When Australia started standing up to Chinese authoritarianism, many analysts were predicting that Canberra wouldn’t be able to withstand trade wars or another economic backlash from its biggest trade partner – China. But after almost a year of Sino-Australia tensions, it is Canberra, which is decoupling from China. And Beijing cannot do anything but look on helplessly.
Australian PM Scott Morrison wants to completely detach his country from China. In fact, over the past one year, Australian investments in China have gone down by a whopping 25 per cent, even though the paper dragon has been liberalising its financial markets in order to ramp up foreign investments. China, on the other hand, has walked straight into the trap set up by Canberra and has escalated the decoupling process with more economic aggression.
To be very precise, Canberra doesn’t have anything to do with the Chinese economy. Morrison neither wants Chinese investments in Australia nor does he want Australian investors to choose China as a destination for parking their investments. In fact, Australian PM Scott Morrison’s decision to cancel Victoria state’s Belt and Road Initiative (BRI) deal with China was also a step in this direction only.
However, decoupling from your adversary is also an art in the present-day world order of bilateral Free Trade Agreements (FTAs) and investment deals. In Australia’s case also, China could have many options to block Morrison’s attempts at decoupling the Australian economy from China.
In July 1988, former Australian PM Bob Hawke had even inked a bilateral investment treaty with China. The investment deal was supposed to ensure the “reciprocal encouragement and protection of investments”.
Article VIII (1) of the 1988 Treaty even read, “A contracting party shall not take measures of expropriation or nationalisation or other measures having a similar effect relating to any investment unless the measures are in the public interest, non-discriminatory, in accordance with the law of the contracting party which has admitted the investment and against reasonable compensation.”
Later, in 2015, then Prime Minister Malcolm Turnbull went on to sign a Free Trade Agreement with China. In this Agreement, an Investor-State Dispute Settlement (ISDS) provision was also created. An investor aggrieved by discriminatory practices can invoke the ISDS provisions.
However, China got entrapped way too soon. It thought that Canberra is afraid of Chinese economic retaliation and “wolf-warrior” diplomacy. When Canberra started criticising Chinese aggression, Beijing started to badmouth Australia apart from starting a trade war with tariff on Australian products like barley, wine and coal.
However, China’s actions allowed the Morrison government to expose Beijing and start the process of decoupling the Australian economy from China.
Even now when Australia decided to cancel Victoria state’s BRI deal, China sought to settle scores with more aggression. Rattled by Canberra’s actions, the paper dragon suspended all activity under a China-Australia Strategic Economic Dialogue.
Instead of stopping Morrison’s plan to decouple the Australian economy from China, Beijing only escalated the entire issue. By imposing trade tariffs and suspending activity under the strategic economic dialogue, China has only exposed its own assertive nature. Beijing has been doing much of Australia’s work by expediting the process of decoupling between the two economies.
Now, the paper dragon has no political capital or economic leverage left to halt the process of Australian divestment from China. Morrison has set up a big trap and it seems that Chinese President Xi Jinping walked straight into it.