that both Russia and China face competition from the US-led West. China’s partnership with Russia is based on common interests and economic complementarity that has become even more important to Russia since the start of the Ukraine war. Russia is increasingly becoming a junior partner in what is proving nonetheless a durable relationship.

From 12 to 17 April 2023, Brazilian President Luiz Inácio Lula da Silva visited China and called for an end to US dollar dominance of the world’s financial systems. This reflected a growing trend towards countries moving to reduce their dependence on the dollar as a reserve, exchange or accounting currency in certain areas of the world. For countries in the Global South including Brazil, this is driven by efforts to avoid US sanctions and the Biden administration’s control over microchips. In reality, however, only a small percentage of the world’s financial system uses the Chinese yuan and other non-Western currencies as the basis for reserves and exchange. Nonetheless, there is some appetite in parts of the world for moving beyond the control of the US dollar and to adopt the yuan.

China Hasn’t Surpassed the United States yet

Chinese activism is based on a sense that the global role of the United States is declining and China’s is rising. While there is some evidence of shifting strategic power balances it would be wrong to discount the remaining power and influence of the United States. President Biden has made it clear that the United States is determined to compete with China for influence and strategic power. In terms of military power and economic and financial heft, the United States remains the world’s leading power despite the rise of China, the multipolar world and groupings like the expanded BRICS. While the United States remains the single most powerful country in the world, the global strategic environment is increasingly multipolar and de-dollarisation is increasing, facts recognised by much of the world. China with its Global Security Initiative and its suite of other projects and initiatives has become a significant challenger to the US and Western hegemony in the Global South and in regions long dominated by the United States like the Middle East.

Despite the increasing multipolar nature of the world, both Beijing and Washington see their great power competition as the fulcrum of international relations as countries are increasingly encouraged to line up with one side or the other. Australia and regional countries like Japan and the Philippines have clearly declared their adherence to Washington. Many other countries especially in the Global South seek to maintain a balance between China and the United States and hedge against both countries. Other rising powers like India seek to follow their own independent strategic and economic paths and are wary to a degree of both Beijing and Washington. With a period of competition and uncertainty ahead, much of the world, especially the Global South, would welcome a world without US primacy. Perhaps the accord between arch rivals Riyadh and Tehran is a harbinger and a foretaste of the future Chinese role in a contested strategic world.

Notes

[1] Shanghai Cooperation Organisation members are: China, India, Iran, Kazakhstan, Kyrgyzstan, Pakistan, Russia, Tajikistan, and Uzbekistan.

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Tactical Caution

Despite sharing many of the China policy objectives of its predecessor, the Albanese government has taken a cautious approach to implementation. This is apparent in its handling of Confucious Institutes and Chinese investments in critical minerals. Like the Coalition before them, Labor has sought to mitigate the perceived security risks associated with exposure to Chinese investors and education links. But, unlike their predecessor, the Albanese government has pursued this in ways that minimise Beijing’s ire.

Under the Foreign Relations Act (FRA) legislated in 2020 by the Morrison government, Minister for Foreign Affairs Penny Wong could have expelled Confucius Institutes from Australian universities. The Albanese government instead sought to achieve its national security goals without diplomatic fallout by opting for ongoing scrutiny. With the Albanese government ‘concerned about foreign interference and potential risks to academic freedom’, they’ve pledged to ‘keep these arrangements under review’ and ruled out the establishment of new Confucius Institutes.

Likewise, the securitisation of the critical minerals industry appears to have been finessed to avoid antagonising Beijing, which has longstanding concerns about Australia’s treatment of Chinese companies. The Albanese government has twice in the last six months rejected investments from Chinese or China-linked firms in Australian rare earth elements and lithium mining companies. Yet both decisions coincided with Canberra approving large Chinese investments in parts of the mining industry deemed to be less sensitive, including iron ore and nickel. Coincidence can’t be ruled out. But the pattern of rejections coinciding with approvals and the political dimension of investment decisions suggest that the Albanese government is seeking to simultaneously keep Chinese and China-linked companies out of the critical minerals industry, while also sending a welcoming message to Chinese investors more broadly and reducing the likelihood of getting Beijing offside.

