Who’s afraid of China’s big bad wolf warriors?

Authoritarian countries have always been difficult for Western democracies to comprehend. Winston Churchill famously characterised Russia as “a riddle, wrapped in a mystery, inside an enigma”. But unravelling the mystery of China has proved even more difficult for the West despite centuries of trade and interaction.

China’s different political culture, traditions and opacity are obvious reasons. Another is our thin China expertise. So it should come as no surprise that most Australians are genuinely bewildered by President Xi Jinping’s decision to unleash his wolf-warrior diplomats on an askance world, aggressively asserting China’s interests from cosmopolitan Europe to the icy heights of the Himalayas and the seas of the Western Pacific.

This has provoked an entirely predictable push-back from the US and deepened the emerging cold war. Thursday’s speech by US Secretary of State, Mike Pompeo, is a blunt and sweeping rejection of China’s authoritarian political system and a call for democracies to stand up to Chinese “tyranny”.

It’s not just democracies on the receiving end of China’s bellicosity Fraternal Vietnam and the accommodating Philippines have not been spared. Nor have the once privileged citizens of Hong Kong. “One country, two systems” has been exposed as a rhetorical artifice, devoid of substance or meaning. Comply with our demands or suffer the consequences is the unequivocal message to those who don’t toe the Chinese Communist Party line. Punishing countries for noncompliance seems so counter-productive to China’s own interests that even its most ardent Australian supporters are struggling to understand the rationale and objectives. Why is Beijing lashing out so fiercely and what does it hope to achieve? Is this a considered strategy, a thin-skinned reaction to unaccustomed criticism or the zealotry of overenthusiastic officials?

All three is the answer. The plan to become the dominant state in Asia, and eventually the pre-eminent global power, was agreed by China’s leaders decades ago. The CCP has worked assiduously, and with single-minded purpose, to achieve these goals. But the timing and methods have always been flexible and subject to assessments of the external environment. When competitor nations looked weak, or vacillating, Beijing exploited the opportunities to advance its agenda, notably after the 2008 global financial crisis, when it erroneously concluded the US was in decline.

The world’s preoccupation with the coronavirus presents another opportunity since China is more advanced in its recovery than most other nations. But Xi also has been stung by widespread criticism of his handling of the pandemic. To deflect international criticism and shore up his position domestically, he has turned to a favoured tactic of authoritarian leaders — stoke nationalism by blaming foreigners.

When Scott Morrison had the temerity to call for an independent inquiry into the origins of the coronavirus pandemic, Australia immediately came under sustained attack from Xi’s newly empowered wolf-warrior diplomats. Inevitably some officials exceeded their brief, secure in the knowledge that the party would have their back, no matter how provocative their criticisms and disdain for normal diplomatic courtesies.

We have seen this before, of course. In the early years of the Cold War and the madness of the Cultural Revolution, China was a prickly and unpredictable revisionist state that warranted close watching and precautionary defensive measures. But it was not the economic, military and technological power it is today. What Chinese leaders say, do and think reverberates around the world, nowhere more than in Australia.

Once this was all to the good. But the relationship has turned sour and there is worse to come. In a few short years, we have gone from poster child to chewing gum on China’s shoe, accused of “panda bashing”, racism and “stabbing China in the back”. Although other countries have suffered comparable falls from grace, Australia seems to have been singled out for special retribution. There is a palpable sense of anger and resentment in the increasingly shrill denunciations of Australia by Chinese officials and the state-run media.

Perhaps this is because hopes were once high that Australia and China could put past enmities behind them. Beijing wanted to show the world that partnerships of trust and mutual benefit would be the foundation stones of a new and better world order, led by a benevolent China. Reflecting the new power realities, Pax Sinica would naturally and seamlessly succeed a crumbling, dysfunctional Pax Americana. During the halcyon days of the relationship, many Chinese and Australian leaders bought into this enticing vision, including Xi who, in his visits to Australia, seemed genuinely taken with the land Down Under and acutely aware of its vast potential.

But Chinese leaders, least of all Xi, could never be accused of letting sentiment override realpolitik. The chance to peel Australia away from our longstanding alliance with the US could not be ignored. Xi calculated that economic dependence on China would weaken our bonds with the US and, across time, create a powerful pro-Beijing constituency in Australia’s halls of power. Having an increasingly influential Western democracy on side would help China make inroads into other democracies. If Australia was supportive why should others hold back?

