Fortnight of 14 to 27 November 2022

The Landbridge lease and Australia’s investment environment

From the Chinese Ministry of Foreign Affairs’ (MFA) readout of the meeting between Prime Minister Anthony Albanese and President Xi Jinping on 15 November:

“China hopes that Australia will provide an enabling business environment for Chinese enterprises to invest and operate in Australia.”

Quick take:

As discussed last edition, there was a flurry of positive bilateral messaging during and after the Albanese-Xi meeting on 15 November. This included another ministerial meeting in the defence portfolio the following week. But while Beijing appears to have dramatically deemphasised its expectations of Canberra, the above line about the “business environment for Chinese enterprises” was a conspicuous exception. Although expressed cautiously as a “hope”/“希望,” it’s nonetheless notable that this particular Chinese government wish was the only even vaguely concrete request that made it into what was for the most part an expectations-free (and exceedingly warm) readout of the first leader-level meeting since 2019.

On one level, a desire for a more welcoming/permissive approach to Chinese investments in Australia is hardly revelatory. Beijing’s perception that Chinese investments are unfairly treated in Australia has long been a bone of contention. Australia’s approach to foreign investment was a significant point of discussion at the leader level between Canberra and Beijing at least as far back as 2008 (e.g., herehere, and here). Meanwhile, Beijing’s concerns about the environment for Chinese companies was the first and longest of China’s list of 14 grievances/concerns from 2020.

On another level though, the expression of hope about the “business environment for Chinese enterprises” is more pointed considering the promised Albanese government review of the 99-year lease of Darwin Port by the Chinese company Landbridge. Details of the status of this review are scant. But given Prime Minister Albanese’s past position on the Landbridge lease, it’d be politically hard for his government to either let the review fall by the wayside or allow it to run its course and quietly result in a positive finding. Here’s what Prime Minister Albanese said in November 2015:

“Darwin Port is an incredibly important strategic asset for our nation and because of our arrangement with the United States for joint training in northern Australia, it is important for the US as well. … [T]o give up a strategic asset to a company that has links with the People’s Liberation Army in China is, I think, a grave error of judgement.”

If the new review of Langdridge’s lease finds that there aren’t national security/strategic grounds for terminating the lease, then Prime Minister Albanese’s past comments are likely to be seized upon by the Opposition to criticise the Government. With public opinion favouring terminating the lease, this may be an especially potent line of attack for the Opposition. Of course, the lease was originally awarded when a Coalition government was in power. But the time elapsed since 2015 and the widespread judgement that China has changed since then is likely to weaken any possible Albanese government counterattack that centres on the Opposition’s record on the Landbridge lease. (To be clear, the Landbridge lease wasn’t terminated in the wake of the subsequent review concluded in December 2021 during the Morrison government’s tenure. But this record might not matter that much politically given that the crucial question isn’t what the previous government did/didn’t do, but rather what the Albanese government will do now.)

Regardless, where does all this leave the Australia-China relationship? The Albanese government might be willing to take political flak by either slow walking the Landbridge lease review or determining that the lease should be left alone. Such outcomes are likely to avoid disappointing China. But assuming the Albanese government doesn’t pick one of these politically fraught options, it seems possible that Canberra is heading towards a decision that dashes one of Beijing’s highest hopes. It’s hard to imagine that Beijing would think the early end of Langdridge’s 99-year lease of Darwin Port is consistent with, to quote the Chinese MFA readout again, an “enabling business environment for Chinese enterprises to invest and operate in Australia.”

This begs the question: What options might exist to mitigate the fallout from an adverse finding in the Landbridge lease review? Corporate structures are well beyond my area of expertise, but I imagine that options are available. The Australian government might, for example, propose workarounds such as not ending the lease but forcing Landbridge’s Darwin Port operations to be spun off into a fully independent Australian subsidiary. Other forms of corporate restructuring and additional security oversight might also be available to both mitigate the perceived national security/strategic risks, while also leaving Langdridge’s lease substantively in situ.

Of course, the viability of the above options depends on uncertain political calculations. Would such compromise measures be enough to alleviate perceived national security/strategic risks? Would these configurations still leave the Albanese government vulnerable to Opposition attacks? And would this approach be enough to convince Beijing that Canberra offered an “enabling business environment for Chinese enterprises to invest and operate in Australia”? Regardless of the answers to these thorny questions, the Albanese government seemingly has a long and winding path to walk on the Landbridge lease that could easily leave one of China’s key hopes for the relationship trodden underfoot.

