Missing the woods for the trees

The consensus among Australian strategic elites is that India will play an important and benign balancing role in Asia, and that New Delhi's deepening security relationships with America, Japan and Australia are critical pillars for future stability in the region. Yet, in discussions with some of India's most respected strategic minds in Delhi, Mumbai and Chennai last week, it became obvious that many suspect Australia is invariably drifting towards China's sphere of influence. Such a perception is understandable but incorrect.

As a vast island nation, Australia has allied with the most powerful naval country in the region in the past. First it was Britain and, after World War 2, America. This strategy was aided by the fact that first Britain, and then America was also our most important trading partner. Australia now faces a unique dilemma: our most important security ally in America is no longer our most important trading partner, which is China. In an age where economic power is shifting towards Asia, many Indian strategists expect that Canberra's drift toward China's sphere of influence will be eventually irresistible.

Such a perception is also strengthened by Australia's penultimate prime minister and current foreign minister Kevin Rudd touting his Mandarin-speaking skills and admiring Chinese culture to the world when first elected leader in 2007. More significant was then PM Rudd instructing his foreign minister Stephen Smith to unilaterally withdraw from the Quadrilateral Initiative involving Australia, the US, Japan and India. The fact that this was announced during a joint press conference with Chinese foreign minister Yang Jiechi only strengthened the perception that Australia's shift toward Asia's 'Middle Kingdom' was beginning.

Rudd's theatrics were ill-advised because they gave the wrong impression to the region about Australian strategic posture. There is general agreement that Rudd 'mismanaged' Australia's relationship with China – raising expectations in Beijing and confusing allies and potential security partners like India. But it's noteworthy that Rudd played an integral role in the writing of Australia's 2009 Defence White Paper (DWP), the first in the region to explicitly justify defence spending increases by suggesting that China's rise could be disruptive.

Australian strategic policies since the 1990s have remained consistent. While Canberra enthusiastically pursues trade with China, it continues to hedge against its rise by pursuing strategic and military-to-military relationships with America. But by pursuing closer and meaningful strategic and military relationships with American security partners like Japan, South Korea, and increasingly India, the Australian approach is part of a common one in the region that seeks to subtly but firmly dissuade future Chinese adventurism through collective strength.

There are many more points why the perception of Australian drift toward China doesn't make good policy or sense. First, the importance of China as a trading partner doesn't necessarily mean that there is a similar increase in Chinese leverage over Australia. True, Australia avoided a recession in 2009 and 2010 because of China's booming demand for commodities. An enormous 25% of our exports go to China. Yet, interdependence is mutual. The combination of reliability, world-beating efficiency in mining processes, and geographical proximity mean Australian commodities like iron ore are cheaper for China. Tellingly, even when Sino-Australian relations reached their nadir in 2009 and 2010 over issues like the DWP, China continued to buy from Australian firms at record levels. Moreover, the fact that China is the central hub for trade in Asia can be overplayed. Over half of Chinese trade is processing, meaning that parts come in from other places in Asia, get assembled in China and are shipped out again to non-Asian OECD countries. China's domestic consumer market is about the size of a country like France – large but not overwhelming.

But it is access to domestic markets that is the true source of leverage. Until China becomes the dominant centre of regional and global consumption, Beijing's capacity to exercise leverage by denying foreign firms and countries access to domestic Chinese consumer market is limited. Besides, Beijing can ill-afford to do too much damage to an export sector, they generate 150-200 million jobs, in an attempt to twist the arms of strategic competitors. The lack of Chinese leverage is confirmed by the fact that even as China became the biggest trading partner for countries like Australia, Japan and South Korea, which are simultaneously hedging against Beijing by moving closer in strategic and military terms to Washington.

Finally, Australia takes political values seriously. Like Indians, they understand that poor domestic habits of compromise and negotiation in authoritarian China may not auger well for the region if China continues to rise. Australians being preoccupied with China is one thing. But drifting towards China's sphere of influence – at the expense of old and new friends such as America and India – is altogether different, overstated and contrary to contemporary reality.

Dr John Lee is a Research Fellow at The Centre for Independent Studies in Sydney and a Visiting Fellow at the Hudson Institute in Washington, DC. He is the author of Will China Fail?.