Might the Coalition have charted such a tactically cautious course on Confucius Institutes and investment decisions had they retained government? Maybe, although their use of the FRA to veto Victoria’s Belt and Road Initiative agreements in 2021 and the Coalition’s criticism of the Albanese government’s conditional acceptance of existing Confucius Institutes suggests not. On two sensitive bilateral issues, the Albanese government has acted tactically: opting to put Confucius Institutes on notice and yet avoid the blunt trauma of expulsion, and soothing the sting of critical minerals investment rejections with the balm of approvals in other industries.

Policy Compromise

The Albanese government’s approach to China is defined not just by the tactics employed, but also the decisions not taken. Most conspicuously, the Albanese government has decided not to sanction Chinese officials and entities implicated in severe and systematic human rights abuses. Even though Magnitsky-style sanctions were legislated in 2021, Australia has declined to use these powers against China as the United States, Canada, the United Kingdom, and the European Union have done. Despite 82 percent of Australians supporting such targeted sanctions against China and credible reports of ongoing mass incarcerations, forced removals of children and cultural erasure in Xinjiang, Tibet and other regions, the Albanese government is unwilling to deny the perpetrators the freedom to travel to Australia and take advantage of financial opportunities here.

Morality aside, the case for sanctions is far from clear-cut when viewed from the perspective of the national interest. Imposing sanctions on officials and entities implicated in human rights abuses is unlikely to change the Chinese government’s behaviour. It might also have unintended negative implications for a wide range of Australian priorities, including trade. It’s likely that China would respond with reprisals such as tit-for-tat countersanctions, arbitrarily detaining (more) Australian citizens, prolonging the detention of Australians already imprisoned in China, and blocking further normalisation of the bilateral diplomatic and trade relationship.

Having levelled numerous sanctions against Iran, Myanmar, and Russia since taking office, the Albanese government has shied away from targeting China. Yet not only did Minister for Foreign Affairs Wong tentatively support targeted sanctions against China when in opposition, but the Albanese government has committed to ‘employ every strategy at [Australia’s] disposal towards upholding human rights, consistent with our values and with our interests.’ Taken together, this makes the Albanese government’s unwillingness to sanction Chinese officials and entities look like a calculated compromise.

The response to Beijing’s anti-dumping and countervailing duties on Australian barley similarly points to the role of policy compromise in Canberra’s China strategy. Rather than pursuing Australia’s World Trade Organization (WTO) case against China to its likely successful conclusion, Canberra chose to discontinue legal proceedings in exchange for the removal of duties. Although Australia lost an opportunity to highlight China’s trade malfeasance via the outcome of the WTO proceedings, the decision gives Australian barley exporters access to the Chinese market, which pursuing the legal route might not have delivered. But it remains a textbook definition of compromise, involving as it does mutual concessions from both Canberra and Beijing to settle a dispute.

Invidious Choices and the Costs of Compromise

Some looming policy dilemmas don’t seem to permit the kind of supple tactical gymnastics that the Albanese government has pulled off to date. These include whether to leave Chinese company Landbridge Group’s 99-year lease of Darwin Port in place, and the choice between the Chinese and Taiwanese bids to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) trade pact. But Canberra could still avoid being wedged by binary choices on these issues.

Prime Minister Albanese’s definitive past opposition to Landbridge Group’s lease and the growing importance of Darwin and surrounds for the Australian and US militaries likely make the politics and diplomacy of leaving the lease unchanged untenable for Labor. But that doesn’t mean that Canberra needs to anger Beijing by tearing up the lease. A range of different possible arrangements for Darwin Port could allow the Albanese government to put Landbridge Group under scrutiny without affronting Beijing by booting the company out of the Top End. These might include adding additional security oversight or limiting the length and/or geographic scope of the lease.