But this dream has proved illusory as the Turnbull and Morrison governments pushed back on multiple fronts with increasing determination. The latest “affronts” have been Canberra’s decision to create a more muscular defence force and provide a pathway to Australian citizenship for fleeing Hongkongers. It must now be crystal clear to Xi that Australia will not be charmed or cowed into obedience. Worse still for Xi, the Morrison government’s defiance is having a snowball effect, encouraging others to resist China’s pressure and inducements.

The risk is that Beijing will decide to teach us a lesson, as it threatened to do with India last month and Vietnam in 1979. How far Xi might be prepared to go is something our intelligence community should be giving serious attention, given our heightened vulnerability to retaliation at a time when the coronavirus pandemic has devastated the economy. Much will depend on Xi’s risk-reward calculation and whether he thinks he can hurt Australia without damaging his own economy and further tarnishing his reputation.

There is no doubt that China has the tools to impose significant economic costs on us and there will be a strong temptation to do so. We aren’t a major power, or part of a collective like comparable, middle-sized European nations. And we are heavily reliant on China for our economic security. But China’s power is not untrammelled. There are limits to what Xi can do. We need to have a better understanding of these constraints.

The first is China’s slowing economy, which is in worse shape than Xi lets on. Even before the coronavirus struck, the days of stellar, double-digit increases in gross domestic product had long since passed, with growth projected to fall below 6 per cent this year. Experienced China watchers have always been sceptical about the accuracy of the official forecasts, believing them to be significantly overstated. The respected Brookings Institution in Washington concludes that these forecasts have historically over-estimated China’s GDP by an average of 1.7 per cent annually. University of Sydney academic Salvatore Babones says that despite a decline in tax revenues from 7.4 per cent to 3.8 per cent in 2017-19, Beijing has been quite profligate in its spending, which grew at an unsustainable 8.1 per cent last year. The International Monetary Fund estimates China’s widening budget deficit to be 12 per cent of GDP.

The full impact of the coronavirus on China’s economy may never be known because of the CCP’s penchant for secrecy. But given the extent and duration of the lockdown of Hubei province, a major manufacturing hub, the economy is likely to suffer its worse decline since the dystopia of the Cultural Revolution. The IMF expects China’s growth will be a paper-thin 1.2 per cent this year. It is conceivable that the economy could record negative growth.

The coronavirus hit to the economy is coming at the worst possible time for Xi as his Belt and Road Initiative runs into funding constraints. Once enthusiastic borrowers are finding it harder to service Chinese loans, which typically charge 2 per cent above the World Bank rate for low-income countries. This means China faces the prospect of defaults on its loans. Even the well-funded military is starting to feel the pinch.

Beijing will have to think very carefully about seriously punishing Australia economically given its straitened circumstances and the high-value, complementary trade relationship.

China buys our iron ore, thermal coal and agricultural produce because they are high-quality and competitively priced, not because it is doing us a favour. Reducing dependence on Australian iron ore is infeasible in the short term. Looking west to central Asia, investing in African iron ore mines or increasing domestic production of iron ore present their own challenges and costs. And diversification away from Australian products will accelerate the momentum towards decoupling here, leaving China with fewer choices and less security in the supply of the critical resources needed to sustain its growth.

Severing, or reducing, the flow of students and tourists using the cover of the pandemic is a more viable strategy, but this is not a cost-free exercise either. Many mainland parents prefer sending their children to Australian universities. And other Western countries are also in Beijing’s bad books, so what would be the logic of robbing an Australian Peter to give to a US, Canadian or British Paul? Of course, China could declare a pox on all Western universities. But this would deny it a valuable source of education and knowledge while diminishing its influence in host countries.

A second constraint is the reputational harm China would suffer should it attempt to punish Australia more severely. This might appear of little consequence to Xi given the self-inflicted reputational damage already incurred through his ill-conceived wolf-warrior diplomacy and willingness to extinguish all vestiges of Hong Kong’s once vibrant democracy in the face of widespread condemnation. But hanging Australia out to dry would have far more serious consequences.

