China's embrace hits raw nerve

Apr 7, 2009

China's embrace hits raw nerve
By Simon Roughneen

SYDNEY - On April 1, Australia's Herald Sun newspaper reported that a Chinese consortium was going to buy the Melbourne Cricket Ground and rename it the "Mekong Cricket Ground".

The scoop came on the back of a furtive meeting between Australian Prime Minister Kevin Rudd and Beijing's propaganda chief, Li Changchun, as well as allegations of cozy dealings between one of Rudd's ministers and a Chinese-Australian businesswoman. Talking heads then navel-gazed for days about whether Rudd's Sinophilia marked him out as some sort of Manchurian Candidate, a Politburo plant in The Lodge - the official Canberra residence of the prime minister and his family.

With various investment deals in the pipeline or being inked, giving Chinese companies stakes in Australia's crucial mining sector, the bait was too much for some Herald Sun readers, who soon spattered the website comments section with lamentations along the lines of "Beijing sell-out".

Joking aside, just as former British prime minister Tony Blair was derided as former US president George W Bush's poodle, Mandarin-speaking Rudd could end up being touted as Chinese President Hu Jintao's Pekingese. The Li debacle was grist to the mill to the Liberal Party, who were handed a public relations coup by Rudd's meeting on Saturday with Li, the Chinese Politburo Standing Committee member in charge of propaganda, media and ideology - even though the opposition also apparently knew about the meeting in advance.

The get-together only came to light in Australia after Chinese state media gave it significant airtime, and the story eventually found its way onto the pages of The Australian newspaper. According to Malcolm Cook, East Asia Studies at the Lowy Institute, this was more of a failure in Rudd's press office than anything more sinister.

However, the fire was stoked by another revelation that Defense Minister Joel Fitzgibbon failed to disclose that Chinese-born businesswoman Helen Liu had financed trips he took to China in 2002 and 2005. Rudd himself added some kindling when, the day after Li's visit concluded, he called for reform of the global financial system so that China gets more influence.

Gerard Henderson of the Sydney Institute told Asia Times Online that some of the media and public reaction to Rudd's liaison with Li reminded him of the worst aspects of the old "White Australia" days, "when the 'yellow peril' scare tactic was dredged up at politically opportune moments".

Given the changing dynamics and weighting of the world economy, this makes sense. Moreover, such calls are nothing new, and echoed recommendations made by the John Howard administration which preceded Rudd's Labor government.

Also, to be fair, Rudd dampened Beijing's ardor earlier in March, when he rejected Chinese calls for the US dollar to be replaced as the international reserve currency. "The dollar's position on that score remains unchallenged," he told a Wall Street Journal seminar in Washington. He added, with reference to the just-completed G-20 meeting in London, "It's not on my agenda papers and if there's a late Chinese edition I'll review it with respectful interest."

However, the timing of his post-Li announcement could not have been worse, or more conspicuous. In retrospect, Rudd was hardly going to concur with Beijing's mischievous dollar statement while being feted by President Barack Obama in Washington.

China Inc is interested in resource-rich Australia, home to one-third of the world's known uranium. The state-owned Aluminum Corp of China wants to put $19.5 billion into Anglo-Australian mining giant Rio Tinto - the biggest in a spate of proposed Chinese investments in Australia's natural resources. The Chinese are offering much-needed capital, and Australia needs the Chinese market to sell its resources.

As Malcolm Cook put it to Asia Times Online, "China replaced Japan as Australia's number one trading partner in 2007, and of the world's major economies, is the only one still growing during the downturn."

Chinese growth is slowing, however, and any fall in demand there will have a knock-on effect on Australia's own economy.

Even so, the melodrama might not reflect China's real importance on a global level. As a posting by Andrew Nathan on McKinsey's What Matters blog puts it: "China accounts for only 6% of the global economy, equal to about two California's. On a per-capita basis, China sinks further. It is 49th in foreign-exchange reserves per person. It is 92nd in exports plus imports per person, and 106th in GDP per person."

Perceptions matter, however, and China is seen as the ambitious would-be world giant. Consequently, and also due to the nature of the Chinese political economy, Chinese investment is viewed differently to that from other countries.

"Chinese companies represent more than business interests, and indeed many of the leading companies are opaque and it's hard to figure out what role the state plays in them," Joshua Kurlantzick of Carnegie Endowment for International Peace told Asia Times Online.

Kurlatzick, author of Charm Offensive - How Chinese Soft Power is Transforming the World, added "I'm not sure that would be the case in terms of investments in Australia, as I'm not sure that China has the same type of hard security political objectives vis-a-vis Australia - I think it's more a matter of strict commercial interest."

However, the Australians are concerned because of their friendly defense partnership with Washington. To Beijing, Australia might represent more than a source of natural resources. Along these lines, Australian media is reporting security and defense establishment concerns that China is conductive cyber-warfare and espionage against strategic targets in Australia in attempts to access sensitive information.

The spillover is affecting Canberra's take on certain investments. The Rudd government blocked Chinese-owned Minmetals from acquiring the Prominent Hill mine in South Australia as part of a $2.6 billion bid for OZ Minerals, citing national security concerns because of its proximity to the Woomera weapons testing range.

Such limits suggest that it might be a stretch to label Rudd as some sort of Mandarin Candidate, but his administration has to unravel some complex threads when forming an effective China policy. Both countries need each other economically; trade jumped to $40 billion in 2008 from just over $8 billion in 2001.

China is determined to up its military-strategic game and will leverage whatever assets it can. Australia represents an effective bridge into the West, and China will use this if allowed. This may come via business interest proxies - or disproportionate investment in cyber-tactics - to make up for the still massive gap between its conventional resources and those available to Australia's chief ally, the US.

Simon Roughneen is a roving freelance journalist. He has reported from over 20 countries, and is currently based in Southeast Asia.

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