Australia and China: Managing a mature relationship

Address to the Australia-China Economic Trade and Investment Expo (ACETIE) 2025 Main Forum, Melbourne, 14 August 2025

Australia-China bilateral relations, consolidated by Prime Minister Albanese’s visit last month, are in robust good health, as good as they have ever been. While that does not seem to bring much joy to those in our policy community and media who get their satisfaction from doom-saying and scare-mongering, it’s certainly good news for the rest of us, not least for those of you in the business community attending this important annual forum.

Of course there is still plenty that divides our two countries and demands careful navigation. I think we in Australia should always listen respectfully to concerns expressed on the Chinese side, including for example whether we are overdoing our foreign investment restrictions, or drinking too much American Kool-Aid in our defence and security policy. But I also think we should never back away from making respectfully clear our own concerns on political and economic issues, as I have always done in discussions with Chinese ministers, officials and analysts, including in my own recent visit to Beijing a few weeks ago.

And we do have quite a few such concerns. Geopolitically, they include China’s territorial ambition in, and militarization of, the South China Sea; its repeatedly stated determination to unify Taiwan with the mainland not just by persuasion but force if necessary; its dramatically increasing military capability, including nuclear arsenal; its manifest desire to resume its historical role of regional hegemon, to whom obeisance is due, in South East Asia; and its efforts to increase its presence and influence in smaller but strategically significant regional players, including the Solomon Islands, Papua New Guinea and Timor Leste.

Politically, I think we are also justified in expressing concerns about China’s indifference to universal human rights standards in its intolerance of any form of real or perceived dissent, including in Xinjiang, Tibet and Hong Kong, with some of its activity extending to the attempted suppression of dissenting voices in the diaspora community here in Australia.

And economically, as hugely fruitful as our relationship has been, underwritten for the last ten years by the China-Australia Free Trade Agreement , we – like many other countries around the world – still have very real concerns about the extent in practice of China’s commitment to a completely free and open rules-based trading system, with the list including the use of trade coercion for political purposes, the use of state subsidies and other support mechanisms in key industry sectors, insufficient respect for intellectual property, and unjustified discrimination against foreign competitors – with, e.g., China being the subject of nearly half of all trade complaints in the WTO in 2024.

But all that said, it is important that we keep these differences in perspective and not let them consume us. The line that is constantly repeated by Prime Minister Albanese and Foreign Minister Wong, that we should “cooperate where we can, disagree where we must, and manage our differences wisely”, is not the empty cliché that some want to paint it, but a mature description of exactly the course we should be taking.

Geopolitically, it is particularly important that we not succumb to the kind of ‘China threat’ hysteria of the kind displayed in those ‘Red Alert’ Age & SMH front-pages two years ago, with their portrayal of Chinese fighter planes headed towards us. And which periodically resurfaces, as it did with this year’s (cheeky but hardly threatening) circumnavigation of our continent by a small Chinese naval task force. There is no reason to assume that, Taiwan apart, China would ever contemplate outright Putin-style military aggression against any of its regional neighbours. For Australia, not only has there never been any suggestion of China having designs on our territory, but with Beijing closer to London than Sydney, physical invasion has always been wildly implausible logistically, and will remain so.

What does pose a risk to us is a major war erupting between the US and China, which is certainly not inconceivable over Taiwan, and Australia joining in on the US side, under pressure from Washington. Outright invasion of Australia might not be an option, but grey-zone operations, blockade attempts and hit-and-run attacks on particular facilities – the increasing number of major US military installations on Australian soil being obvious targets– certainly would be. The crazy irony is that with AUKUS and its associated basing commitments we are spending an eye-watering amount to build a capability to meet military threats which are only likely to arise because we are building that capability and using it to assist the United States!

Economically, it has to be acknowledged that any concern we may have had in the past about China using trade coercion for political purposes fades by comparison with the tariff war the Trump administration is now waging against the entire world. The lunacy of this defies any rational explanation, not least because of the harm it is bound to do to America’s own economy, and its political standing in the world.

Where has been the beginning of an understanding of the basic principles of comparative advantage and the gains that we’ve all enjoyed from international trade? What has been the economic logic in calculating so-called ‘reciprocal’ tariffs in the surreal way they have been? If deficits were the rationale, what was the reasoning behind the common tariff of 10 per cent being applied to a country like ours, with which the US enjoys a huge trade surplus? And what was the economic logic in applying, at least initially, a set of tariffs on China so high as to amount to a de facto trade embargo, with all that that implied for empty shelves, higher prices and massively disrupted supply chains in the US?

Even if there is eventually a massive “TACO” retreat on all these fronts by the Trump administration when the scale of its nonsense eventually sinks in, the reality is that the ego-driven fecklessness of the President means that even his closest advisers have no idea what will come next, and the costs of this uncertainty to global trade and incomes will become more manifest day by day.

The lesson we have to draw from all of this is that there is simply no rational alternative to a cooperative rather than confrontational approach being taken to all our international relationships, and there is ample scope for Australia and China to work together on a multitude of fronts. When it comes to national security, while it makes perfect sense for every country to build a core defensive capability based on worst-case assumptions, we should know by now that by far the best way of achieving sustainable peace is finding one’s security with others rather than against them. And one very obvious way for Australia to build a cooperative rather than confrontational relationship with China is to work together on addressing a whole range of global and regional public goods issues to the solutions of which we can contribute – from climate change to nuclear arms control, terrorism to health pandemics, peace-keeping to responding to mass atrocity crimes, and defending free trade.

There is particular scope for cooperation between us on economic and trade issues, above all in our own Asia-Pacific region. Restoring some real traction for leader-level policy dialogue mechanisms like APEC and the East Asia Summit will be important. But perhaps even more immediately useful in promoting closer regional economic integration, and avoiding disintegration of the wider trading system, will be those mechanisms in which the US has either declined or not been offered a seat at the table - RCEP (Regional Comprehensive Economic Partnership) and the CPTPP (Comprehensive & Progressive Agreement for Trans-Pacific Partnership).

As to RCEP, talk of a leaders meeting this year offers the prospect of a platform for finding common cause on the principles necessary to meet the challenges of Trump’s trade war. And as to the CPTPP, this is a serious free trade agreement, which would be dramatically further strengthened by China joining, as Beijing applied to do four years ago. The Agreement’s disciplines on support for SOEs, and labour issues and the like, have so far been presented as a barrier to that happening. But with China obviously wanting to add some shine to its free trade leadership credentials at the time as its great strategic competitor is burning its own, a good place to start might be to address those internal reforms which would clear the way to its membership. Difficult yes, but potentially game-changing.

For Australia, keeping our balance as we walk a tightrope between China and the United States is not an enterprise for the diplomatically or politically faint-hearted. The stakes could hardly be higher. But if we can stay calm, keeping our heads when too many around us seem in danger of losing theirs, there is every chance that we can succeed. I have always been an unequivocal optimist about our shared future with China, not least because of the wonderful human resource we have here with 1.4 million Australians now of Chinese descent, and I both hope and expect that all those participating in this splendid Expo event will share my confidence.