logo logo

Canberra quenches Beijing’s energy thirst

Asia Times, Hong Kong

Canberra quenches Beijing’s energy thirst

By Purnendra Jain

1 July 2006

HONG KONG - No other country today appears to be more important in Australia’s diplomatic and political calculations than China, at least for commercial purposes.

In the past five years Australia-China trade has grown exponentially, making China Australia’s No 2 trading partner after Japan. The two-way trade that was worth A$14 billion (US$10.4 billion) five years ago had almost trebled by 2005, reaching close to A$38 billion. Last year alone there was more than 40% growth over the previous year. If the present rate of growth continues, China will soon overtake Japan as Australia’s top trading partner.

The growth in trade is primarily driven by China’s vast appetite for natural resources, of which Australia has emerged as a key supplier. Iron ore alone accounted for about one-third of Australia’s total exports to China last year. While Australia also supplies coal, copper ores and other resources to China, one of the biggest-ticket items from now on will be liquefied natural gas (LNG).

In October 2002 Australia signed a historic agreement with China to supply LNG worth A$25 billion over a period of 25 years, Australia’s largest single trade deal ever with any single country. Under this contract at least $1 billion worth of LNG from Australia will arrive annually, on average, in China’s southern province of Guangdong, starting this month. This will certainly make the two-way trade even larger, and prospects for further deals exist.

Given China’s top position in Australia’s diplomatic hierarchy and economic importance, it is no surprise that Prime Minister John Howard made a brief visit this week to the southern city of Shenzhen - China’s first special economic zone and one of the world’s fastest-growing cities - to inaugurate a gas terminal in Dapeng that will process Australian LNG. The first shipment of Australian LNG, from the Northwest Shelf field off Western Australia, arrived at the Dapeng terminal late last month.

While LNG will help to satisfy China’s rising and unending demand for energy, it is also considered a cleaner fossil fuel than oil or coal. China is keen to reduce its dependence on coal, which creates greater environmental damage than gas, and wants to cut back on high-priced oil. Australian LNG is thus highly welcomed, not only by Beijing but also by both Guangdong and Hong Kong authorities, as the latter very often would blame polluting industries across the border for much of Hong Kong’s terrible air pollution.

Chinese Premier Wen Jiabao was also present to greet his Australian counterpart and to celebrate the occasion. Wen commented that the LNG project was "only the beginning" of a new relationship between China and Australia. Howard declared the occasion "a momentous one in the economic relationship between Australia and China", and "not only is this deal the biggest ever in Australia’s history, it is in every sense a symbol of what can be achieved in the future between our two countries". These remarks by the two leaders indicate grounds are being prepared for further strengthening of the bilateral relationship.

China’s demand for energy is so great that fossil fuel alone will not be sufficient for its industrial development. A new and controversial source on the energy agenda is nuclear power. China is far behind on nuclear power, for instance, compared with Japan, where there are some 50 nuclear power plants in operation. Currently China has only nine civilian power plants, though it is planning to build 30 more in the next 15 years or so.

Fuel for these power plants will most likely come primarily from Australia, which holds some 40% of the world’s uranium deposits. During Wen’s visit to Canberra this year the two countries signed a landmark agreement allowing Australia to supply uranium to China.

China is not the first Asian country to demand Australian resources to supply its expanding industries. Indeed, Australia supplied huge amounts of natural resources to Japan to fuel its postwar industrialization. The two nations, enemies during World War II, became great allies in subsequent years. Japan today remains Australia’s largest trade partner, an all-weather friend that shares values with Australia in a wide range of areas, including defense and security issues.

However, it is highly questionable whether Australia-China relations will, or can, follow a similar path to that of Australia-Japan relations. China’s political system and its values and institutions have little in common with those of Australia.

Australia’s readiness to supply natural resources to fuel China’s growth is of course much welcomed by the Chinese political leadership as well as the business community. Not only is Australia a stable and reliable source of supply, but Canberra has also expressed few concerns about China’s rising military strength, its expanding economic power and growing political influence throughout the world.

It is not surprising that China is very keen to sign a free-trade agreement with Australia, for which negotiations are underway at the official level. If signed, a China-Australia FTA would become China’s first free-trade deal with a developed economy. Both leaders talked about the matter during their brief meeting in Shenzhen this week, but no concrete progress was made.

Concerns have been raised both within Australia and elsewhere about Australia’s decision to supply uranium to China and its rather muted response to China’s growing military power. But the current leadership in Canberra views China in a different light from Australia’s major allies and partners. While both the United States and Japan have expressed concerns about China’s rapid development in modernizing its military and have raised doubts about the country’s strategic designs both in the region and beyond, Australia is almost unconcerned about China’s rising power. Canberra is seemingly so fixated on China that it does not perceive any problem with supplying uranium to an authoritarian and communist state while at the same time refusing to supply it to India, a democratic state that shares far more of Australia’s core values.

Following an independent line in foreign policy is Australia’s sovereign right, and the country must pursue its national interest. But as a democratic nation with a long tradition of liberal values, it must also make sure that its key commercial partners share those values and establish institutions that promote and nourish those values. China certainly does not fulfill these criteria, at least not yet.

Australia under John Howard and his foreign minister Alexander Downer is treading a dangerous path with its uncritical support for China, and it is time for the country to take stock of its foreign-policy priorities and strike a more appropriate balance between pragmatic and principled diplomacy.

Purnendra Jain is professor and head of the Center for Asian Studies at Australia’s Adelaide University and is currently a visiting academic at the Chinese University of Hong Kong.