Balancing the BRI

STANCE #20 – AUGUST EDITION

By Mark Eels

The Belt and Road Initiative (BRI), formerly referred to as One Belt One Road or 一带一路, was a concept borne, on the one hand, to remedy structural inefficiencies, local debt and rampant overcapacity, and, on the other, as parallel trade architecture to counter the Trans-Pacific Partnership (TPP) and bolster the standing of the People’s Republic of China (PRC). ­

The BRI represents a latent microcosm of our larger engagement strategy with the PRC. However, Australia is yet to formally endorse the BRI. Moreover, domestic public opinion about Australia’s involvement is pessimistic. So are we at risk of missing the boat?

While BRI has announced five major goals of policy coordination, facility connectivity, unimpeded trade, financial integration and people-to-people bonds, the cornerstone, at least for now, is infrastructure development. BHP Billiton’s BRI project database appraises investment related to power, railways, pipelines and transport as accounting for 70 percent of aggregate spending with the remainder related to new economic zones, industrial parks, refineries, plants and public buildings. Estimates for PRC investment ranging to as high as 8 trillion USD. As a result, project announcements revive a similar sentiment to that experienced during the PRC’s 2008 stimulus package, whereby capital largely flowed downstream to infrastructure projects, heavily reliant on Australian resources.

Major Australian ore producers Rio Tinto, BHP, and Fortescue are primed to benefit from this transcontinental appetite for infrastructure investment boasting  entrenched sectoral structural power, massive break even advantages and vessel roundtrip times around half that of Brazilian counterparts. Stubborn PRC domestic ore production is finally falling, with last month’s output the lowest for a non-winter period since 2008.

There are, however, major risks associated with BRI.

As Future Risk’s Tristan Kenderdine notes, BRI projects and international capacity cooperation behind them ‘cynically export China’s industrial policy, circumventing the established trade and investment architecture … As China domestically struggles to contain the local government debt built up, export of the investment-driven industrial model, which is what ICC [International Capacity Cooperation] represents, will inevitably export the lax banking standards and endogenous risk to other middle-income countries which do not have the financial infrastructure to survive a collapse.’ More bluntly, as he revealed to me in a novel manner ‘If you are exposed to China’s state capital then you are exposed to China’s local government debt and no one wants to know how that sausage is made’.

Peter Cai has demonstrated feasibility apprehensions with BRI projects. Cai quotes Andrew Collier, Managing Director of Orient Capital Research, ‘It is pretty clear that everyone is struggling to find decent projects. They know it’s going to be a waste and don’t want to get involved, but they have to do something’.

PRC projects are also less open to local and international participation, ‘out of all contractors participating in Chinese-funded projects within the Reconnecting Asia database, 89 percent are Chinese companies … In comparison, out of the contractors participating in projects funded by the multilateral development banks, 29 percent are Chinese, 40.8 percent are local, and 30.2 percent are foreign.’

So how does Australia intend to proceed? Should it be business as usual and are we content to again be seen as the dustbowl of the PRC, or can we learn to more broadly balance the benefits of BRI engagements while mitigating exposure to capital risks?

Should BRI infrastructure projects prove fruitful, there will be new industrial clusters in East Africa, Central Asia and the Middle East all needing resources and iron ore for steel manufactures, along with industry expertise. 139 ASX companies are in 34 countries across Africa, making Australia the largest international miner on the continent.  Government and industry level dialogue with bodies such as the Australia-Africa Minerals & Energy Group need to be increased to include more participants looking to understand opportunities and operational risk.

The Australian government at all levels should foster new relations with emerging economies along BRI to capitalise on the downstream effects of BRI. Examples include the 2014 Memorandum of Understanding (MoU) with the Common Market for Eastern and Southern Africa (COMESA) that focuses on technology for mining, energy and agriculture

Australia should persistently leverage its positions in institutions such as the Asian Infrastructure Investment Bank to create strong risk culture, strengthen governance frameworks and ensure opportunities for Australian contractors to bid under open procurement models. Increasing transparency and accountability will open the door for Australian expertise in services such as project management, engineering consultancy, and financial and legal services.

As BRI facilitates further RMB internationalization, Sydney, as 1 of 20 global official offshore RMB centers should boost its capacity to become a hub for RMB cash and security settlement in the Asia Pacific.

Australia needs to think more broadly about its relationship with the PRC by developing a multidimensional view inclusive of related economies situated along the PRC-led BRI.

Mark Eels has held positions with China Policy, Wikistrat, CSIS, and the Australian Studies Centre at PKU. He holds a Master of International Affairs from Peking University and currently works at New York University.

The opinions expressed in this article are the author’s and do not represent the views of China Matters.
(Photo: Pixabay)

Guns N’ Roses: Live in the Asia-Pacific region

STANCE #19 – JUly EDITION

By Aarti Seksaria 

Muscle-flexing by the People’s Republic of China (PRC) is propelling a shift in regional power dynamics and contributing to militarisation of the Asia-Pacific region. This new reality ought to be a wakeup call for Australia to strengthen its defence sector by engaging with India.

The Stockholm International Peace Research Institute’s FactSheets and the Lowy Institute Asia Power Index 2018 suggest that Australian policymakers need to ensure that the country does not fall behind its neighbours and that it protects its national interests in the Asia-Pacific region. Five of the top 15 global military spenders in 2017 are in this region. The PRC accounts for 13 per cent of the global military expenditure and 48 per cent of the region’s.

