Neican is a newsletter on China issues by Yun Jiang and Adam Ni from the China Policy Centre in Canberra. It is also published as a weekly column on the China Story blog. Neican 内参 or “internal reference” are limited circulation reports only for the eyes of high-ranking officials in China, dealing with topics deemed too sensitive for public consumption. Our writing, however, is open to everyone. To receive regular updates, please subscribe. You can find past issues of Neican here.
1. US-China relations under Biden
There is no doubt that US policy on China sits at the top of President-elect Biden’s list of foreign policy priorities.
At the moment, the US faces many internal challenges that reduce its ability to engage in long-term competition with China. These challenges include COVID, economic downturn, systemic racism, and political polarisation. Biden is not going to provide the cure to all of these. But to compete with China, his administration will need to rebuild US strength at home.
What does the election of Biden mean for US-China relations?
First, the underlying trend towards strategic competition between the US and China remains unchanged and will persist despite a change in the US administration. Changing power relativities, strategic ambitions, and divergent values mean that the US and China interests will continue to clash.
Second, Biden’s China policy will likely be more predictable and effective. The unpredictability, rhetoric and unilateralism that marks the Trump administration’s approach to China have been detrimental in many respects to US interests and credibility. Biden’s approach will likely involve a return to multilateralism, and rebuilding of trust among allies, and working with like-minded countries to restrain Beijing’s ambitions. In Biden’s own words:
The most effective way to meet [the China] challenge is to build a united front of U.S. allies and partners to confront China’s abusive behaviors and human rights violations, even as we seek to cooperate with Beijing on issues where our interests converge, such as climate change, nonproliferation, and global health security.
Third, Biden is unlikely to go soft on China. During the later years of the Obama Administration when he was the Vice-President, the US Government was already gearing towards a more competitive approach to China. During the election, the Biden Campaign’s rhetoric on China was tough, even in some areas going beyond the Trump Administration’s policies. On human rights, for example, the Biden Campaign designated China’s actions against Muslims in Xinjiang as “genocide”.
Moreover, getting tough on China has bipartisan support. The underlying shift in US elite and public opinion on China we have seen in recent years will continue to influence Biden as it did Trump.
Fourth, US-China relations could potentially stabilise in 2021 after falling to the worst state since the establishment of diplomatic relations between the US and the PRC in 1979. Biden’s more predictable and measured approach to China may help to drive this. Beijing will likely be receptive to reciprocal measures to improve relations, such as lifting visa restrictions and opening Houston and Chengdu consulates.
2. Ant Group
In a dramatic development, China has suspended the IPO of Jack Ma’s Ant Group, merely two days before the scheduled listing on the Shanghai and Hong Kong exchanges. The listing was valued at $37 billion and was set to become the world’s largest IPO.
Jack Ma is the founder of Alibaba, an e-commerce company that is listed in New York and Hong Kong exchanges. Alibaba’s consumer-facing business is similar to Amazon’s online retail business. It is also active in other sectors, including artificial intelligence, entertainment, and FinTech. Due to the success of Alibaba, Jack Ma also became one of the richest and high-profile people in China.
Alibaba created Alipay, which is now the largest mobile payment platform in the world. Alipay was spun off and re-branded as Ant Financial, and later, Ant Group.
In 2018, Ant Financial was blocked from acquiring MoneyGram by Committee on Foreign Investment in the United States (CFIUS) over national security concerns, specifically data security.
There is speculation that the reasons for China’s drastic actions were due to Jack Ma’s speech made on October 24 at a summit in Shanghai, where he criticised China’s regulators and banks for operating with a “pawnshop mentality”. China’s financial regulators were reportedly not happy with Ma’s criticism and decided to pull the plug and scrutinise the business more closely. This would have a huge impact on Ant Group’s valuation and Ma’s personal fortune.
Financial stability is an important and sensitive topic in China, as there have been growing concerns about China’s financial stability, including on the issues of shadow banking, local government debt, and the implosion of peer-to-peer platforms. Last year, a bank failed for the first time in decades. Rhodium Group and CSIS recently released a report on China’s economic risks that is meant to be used for risk diagnostics.
Although financial stability offers an excuse for regulators to take actions on Ant Group, there was no triggering event or good reasons why they waited until so close to the IPO to do so. The last-minute scuffle only threw uncertainty and cast doubt on China’s regulatory environment. So the more plausible reason for this is that it serves as a reminder to Ma (and China’s business elite) that no one is beyond the reach of the party, regardless of how wealthy or powerful.
The latest development provides more evidence that caution is warranted when doing business in China. Beijing is willing to throw record-breaking deals into doubt and confusion to make a point. This is not a good business environment for a country that wishes to create new technology and rely on indigenous technology in order to mitigate the effects of potential decoupling. Such an uncertain business environment only discourages entrepreneurs and innovators.