Addendum: Quite aside from the question of Landbridge’s Darwin Port lease, China will presumably not have its hopes met on the broader question of Australia’s approach to Chinese investments. Heightened political and public scrutiny of Chinese investments is unlikely to dissipate and the Albanese government presumably won’t modify Foreign Investment Review Board decision-making to mollify China’s concerns. Although the Treasurer has much discretion regarding foreign investments, the risks of attacks from the Opposition probably make it politically untenable for Jim Chalmers to take a significantly more welcoming approach to Chinese investments. In short, Beijing’s hopes notwithstanding, the Chinese government should probably expect a broadly unchanged approach to the “business environment for Chinese enterprises” in Australia.

Minister for Defence Richard Marles meets Minister of National Defense Wei Fenghe on 22 November 2022 ahead of the ASEAN Defence Ministers’ Meeting Plus in Siem Reap []

A break in the bipartisan consensus (and why Beijing should show Canberra some strategic empathy)

Shadow Minister for Foreign Affairs Simon Birmingham speaking to David Speers on the ABC’s Insiders on 20 November:

“Following the release of that UN report back in September, I wrote to Penny Wong offering bipartisan support in that regard. She had previously criticised the previous government for not acting in concert with other nations. And so I wanted to make sure that given those new sanctions laws were passed late in the term of the previous government, that we would give that bipartisan support if the new government chose to use those sanctions.”

Quick take:

The Albanese government and Opposition might be in furious agreement on a no compromises approach to China when it comes to established Australian policy positions. But already key future China policy decisions are emerging as points of political division. As well as criticising Minister for Foreign Affairs Penny Wong for not meeting members of the World Uyghur Congress and survivors of Xinjiang internment camps, Shadow Foreign Minister Birmingham has carved out a more forward-leaning position on sanctions against Chinese officials implicated in human rights abuses in Xinjiang. This comes as the Opposition floats the prospect of an Australian ministerial visit to Taipei and chides Prime Minister Albanese for his apparent misspeaking on Taiwan’s prospective accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). (As an aside, it’s worth noting that regardless of the rights and wrongs of Minister for Foreign Affairs Wong’s decision to not meet the Uyghur delegation, such a meeting would have been a break with precedent given that, so far as I’m aware, previous Australian foreign ministers haven’t met with the leadership of the World Uyghur Congress.)

I won’t relitigate here the questions of whether Australia should, for example, impose targeted sanctions against Chinese officials implicated in human rights abuses in Xinjiang or expand its engagement with Taiwan. As I’ve previously argued in this newsletter and The Sydney Morning Herald, I think that both targeted Xinjiang sanctions and more political contact with Taiwan are, on balance, justified and beneficial for Australia. But regardless of how right or wrong I might be on these prescriptive questions of what Australia should do, there’s little doubt that this partisan political debate on future China policy decisions will make life increasingly tough for the Albanese government.

If the Albanese government doesn’t move on targeted Xinjiang sanctions, then it’ll likely be attacked by the Opposition and questions (rightly or wrongly) will be raised as to whether stalling the sanctions is a concession to China. The way in which Prime Minister Albanese’s error and slow correction (e.g., here and here) on Taiwan’s possible CPTPP accession prompted worries that Canberra had compromised on Taipei to please Beijing offers a taste of the intense suspicions that are likely to be raised if Australia doesn’t follow through with targeted Xinjiang sanctions. These kinds of political criticisms and questioning will probably also entail public opinion downsides—and perhaps eventually electoral costs—considering the broad-based popular support for such targeted Xinjiang sanctions. Then there’s the international and domestic awkwardness of having the necessary legal mechanism in place to impose targeted sanctions, expressing strong and regular concern about human rights abuses in Xinjiang, and yet not using an available tool to punish officials implicated in such abuses.

None of the above is to say that the case for targeted sanctions is clear cut or that such sanctions would be free of downsides for Australia. Despite on balance supporting such targeted sanctions on moral grounds, I readily admit that the Albanese government is saddled with the unenviable and devilishly complex task of weighing such ethical imperatives against a range of economic, diplomatic, security, and other interests that impact the Australian nation (see here for some examples). Rather than a comment on what ought to be done, the point of the above considerations is to highlight that the Albanese government is likely to have limited political room to manoeuvre on the issue. Regardless of the costs and benefits of such targeted Xinjiang sanctions, the political forces pushing for them may be nigh on irresistible.

Quite aside from how Beijing would react to such targeted sanctions (a question that I’ve previously tried to unpack), the above considerations brought me back to the issue of strategic empathy. If I’m right (it’s always an if) about the factors constraining the Albanese government on targeted Xinjiang sanctions, then there’s a strong case for political leaders and policy planners in Beijing to try and empathise with the predicament faced by their counterparts in Canberra. Regardless of how much China would chafe at targeted sanctions, there will be benefits for the bilateral relationship if Chinese officials think through the domestic and international forces that limit the Australian government’s room to manoeuvre on this issue.