Source: SIPRI Fact Sheet – Trends in World Military Expenditure, 2017

Move the spotlight on Australia and the narrative changes. Australia is the only country from the region to have levelled down from rank 12 in 2016 to rank 13 in 2017. Despite being an island country, Australia ranks as low as 54 in terms of total naval strength according to Global Firepower. Nine countries from the Asia-Pacific region make it to the top 20 on the same list and similar trends are evident from the Lowy Institute’s power project.

Source: Lowy Institute Asia Power Index 2018

The pace at which the PRC is instigating this shift and the surmountable gap between the performance levels of the South-East Asian economies and Australia’s only make the situation more severe.

Australia is being outperformed and tumbling into the middle-minor power bracket.

Such a future could reduce Australia’s bargaining power with other Asia-Pacific nations, with the PRC presumably having more control over any interaction and transaction. Australia may soon be too militarily weak in comparison to the PRC to have much voice by itself, despite its alliance with the United States of America.

The PRC has already announced an 8.1 per cent increase in its 2018 defence spending and deployed missiles on disputed features in the South China Sea. With an alleged range of over 200 – 300 kilometres, these missiles can aggravate Australia’s security concerns by hindering the movement of American military deployments in the region. The PRC has also committed aid for 218 projects in the Pacific Island countries valuing US$ 1,781.2 million over 2006 – 2016. The PRC’s increasing investment in these states can infringe upon Australia’s political and economic interests. Australia needs greater decisiveness and diversification. The PRC has been asserting its influence in the region for a while but it is now seemingly close to impinging upon Australia’s natural sphere of influence and security.

The Australian Department of Defence, whose two enduring purposes include protecting and advancing the country’s strategic interests, needs to be proactive. Although the government intends to increase its defence expenditure to 2 per cent of the gross domestic product by 2021, it needs to hasten the decision-making process and catch up with its neighbouring states. The current plan to launch the Shortfin Barracuda submarines around 2030 may not be soon enough to cover or reduce the capability gap with other countries in the region.

The Department of Defence also needs to enhance security cooperation with India. Australia runs the risk of damaging its ties with the USA or Japan if it were to consider defence collaboration with the PRC. This risk could be averted by engaging with India that (unlike the PRC) is a pluralist democracy and closely aligns with USA and Japanese political culture. India is also deeply invested and interested in the stability and security of the Indian Ocean – a reality that integrates perfectly with Australia’s Indo-Pacific vision.

Source: Lowy Institute Asia Power Index 2018

India has a US$250 billion military modernisation plan in process and tails closely behind the PRC as a projected major power. Joint military training camps at Australian bases, intelligence sharing and more naval exercises with India could help Australia develop its standing in the region without destabilising existing relations, and mitigate fears of a potentially hegemonic PRC.

Countries in the Asia-Pacific region may be politically and culturally diverse but they appear to be united in their drive for more guns, plausibly less roses. Australia needs to enhance its defence profile and overall power index by engaging with India, and safeguard its national security midst a militarising region spearheaded by the rise of the PRC.

Aarti Sharad Seksaria is studying toward a Masters of International Relations and tutors Indian Foreign and Security Policy at the Australian National University.

The opinions expressed in this article are the author’s and do not represent the views of China Matters.
(Photo: Wikimedia Commons)

A Piece to the Puzzle: Reading China’s Strategic Mindset

STANCE #18 – June edition

By Kelvin Chau

Australia will need to study Chinese cultural knowledge more comprehensively to remain competitive in the ongoing Asian Century. Studying Chinese strategic culture, notably Chinese conflict management principles, is both necessary and the first step to take. To put it simply, the importance of understanding the role of strategy in the People’s Republic of China’s (PRC) business culture and policy formulation is captured by the title of Professor Xuetong Yan’s book “Ancient Chinese Thought, Modern China’s Power”.

We first need to understand that there is an imbalance in strategic understanding between Australia and the PRC. Jack Ma, the entrepreneur who founded Alibaba, has observed thatin the PRC “where you pick one hundred young people, you will find eighty of them can speak at least fifty English words…” whereas in the US, “if you pick one hundred young people, how many of them can speak more than 10 Chinese words?”.

In 2016, the PRC sent over 500 000 students overseas for education and over 80% in the past years have returned. These advantages – greater bilingual literacy and understanding of foreign knowledge – is important not just for the PRC to develop rapidly in economic and technological chin, but also provides the returned students with a broader strategic outlook to help the country better establish a combined understanding of themselves and their competitors.

On the other hand, the English-speaking world is flooded with open information and ideas in strategy, military, diplomacy and statecraft, while ancient Chinese knowledge of those topics remains sealed behind the gate of classical Chinese language. As a result, most of this knowledge is still exclusively accessible to those who read Chinese, such as PRC elites. This means the strategic understanding between the two countries is imbalanced – PRC elites are informed about Western strategy and yet, at the same time, PRC strategy is hidden from foreign eyes.

This body of Chinese knowledge is intellectually rigorous, and a fundamental prerequisite to our relationship to the PRC. While the western business world and the military forces praise Sun-Tzu’s The Art of War as the bible for strategic thinking, the book is but one of the named Seven Strategic Classics in Chinese civilisation. More recently, “Fortune Makers: The Leaders Creating China’s Great Global Companies” highlights the unique culture in top companies in the PRC, but fails to relay to the reader Chinese culture in a substantial manner. Unless Australians acquire better Chinese language skills, it is very difficult to substantially integrate this knowledge into our strategic considerations.

