Be Wary of the China Narrative

STANCE #8 – AUGUST EDITION

By Cecilia Ren

China is increasingly seen as both good and evil in the common narrative which prevails in Australia. This ambivalent feeling is reflected in the recent Lowy Institute poll which showed that while a majority of people think China is more of an economic partner than a security risk, almost half (46%) still worry that it remains a potential military threat.

These sort of conflicting popular perceptions of China also prevail in the Australian business community. China is perceived as being an abundant source of capital for foreign investment in Australia and a vast new market for trade and investment. But yet it is also seen as home to opaque business practices, complex capital structures, unpredictable domestic regulation and inadequate rule of law – the hallmarks of a politically risky authoritarian regime.

This way of viewing China can translate into simplistic strategies in the hands of the Australian business community, which is prone to looking for either a deal-breaker or a deal-maker. As a result of this polarised approach, risks and rewards are either over- or underrated.

For example, many Australian investors think that the ownership structure of Australian-listed Chinese companies is too complicated and so likely to be vulnerable to fraud. Only a handful understand that these structures are a prerequisite for a Chinese company to be listed overseas because Chinese regulators do not want a Chinese company to directly list overseas. Therefore an offshore listing entity and an onshore operating entity as its subsidiary are necessary. Some of the most successful Chinese companies listed overseas, such as Alibaba and Tencent, use a more complex structure than what most Australian investors have seen – the Variable Interest Entity structure, putting an extra layer of entities in between the listing entity and the operating subsidiary. These complex corporate structures do pose challenges for overseas investors, but the real risk of fraud depends on the individual company management. If US investors shunned Alibaba and Tencent just because of this, great opportunities would have been missed. Similarly, Australian business communities must learn to understand and work with these corporate structures if they wish to find decent business opportunities.

there can be an excessively positive perception that expanding into China is always a good growth strategy, and this is a common narrative until problems occur.

On the other hand, there can be an excessively positive perception that expanding into China is always a good growth strategy, and this is a common narrative until problems occur. Two large Australian bio-tech companies, CSL and Cochlear, announced China investment plans in recent months and they were generally lauded by the market. But earlier when Wesfarmers announced the takeover of a UK houseware chain, the media reported different views about the feasibility of the expansion plan – which was not seen in either of the China cases. Unrealistic market optimism about expansion into China can be dangerous for many Australian SMEs by giving them false hope about what can be achieved. China’s higher annual growth and growing per capita income do not flow easily to the bottom line of Australian companies. When ambitious expansion plans don’t succeed, the whole market swings towards pessimism about China. This cycle only seems to repeat itself.

Australians need to abandon these China narratives in order to build a rigorous evaluation model.

Australians need to abandon these China narratives in order to build a rigorous evaluation model. Business owners and investors should be wary of mainstream news reports reflecting these common stereotypes. Instead, they should seek out more in-depth business information on China from non-government organisations and business or trade institutions. Going to more specialised industry events will also allow investors and small business owners to meet industry experts and participants who can explain regulatory issues and common practices which relate to their specific sector.

Nevertheless, the mainstream media needs to move on from simplistic China narratives because media reports still set agendas and influence perceptions. Most China related media reports cover business and politics, whereas a wider spectrum of topics including culture, education and societal trends need more attention. They could provide a more comprehensive view of China and thus allow insights into business practices and political developments that would otherwise be concealed.

There are already many exchange and education initiatives supported by the Australian government that don’t receive enough media attention. Participants in these programs deserve more attention because they have firsthand experience and can offer more neutral and diversified opinions on China-related issues. While these initiatives may not directly deal with business issues they can expand the diversity and sophistication of the discussion about China. This in turn will facilitate more comprehensive evaluation of potential business deals by providing more accurate information about China’s diversity.

Cecilia Ren is an Analyst at Amery Partners. Neither the author nor her firm owns stocks of companies mentioned in this article.

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

The Quad Redux: Casting Off The Albatross

STANCE #7 – JULY EDITION

By David Lang

Ships from the American, Indian and Japanese navies will gather in the Bay of Bengal for Malabar 2017 later this month. The wargames come six months after Canberra formally asked the Indian defence ministry to consider permitting observer status to a handful of Royal Australian Navy vessels, and mere weeks after that request was denied. The consolation reportedly offered by Delhi was that Australian officers could watch the maneuvers from the decks of the participating countries’ ships. That wasn’t the outcome Australia was after, but it’s still a small step in the right direction. While the expanded Malabar exercise was a one-time matter of contention in the Sino-Australian relationship, Canberra should continue to push for its resurrection.