Meanwhile, Canberra is likely to be shielded from making any tough CPTPP choices. Yes, Beijing will heap pressure on Canberra and other capitals to back its bid just as Taipei also lobbies for support for its candidature.  Yet the slow-moving and consensus-based CPTPP decision-making process and the trade pact’s diverse membership mean that Australia may be able to sidestep taking any public positions on China’s and Taiwan’s competing bids. With Japan, among others, wary of China’s membership and smaller CPTPP members unlikely to back Taipei’s accession for fear of frustrating Beijing, there’s every chance that Canberra will be able to avoid having to cast the deciding vote.

The Albanese government’s formula of China policy consistency and diplomatic decorum combined with a side of tactical caution and policy compromise will continue to be pressure tested. Reports of Chinese state-owned firms sending dual-use technology to sanctioned Russian defence companies point to how much strain the formula might come under as the case grows for punishing Beijing’s support for Moscow’s war effort. But if Canberra’s shrewd manoeuvrings to date are a guide, there’s good reason to think that the Albanese government will continue to find ways to combine tough China policy settings with ongoing relationship repair.

Still, as China’s systematic and severe human rights abuses continue, past policy compromises will become difficult to defend. Statecraft doesn’t allow much space for saintliness. Principled measures to punish human rights abusers might simply entail too much risk for the national interest. But we should at least honestly and openly recognise the moral impost of the Albanese government’s so-far successful China strategy.

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This political performance has provoked conjecture and critique globally. Some critics argue that China’s affinity with Russia – the ‘no-limits friendship’ Xi Jinping affirmed with Putin on the eve of Russia’s invasion of Ukraine – compromises Beijing’s ability to act as an impartial mediator. Others raise separate concerns about the Chinese leadership’s motivations, goals and diplomatic script.

Yet, these perspectives oversimplify the situation, reducing China’s actions to mere tactical manoeuvres. Arguably, the driving force behind China’s role is not solely based on the ‘no limits’ status of China-Russia relations. More fundamentally, it’s about Beijing’s inherent interest in sustaining regional stability and security. Viewed through this lens, while it may align with broader ambitions for global influence and showcase diplomatic finesse, above all, it underscores China’s enduring focus on maintaining geopolitical stability in its immediate surroundings.

Regional Stability in the Context of the Russia-Ukraine Crisis

China’s strategic and cautious decisions with regard to the Russian invasion of Ukraine demonstrate concern for regional security and stability. On 22 February 2023, Foreign Minister Wang Yi 王毅 went to Moscow, where he described the two countries’ bond as ‘mature, tough, tenacious and as stable as Mount Tai’ 成熟坚韧、稳如泰山. The official Chinese perspective is that this bond forms a political base for conflict resolution grounded in principles of ‘non-alignment, non-confrontation, and non-targeting of third parties’ 不结盟、不对抗、不针对第三方. Beijing appears to aim at ‘stabilising’ Russia—curbing Russia’s aggression and encouraging it towards peace talks, thus underscoring China’s potential to step into a mediating role in the ongoing Russia-Ukraine crisis.

Further illustrating its strategic intent, the Ministry of Foreign Affairs unveiled a ‘12-point plan’ just two days after Wang’s visit, on 24 February 2023. It calls for a political resolution to the conflict in line with the principles of the UN Charter: it ‘actively encourages peace talks’ 积极劝和促谈, and calls for a ceasefire to kickstart start negotiations between the Russia and Ukraine.

Reactions to this plan, however, vary significantly.

On the one hand, Chinese analysts view the ‘12-point plan’ with optimism. Professor Li Haidong 李海东 of the International Relations Research Institute of the Diplomatic Academy represents the view of some Chinese analysts who see the plan as comprehensive, describing it as ‘a rational, balanced and selfless plan’ that seeks to ‘return to the original issue’ 正本清源, subtly implying a need to address the root cause of  geopolitical complexities, and suggesting that while the US’s attempts may have escalated the crisis, China has been remained genuinely neutral throughout the matter.