On a purely linguistic note, the gap between Chinese language as a pure logogram and European languages which are all phonograms, is not to be overlooked. In terms of logic, it has been purported that native Chinese-speakers tend to look at the holistic picture first as the Chinese language has addresses and dates described from general to specific, whilst that of the Western languages is in the exact opposite order. Other differences include that Classical Chinese does not operate under a set of grammatical rules, nor does it require the user to memorise and follow an order of alphabets. This in part is one of many contributing factors to the non-linear and lateral thinking of Chinese elites.

These features provide a sneak peek at how differently native Chinese-speakers pass on, modify and process information. However, when discussed in Western contexts, topics like ‘the trajectory of PRC innovation’ never include these viewpoints into their analysis. This identified knowledge gap is the result of a lack of interdisciplinary work between strategic studies and Chinese cultural studies.

The effect of this puts us in a passive and under-informed position in respect to our relationship with the PRC, and could even costus unnecessary confrontations with the country.

Policy Recommendations:

  1. The Department of Foreign Affairs and Trade and the Office of National Assessment should together build a knowledge collection for public access to fill in the global knowledge gap in Chinese strategic culture. Having an online database for open access to Chinese strategic knowledge of the past, and modern policy concepts of the PRC, would support higherquality of analysis of PRC. The World Factbook online of the United States CIA is a good example of country profiles of key knowledge which this could be modelled off.
  2. Australian universities should make Chinese strategy a core component for students of strategic studies in Australia.

Kelvin Chau works in the Australian Public Service and was brought up in Hong Kong. He holds a Master of Strategic Studies from the Australian National University and has a personal interest in classical strategic thinking in Chinese culture.

The opinions expressed in this article are the author’s and do not represent the views of China Matters.
(Photo: Pixabay)

It’s time to party: Australian political parties in Australia-China relations

STANCE #17 – may EDITION

By Joshua Armstrong

The introduction of the National Security Legislation Amendment (Espionage and Foreign Interference) Bill 2017 signposts the lowest point in the Australia-China bilateral relationship in recent history. At the centre of the breakdown is not the legislation alone. Despite warnings in 2015 from ASIO, both major political parties continued to accept donations from individuals alleged to be foreign agents of the People’s Republic of China (PRC). This in turn has been one of the factors giving rise to sensational commentary that has aggravated the PRC.  As our political parties have borne some responsibility in potentially damaging our relationship, we must consider what role they have in rebuilding mutual trust. This is especially important to consider at a time when Australian government ministers are unable to meet with their counterparts in the PRC.

The long-standing challenge in dealing with the PRC is that the framework for Australian diplomacy does not correspond to the PRC’s power structure. Australian ministers and diplomats do not automatically gain access to the true decision makers in the PRC – in other words, the senior officials of the Communist Party of China (CPC). The blurred lines of the separation between Party and state in the PRC has been described as a policy “black box”. While there is a formal separation of state institutions from the Party, the Chinese state can be seen as the instrument through which the CPC both exercises its power but also hides behind. Therefore, as the CPC has long practiced party to party relations, establishing party-to-party relations between Australia and the PRC could be seen as a sign of good faith, and perhaps a method through which the two countries can break the current impasse.

Because of the CPC’s essential role in the PRC’s diplomacy and its preeminent role in the PRC, Australia should have a dialogue directly with the party. Both Australia’s major political parties can assist this objective by appointing representatives over a number of years to meet annually with the CPCs International Liaison Department. the party body responsible for meeting foreign parties, on the basis of “independence, complete equality, mutual respect and non-interference in each other’s internal affairs”. While parties do occasionally send delegations to the PRC under the Australian Political Exchange Council; this representation would be done on an ongoing basis with the same individuals to develop a greater depth of understanding with the objective of fostering long-term personal political links and PRC literacy in Australia’s political class.

The benefit of liaising with the International Department is that it is an agency under the Central Committee of the CPC, as opposed to the Ministry of Foreign Affairs, which is an agency of the State Council. The International Department is influential. It is close to the Politburo Standing Committee and would help political leaders to understand what occupies the mind of the key decision makers. While diplomats are focused on foreign affairs issues, such as the South China Sea which more likely to cause disagreements, party officials have a broader role to address the domestic needs of its people to maintain the rule of the CPC. This could possibly decrease tensions if Australian leaders come to understand all the internal challenges that the PRC faces, not just its growing foreign power.  Here Australia can play a role in working with the PRC to meet these challenges such as by providing cleaner energy to improve its environment, developing its aged care as well as establishing standards for safe food and pharmaceuticals. By accepting that Australia and the PRC will always have disagreements, but actively fostering areas of cooperation, the bilateral relationships can deepen and therefore grow.

Such an exchange would also help Chinese politicians understand the differences between our systems, namely state supremacy over the party. It would also provide for a private forum to confirm each party’s commitment to not allowing, in the words of the CPC, “non-interference in others’ internal affairs”.