The history is well documented. Buoyed by cooperation in response to the 2004 Indian Ocean tsunami, and with China’s growing economic and strategic heft giving pause, policymakers in Delhi, Tokyo, Canberra and Washington spied an opportunity. May 2007 saw the Quadrilateral Security Dialogue convened on the sidelines of the ASEAN Regional Forum. That September, the four, along with Singapore, sent their navies off to momentarily supercharge the US-India naval engagement into a large multilateral endeavour. Diplomatic demarches from Beijing and a change of government in Canberra saw Australia unilaterally back away from the group in 2008.

In the final analysis, Beijing’s actions in recent years have cast a pall over prospects for continued peace and stability in the Asia-Pacific.

The regional strategic designs of President Hu’s China in 2007 were far less clear, and its actions far less provocative and assertive, than they are under President Xi today. China presents a major challenge to the established rules-based regional order, particularly at sea. Compulsive land reclamation efforts in the South China Sea are but one aspect of a coercive and muscular foreign policy that seeks to carve out a regional sphere of influence for China. In the final analysis, Beijing’s actions in recent years have cast a pall over prospects for continued peace and stability in the Asia–Pacific.

In the face of this more worrying regional strategic environment, it could be said—with hindsight—that the Quad was an idea before its time. While the Trilateral Strategic Dialogue between the US, Japan and Australia has existed since 2006, minilateralism between the Quad partners has proliferated since 2007: the US–Japan–India trilateral has been on the scene since late 2011, the Japan–India–Australia trilateral arrived in mid-2015, and Japan joined as a permanent participant of Malabar in late 2015. With those complementary engagements supported by positive bilateral relations among the four, it’s easy to imagine that expanding Malabar might actually be reasonably straightforward today if it wasn’t saddled with the baggage of a decade prior. That earlier outing hangs like an albatross around the neck of Australia’s ambitions to join today.

Reviving the Quad would be an important act of strategic signalling, from which a number of benefits could flow. At the operational level, the four navies get to build interoperability, inter-force relations and trust. They also get to consolidate habits of cooperation, shape a shared perception of the strategic environment and demonstrate collective resolve. At the regional level, it would stand as a contribution to a more ‘networked security architecture’ that further evolves the hub-and-spokes system and matures the region’s nascent multipolar flavour. The initiative would impose a cost on Beijing for its recent behaviour.

The Quad members could come together to pursue … a stable, open and prosperous region wherein China abides by the established rules and norms.

While China’s tolerance for multilateral security activities in Asia appears to have grown, Australia must nonetheless be prepared for Beijing to again brand an expanded Malabar as a tool of containment or encirclement. Member countries should resist such claims if they’re made. The Quad members would come together to pursue their shared interest in a stable, open and prosperous region wherein China abides by the established rules and norms. But let’s be clear: China is the Quad’s animating principle. Once the group is again off the ground, China should be invited along as an observer.

India didn’t deny Australia’s request in order to mollify China, nor because of some overwhelming angst about Australia’s about-face in 2007—though some in Delhi maintain lingering doubts about our reliability. The time just wasn’t right, meaning that expanding Malabar will require Australia’s ongoing patience. Canberra should continue to quietly push the idea forward and advance Delhi’s understanding of the RAN’s capabilities. Last month’s Indo-Australian naval exercise off Western Australia was just our second together (the first was in 2015), so these are early days.

The Quad 2.0 must be sustainable, well-calibrated and built on consensus, so there’s no alternative but to wait for Delhi to come to the party. Pending the character of China’s contributions to the region and Washington’s appetite for Asia-Pacific minilateralism, the group could yet shape up as a worthwhile venture to complicate Beijing’s considerations.

David Lang is an analyst and managing editor of The Strategist at the Australian Strategic Policy Institute.

