Australia Faces A Tough Balancing Act

The Age

Saturday February 9, 2008

Daniel Flitton, Diplomatic Editor

COULD it rank, in historic terms, as a Nixon goes to China moment? That kind of billing is a touch unfair, but there is little doubt - one day soon - Prime Minister Kevin Rudd will make an official visit to Beijing. And as the first Western political leader to speak fluent Mandarin, one with a deep appreciation of Chinese history, you can expect the world's most populous country, with by far the fastest-growing economy, to turn on a big reception.

A translated version of his biography is about to hit Chinese bookshelves, while during last year's Australian election, a giant billboard of his spectacled face loomed over a Hong Kong street.

China is very excited about Kevin Rudd. Perhaps the Prime Minister will suddenly become publicity shy and instead decide to stay home? Hardly.

For one thing, he'd risk upsetting China's President Hu Jintao, who personally handed Rudd an invitation to the Beijing Olympics after their meeting in Sydney last year. And Rudd, who early in his career served as a diplomat in Beijing, has spoken often about his hopes to "actively and affirmatively engage China" for Australia's benefit.

But at some stage over the coming years, Rudd will be confronted by the need to make a difficult decision, one that could greatly disappoint the Chinese Government.

That moment may have already arrived, in the form of Chinalco's grab of a 12% stake in mining giant Rio Tinto. Coming amid the aggressive push by BHP Billiton to seize control of Rio, Chinalco's move leaves the Rudd Government in a delicate position. Overseas investment is almost always welcome in Australia. Yet, on the odd occasion when foreign money mixes with national sensitivities, prepare for political combustion.

So, from the PM down this week, government ministers have united in a common chorus: any foreign investment will be judged according to law and decided on national interest, they say.

But in an age of growing Chinese power, where precisely does Australia's national interest lie?

Beijing bristles when Chinese companies are given the moniker "state-owned" but Chinalco is precisely that. It's clear Beijing has a strong interest in the outcome of any merger between the world's biggest and third-largest miners.

Speculation was rife this week that Chinalco's raid on Rio, made in partnership with US company Alcoa, came after official direction by Beijing.

Rudd is well attuned to the controversy about China's aggressive resource diplomacy. During a meeting with George Bush last year, he handed some gifts to the US President - two books, one a biography of Australia's wartime prime minister John Curtin, the other, an investigation into China's careful efforts to extend its global reach.

Written by American journalist Joshua Kurlantzick, Charm Offensive: How China's Soft Power is Transforming the World explains Beijing's attempts to shore up access to resources in Latin America, Africa and elsewhere, flooding these poorer regions with cash and ignoring - and sometimes abetting - corrupt practices.

"China successfully advertises its model of development as a contrast to the neo-liberal, free-market Washington Consensus, which failed many developing nations," says Kurlantzick. Beijing will not tolerate any impediments to its economic growth.

On a visit to Canberra this week, China's Foreign Minister Yang Jiechi sought to allay concerns about the Chinalco-Alcoa investment in Rio. This was a independent decision by two companies, he said.

Chinalco's stake in Rio has not yet hit a level to trigger action by the Foreign Investment Review Board, the arm of Treasury responsible for scrutinising foreign takeovers. This gives the Government the luxury of time to watch how the BHP offer for Rio unfolds.

But with the drop in the BHP share price, and the risk China could take advantage of this weakness to grab a strategic stake there too, the pressure will mount for Australia to make clear its official position on Chinese state companies owning key Australian assets.

Ultimately, any FIRB recommendation will fall on the desk of Treasurer Wayne Swan.

Should that occur, the issue won't be limited to a discussion about the economic merits of the deal. Wider foreign policy considerations will also be brought to the table.

As China's political clout continues to grow, and rivals the superpower status of the US, Australia will inevitably find itself dodging between the footsteps of these giants.

Geoff Garrett, an Australian academic based in California who specialises in US-China relations, sees an opportunity for Australia to help Beijing and Washington manage their inevitable differences.

But he also says Australia and the US have markedly different views about China's growing influence.

He believes the next US administration, of whatever political colour, will be under intense pressure to take a tough approach to China. "The White House hasn't taken a lead on explaining to Americans what China means, in a positive sense," Professor Garrett says. "What we get instead is the kind of China-bashing that you would expect to see - China's taking our jobs, China's not a democracy, China's a US geo-political rival."

Unless the US mood changes, Australia will sometimes find itself caught in an awkward position. Rudd will argue that Australia can and should have close relations with China and the US - "to walk and chew gum at the same time", in a phrase he's employed when navigating this issue in the past.

But that was from the comfortable distance of opposition. Now, in government, when Beijing leans on Canberra and Washington looks awry, what will Rudd decide?

© 2008 The Age

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