On the other hand, the world greeted China’s peace plan with caution. Many criticised the vagueness of the plan. Jo Inge Bekkevold, a senior China fellow at the Norwegian Institute for Defence Studies, describes it as ‘clearly too abstract to be a road map to end the war’ in his article for Foreign Policy. Alexander Gabuev, Director Carnegie Russia Eurasia centre, dismisses it as merely ‘a laundry list’ drawn from the UN Charter. Others accused Beijing of a self-serving approach, that Beijing was casting its own interests above those of Ukraine by rebuking the sanctions against Russia, with which it is friendly, and criticising the broadening reach of US-led military alliances, which concerns it as well, especially in the Asia-Pacific.

Yet, these criticism of China’s strategic interest obscures a simple truth: China’s leaders are alarmed by the potential of this conflict to upset the strategic balance of the region, and possibly the world. Wang Huiyao 王辉耀, founder of the Centre for China and Globalisation, a leading think tank in China, says the ‘12-point plan’ should be seen as China’s ‘starting point’ rather than a full and detailed solution.

While the ‘12-point plan’ set the tone for Xi’s diplomatic visit to Moscow in March 2023, Xi himself seems to harbour reservations about drawing too close to Russia, wary of Russia’s potential to drag China into a diplomatic quagmire. Despite all the rhetoric around economic cooperation, it could be argued that there is no pressing incentive for China to significantly upgrade its political ties with Russia in the current scenario. As I have argued elsewhere, such reservation may stem from concerns about the potential ramifications of overtly supporting Russia in its actions against Ukraine. An explicit stance could result in increased diplomatic tensions, not only with Moscow should future disagreements arise, but also with other nations observing the situation. This approach might risk portraying China as a power playing favourites, thus jeopardising its cherished self-image as a global peace promoter.

If Xi recognises an over-tilt towards Russia could prove detrimental to China’s broader interests, then his subsequent moves demonstrate intent to balance this by reaching out to Ukraine. He spoke by phone in late April with Ukrainian President Zelensky, a call that Zelensky has described as ‘long and meaningful’ and a significant advancement in their bilateral relations. As the BBC reported, this call, along with Zelensky’s appointment of Pavlo Ryabikin, a former minister, as Ukraine’s ambassador to Beijing, is perceived to give a powerful impetus to their bilateral relationship development.

Xi also dispatched Li Hui 李辉, a diplomat known for his Moscow expertise, as a special envoy to Ukraine; Li, who was in Ukraine from 16-17 May, became the highest-ranking Chinese diplomat to visit since the Russian invasion. This sends a signal that China is willing to engage directly with Ukraine, thus avoiding the appearance of taking sides. In addition, Xi also prioritised the Ukraine crisis in discussions with French President Macron, European Commission President von der Leyen, and Brazilian President Lula.

Collectively, these actions, ranging from Wang Yi’s visit to Moscow, President Xi’s diplomatic trip to the same destination, his phone calls to Ukrainian leadership, his discussions with international leaders, and the deployment of special envoy Li Hui to Ukraine, reflect China’s nuanced approach to this geopolitical situation. These measures manifest Beijing’s aspiration to be viewed as a credible actor on the international stage, but also reflect China’s desire to cultivate regional stability while navigating a turbulent geopolitical landscape.

In light of the recent attempted coup in Russia, Beijing’s approach could be further tested. The mutiny, although it has sent shockwaves through the international community, has not stirred substantial reactions within China. Beijing did not let this incident change its stance of its self-defined neutrality. This was evident when it issued a brief statement on 25 June 2023 from the Ministry of Foreign Affairs, referring to it as an ‘internal affair’ of Russia. The statement also expressed China’s support as a ‘friendly neighbour’ and ‘comprehensive strategic partner of the new era,’ urging Russia to ‘maintain national stability and achieve development and prosperity.’ This not only downplays the Wagner incident but also signals China’s cautious stance towards the situation, avoiding becoming embroiled in the situation and attempting to balance its strategic interests, navigating between the political dynamics of its key strategic partner and broader regional implications.