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

Quietly Taking Apart the Bamboo Ceiling

STANCE #6 – June EDITION

By Shanna Pan

“You can’t be what you can’t see”. These seven short words from American activist Marian Wright Edelman explain so simply, yet profoundly, the remarkable importance of diverse and fair representation in society. It’s a phrase that encapsulates one of the key problems of the “bamboo ceiling”: the idea that there exists an invisible barrier in our labour force that prevents Asian talent from breaking through into leadership positions.

We run the risk of becoming entrenched in a vicious cycle of underrepresentation, and potentially losing some of our top talent to overseas markets.

People of Asian descent currently make up 10 per cent of Australia’s population, with Chinese ancestry contributing to nearly half this figure. Contrast this with their representation in senior executive positions at ASX 200 companies, which sits at less than 2 per cent, and it is apparent that the bamboo ceiling has found its way into the structure of corporate Australia. Without actively trying to address this, we run the risk of becoming entrenched in a vicious cycle of underrepresentation, and potentially losing some of our top talent to overseas markets.

The book which originally coined the term “bamboo ceiling” provides career strategies on how to transform yourself in order to “break the bamboo ceiling”. Whilst resources like this may help individuals overcome adversity in challenging work environments, placing all the onus on the individual to change and adapt is akin to a moderate form of victim blaming. So, at what point do we need to shift our focus from the person to the environment?

Enacting blanket policies at the organisational level to address diversity issues can be troublesome, particularly once quotas become involved. On the one hand, they can be relatively simple to implement; on the other, we are faced with the moral dilemma of potentially compromising the meritocracy upon which hiring practices are supposedly built.

The act of balancing a desire for greater cultural representation with the complexities attached could easily be written off as being in the “too hard basket”. However, Australia’s proximity to China, our increasing trade ties within the Asian region and China’s growing international power and influence should be enough to warrant special attention to this matter.

A report released last year by the Australian Human Rights Commission (AHRC) suggested addressing three different layers within this issue: leadership, systems and culture. An example it cited was Westpac, which has taken a bold step in introducing racial diversity targets for its leadership team. While this is a more extreme measure, there are other ways businesses and governments might ensure a more accessible path to leadership for their broader talent base.

One such method may be to encourage cultural empathy from a young age, through offering exchanges and scholarships as per Westpac’s Asian Exchange Scholarship program. Exposure early on to the inner workings of a culture as diverse as China’s would help foster deeper understanding and could influence decision making when it comes to hiring as referenced in the AHRC report.

Providing young talent with access to senior mentors, who may later act as advocates for them, is particularly important for Chinese culture in which modesty is encouraged more than in the West. This may come with the added benefit of a knowledge-transfer, allowing existing leadership to understand more about this demographic and how they might be able to adjust current practices to better engage with this growing talent pool.

Finally, a theory explored in Susan Cain’s book “Quiet: The Power of Introverts in a World That Can’t Stop Talking” posits that introverted qualities are often more valued in Chinese society, and that this has implications in a business environment. For example, consider whether team meetings are the most beneficial format for everyone, or if there might be a better way to encourage introverted team members to participate. If you can identify someone with talent who might need some assistance in making their accomplishments known, try to build a close relationship with them, and offer to act as a mouth piece if they do not feel comfortable speaking up for themselves. If someone is particularly quiet, it may be because they are simply spending more time “doing” instead of just talking.

Companies which recognise this issue and look to take action early on could be set to profit from a first-mover advantage

The bamboo ceiling is complex, and not an issue for which I claim to have all the answers. But the above suggestions could go a long way in fostering the next generation of leaders and achieving a more equitable representation of our diverse cultural makeup, something which should be a point of pride for Australia. Companies which recognise this issue and look to take action early on could be set to profit from a first-mover advantage, an invaluable benefit as Australia gears up for the Asian Century.

Shanna Pan is a Senior Consultant at PwC Australia.

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

Exporting AFL to China: Can it be more than a game?

STANCE #5 – May EDITION

By Edward Kus

Is Australian sport a community or a commodity? Whichever it may be, can you sell it to China? On 14 May 2017 the Australian Football League will host its first match in China for premiership points. In Australia, passion for sport has the ability to unite people like few other interests. Chinese Premier Li Keqiang recently exemplified this. He was pictured donning both teams’ scarves at an AFL match during his latest visit to Australia. The question is, however, will AFL work in China?

Australian sport (could) become a new dimension in the Australia-China relationship, helping to build trust between the two countries.