In writing this newsletter, I’ve often tried to unpack for Australian and international audiences how I think China is likely to view and react to Australia’s decisions. But fostering strategic empathy should be a two-way street. Just as Canberra and other capitals should seek to better understand the constraints and concerns shaping China’s policy outputs, so, too, should Beijing seek to better understand the constraints and concerns shaping Australia’s policy outputs. This call for strategic empathy doesn’t mean that China must accept and endorse Australian decisions on, for example, targeted Xinjiang sanctions.

But strategic empathy does at least mean that Beijing should consider the range of forces that are pushing Canberra towards such targeted sanctions. It also means, by extension, that Beijing should have a realistic appraisal of the prospects for bilateral relations and a suitably calibrated approach. If China wants, as it says it does, the relationship to recover, then it may need to persevere with efforts to improve bilateral ties even in the event that Australia imposes targeted Xinjiang sanctions. Given the constraints facing Canberra, holding relationship repair hostage to Australia doing what China wants vis-à-vis targeted Xinjiang sanctions may foreclose the possibility of substantive future improvements in bilateral ties.

To quote the late Jiang Zemin, the response to the above analysis might simply be: “Too simple, sometimes naïve.” How much of a novice must I be to imagine that Beijing will calibrate its responses to Canberra’s targeted Xinjiang sanctions simply because of the domestic and international constraints faced by the Australian government? This is a fair question. But I think it largely misses the point. A call for more strategic empathy from Beijing isn’t a call to do what is commonplace, easy, and natural. If anything, it’s a plea to do something extraordinary. I readily acknowledge that I’m not in any position to make that request of the Chinese government. But if my analysis of the constraints facing the Albanese government is roughly right, then continuing down the path of relationship repair will require that the Chinese government exhibit something akin to the strategic empathy that I’m recommending. Over to you, Beijing.

Peter Khalil MP meeting with members of the World Uyghur Congress and survivors of Xinjiang internment camps []

Policy initiatives and diplomatic messaging to stabilise relations with China

From the Chinese MFA readout of Prime Minister Albanese’s 12 November meeting with Premier Li Keqiang in Phnom Penh:

“China is … ready to meet Australia halfway.”

Minister for Foreign Affairs Wong speaking to the ABC’s David Lipson:

“You used the phrase ‘meet halfway.’ The way I’ve described it is that we should work together.”

Quick take:

The consistent message from Australian ministers after the Albanese-Xi meeting was that they wanted to “stabilise” the bilateral relationship (e.g., herehereherehere, and here). But even such a modest desire looks relatively ambitious. Not only are decisions on Darwin Port and targeted Xinjiang sanctions looming over bilateral ties, but Canberra and Beijing seemingly can’t even agree on the approach from here. The Chinese government’s language of meeting halfway seems to suggest mutual compromise, whereas Minister for Foreign Affairs Wong’s rejection of that framing presumably implies joint efforts without any compromises. Although both approaches were expressed in abstract terms, they give the impression of significantly different implications for the next steps in bilateral ties.

To be fair, it’s entirely possible that I’m overanalysing this linguistic gap. After all, the idea that both sides should “meet halfway” didn’t appear in the readout of the Albanese-Xi meeting and recent MFA press conferences. Still, prompted by this (apparent) gap between Canberra and Beijing, I thought I’d finally release something that I flagged a few editions ago. I’ve made available a rough draft of a working paper that canvasses a range of policy initiatives and forms of diplomatic messaging that might allow Australia and China to find some more common ground and build trust without Canberra having to make any compromises. These initiatives and forms of messaging are certainly not aimed at doing anything as grand as “resetting” bilateral ties. The goal is rather to offer tools to the Australian government that might contribute to a stabilisation of relations and mitigate the fallout of future tough China policy decisions, such as targeted Xinjiang sanctions or the Darwin Port lease. The options detailed in this paper are by no means exhaustive. But they are nevertheless (very) tentatively offered up here as a starting point for further debate and policy development.

NB Nothing in this working paper should be construed as a recommendation that the Australian government compromise to please the Chinese government. The paper’s suggestions are designed precisely to allow Canberra to simultaneously avoid making any compromises while also (hopefully) stabilising the relationship with Beijing and blunting the impact of decisions like levelling targeted sanctions against Chinese officials. Relatedly, this working paper should not be read in any way as an implicit legitimisation of China’s coercion of Australia. I hope it goes without saying that the Australian government shouldn’t need to develop new policy initiatives and forms of diplomatic messaging to reduce the likelihood of being subjected to China’s coercive statecraft. But taking as its starting point the reality of China’s external policies, this paper offers the Australian government options to respond to the Chinese government as we find it rather than as it should be.

As always, thank you for reading, and please excuse any errors (typographical or otherwise). Any and all objections, criticisms, and corrections are very much appreciated.