Backstage: Decoding China’s Motivations

China’s views on the Russia-Ukraine conflict on its western frontier are heavily informed by the situation to its east, particularly the growing tensions between China and US over the Taiwan Strait and Asia Pacific more generally. Seeing China as a rising ‘strategic competitor’, the US and its allies have focused on China’s challenge the US-supported ‘rules-based order’. From Beijing’s view, the US assembly of coalitions such as the Quad (the US, India, Japan and Australia) and AUKUS (the US, Australia and UK), implicitly, if not explicitly, aims to contain China’s rise. This US containment strategy seems to be most evident in the East and South China Seas, where the Chinese leadership is wary of Washington’s security and related links with South Korea, Japan, the Philippines and Vietnam in particular. The Quad and AUKUS are most deeply concerning from Beijing’s perspective. Da Wei 达巍, a professor of international relations and director of the Centre for Strategic and Security Studies at Tsinghua University, highlighted in his op-ed for Huanqiu (the Chinese version of the Global Times)  that actions taken by the US – including sending congressional delegations to Taiwan, enforcing embargoes on exporting advanced chip technology to China, and pressuring other countries to partake in its strategic competition against China – have further aroused PRC suspicion of US motives, thereby heightening bilateral tensions and even risks conflict.

Beijing views US (and NATO) engagement in the Ukraine crisis in light of all this: Russia and Eurasia are the gaps in US ‘encirclement’ strategy. [1] As the US engagement in Eurasia grows, and concerted efforts to limit China’s influence in the East, particularly at ‘the first island chain’ (the islands and archipelagos stretching from the Kuril Islands, southwestward through Japan, Taiwan, the Philippines and Borneo), [2] and to constrain China’s access to the Indian and Pacific Oceans, China perceives Washington as attempting an ‘O-shaped encirclement’, aimed at surrounding and isolating China.

China’s interest in acting as a mediator in Ukraine aligns with its overarching diplomatic strategy: ‘Big powers are key; China’s neighbouring countries are the priority; developing countries are the foundation; multilateral platforms are the stage’. Under this framework, the US and EU are considered ‘big powers’, and Russia, as the ‘largest neighbour and comprehensive strategic partner of coordination’, ranks high in China’s diplomatic priorities. Xi’s speech in Moscow in March 2023 affirmed this, stating that ‘both countries see their relationship as a high priority in their overall diplomacy and policy on external affairs’.

China is in a complex position. If it is overly supportive of Russia, it risks being perceived as making a binary choice between the West and Russia, which could play into ‘new cold war’ rhetoric, intensify diplomatic confrontation and potentially bring economic sanctions. By the same token, if China and Russia formed a conventional military alliance, China would risk its long-sought relations with Europe – a region with which economic cooperation remains a top priority in China’s strategic agenda, making it a crucial player in China’s grand strategy.

Crucially, Beijing has asserted its preference for a multipolar world order and multilateral decision-making in international affairs. Multilateralism has benefited China extensively in the last decades, and Beijing has viewed Russia as a potential contributor to these goals. As suggested by Yang Jiemian 杨洁勉, senior fellow at the Shanghai Institute for International Studies and the brother of senior diplomat Yang Jiechi 杨洁篪, interactions between Beijing, Moscow, Europe, and Washington are seen as major determinants in future world affairs. In 2021, Yang proposed the notion of a ‘China-Russia-US-EU Quartet Strategy’ that could potentially be a framework for facilitating more harmonious international relations. [3]

This backdrop may shed light on why Beijing prefers to steer clear of publicly critiquing Putin’s decision to invade Ukraine or endorsing Western sanctions, preferring instead to ‘determine one’s position based on the merits of the situation’按照事情本身的是非曲直决定自身立场. China is keen to be seen to be taking a different approach from that of the US. In their emphasis that ‘dialogue’ is the most viable route out of the conflict, Chinese policymakers point to the actions of ‘specific countries’ forming ‘small cliques’ through traditional alliances – an oblique reference to countries such as the US, UK, and Australia and alliances like NATO or Quad. They argue that these behaviours further complicate the situation and pose additional challenges to ending the war. Rejecting Washington’s ‘Cold War mentality’ Beijing promotes a more multilateral and institutionalised approach, both in the case of Ukraine and the Indo-Pacific.