I am not sure if it will. But it certainly can, if the AFL can balance the need to be profitable with the need to invest time and money engaging new Chinese fans (whether based in Australia or overseas). If the AFL can find that balance then it could pave the way for Australian sport, and AFL in particular, to become a new dimension in the Australia-China relationship, helping to build trust between the two countries.

Some of the challenges for sport in China are commercial. Others are cultural. On the commercial side, the AFL’s strategy seems to be working so far. The upcoming Shanghai match is sold out. The AFL expects the crowd of around 10,000 people to comprise a mixture of locals and visitors from abroad. That number may seem small in the context of China. But it will be interesting to see some post-match analysis of the crowd demographics. I wonder how many locals will attend, scratching their heads at our peculiar game. Yet if China’s middle class is willing to buy bottled air then, so the thinking goes, perhaps they may also be interested in Aussie rules.

Capturing even a tiny slice of China’s growing middle class market would be lucrative for the AFL. Commercial rights, including merchandise and other licensing rights are lucrative revenue sources. As are the broadcast and content distribution rights. If interest in AFL takes off there is huge potential for growth. Basketball provides a precedent for this. Chinese basketball superstar Yao Ming put NBA on the map for China’s millennials. Now China is NBA’s second largest market. But basketball in China has also faced its challenges. It took Michael Jordan more than four years to win a long-running law suit to stop a Chinese firm using his name on its products. Giving effect to the court’s ruling is another question entirely.

On the community side, team sports (especially dangerous ones) are not traditionally a big part of Chinese culture. Bridging this cultural gap may be a challenge for the AFL. Team sport in China reminds me of when I used to play rugby in China. In 2006 I spent part of the year playing rugby at the Shenyang Sports University. The rugby team consisted of some big, strong young men. All excellent athletes in their own right. But the team’s cohesion suffered because they had not grown up playing rugby or team sports more generally.

I still have the training shirt boasting the rugby club’s name: 大愚橄榄球俱乐部 (Dàyú gǎnlǎnqiú jùlèbù). It is of course just a name. But literally translated it means the ‘great fool rugby club’. I couldn’t help but think maybe the name was emblematic of their perception of rugby. It is objectively (like AFL) a fairly silly game where players must risk life and limb to keep possession of the ball.

But the future looks brighter for team sport in China. China’s investment in developing its next generation of soccer stars means success on the soccer field is officially part of the ‘China dream’. China’s efforts to encourage its next generation to play team sport is one assumption underpinning team sport’s market growth in China. It is too early to say if Chinese kids will really take to team sport. But making sure it is fun and safe is especially important for Chinese parents considering letting their kids participate – especially when they may be nervous about protecting their only child.

The upcoming match will become an interesting case study for Australia-China engagement and, in particular, how to ‘sell’ Australian sport in China.

AFL faces some commercial and cultural challenges in its bid to expand into China. No matter how the upcoming match in Shanghai plays out, one thing is for sure: it will become an interesting case study for Australia-China engagement and, in particular, how to ‘sell’ Australian sport in China. For success with its China plans the AFL needs to take a long-term, relationship-driven view of its role as an ambassador of Australian sport and culture in China.

Edward Kus is a lawyer and China observer based in Melbourne. 

The opinions expressed in this article are the author’s and do not represent the views of China Matters or the Australian Football League.
(Photo: Facebook, Malcolm Turnbull)

Understanding China and the future economic order:
Australia must look to history

STANCE #4 – APRIL EDITION

By Amy King

In May 2016, US President Barack Obama made the case for passing the Trans-Pacific Partnership (TPP). “America should write the rules”, Obama said, “America should call the shots”. For if America did not write the global trade and investment rules, China would.

But the election of Donald Trump has changed all this. President Trump wasted little time issuing an executive order to withdraw the US from the TPP. He has pledged to close America’s borders, apply 45 per cent tariffs on Chinese imports, and take an ‘America first’ approach to global trade and investment agreements. We do not yet know how many of these promises will be upheld. Yet invoking them threatens to unravel the US-led, liberal international economic order upon which we have depended since the end of World War II.

We are facing a new world order. Australia’s traditional strategic partners are stepping back, and rising powers like China are stepping up.