3. China “ban” Australian imports
China’s trade actions against Australia appear to have escalated. Reports suggest that China has banned or put restrictions on a range of imports from Australia, including sugar, barley, red wine, timber, coal, lobster and copper. Beijing has dismissed this as “rumours” with Canberra still seeking clarifications. Ironically, this came during the China International Import Expo, with a keynote speech by Xi Jinping highlighting China’s willingness to continue opening up for trade and investment.
The bans are likely a form of economic coercion from China. However, it is unlikely to be effective. For one, it is unclear what exactly China wants from this. We know that China is not happy with the Australian Government’s rhetoric and actions on China and want Australia to “bring the bilateral relations back on track”. But Australia is also unlikely to totally change its attitude and trajectory due to these bans, especially as it is not clear what specific actions China wants Australia to do.
China may want to put pressure on Australian businesses to lobby for better bilateral relations. But after so much uncertainty, businesses may be less inclined to do so and may focus on diversifying their customers, as advised by the Australian Government.
Diversifying the market is not easy for industry sectors. Despite slowing economic growth in China, it is expected to be one of the fastest-growing economies in the world this year, as other countries are still struggling with the pandemic. For example, the India economy, a market that is frequently held up as a panacea for Australian exporters, is predicted to shrink by 10 per cent this year. And India is still highly protectionist as well. So unfortunately for wine or lobster businesses, they are unlikely to find a replacement market.
Even though it is hard for wine or lobster businesses to diversify, it is possible for the Australian economy as a whole to diversify. If the “ban” holds (historically, this has not been the case), then the sectors that export to China would shrink in the economy and the sectors that do not export to China would grow, proportionally speaking. Gradually then, the Australian economy would restructure to one that is more “diversified”.
Many in Australia’s national security community have called for the reduction of trade between the two countries and encouraged Australian businesses to reduce their exports to China. So it seems strange that China’s actions are being criticised since these actions will directly lead to “decoupling” or “diversification”, which is what these commentators have called for.
Beijing’s latest bans are counterproductive to bilateral relations. These measures are not enough to bring about a change in the direction of Australia’s China policy because they do not impose enough cost on Australia. But at the same time, they will be held up as another example of Beijing’s coercion. However, if bilateral relations continue to deteriorate then we should expect Beijing to try putting more pressure on Canberra through trade measures.
4. Australia’s first foreign interference prosecution
Melbourne man Di Sanh (Sunny) Duong (aka Yang Yisheng 杨怡生) appeared before the Melbourne magistrates court last Thursday charged with allegedly preparing for a foreign interference offence. He is the first person to have been prosecuted under the controversial foreign interference laws passed in 2018.
According to a statement from the Australian Federal Police, Duong was charged after a one-year investigation into his relationship with a foreign intelligence agency. He is on bail and will appear again in court in March.
Duong is 65 years old and has lived in Australia for the last four decades. He is the President of the Oceania Federation of Chinese Organisations from Vietnam, Cambodia and Laos 大洋洲越柬老华人团体联合会杨. In June, Alan Tudge, the acting Minister for Immigration and Multicultural Affairs, appeared together with Duong at the Royal Melbourne Hospital to which the association donated $37,000 for the hospital’s COVID appeal.
As Yun noted to NYT last week, “membership in a community group in itself was not enough to prove that Mr Duong had engaged in illegal activity.” Since the contents of the charges against Duong are not yet known publicly, we will refrain from commenting further on this case. No doubt that this case is important because this is the first case prosecuted under the new laws, and will be closely watched both in Australia and around the world.
On foreign interference more broadly, as Yun wrote back in June:
Foreign interference is a national security issue that should be taken seriously. But first, Australians need to have a clearer understanding of what “foreign interference” actually is. The Australian Government should release and publicise clear guidelines and examples as to what actions constitute foreign interference. This will help the Australian community build resilience and watch out for incidences that fall into that category.
The Australian media should also focus less on associations and “links” as evidence for foreign interference. Instead, the focus should be on actions or behaviours that are “coercive, corrupting, deceptive or clandestine”. It is by no means a foregone conclusion that meeting with foreign officials or attending events organised by community groups (even those that have links to foreign governments) necessarily have these characteristics.
Finally, Chinese-Australians should be treated the same way as all other Australians. Commentators like to say that the CCP deliberately conflates Chinese people with the Party. While that may be true, it is not just the CCP that is doing the conflating. We should not presume guilt just because someone is associated or linked to a concept that is not clearly defined or to organisations that are not illegal in Australia. Instead, we should judge individuals based on their actions.
This week on China Story:
- Darren Lim and Natasha Kassam, Loyalty tests make Australia weaker, not stronger? Concern about China’s creeping influence in Australia has dominated headlines in recent years. So it makes sense, from a national security perspective, to understand and engage with the very communities most at risk of China’s meddling: Australians of Chinese heritage.