The Australian Government and its two major political parties should, therefore, consider the following:

  • Establish an annual Australia-China High-level Political Party dialogue with parties appointing individuals of matching rank to the International Department. This would involve one standing Australian delegation with the leader of the delegation coming from the party of government of the day.
  • Such an initiative would be similar to the Australia-China High-Level Security Dialogue which meets with the Secretary of the CPCs Central Commission for Political and Legal Affairs.

Joshua Armstrong works as a Political Advisor and is also studying Mandarin.

The opinions expressed in this article are the author’s and do not represent the views of China Matters.
(Photo: Wikimedia Commons)

Australian Higher Education’s China Narrative

STANCE #16 – APRIL EDITION

By Bryce Morton 

Across the world, the People’s Republic of China (PRC) and its internationally mobile students are changing the face of higher education. So much more than simply ‘fee paying students’, this cohort has laid the foundation for substantial relationships between PRC universities and their international counterparts, increased opportunities within the PRC for students and businesses of the host country, and have been a boon for local business.

Source – Australian Dept of Education and Training

Yet with this growth comes increased public attention. As such, Australia must work to broaden our public conversation on this topic, or risk damaging one of our largest exports. This YP stance will focus on two key areas to address in this regard.

Firstly, there is a need to untangle any discussion regarding international students from the broader discussions on higher education in Australia, as mischaracterising PRC international students as potential threats harms students, the industry, and distracts from efforts by the Department of Home Affairs to manage legitimate risks when they do appear.

For example, arguments around uncertainty in university funding, concerns about education quality and employability, performance of the vocational education sector, use of tax-payer dollars, and the ‘place/role’ of universities in society are all vital for public input into higher education.

Yet, when considering how international students influence these issues, it’s important not to conflate two separate issues. University funding debates began long before the recent discussion over reliance on international student fees.  From the Whitlam Government’s abolition of fees in 1974, to the proposed deregulation of university fees in 2016, universities have always adapted to changing financial contexts.

Another example of muddled debate regards questions on the security of intellectual property, academic integrity, and the influence of foreign governments. These are all serious and legitimate concerns, though are not new challenges facing Australia or its institutions, nor exclusive to Australia’s relationship with the PRC.

It is key to note that the higher education sector relies on the Department of Home Affairs, specifically DIBP and ASIO, to lead risk-management via the granting of visas to come to Australia. While PRC international students receive the most media attention, they constitute only about one-third of Australia’s overall international student engagement. A spokesperson from the Department of Home Affairs has actively spoken about visa requirements, noting that they “are not new and they are not specific to Chinese nationals; they apply to all visa applicants irrespective of their country of origin.”

Second, we must re-evaluate our discourse on international student themselves.

Attention grabbing headlines of student anger over disputed borders, issues with distinction between PRC, Hong Kong, and Taiwan, or self-censorship by PRC students, all cast a negative light on these students.

To completely dismiss these issues would be unwise, particularly given the recent measured warning from ASIO. Yet it is equally unwise to believe that every lecture is a battle of Australian values of free-speech and academic integrity versus the official PRC line, or to see the overwhelming majority of Chinese students in Australia as anything other than normal students.

While some universities may have handled the public relations aspects of these specific situations poorly, we can assume that this isn’t the first time these issues have been discussed in the classroom, and therefore successfully discussed and managed.

Yet we only see sensationalist reporting of isolated incidents which fosters a damaging view of PRC students. The majority of international students seek what their Australian classmates do – to further their education, increase their job prospects, and take a major step into adulthood. To characterise the majority as anything else risks further alienating a group of students who, like all international students, should be welcomed and guided through the expectations and standards of Australian academic (and social) openness and integrity.

To address these two issues, the following actions should be considered by stakeholders within the debate:

  • Universities Australia, a non-partisan body representing Australian universities, should step-up its efforts to confront the misrepresentation of some media reports by presenting clear and community-focused statements that help the public understand international and domestic distinctions within the debate; and
  • The Department of Education and Training, in consultation with Australian Universities and Colleges, needs to expand the Education Services for Overseas Students (ESOS) Act and the National Code of Practice for Providers of Education and Training to Overseas Students (National Code) to mandate that Australian higher education institutions provide clearly defined and sustained cultural support and engagement programs for international students.
  • The Australian government needs to empower the Tertiary Education Quality and Standards Agency (TEQSA) to appropriately enforce these changes.

Bryce Morton works at an Australian university and has a keen interest in the international education industry in Australia.

The opinions expressed in this article are the author’s and do not represent the views of China Matters.
(Photo: Pixabay)

A wasted opportunity: PRC working holiday visa holders in Australia

STANCE #15 – MARCH EDITION

By Justin Steele

Within less than a decade, over 25% of international visitors to Australia will come from the People’s Republic of China (PRC). They will account  for more than 1 out of every 3 dollars spent by international visitors by 2026, totalling $26.2 billion per year – up from $9.8 billion in 2017. But according to the Australia China Business Council, Australia’s tourism industry is not ready for this boom; its ‘China Readiness’ score is only 65 points out of 100.

The Working Holiday Visa (WHV) scheme is one way that Australian tourism operators can upgrade the skills of their workforce and improve their China readiness. Under the scheme, up to 5000 PRC nationals per year aged 18 to 31 can holiday in Australia for up to one year while undertaking paid work. They can also apply for a second-year extension, provided they undertake work in Northern Australia for three months in either agriculture, tourism or hospitality during their first year. This means young PRC nationals can travel around Australia for up to two years and receive valuable work experience in the tourism industry. Their positive travel experiences, documented on social media and via word of mouth, can inspire future generations to visit Australia. Their negative experiences may also discourage others from visiting.