We are facing a new world order. Australia’s traditional strategic partners are stepping back, and rising powers like China are stepping up. To navigate this, countries like Australia need to better understand China and its economic goals.

Over the last four years, China has launched the $100 billion Asian Infrastructure Investment Bank (AIIB) and the $40 billion Silk Road Fund. As part of its Belt and Road Initiative (BRI), China has announced one trillion RMB worth of future investment in railways, pipelines, highways and ports stretching from North Africa to the South Pacific. And everywhere from Lima to Davos to Canberra, China’s leaders now appear to be the leading champions of free trade and an open global economic order.

But the scale and goals of China’s economic ambitions have prompted great debate and concern. Many fear that a self-interested, nationalist China seeks to subvert the post-WWII liberal international economic order, or that China will attempt to use its new economic connectivity as the basis for regional domination.

As we in Australia try to understand China and its economic goals, we should keep three things in mind.

First, to understand China today, we need to understand China’s recent past. This is a country whose leaders think in terms of decades- and centuries-long ideas, such as the ‘century of humiliation’ (百年国耻) and the ‘double century goals’ (两个一百年). Sometimes, this history is used by China’s leaders in quite instrumental ways to shape the present, a phenomenon that we tend to observe in the “history wars” that play out in the China-Japan relationship for example.

China’s fairly recent experience of war, imperialism, and economic exploitation at the hands of foreign powers has shaped deeply China’s thinking about economics, development, and security. It is this history that explains China’s unwavering focus on economic modernization as a way to achieve security.

however powerful China is or may become, it is not the only country shaping the international economic order.

Second, we should remember that however powerful China is or may become, it is not the only country shaping the international economic order. Since the collapse of the TPP, for example, many have adopted Obama’s warning that China is now dominating Asia-Pacific trade and investment agreements like the Regional Comprehensive Economic Partnership (RCEP). But describing RCEP as “China-led” or “China-dominated” is a mistake. Such a description might fit geopolitical narratives about US-China conflict, but ignores the significant role that Japan, ASEAN and Australia have played in shaping the evolution of this agreement.

As China continues to roll out BRI, we are likely to see more fear and anxiety about China’s ability to dominate the region and to use its economic power to coerce or influence its neighbours.  Yet as research by Evelyn Goh has shown, whether China manages to achieve influence over its neighbours is determined as much by these countries’ decision-making processes and behaviour, as it is by China’s behaviour and goals.

Third, we must remember that China is not a monolith. This point is well understood by anyone who lives in and works on China, but is not well understood by those outside. We must understand that China’s foreign and security policy is the product of complex interactions between the Party, the State, local governments, private and state-owned enterprises, public opinion, the military and the media. And although Xi Jinping has achieved much greater control of the policy-making system since 2013, he is not all powerful.

Happily, more and more research, including by Linda Jakobson, is helping to focus attention in Australia on these complex interactions. But more needs to be done to help Australian policy-makers, businesses and students understand how China works from the inside. This means greater investment in the study of China and, in particular, how its history and domestic context are shaping the country’s policy choices.

It is equally as important that we invest in the study of China’s Asian neighbours. We should not underestimate how the international economic order will be shaped by the preferences, behaviour and responses of others. Focusing only on China and ignoring every other country in the region is a dangerous analytical mindset that will lead us to overestimate China’s power and influence.

Amy King is an ARC DECRA Fellow and Westpac Research Fellow based at the Australian National University.

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

Abandoning characters first step on path to learning Chinese

STANCE #3 – MARCH EDITION

By Nathan Lee

Chinese language education in Australia is failing and requires a complete rethink. Thankfully, a radical but simple solution exists to the current malaise – that is, using pīnyīn (Romanised Chinese) entirely in primary and secondary schooling, and only introducing characters at university-level. This would ensure the focus of teachers and students is on speaking Chinese, rather than memorising characters.

If Australia wants to make the most of China’s rise, we should be leading the world in creating Asia literate citizens. Instead, we are utterly failing in this task, with many Australians holding an outdated and unsophisticated view of China as a land of dragon dances and lemon chicken, a great country to sell rocks to but not somewhere we’re inclined to know more intimately.

Nowhere is the gap between promise and reality more stark than in our approach to language learning. For more than a decade, successive governments at all levels have opined about the need for more Australians to learn Chinese, and have matched their rhetoric with increased spending.