In conclusion, China’s dynamic strategy in the Russia-Ukraine conflict is neither driven by its historical relationship with Russia nor its ambitions to be a regional leader in Eurasia. It is deeply rooted in Beijing’s anxieties about peripheral security and its broader diplomatic philosophy. Understanding China’s potential role in resolving the conflict in Ukraine, therefore, requires apprehending the nuances of its foreign policy orientation and its motivation to navigate complex geopolitical landscapes. While international observers remain intensely vigilant of China’s adept diplomatic navigation in this progressively complex situation, it is clear that China’s policy posture in this scenario could play a significant role in shaping its future in the theatre of global geopolitics.

Notes

[1] Yang Yucai 杨育才, and Yuan Yi 袁毅. ‘Meiguo Zhongya zhanlüe tiaozheng ji diqu zhengce zouxiang’ 美国中亚战略调整及地区政策走向. Eluosi Dongou Zhongya yanjiu 俄罗斯东欧中亚研究 2 (2020): 19-37.

[2] See, Yoshihara, Toshi. ‘China’s vision of its seascape: the first island chain and Chinese seapower.’ Asian Politics & Policy 4, no. 3 (2012): 293-314.

[3] Yang Jiemian 杨洁勉, ‘Zhong E Mei Ou zhanlüe hudong tedian he fazhan qushi’ 中俄美欧战略互动特点和发展趋势 [The Characteristics and Development Trend of China-Russia-US-Europe Strategic Interaction], Eluosi yanjiu 俄罗斯研究 [Journal of Russian Studies] 3, 30-50 (2021).

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Ambassador Xiao’s conciliatory line was rebuffed by Prime Minister Scott Morrison, who refused to meet him. Yet the ambassador’s conciliatory statements do point to a potential way forward – and the upcoming election provides an opportunity for a rethink of Australia’s China Policy.

Background

Chinese official sources have confirmed that Xiao comes to Australia with a mandate from Beijing to improve bilateral relations. The change of tone is particularly significant — China has not until now made any compromises nor sought to meet Australia ‘halfway’ on any issue since the deterioration of relations began in 2018. That deterioration followed a series of policy decisions that sought to limit Australian exposure to the PRC’s influence and power, including the introduction of the Foreign Influence Act (which didn’t specify the PRC but was understood as an attempt to counter PRC influence in Australian politics) and the decision to exclude Huawei from the nation’s 5G roll-out.

Ambassador Xiao met Foreign Minister Marise Payne on 10 March 2022 and with Shadow Foreign Minister Penny Wong six days later to deliver a similar message. The ambassador has also spoken with key Australian business figures including those from the Australia China Business Council and the Business Council of Australia.

Xiao Qian is a lifetime diplomat. Prior to his arrival in Canberra, Xiao Qian held postings in Ethiopia (Attaché 1986-1990), India (Third Secretary 1993-1996), the United States (Counsellor 2000-2003), and the Philippines (Counsellor 2003-2006), before being appointed ambassador to Hungary (2012-2015) and then Indonesia (2017-2021). DFAT sources indicate that in both countries he had good access to key decision-makers. When he left Hungary, he received an award from the Hungarian government for his achievements in strengthening China-Hungary relations. During his posting in Washington DC, sources indicate that he was well regarded by the State Department as someone they could work with.

Born in 1964, Xiao was the son of a senior cadre. He joined the Chinese Ministry of Foreign Affairs (MFA) in 1986 after graduating from university and has spent his entire career in the MFA. He speaks fluent English and Bahasa Indonesia, and has a working knowledge of Hungarian, Amharic, and Tagalog, with some French and Russian. According to Australian diplomats and businesspeople who have met him, Xiao is urbane, polite, and easy to deal with. His social media profile is low key and follows the Chinese official line very closely. But he is not a ‘keyboard wolf warrior’.

During his time in Beijing, Xiao has almost exclusively worked on Asian relations, holding the position from 2016 to 2017 of Director-General of the Department of Asian Affairs and Deputy Representative on Korean Peninsula Affairs. (A Director-General in the Chinese System is the equivalent of a First Assistant Secretary in DFAT.) Official sources indicate he has not had significant dealings with the Pacific countries.