When the scheme was introduced, the Australian government noted it would ‘increase demand for tourism services and support the development of Australia’s tourism sector, particularly in rural Australia’. Unfortunately, a lack of government monitoring of the experiences of WHV holders, combined with a failure to facilitate connections between WHV holders and tourism operators, means that the scheme is falling well short of its potential.

A closer look at the application process for a second-year extension of the WHV is indicative of problems with the scheme. In discussions with current WHV holders from the PRC, there is a sense that there is inadequate publication of the requirements for extending the WHV for a second year. According to Yao Fang, an honours student at the University of Queensland who interviewed 15 PRC WHV holders in 2017 as part of her thesis, over 25% of PRC WHV holders want to undertake the second year visa. However, during 2016-17, there were only 189 second year visas granted – accounting for fewer than 4% of PRC WHV holders. By comparison, the percentage of WHV holders from Taiwan, South Korea and Japan undertaking a second year in Australia were 49.5%, 23% and 22% respectively. What is going wrong?

Unfortunately, there is next-to-no research on the topic. Fang’s research found that only 9 out of the 15 PRC nationals were satisfied with their experiences in Australia. Her interviewees encountered many problems in Australia, including exploitation by employers; communication barriers due to low levels of English; and lack of information on employment opportunities and work rights. None of Fang’s interviewees found work in the tourism industry, with many working in restaurants where they could communicate in Chinese: ‘I worked as a waitress in a Chinese restaurant. I got no pay for my first 8 hours training period, and after that I could get $10 per hour’, one respondent explained.

Another problem identified by PRC WHV applicants is the scalping of online application spots. Due to massive demand for the WHVs, PRC applicants apply online to secure a spot in the queue for their WHV application. Scalpers have created scripts to secure those spots, which they then sell through Taobao for up to A$400. With an additional A$440 visa fee, this only adds to feelings by PRC WHV holders that they are being ‘ripped off’ coming to Australia.

 

 

 

 

 

 

 

 

 

 

 

So, what can be done? For the scheme to achieve its potential, it requires the Australian government to take a proactive approach in managing the experiences of PRC WHV recipients. Practical steps that the Australian government could implement include:

  • The Department of Home Affairs (DHA) could improve the online application procedure to prevent scalping of application spots
  • Establish an online community (ideally on WeChat) guided by employees of the DHA and the Australian Embassy in the PRC, which provides on the ground support as well pre-departure advice for PRC nationals and collects post-trip feedback to improve the WHV scheme
  • Create a database of tourism operators (with support from various organisations representing the tourism industry) looking to employ PRC WHV holders to develop their “China readiness”
  • Increase the geographic scope of the “Northern Australia” restriction or allow tourism operators to “sponsor” a PRC WHV holder for a second-year visa. This would allow PRC WHV holders to qualify for the second-year visa even if they have undertaken tourism work elsewhere in Australia.

Justin Steele is a Sydney-based entrepreneur and consultant, specialising in the Chinese tourism market. 

The opinions expressed in this article are the author’s and do not represent the views of China Matters.
(Photo: Justin Steele)

Chinese mobile payments in Australia: convenience at what cost?

STANCE #14 – FEBRUARY EDITION

By Hannah Caldwell

At the entrance to Alibaba’s headquarters in Hangzhou is a large, traditional-style Chinese painting. On closer inspection, hidden in the scene are many of the big names in tech: Steve Jobs, Mark Zuckerberg, and Bill Gates to name a few. The painting captures the essence of the Alibaba dream: to surpass the past achievements of the Western tech world, and forge the future.

Many visitors to the People’s Republic of China (PRC) are struck by its technological innovation, particularly the widespread use of mobile payments. Alipay and WeChat Pay have become seamlessly integrated into people’s lives: users can hail a cab, shop online, and even give money to beggars on the street via their smartphones. Grame Barty, ex-Austrade Executive Director for International Operations, described this as a “financial technology tsunami” facing the Australian Government, business and regulation leaders.

To ride this wave successfully, Australia must strike the right balance between promoting opportunities this new technology offers for attracting Chinese tourism and spending power, and addressing concerns around data security and the potential economic influence the PRC could leverage through these payment platforms.

Australia is a popular destination for Chinese tourists who make up the largest proportion of visitors by nationality, spending a total of A$10.3bn last year, making up over 25 per cent of the total tourist spend. Retailers are increasingly offering Alipay and WeChat Pay as a way to boost spending. These methods offer customers convenience: it removes the need to carry cash, and avoids currency conversion costs by allowing payments in Renminbi. Alibaba’s Australia and New Zealand headquarters opened in Melbourne last year to encourage Australian retailers to market to Chinese customers.

Interestingly, there has been little effort to open up these payment methods to Australian consumers. Late last month, WeChat’s developer Tencent moved to allow major international credit cards on WeChat Pay, yet this was only possible on versions of WeChat downloaded in Mainland China, Hong Kong, Taiwan and Macao.

Part of the hesitancy of Chinese tech companies to offer these services to customers who are not PRC citizens stems from the challenges around data security regulations. WeChat Pay, as part of the WeChat social media platform, collects a wealth of data about its users: their location, preferences, social connections, and spending habits. This creates a mine of information that can be exploited for targeted marketing and consumer insights.

