Several weeks ago, senior Chinese officials held a series of phone hook-ups
with Australia’s pacific neighbours including Papua New Guinea and Solomon
Islands. The message was blunt: China stands ready to assist if and when
COVID-19 strikes your nation.
It was just the latest example of pandemic diplomacy from China which has
used the COVID-19 crisis to demonstrate its capacity to fast-track the
delivery of medical equipment and other supplies to vulnerable developing
But these offers of assistance from China – the very same nation that
covered up the existence of COVID-19 until it was too late – has raised
more than a few eyebrows in Canberra.
There is now a live debate, playing out in the shadows of this global
pandemic, about Australia’s sovereign capability and our future
relationship with our biggest trading partner, China.
Changes to foreign investment rules
There are concerns at the highest levels of the Morrison Government about
Australia’s economic and industrial vulnerability as a result of the global
pandemic. Which is why the Treasurer Josh Frydenberg announced a major
crackdown on foreign investment laws.
For the foreseeable future, the Foreign Investment Review Board (FIRB) will
run the ruler over all foreign investments, irrespective of size. Every
acquisition, every new business with a foreign investor will require FIRB
These are major changes and designed to prevent a fire sale of cheap
Australian assets to marauding – and cashed-up – overseas investors.
Mr Frydenberg rejected suggestions that China was being singled out.
Instead, he said the FIRB overhaul “gives the Government greater visibility
and enables greater scrutiny of foreign investment proposals to safeguard
the national interest”.
The FIRB announcement comes as the Government works its way through the
coronavirus crisis, desperately trying to keep open as many businesses as
possible. But it has also saddled future generations with hundreds of
billions of dollars of debt as the Prime Minister tries to avert a deep
recession that could have as devastating an impact on social cohesion as
the pandemic itself.
COVID-19 is also forcing a debate about broader investment and industrial
policies. It’s not just Coalition MPs like former Nationals’ leader Barnaby
Joyce and ex-Cabinet Minister Matt Canavan who argue that Australia has to
build a greater self-reliance.
The case for self-sufficiency
Peter Jennings, the executive director of the Australian Strategic Policy
Institute, argues that the national “agenda for building self-sufficiency
will be much stronger” as a result of this crisis.
“My hope is that we will have a really hard strategic look at what we need
to do in this country to be more self-sufficient,” Mr Jennings says.
This means assessing what Australia needs to build and manufacture at home,
rather than having to rely on importing key commodities and services.
Mr Jennings admits that this will overturn the prevailing economic
orthodoxy particularly among Canberra’s public service mandarins.
“This will offend every Treasury official in Canberra,” he says.
Australia, he argues, must become more strategic when it comes to mapping
what industries and commodities it will need in the future, in order to
survive and prosper.
As an example, he cites the Australian Government’s $89 billion investment
in developing a sovereign naval shipbuilding capability. This massive
program will see a new class of offshore patrol vessels, frigates and
French-designed submarines built, as part of a “Made in Australia” strategy
that will generate thousands of local jobs while (hopefully) reinvigorating
our advanced manufacturing capability.
Mr Jennings says this massive investment in naval hardware must be
accompanied by plans to build much greater self-sufficiency in areas such
“There is not a lot of point in having a first-class Navy if we don’t have
the fuel to put these vessels out to sea,” he says. To place this in
context, the Department of Energy’s figures show that Australia has just 29
days’ worth of liquid fuel stocks at refineries and wholesale terminals —
well under the International Energy Agency’s 90-day fuel security
In March of this year, Australia signed an agreement with the United States
to lease space in the U.S. Strategic Petroleum Reserve (SPR). This would
allow Australia to store and access Australian-owned oil with the
cooperation of its closest strategic ally.
Federal Energy Minister Angus Taylor hailed the deal as a “landmark”
agreement that represents “our joint commitment to maintaining fuel
security and improving Australia’s resilience, as well as strengthening the
close bonds between our two great nations”.
But critics of the national fuel strategy point out that it would take up
to 40 days for stored oil to reach Australia from the US, even if the sea
lanes were open.
Big changes in Australia/China relationship ahead
Richard McGregor, a Senior Fellow with the Lowy Institute, is a former
senior correspondent with the Financial Times in China and author
of The Party: The Secret World of China’s Communist Leaders, which
provides a searing insight into the CCP’s level of influence in
the world’s most populous nation.
While he agrees our relationship with China will change in the
post-COVID-19 world, he doesn’t believe Australia will seek to rebuild a
substantial manufacturing sector.
“The idea that we go back to Fortress Australia – I really struggle with
that,” Mr McGregor says.
But yes, he does agree there will be “big changes” in Australia’s
relationship with China.
He cites two key export industries – education and tourism – which have
been decimated by COVID-19 and the crackdown on overseas travel.
For instance, there are around 90 direct flights from China into Sydney
each week. These have been put on ice – and Mr McGregor doubts that
capacity will be restored, even once things get back to relative normality.
And on the education front, there is no doubt that some of our most
prestigious universities are heavily exposed by their reliance on overseas
students, particularly from China. There are about 160,000 Chinese students
at Australian universities, making up around 10 per cent of total student
But with classes on hold, Australian campuses face a potential massive hole
in their revenues. Last year, the Centre for Independent Studies warned
that a downturn in the numbers of Chinese students could be “catastrophic”
for the university sector.
While COVID-19 has brought these industries to their knees, Mr McGregor is
more upbeat about the future trade opportunities for Australia’s farm
“We might see some pick-up in agriculture (with China). The farm sector is
on the upswing,” he says. And there is no doubt the Federal Government is
willing to help in this regard. Just last week, the Government announced a
$170 million exporter support package to airfreight Australian seafood,
beef and dairy products to China and other key Asian markets such as Japan
Putting trade to one side, Mr McGregor says the public attitude towards
China has “hardened” since COVID-19 started devastating nations. “There is
a lot of rancour around. This is happening around the world, which is why
China has its big diplomacy campaign underway,” he says.
And what about Australia’s future relationship with its biggest trading
Mr McGregor says that remains uncertain. He believes that Australia’s
“dependency” on China might be reduced in the future, but conversely it
might be the case that China becomes less dependent on Australia.
“It is possible that China might want to decouple from us, if the
China-American situation gets much worse,” he says.
ASPI’s Mr Jennings also believes that our future relationship with China
will change. Under his helm, ASPI has been a strident critic of China,
particularly its paramount leader Xi Jinping.
Paradoxically, Mr Jennings believes that COVID-19 will deliver a short-term
boost to China’s global reputation, but he also argues that longer term it
will be very negative for China and President Xi.
He says the coronavirus crisis is the “first crisis where there has been a
country-wide social campaign against the Chinese leadership” and
particularly the stranglehold that the Chinese Communist Party has on
everyday life on China’s 1.5 billion population.
“This has exposed a widely-held dislike of the Party’s behaviour. The big
question is whether this will weaken the foundation of Xi Jinping and the
CCP? They certainly don’t come out of this with clean hands,” he says.
However, Mr Jennings argues that Australia should also rethink its
strategic reliance on the United States. “Trump’s disastrous mishandling of
this virus has to call into question our level of dependence on the US,
particularly if he is re-elected.”
One thing is for certain: nothing will be the same after this COVID-19
virus is finally defeated.
Steve Lewis is a senior adviser with Newgate Australia. He worked for
more than two decades for Australia’s leading newspapers and was a
leading figure in the Canberra Press Gallery