As the 2022 federal election draws closer, the Morrison government seeks to use the China relationship, about which its rhetoric had grown increasingly politicised, as a weapon against the opposition, although it appeared to have been blindsided by the Security Pact signed between the PRC and Solomon Islands in April. The government has also been vocal in declaring it was “in lockstep” with the United States on the subject of China.

Xiao Qian, tasked with making a guarded attempt to improve Australia-China relations, will observe the election as an experienced diplomat who firmly advocates his country’s position on issues but does not engage in aggressive tactics. After the federal election, Xiao is expected to launch a campaign of public speaking and appearances to push for an improvement in bilateral relations in the lead up to the 50^th anniversary of the establishment of diplomatic relations on 21 December 2022.

In their meetings with Australians, Ambassador Xiao and his fellow diplomats have suggested a potential framework or roadmap for dealing with problems between the two countries, using the current state of relations as a starting point. While the PRC has taken no steps yet to unfreeze the relationship, the proposed process involves mutual concessions that would lead to that outcome.

The Chinese side have expressed, through both formal and informal statements, the desire for Australia to indicate that it regards China as a partner rather than a rival or enemy. Sources have said that Chinese officials have acknowledged that neither side wants to be seen as yielding to the other in the standoff, and both sides need to make simultaneous reciprocal concessions, which is likely the underlying meaning of ‘meeting halfway’.

The Chinese side have further suggested that rapprochement be worked out through diplomacy, and jointly announced. They have suggested that sensitive issues, such as the South China Sea, Xinjiang, Hong Kong, Taiwan, Tibet, human rights, as well as anti-Chinese racism in Australia, would need to be discussed through formal, discreet mechanisms, rather than public comment. This would be a return to the model of the human rights dialogue which ran successfully for a more than a decade before Beijing terminated it as part of the diplomatic freeze. Australia would not be alone among countries in using this type of mechanism to manage sensitive issues with China.

Critics will describe the invitation to ‘meet halfway’ as disingenuous, demanding to know which half of our sovereign agency will be surrendered.  It could be categorised as giving way in the face of economic coercion and renewing dialogue on China’s terms, not our own. This criticism is valid but a contrary argument could be made that our national interest could be best served by making compromises that match compromises made by the Chinese side. Diplomacy has always been about deals, compromises and meeting halfway, even in the most difficult situations.

Analysis

Our current policy settings have driven Australia into a dead-end. Many Australian exporters, business-people, educators, farmers, Chinese-Australians and others want and need workable relations, not unending confrontation with the PRC. There have been great opportunity costs and real losses in trade and investment to Australia resulting from the current policy. The treasury estimated that Australia has lost AU$5.4 billion in the first year of Chinese sanctions and the wine industry is expected to lose AU$2.4 billion over five years. The recently announced Australia-India Free Trade Agreement, while welcome, cannot deliver the potential benefits that our trading and investment relationship with China will continue to deliver.

Our goal should be to achieve at least the level of the relationships that China currently enjoys with our Quad partners, all of which are more expansive than our own – especially those with the United States and Japan. It is in part thanks to the rhetoric of the Morrison government that our relationship with China is in such a sorry state. Our Quad, and indeed AUKUS partners each maintain productive dialogues with China on political, economic, trade and human rights issues, while we remain frozen out.

The key to better managing our relationship with China is to adopt a mindset and policies that create a less hostile atmosphere while still doing what needs to be done to protect our key national security and economic interests. After the election, irrespective of the result, it may well be that a hard line on China will no longer serve a domestic purpose. The newly elected (or re-elected) government could advise allies in Washington and elsewhere that mending Australia-China relations serves our national interests without compromising theirs. Our goal would be to restore Australia’s relations with China, at least to the level that the United States and Japan currently enjoy with Beijing.

The appointment of Ambassador Xiao and the new Chinese willingness to compromise and talk has already changed the dynamic in the relationship. The federal election provides the opportunity for Australia to test this new approach by China, no matter which party wins. Rather than adhering to a policy that provides no way out of stalemate and amplifies our differences with our largest trading partner and rising power, we have the chance to adopt a better, smarter, diplomatic approach to the relationship.

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