[Global Focus] Australia, 'Korea's Lookalike,' Reasons It Can Stand Against China

High Dependence on China for Exports and Security Reliance on the US
2017 Revelation of 5.8 Billion Won Donation from Chinese Officials
Australia Protests "China's Indirect Interference in Australian Politics"
Confidence in Inability to Sanction Key Export Items Leads to Confrontation with China

[Asia Economy Reporter Kim Suhwan] "Over the past decade, individuals linked to the Chinese Communist Party have donated 6.7 million Australian dollars (approximately 5.8 billion KRW) to major political parties in Australia."

In 2017, this expos? by local media ABC caused an uproar across Australia. It was the first confirmation that real estate tycoons connected to the Chinese Communist Party attempted to indirectly interfere in Australian politics through political donations. At that time, it was also revealed that Australian Senator Sam Dastyari, who was promised to receive these donations, made statements within the Australian Parliament defending China by claiming that the South China Sea was a matter of Chinese sovereignty, which further intensified the controversy.

Subsequently, the Australian Security Intelligence Organisation (ASIO) released a report stating that individuals linked to the Chinese Communist Party had continuously provided donations to local Australian politicians, exerting direct and indirect influence. This prompted the Australian political sphere to take action. In 2018, the Parliament passed an amendment to the security law, completely banning political donations and lobbying activities from foreign governments.

The relationship between Australia and China is tense. On the 21st (local time), Australia decided to fully cancel the Belt and Road Initiative (BRI) project contract signed between its state of Victoria and China, citing security and national interest protection. In response, China strongly opposed the move, stating it would take "corresponding measures."

Australian Prime Minister Scott Morrison Photo by AP Yonhap News

Since Australia was the first to officially propose an investigation into the Wuhan origin theory of the COVID-19 virus in April last year, relations between the two countries have rapidly deteriorated, with China imposing anti-dumping tariffs on barley and wine and restricting imports of Australian beef. The full cancellation of the BRI has brought the conflict between the two countries to a peak.

Similar to South Korea: Economically Dependent on China, Security Dependent on the US

Geopolitically located in Asia and economically highly dependent on China, Australia is considered a country similar to South Korea in that it aligns with the United States on security matters. Nevertheless, Australia has shown no hesitation in participating actively in the Quad under the Joe Biden administration, taking steps to check China.

According to the US State Department, Australia is one of the major recipients of US weapon exports. Over the past decade, about 60% of Australia's defense budget of 145 billion dollars (approximately 161 trillion KRW) was spent on purchasing US-made weapons or jointly developing weapons with the US. Additionally, in 2007, Australia signed a security trade cooperation agreement with the US, agreeing to share technology from US defense companies. Since 2012, the US has rotated over 6,800 Marines in six-month deployments to Darwin, a northern Australian city, conducting joint military exercises with the Australian military.

Economically, as of last year, Australia's exports to China accounted for 35.3% of its total exports. Considering that South Korea's exports to China accounted for 25.9% of its total exports during the same period, Australia's economic dependence on China is relatively higher than South Korea's.

Moreover, Australia's trade volume with China has continued to increase over the past six years. From July 2019 to June 2020, exports to China reached 150 billion Australian dollars (approximately 130 trillion KRW), doubling the export value of 75 billion Australian dollars in 2015.

Despite this high economic dependence on China, Australia's bold participation in the anti-China alliance is influenced not only by US demands but also by domestic political factors. After the Australian government declared a COVID-19 emergency in February last year, daily new cases surpassed 500 for the first time in mid-March, increasing public dissatisfaction with the government's COVID-19 response. In a monthly opinion poll released by Roy Morgan in March, negative evaluations of the government (47%) surpassed positive evaluations (37%) for the first time since the previous year's general election.

Amid this, after Prime Minister Scott Morrison officially proposed the Wuhan origin theory in April, positive evaluations of the government again surpassed negative ones in May. The Australian newspaper reported that "Prime Minister Morrison's tough stance on China was one of the reasons for the increase in approval ratings."

Australians' perception of China has also steadily worsened since 2017. According to a poll released by the Lowy Institute, in 2017, 79% of respondents said China was an economic partner of Australia, far exceeding the 13% who viewed China as a security threat. However, in last year's survey, the proportion who considered China a partner dropped sharply to 55%. Only 23% of respondents said they trusted China.

Australia Has a Reliable Backup

Despite the high economic dependence on China, the Australian government believes the impact of China's retaliatory measures will not be significant. A senior official told a foreign media outlet, "Last year, the Australian government believed it was now in a position to confront China."

The basis for this confidence lies in iron ore, Australia's largest export to China. The export of iron ore accounted for 4.27% of Australia's GDP last year. From China's perspective, high-quality Australian iron ore is an essential item for its economic development, so it is widely believed that China will not impose import restrictions.

International credit rating agency Fitch stated in a report on the 22nd, "China is currently rebuilding infrastructure to recover its economy after COVID-19 and is operating its domestic steel industry at full capacity," adding, "It will not touch the highest quality Australian iron ore, which is difficult to substitute." Australian economist Saul Eslake also said, "If China restricts imports of Australian iron ore, it would have to accept shutting down its entire steel industry."

Roland Rajah, chief economist at the Lowy Institute, said, "China has employed various economic retaliation measures, but they have been limited to the agricultural sector, which is less effective than restricting iron ore imports," adding, "China has almost exhausted all available sanction options." Market analysis firm IBISWorld reported, "Australia has already found alternative export markets such as India and Mexico for barley and wine, which China has sanctioned."

Is There an Exit Strategy?

The Australian government currently plans to request the initiation of dispute settlement procedures (DSU) at the World Trade Organization (WTO) regarding China's anti-dumping tariff measures. Australia is also pursuing a WTO complaint against China's imposition of tariffs up to 218.4% on Australian wine in March. Meanwhile, the Nihon Keizai Shimbun reported that China is expected to expand tariff measures on agricultural products such as wheat.

Nevertheless, there are expectations that the two countries will ultimately find a compromise. The Organisation for Economic Co-operation and Development (OECD) analyzed that the trade dispute between Australia and China could cause economic damage equivalent to 6% of Australia's total GDP, and the Australian government is likely to seek an exit strategy. Professor Steve Chang of the University of London said, "The two countries will eventually reach an agreement," adding, "There is no such thing as an irreparable diplomatic relationship."