What's Behind China's New Charm Offensive?

Authored by Tim Daiss via Oilprice.com,

Australia’s reliance on its giant trading partner China could get a little stickier going forward. Yesterday, Australia’s new Prime Minister Scott Morrison pledged to increase his country’s military and diplomatic engagement in the South Pacific amid concerns the nation’s influence is waning as China continues it headlong regional hegemony pursuits, particularly in the contested South China Sea.

Morrison said that his government will set up an AUD$2 billion (US$1.46 billion) infrastructure fund for the region, increase naval deployments and carry out more military exercises with island nations. In comments released by his office, Morrison said, “This is our patch. It’s where Australia can make the biggest difference in world affairs.” His comments also come amid growing backlash against what many in Australia see as Chinese interference in its political process, while others have warned for years that the country was too reliant on natural resource exports to China.

This growing anti-China sentiment for long-time U.S. ally Australia also comes as President Trump pushes against China in trade so hard that it has already started to slow down manufacturing expansion and economic growth, with further projects for the same. It also comes as Australia joins the US, Canada, New Zealand, Japan, UK, France, India and others to enforce freedom of navigation patrols in the South China Sea, much to the angst of Beijing who claims 90 percent of the sea in what it refers to as “historical rights,” a dubious claim that could be used by a myriad of other nations in the region.

Thawing a diplomatic chill

However, Beijing replied quickly to Morrison’s vow to increase naval deployments. China's top diplomat Wang Yi said that China and Australia should be cooperating in the South Pacific and not cast as political rivals.  Reuters said Wang made her remarks after a meeting in Beijing between her and Australian foreign minister Marise Payn, which was widely billed as a step toward re-setting bilateral ties after a lengthy diplomatic chill.

Wang said that she had agreed that the two countries could combine their respective strengths and embark on trilateral cooperation with Pacific island countries. “We are not rivals, and we can absolutely become cooperation partners,” Wang said, describing the meeting as important after the recent “ups and downs” in the relationship, adding that the discussions were “valuable, full and candid.”

“We’ve realistically acknowledged today that in a relationship as dynamic as ours ... there will be from time to time differences,” she said later at a separate news briefing. “But what is important about that is how we manage those, and we are focused on managing them respectfully, mindful of the tremendous opportunities the relationship presents to both our nations.”

Chinas new charm offensive

There are several take-aways from both Morrison's recent pledge and Beijing’s response.

First, Australia is in an almost no-win situation with China. Since it shares a close and over century old relationship with the U.S. as well as shared political values, a common history, language and concern over human rights, it’s unlikely it would do anything to damage that crucial relationship. On the other hand, Australia's iron ore, LNG and other natural resources to China has helped transform the Australian economy.

Another major take-away and one that will be happening more in the future, is a softer tone from China with its other neighbors in the region. Just two weeks ago, China cozied up long time bitter rival Japan in a surprise move that would have been unimaginable five or six years ago.

The UK-based Independent said the two sides showed a united front on “free and fair” trade as Japanese Prime Minister Shinzo Abe, along with over 1000 Japanese businessmen, met Chinese president Xi Jinping in Beijing for talks. The two Asian giants signed a slew of agreements, including a currency swap deal and plans to work together in other markets.

China's Premier Li Keqiang said they had signed 500 agreements worth $18 billion.

“This indicates our cooperation has great potential and a promising prospect,” he said. “As countries with great influence in the region and the world, we should safeguard free trade.”

As U.S. sanctions continue to hit China hard, expect Beijing to soften its approach with both friend and foe alike in the Asia-Pacific region. Another prime target for China will be improved bilateral and perhaps even military cooperation with long-time rival India. In essence, China, with few allies other than North Korea, has little choice but to try to offset the impact of US sanctions as well as Washington's harder stance in the South China Sea.

Beijing, for its part, was waiting to proceed with more trade talks after the mid-term elections in the U.S., hoping for Democrats to take back control of the House. However, though Democrats did indeed take control of the House of Representatives, Republicans picked up two Senate seats to solidify its grip. Nonetheless, most believe that despite a Democratic controlled House which starts at the beginning of the year, both Democrats and Republicans will still allow Trump free reign over his trade war with China. Trump's EU trade maneuverings could be checked, but China is still in Trumps cross hairs.

In the short to mid-term, the trade war will continue to hurt the so-called second wave of U.S. LNG projects that need financing and long-term off take agreements, including from China. However, it will also force Beijing into a more conciliatory tone with its other LNG suppliers, including a befuddled Australia, bringing this geopolitical drama full circle.

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