The situation has only worsened, with a follow-up study in 2015 finding that only 2.4 per cent of students who start Chinese continue it to Year 12

Unfortunately, while the number of school children starting to learn Chinese has grown significantly, retention rates remain dismally low. A comprehensive 2010 study by Dr. Jane Orton of the University of Melbourne neatly summarised senior secondary Mandarin learning in Australia as consisting of ‘Chinese teaching Chinese to Chinese’. Since then, the situation has only worsened, with a follow-up study in 2015 finding that only 2.4 per cent of students who start Chinese continue it to Year 12, with only 10 per cent of these coming from non-Chinese backgrounds. In my high school, I was the first student to go on to study Chinese at university in my teacher’s twelve-year career.

There are a range of reasons why non-Chinese-background Australians aren’t succeeding in Chinese. Foremost is the fact that learning Chinese presents unique challenges that our schools, teachers and students are all ill-equipped to overcome. Schools provide students with inadequate time – often just an hour a week – to learn Chinese. Teachers often instruct students in the same way they learnt as children, focusing on the rote memorisation of characters. This not only doesn’t work in the short time available, it also bores students and crowds out more interesting language study. And students struggle to compete with native speakers, for whom studying Chinese is both a good way to stay connected to their heritage and an easy path to an ‘A’.

To all of this must be added the immense difficulty of learning Chinese for a native English speaker. To reach proficiency, learners must grapple with a lack of cognates (words that are similar to their English equivalents, like ‘porc’, and ‘boeuf’ in French); a tonal system which clashes with the (often unconscious) use of emphasis in English; and, most crucially, the need to memorise thousands of non phonetic characters that cannot be guessed or attempted in the way English words can.

It is this last challenge that presents the greatest difficulty. Chinese characters are so trying and take so long to memorise that the Australian Curriculum for Chinese stipulates a level for Year 12 students that is the same as that for Grade 1 students in China. Yet few Australian students achieve even this.

There is an urgent need to re-examine what it is we want students to be able to do by the end of secondary schooling. Do we want students who have memorised a few hundred characters but who, in doing so, have barely learnt to speak and have grown to hate Chinese in the process? Or should school level Chinese focus on verbal communication, allowing students to gain real oral proficiency and, hopefully, a love for Chinese that will encourage them to tackle it full-time at university?

Replacing characters with pīnyīn in the classroom would make genuine proficiency in spoken Chinese achievable for school students.

If it is the latter, then moving to a pīnyīn-based curriculum for compulsory schooling would help. Unlike characters, pīnyīn is phonetic, assisting pronunciation and tones; intuitive for English speakers; and, if mastered, a useful building block for later character study. It is also needed to type Chinese. Replacing characters with pīnyīn in the classroom would make genuine proficiency in spoken Chinese achievable for school students. And many of Australia’s hundreds of thousands of Chinese speakers, and over a million tourists from China a year, would relish the chance to help them practice.

Purists would argue that studying Chinese without characters is like visiting Beijing without eating Peking duck. This may be true in the long-run, but for school students, it is more important to build basic language first, and grow from there – or, as Laozi put it: ‘qiānlĭ zhī xíng, shĭyú zú xià’ (begin the journey of a thousand miles with a single step).

Nathan Lee works for the Attorney-General’s Department.

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

Climate Change and Green Energy: Australia should warm to China

STANCE #2 – FEBRUARY EDITION

By Jackson Kwok

Canberra should look to Beijing as its primary partner for combatting climate change.

With Donald Trump in the White House, an oil magnate as his Secretary of State, and a climate sceptic as Administrator of the Environmental Protection Agency, it’s safe to expect four years of American inaction on climate change policy. Trump infamously claimed in a tweet that ‘the concept of global warming was created by and for the Chinese.’ During the presidential campaign, he vowed to withdraw the US from the Paris Agreement – a threat he is likely to follow through with.

At best, Washington will continue to be ambivalent about climate change; at worst, the Trump administration will undo much of the progress made under his predecessor. Meanwhile, China is surging ahead in its efforts to combat climate change.