More worryingly, it is also being used to assign unofficial credit scores to PRC citizens, which come with benefits and penalties managed by private companies and government bureaus. Alibaba was recently forced to apologise for automatically opting in users to its credit scoring system. While these controls impact PRC consumers far more than the Australian businesses offering the mobile payment methods, they highlight concerns for all users around the lack of clarity about what exactly is tracked, how that information is managed, and how secure that information is.

These concerns are not unfounded. Australian businesses using these apps run the risk of the metadata collected providing more information than they are aware of sharing. It was only recently that the PRC central bank established a clearing house for these payment services in order to address concerns about money laundering and fraud. There are also potential risks associated with the influence Alipay and WeChat Pay may be able to exert over Australian retailers due to their dominance. Since they set the cost retailers are charged for offering a service, or for each transaction, this could be used to exert economic influence over the sector, or as a bargaining tool for the PRC with the Australian Government when negotiating other cross-border trade agreements.

To realise the benefits of this technological innovation, and temper the potential pitfalls, the Australian Government should draw on the expertise of those in the Fintech sector to understand the challenges of regulating this industry. Last year, the Australian Securities and Investments Commission (ASIC) and the China Securities Regulatory Commission (CSRC) entered an agreement to promote innovation in financial services in their respective markets. This is a great start to share ideas, but the Government should create an advisory committee to focus on identifying key concerns and putting forward measures or policy decisions to address them.

A similar initiative launched in the UK, with the China Market Advisory Group (MAG), which brings together senior practitioners from across the UK from the financial and related professional services industry to provide strategic insight, guidance and support to policymakers. It hosts an annual UK-China Financial Services Summit to allow industry to put forward its views on policy issues to the two governments. This kind of focus and direct link to Government policymaking is needed to allow innovation, while ensuring these new technologies are not in conflict with Australian data regulation and privacy standards.

Offering these new payment methods to Chinese visitors increases Australia’s attractiveness as a tourist destination, bringing benefits from the increased spending of the growing middle class. However, the Australian Government should not lose sight of the broader challenges in pursuit of short-term financial gain. Drawing on the knowledge of experts to ensure appropriate regulation and safeguards are in place will enable the retail sector to unlock the benefits, without the risk of paying a much higher cost.

Hannah works in Management Consulting and is a keen China observer. 

The opinions expressed in this article are the author’s and do not represent the views of China Matters.

Empower Chinese-Australians to improve bilateral relations

STANCE #13 – January EDITION

By Jieh-Yung Lo

The 2017 Foreign Policy White Paper reflects the increasing complexity of Australia’s relationship with the People’s Republic of China (PRC) and the need to balance trade, investment, and security. Whilst two-way trade remains strong and healthy, the PRC’s assertiveness to expand its geopolitical presence and influence in Australian politics has caused much concern and frustration for Australia.

To help Australia unlock this complexity, it needs to use every tool at its disposal. One of the tools that have yet to be used to its full potential is Chinese-Australian communities.

Australia-China relations have faced challenges in recent times as a result of the Sam Dastyari and Huang Xiangmo political donations scandals, the ongoing media coverage of Chinese influence in Australia, and the Turnbull Government’s new foreign interference laws. Furthermore, the actions of Huang Xiangmo and Chau Chak Wing have tarnished the reputation of Chinese-Australian communities. To break down these tensions and misunderstandings, it requires Chinese-Australians to be more active in foreign policy to help Australia and China navigate through the cultural nuances and political complexities surrounding these issues.

In his opening remarks at the launch of the white paper, Prime Minister Malcolm Turnbull mentioned Australia’s success as a multicultural society and recognised the role of the one million Australians of Chinese ancestry. Having the prime minister recognise this feature is a positive start.

The white paper states that Australia is committed to advancing its comprehensive strategic partnership with the PRC. Australia’s relationship with the PRC has moved beyond trade and investment and into strategic matters such as defence, research, combating transnational crime and law enforcement. To deliver these outcomes, Australia needs to involve and engage Chinese-Australian communities to help influence the PRC in a positive manner. The Australian Government through the Department of Foreign Affairs (DFAT) can start by appointing a working group of Chinese-Australian representatives, which could be guided by the Australia-China Council (ACC), provide ongoing policy advice, and develop outreach initiatives and recommendations from Chinese-Australian communities to the government.

One of the key takeaways from the white paper was the government’s commitment to work with Australia’s diasporas and culturally diverse communities. The paper states “these communities often have the connections, language skills and cultural understanding to assist Australia to deepen ties with other countries. The numerous communities who have their roots in the PRC and from Overseas Chinese origins are no exception.

Chinese-Australians are in a unique position. We understand both sides and have the ability to navigate between both cultures. I experienced this firsthand when I coordinated and facilitated the establishment of the sister/friendship city relationship between Xi’an and Hobart. A significant attribute that led to the successful delivery of this project was my team’s language and cultural skills to build trust and confidence between both sides. The conversation started with both sides not knowing each other existed to developing one of Australia and China’s most unique sister/friendship city relationships.

Like any successful relationship, it requires trust, respect and confidence – attributes Chinese-Australians can help Australia provide in its dealings with the PRC and vice versa due to our shared sense of belonging such as beliefs, culture, language and heritage. The Chinese-Australian perspectives on the bilateral relationship need to be heard if we want to understand how the PRC works, what the government in Beijing is thinking and to develop strategies to maintain and build on this relationship.