Among them is the salutary effect on other destination countries for Chinese exports, foreign investment, tourism and students. If China can beat up on Australia, then they could be next. This will encourage balancing behaviour, accelerate decoupling from China dominated global supply chains and weaken Xi’s ability to wrest control of key multilateral institutions and marshal support for authoritarian friendly global rules and standards.

The last thing Xi needs is a powerful coalition of democracies working in unison to constrain China. Yet this is precisely the outcome he has produced because of his strategic miscalculations and misplaced faith in the imagined virtues of Leninism, compounded by the mistaken belief that the Sov­iet Union collapsed because the ruling communist party’s “ideals and convictions wavered” under pressure from democratising forces. This ignores the Soviet Communist Party’s many mistakes and egregious behaviour towards its own citizens, which Xi is in danger of emulating.

He has already lost the anglo­sphere. And Europeans have grown wary of China’s inducements and are increasingly irritated by the hectoring tone and threats of his wolf-warrior diplomats. The longstanding Five Eyes intelligence arrangement between Australia, the US, Britain, Canada and New Zealand has evolved to become the core of an expanding club of democracies united in opposition to aggressive authoritarianism. It already counts Japan as a de facto member and could soon include several European states, as well India and South Korea.

China won’t prevail if all these states align against it. No developing country has ever ruled the world, least of all one with a persistent soft power deficit. If one discounts the mercurial and quixotic North Korean dictator, Xi has no real friends and one pseudo-ally — Vladimir Putin. Although Russia is a nuclear power, its economy is about the same size as Australia’s and has been devastated by the coronavirus and plummeting oil prices.

What about the 53 countries that backed China’s imposition of the Hong Kong national security law in the inaptly named UN Human Rights Council? Most are in hock to China and comprise an economically insignificant 4 per cent of world GDP. Ambrose Evans-Pritchard describes them in London’s The Daily Telegraph as “authoritarian statelets locked into the neo-colonial infrastructure nexus of China’s ‘belt and road’ initiative”. Daniel Andrews, take note. Xi also needs to think about the reaction of the other 800-pound gorilla in the geopolitical jungle should he single out Australia for special punishment.

Australian critics of the alliance with the US fail to understand that a formal alliance with the world’s strongest power has enormous deterrent value. Xi could never be sure that punishing Australia would not incur US retaliation and real damage to his country’s interests, given Donald Trump’s unpredictability and increasingly hard line on China. Trump has slammed the new Hong Kong national security law and revoked preferential trade and travel privileges for the island, imposing sanctions on officials responsible for the law’s implementation. He also has ordered the closure of China’s consulate in Houston, ramped up US efforts to deny Chinese tech titans such as Huawei access to US markets and technology, and signalled a tougher policy on China’s occupation of disputed islands in the South China Sea.

Even if Trump is not inclined to support Australia, an overwhelming pro-Australian congress and an alliance-sensitive Joe Biden would make it difficult for Trump — or a Democratic administration — to ignore any attempt by China to use a big stick against us.

Ultimately, however, we need to craft our own strategy for dealing with a more aggressive China and not rely on the goodwill of others. Managing the China relationship will be infinitely more complex and demanding than any other foreign policy challenge we have faced since World War II. The objective of our policy is not to turn China into an enemy but to make Xi understand that while we value the relationship, we will not be coerced or threatened into compromising our sovereignty or values. Aside from occasional lapses of tone and language, the government has navigated a prudent course through the minefield of China relations, avoiding the name-calling and personal criticism that has exacerbated worsening US-China ties.

The Prime Minister has overseen a necessary strengthening of our defence force, intelligence and security services, cyber capabilities, foreign interference legislation and co-opera­tion with fellow democracies.

Understanding that Xi is a devoted practitioner of hard power should inform our policy approach and dispel any lingering notion that unilateral concessions will be reciprocated or change Xi’s behaviour. We can still trade and do business with China, as we did during the first Cold War. But the promise of a deeper, richer relationship is unlikely to be realised unless China calls off its wolf-warrior diplomats, dials back the aggression and learns to respect our interests. For the moment, this seems an unlikely prospect, so while hoping for the best we should prepare for the worst.

Alan Dupont is chief executive of geopolitical consultancy The Cognoscenti Group and a nonresident fellow at the Lowy Institute.