In many aspects, China is already a leader in the green economy. In 2015 it invested US$102 billion in renewable energy – more than the United States and European Union combined. In the same year, China surpassed Germany as the nation with the largest photovoltaic solar capacity. With 3.5 million people working in the renewable energy sector – five times more than in the US – China is emerging as a global leader in clean energy.

Late last month, Beijing ordered 13 provinces to scrap 104 coal-fired projects and re-announced A$400 billion worth of investment into renewable energy. China has pledged to increase the amount of energy coming from non-fossil fuels to 20 per cent of the total by 2030. Reports indicate that by some metrics, China is ahead of schedule in meeting commitments outlined in the 2015 Paris Agreement.

Australia should welcome Chinese leadership on climate change in place of the ambivalence, uncertainty, and inaction which will grip Washington for the next four years.

Climate change measures and renewable energy research are areas where Australia and China can cooperate with minimal reservation. Australia should welcome Chinese leadership on climate change in place of the ambivalence, uncertainty, and inaction which will grip Washington for the next four years.

One avenue for deepened cooperation with China is the design, planning, and development of low carbon cities, a priority given Australia’s high level of urbanisation. Key to this is the implementation of smart grid and micro grid systems which integrate renewable energy and are capable of supporting large-scale power transition from multiple sources. China has already trialled more than 300 pilots of this project with plans for operational implementation by 2020.

Australia needs to upgrade its energy infrastructure to better incorporate renewable energy sources, and should seek to gain access to Chinese scientists’ latest advances in renewable energy technology. For example, Australia’s import of wind turbines provides an opportunity to improve efficiency and smooth wind energy integration into domestic electricity grid systems. It is in Australia’s interests to be closely linked to developments in China, as Chinese expertise in these areas is inevitably set to deepen.

Of course, Australia and China should ramp up existing cooperation on the research and development of renewable energy technology. Shi Zhengrong, known as the ‘Sun King’, became the world’s first ‘green billionaire’ in solar technology following his time at the University of New South Wales. In April last year, UNSW became home to a Chinese Torch Research and Innovation Precinct, the first outside of China. This entailed an A$100 million investment by the Chinese. One area of research the precinct will focus on is energy innovation, and advances have already been made in efficient next-generation power cables. Other Australian universities should urgently focus on enticing similar projects to Australia.

China’s slowing demand for fossil fuels will have implications for Australia’s long-term prosperity.

A pivot to green technology makes sense economically as well. China plans to reduce its dependence on coal to below 40 per cent by 2050. Valued at A$5.6 billion, coal is Australia’s second largest export to China after iron ores and concentrates, but export volumes of thermal coal to China declined by 28.5 per cent in 2015. China’s slowing demand for fossil fuels will have implications for Australia’s long-term prosperity. By comparison, a recent report found that an Australian coal power plan was twice as costly as an equivalent renewables alternative.

Beijing will continue to seek new solutions to its environmental woes – it certainly has the domestic incentive to do so. Environmental grievances inspire hundreds of protests nationwide every year. According to a 2015 study, air pollution accounts for up to 1.6 million deaths per year in China. Rising temperatures and sea-levels could displace some 145 million people from China’s most affluent coastal areas. Addressing environmental concerns and climate change has become a matter of existential legitimacy for the Communist Party.

There is also an international soft power game at play. Zou Ji, a senior Chinese climate talks negotiator, stated last November: ‘Proactively taking action against climate change will improve China’s international image and allow it to occupy the moral high ground.’ By demonstrating leadership on a number of global issues, Xi Jinping is vying to strengthen China’s international standing.

Chinese leadership on climate change will have implications for how we think about Beijing’s role in other areas. Faced with the uncertainty in Washington and the consistency of Beijing’s efforts, it would benefit Australia to partner as closely as possible with China on climate change.

Jackson Kwok is a Research Assistant at China Matters

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

South China Sea: Australian diplomacy one safe bet in 2017

STANCE #1 – JANUARY EDITION 

By Hannah Bretherton

The new year often prompts us to reflect on decisions made in the past 12 months and contemplate whether to adopt a fresh approach to ongoing challenges. Tensions in the South China Sea pose an enduring challenge for the Australian government and in the first few days of 2017 there have been renewed calls to change course on this particular policy.

In 2016 three American freedom of navigation patrols (FONOPs) nettled China’s side as it stood firm on its claims in the South China Sea. In July 2016 the Permanent Court of Arbitration rejected China’s historical claims to a ‘nine-dash line’ in a case brought against China by the Philippines.