Part of Australia’s uncertainty and nervousness with the PRC derives from the difference in political systems, law, culture and values. From my own interactions with PRC officials, the PRC does not fully appreciate our political and legal systems due to a lack of knowledge. Our 45-year bilateral relationship is mature enough to allow us to have a frank conversation about our political agendas. From senior ministerial to community levels, and within academia, these political dialogues should be conducted in an environment that allows candid and fearless discussion in an informal setting.

Australia has an incredible human resource that is heavily underutilised. We need to embrace and empower Chinese-Australians by giving them a platform to share their views and have a presence at decision making tables. Government departments, academic institutions, businesses and think tanks should invite Chinese-Australian representatives to participate in discussion forums, conferences and research. Chinese-Australian community representatives must be more proactive and reach out to relevant stakeholders to express their opinions and perspectives. I, for one, am more than willing to work with both sides to foster a more productive, positive and trusting relationship.

 Jieh-Yung Lo is a Chinese-Australian writer and policy advisor. He is currently working on his first book My Chinese Australian Story. He tweets at @jiehyunglo.

The opinions expressed in this article are the author’s and do not represent the views of China Matters.
(Photo: Wikimedia Commons)

Students of Mandarin: Dare to take the plunge

STANCE #12 – December Edition

By Simone van Nieuwenhuizen

Chinese international students in Australian universities have come under the spotlight in recent months. This is not surprising; there are more than 131,000 university students from the People’s Republic of China (PRC) in Australia, accounting for almost 40 per cent of all international students in the higher education sector.

At the same time, student mobility from Australia to the PRC is almost completely absent from public discussion. The numbers are stark: there are 4,796 Australian students in the PRC, or just over one per cent of international students there. Furthermore, while the total number of Australians studying in the PRC has increased, the majority stay for less than six months.

In order to improve Australians’ grasp of Chinese language and understanding of the PRC’s influence in our region, students need to be spending more time in the PRC and enrol in Chinese- rather than English-taught programs. To facilitate this, both the tertiary education sector and the federal government should provide greater incentives for students to take part in these longer programs.

Research by the Australian Department of Education shows that the PRC is the second most popular destination for Australian university exchange and study abroad students. Additionally, while the numbers have fluctuated over recent years, there has generally been an upward trajectory (see figure 1).

However, the number of students in longer programs has stagnated (see figure 2). According to the most recent data from the PRC’s Ministry of Foreign Affairs, of Australians studying in the PRC in 2016, 69 per cent stayed less than six months.

There are several problems with shorter-term stays. Most participants in short-term Chinese language immersion programs engage more on a day-to-day basis with their foreign classmates than with local Chinese students. Chinese universities usually offer separate accommodation for international students. Thus, while the classroom experience might be immersive, the social environment outside the classroom often dilutes linguistic and cultural engagement.

The abundance of English-taught programs exacerbates this. Peking and Tsinghua universities have introduced the prestigious Yenching and Schwarzman Scholars programs respectively, which have no Chinese proficiency requirement. Some programs explicitly forbid enrolment of PRC nationals, eradicating the possibility of interaction with Chinese students in the classroom, and in turn the possibility of an authentic experience.

Longer stays offer profound benefits. The more time spent overseas, the greater the degree of language immersion and fluency. This is sorely needed in Australia. 2016 Census data show that while Mandarin Chinese is the second most commonly spoken household language in Australia (2.5 per cent) an overwhelming majority of households (72.7 per cent) speak only English. This leaves a huge knowledge deficit, demonstrated by the employment demand for bilingual speakers. Earlier this year, Tim Mayfield, Executive Director of Asialink’s Asia Education Foundation argued, ‘A good strategy [to fill this gap] is to start incorporating native Mandarin speakers in top companies using those bilingual skills’. However, reliance on native speakers will  not reduce the knowledge deficit. As Jane Orton has pointed out, ‘[I]t may often be the native English speakers who are seeking information or connection that is vital to them. Relying only on what people can or choose to tell them in English … leaves English speakers in a passive position’.

Longer stays also facilitate lasting professional and interpersonal relationships, of particular importance in the PRC.

With this in mind, universities can play a role by providing greater incentives and more opportunities for undergraduate students to undertake longer and Chinese-taught programs, especially for those majoring in Chinese Studies or related disciplines. Further incentives could include giving priority to scholarship applicants enrolling in longer programs, and integrating a compulsory year-long exchange into competitive undergraduate language-focused degrees. The Australian National University’s ‘Year in Asia’ program is an example of the latter. More credit points could be offered for Chinese-taught subjects. Other actions could include reviewing existing exchange agreements and negotiating extensions; and surveying students to ascertain the reasons behind their preference for short-term programs, in order to develop initiatives to address the key challenges.

On the government’s part, the New Colombo Plan could prioritise proposed programs over six months in length, which would in turn incentivise universities to develop creative and rewarding programs for more immersive China experiences.

Universities also have a role in empowering students to make informed choices about their studies, both during their tenure and beyond. This includes raising awareness of alternative sources of funding, such as the PRC’s China Scholarship Council (CSC). The CSC offers a comprehensive suite of scholarships for Chinese-taught degree programs, at the municipal, regional and national levels. Individual PRC universities also run their own scholarship programs.