Over the past month China has conducted a series of drills in the South China Sea. On January 4 China’s foreign ministry confirmed China’s sole aircraft carrier Liaoning had launched J-15 fighter jets for training and testing purposes. This followed satellite imagery released in December 2016 which appeared to show anti-aircraft and anti-missile systems installed on Chinese-claimed reefs.

While China will continue testing weapons and equipment, incoming President Donald Trump is likely to push back

While China will continue testing weapons and equipment, incoming President Donald Trump is likely to push back by continuing US FONOPs. Peter Navarro, recently appointed by Trump as head of the White House National Trade Council, has said that Trump plans to rebuild the American military and is committed to ensuring the US is a ‘guarantor of the liberal order in Asia’.

In December 2016 the Center for Strategic and Budgetary Assessments, a conservative, Washington-based think tank, released a report written by Australian defence strategist Ross Babbage. The report argues ‘One of the least recognized failures of the Obama Administration was its inability to counter China’s territorial expansion in the South China Sea’, advocating for Trump to do more. Save becoming embroiled in direct military conflict, it’s difficult to imagine how President Obama could have halted China’s land reclamation or construction activities.

Babbage’s rebuke extends beyond Obama, accusing US allies such as Australia as being ‘timid and ineffectual’ in response to China. Yet under Foreign Minister Julie Bishop’s leadership Australian foreign policy in the South China Sea has been strategically crafted, taking action proportionate to Australian interests.

Australia regularly exercises freedom of navigation and overflight in the South China Sea through Operation Gateway. In the past year Australia strengthened defence cooperation around the Asia Pacific region: it signed a $2.25 billion defence deal with Singapore; provided heavy landing craft to the Philippines; participated in the first Australia-ASEAN biennial leaders’ summit; and increased joint military exercises with Japan and the US. In 2017 Australia will provide a launching point for the US’ F-22 Raptor fighter jet – a move that was described by the Lowy Institute’s Euan Graham as ‘coercive signalling to China’.

Many seasoned diplomats argue it is not in Australia’s interests to do more in the South China Sea. Nonetheless there are some who continue to mount pressure on the Australian government to join US-led FONOPs. In October 2016 shadow defence minister Richard Marles argued that Australia should engage in FONOPs. In November 2016 Director of the Australian Strategic Policy Institute Peter Jennings said in 2017 Australia should expect a call from Trump requesting participation in FONOPs and respond ‘yes’. In December 2016 US Admiral Harry Harris visited Australia and said other countries should conduct FONOPs. On January 3 2017 Liberal Senator Eric Abetz directly undermined his party’s position by advocating FONOPs.

The strength of Australia’s policy in the South China Sea lies in its resistance to impetuous demands and sporadic calls-to-arms.

Babbage criticises Turnbull and Bishop for ‘one-dimensional and highly predictable diplomatic statements’. Shouldn’t effective diplomacy by its very nature have some measure of predictability? The strength of Australia’s policy in the South China Sea lies in its resistance to impetuous demands and sporadic calls-to-arms.

What would Australia achieve by joining US FONOPs? No other US ally has done so. Babbage himself admits they have had ‘little practical impact’ on China. Other analysts have noted that by conducting FONOPs with such pomp and circumstance, the US has goaded China, or even inadvertently legitimised China’s territorial claims by invoking the principle of innocent passage.

The US and China see each other as destabilising forces in the South China Sea. In October 2016 Julie Bishop asserted: ‘We are not claimant states over the South China Sea, we do not take sides’. Yet shortly after the PCA ruling Australia stood side-by-side the US and Japan to collectively voice opposition to ‘coercive’ actions in the South China Sea; a thinly-veiled admonishment of China. Joining the US’ FONOP program would go even further to send an unequivocal message.

In 2017 Trump’s leadership will only add to the unpredictability of the South China Sea. Foreign Minister Bishop should be wary of heeding advice from strategists who are quick to pin Australia to Trump’s precarious, if not treacherous, coat-tails. In the year ahead Australia will benefit more than ever from maintaining efforts in highly predictable diplomacy.

Hannah Bretherton is a Project Coordinator and Researcher at China Matters.

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