Chinese-taught programs not only offer a more immersive language experience – by completing assignments, presentations and theses in Mandarin, one’s Chinese is guaranteed to improve exponentially – but also give the student invaluable insights into the PRC’s education system, politics, media and society. These are all valuable skills for Australia’s future. China scholars should consider the benefits of witnessing developments first hand; these insights are not attainable at arm’s length. While living in the safety net of one’s native language and among a familiar community might be tempting, it makes for superficial engagement.

Simone van Nieuwenhuizen is Project and Research Officer at the Australia-China Relations Institute at the University of Technology Sydney. She lived in China for three years, and holds a Master of International Relations (Diplomacy) from Peking University.

The opinions expressed in this article are the author’s and do not represent the views of China Matters.
(Photo: Junyu Wang via Flickr)

How to help Australian start-ups succeed in the PRC

STANCE #11 – November Edition

By Jemma Xu

2015 was an interesting year for Australian start-ups in the People’s Republic of China (PRC). In mid-June, the Shanghai stock market collapsed, losing nearly 30 per cent and more than US$2.8 trillion in value within a month. China’s early stage venture investing market then turned from a euphoric bubble to a freezing low. But few could have guessed that merely a year later in 2016, Chinese venture capital commitments would exceed US$50 billion, nearly matching the United States for the first time.

With so many opportunities available, the Australian government should spare no effort to ensure Australian start-ups targeting China’s market have every chance to succeed.

This excess capital is not just fuelling the Chinese start-up ecosystem, it is also drawing the attention of Australian founders. At the start of 2015, few Australian entrepreneurs had any interest in China. Fast forward to 2017, observing from my base in Beijing, many Australian entrepreneurs are now thinking about China, both as a market and a source of capital. With so many opportunities available, the Australian government should spare no effort to ensure Australian start-ups targeting China’s market have every chance to succeed.

But the PRC is not one market; rather it is the sum of 34 unique markets consisting of its provinces, regions and municipalities. With this in mind, Australian start-ups should never attempt to tackle China as a whole and instead select one province or even one city first and go deep. Australian start-up hubs like Austrade’s Landing Pad in Shanghai and Australian co-working space provider Fishburners Shanghai are excellent starting points, and such initiatives should be expanded.

However, start-ups should realise different cities specialise in different industry verticals and pick their initial market entry accordingly. Both start-ups and ecosystem supporters like the Australian government should place greater emphasis on Tier 3 cities – less developed than the metropolises of Shanghai and Shenzhen – by engaging with industries in which these cities have an advantage. The opportunities that come with the chaos of a developing market are no longer present in Tier 1 and some Tier 2 cities.

Start-ups are encouraged to invest more time and energy into understanding China’s domestic politics. The recent 19th Communist Party Congress was a timely reminder of party-state supremacy where Party policies can have a significant impact on business opportunities.

First promoted by Premier Li Keqiang at the World Economic Forum’s 2014 summer gathering in Tianjin, the top-down ‘mass entrepreneurship and innovation’ policy has resulted in new mandatory entrepreneurship programs throughout the Chinese education system, opening up a whole new niche in the sector. Fintech is another sector where there are significant regulatory risks and opportunities, where peer-to-peer lending laws and the recent ban on initial coin offerings are all underpinned by a concern for social stability, one of the pillars of the Communist Party of China (CPC).

Australian government departments, as well as relevant institutes and companies, produce high-level industry reports. However there should be more coherent analysis of specific CPC policies and their potential direct implications on business in China. The Australian government can assist this by facilitating a working group of experienced founders and investors in the Chinese markets to share experiences and analysis.

One area which deserves particular attention is intellectual property. Australian start-ups tend to obsess over intellectual property infringements in China. There are many publications that provide a myriad of well-trodden paths for intellectual property protection. However, I strongly suggest start-ups to only pursue intellectual property infringements to the extent that it is commercially viable.

To be successful in the Chinese markets, it is first and foremost about execution. If one’s technology or brand has been ‘copied’ and is more successful in China, resources may be better spent on understanding why the original could not achieve the same level of success. Perhaps it is better to ‘copy’ some of the Chinese execution, rather than engage in long intellectual property battles. In addition, it is worth keeping in mind that China is very advanced in some areas of deep technology such as artificial intelligence and soft technology such as payments.

It is time to come up with a systematic method for the Australian government to first discover and then engage with start-up entrepreneurs and early stage investors with real China experiences.

The above recommendations would be obvious to anyone who has spent substantial time in China building or investing in companies. Yet, from the founding teams of start-ups to the Boards of ASX companies and industry peak bodies, there appears to be a systemic lack of Australians with real China experiences. Such experiences not only help individual start-ups and established companies but also help to inform the Australian government of how to provide the best opportunities for Australian innovation to succeed in China. Perhaps it is time to come up with a systematic method for the Australian government to first discover and then engage with start-up entrepreneurs and early stage investors with real China experiences. Existing bodies such as AustCham and the Australia China Business Council have been active in engaging with established businesses – perhaps there should now be a working group to focus on start-ups.

Jemma Xu is the Beijing-based founder and CEO of Tripalocal, an Advisory Board Member at Haymarket HQ and an early stage investor in China focussed edutech and fintech startups.

The opinions expressed in this article are the author’s and do not represent the views of China Matters.
(Photo: Perzon Seo via Flickr)