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PM, economy and country caught between rock and hard place: Paul Kelly

Renowned political journalist Paul Kelly has raised the alarm on Australia’s deepening dependence on China as fears of a slow down amid the coronavirus, natural disasters and internal structural issues within both economies pose serious challenges to Australias national resilience.

Renowned political journalist Paul Kelly has raised the alarm on Australia’s deepening dependence on China as fears of a slow down amid the coronavirus, natural disasters and internal structural issues within both economies pose serious challenges to Australias national resilience.

Australia has enjoyed a well documented, record-setting three decades of uninterrupted economic growth buoyed by the voracious appetite of a rapidly growing China. 

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However, all good things come to end as the political, economic and continued, if somewhat subdued, strategic competition between the US and China compounded by the onset of the coronavirus, combined with Australia's disastrous fire season impacting tourism, leaves both the global and Australian economies in a precarious position. 

Furthermore, from the the South China Sea (SCS) to the increasing hostilities between India, Pakistan and China in the Kashmir region of the Himalayas, the Indo-Pacific's paradigm is changing. 

These continued sabre rattling and challenges to regional and global energy supplies travelling via the Persian Gulf and an increasingly resurgent Russia all serve to challenge the global and regional order.   

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This perfect storm of factors poses a major challenge for Prime Minister Scott Morrison and Australia's economic, political and strategic decision makers as they struggle to get Australia off its dependence upon China. 

Recognising this, The Australian's political editor Paul Kelly has painted a stark image for 2020 in his piece 'Scott Morrison stuck between a rock and hard place on China', stating:

"As the rich-world nation whose living standards have benefited the most from China’s 21st-­century boom, Australia is about to discover the meaning of interdependence on China. The Morrison government faces a triple event scenario, drought, bushfires and the coronavirus, each a ­serious challenge, each more letha­l in its economic impact."

Interdependence or total dependence?

Australia's economy is largely defined by exporting natural resources – buoyed by the voracious demands of the Indo-Pacific, namely China, it has prevented the nation from spiralling into a recession and reinforced the nation's balance sheet for nearly 30 years.

However, this focus on raw resources, flanked by agriculture and services, diminishes the complexity and competitiveness of the national economy – while maximising Australian exposure to greater volatility and shocks in the global economy. 

This is something Kelly clearly articulates, stating, "The Australia-China relationship is driven by people and resources­. The Chinese are travellers and students. The tourist sector, on retreat from the bushfires, now faces a double hit with sharp declines in the China market estim­ated at a loss of $1 billion weekly. The reality is Chinese tourism had slowed last year anyway.

"The university sector is over-reliant on Chinese students, with more than half of international students coming from China and the revenue­ constituting 25-30 per cent of total university income, a dangerous dependency."

This was further articulated by the latest Harvard University ‘Growth Lab Atlas of Economic Complexity’ ranking study, which painted a picture of an unsophisticated economy, comparable to developing nations in Africa and central Asia, which has a dramatic impact on Australia’s long-term national security and resilience. 

Further supporting this, the ABC spoke with economist and UTS industry professor Warren Hogan, who outlined his thinking behind Australia's dependence on raw resources exports, saying, "One of our great strengths in this country is our significant natural resource endowment — partly a result of our size and also our geology.

"The flexible Australian dollar has been very useful cyclically to help take some of the heat out of the economy and to help it when it's soft, but that high level of it, because of the resource exports, has probably hurt some industries."

Expanding on this, Kelly articulates, "The Australia-China relationship is a classic study in the mutual benefits from globalisation and economic complementarity. This partnership has been brilliant but seductive.

"Australia’s soaring ­living standards in the decade from 2005 were driven by high commodity prices as a substitute for our poor productivity performance. Instead of being punished by the latter, we were rewarded by the former. China has been our saviour, but a saviour that has fed our complacency, not ingenuity."

Economic slowdown v economic diversity

Repeated attempts to stimulate Australia's economy through tax relief and interest rate cuts appears to have done little in the way of stimulating domestic consumer and economic confidence.

This has been despite a turn around in the nation's trade surplus on the back of mineral exports resulting in a larger than expected surplus of $5.8 billion, as was recently announced by Prime Minister Scott Morrison and Treasurer Josh Frydenberg.

Undeniably, China is an immense economic, political and strategic power – with a voracious appetite driven by an immense population and the nation positioning itself as the manufacturing hub of the world.

However, beyond the 1.4 billion people, Indo-Pacific Asia is home to approximately 2.5 billion individuals, each part of the largest economic and industrial transformation in human history. 

While successive Australian governments of both persuasions have sought to expand Australia's integration and participation in the economic miracle that is the rise of the Indo-Pacific.

China has continued to dominate the nation's economic narrative from the housing sector to agriculture and resources and energy – often to the detriment of relationships with regional nations that approach Beijing with a degree of caution. 

Furthermore, Australia's insistence on pursuing 'free trade agreements' with nations that have additional layers of legislative and bureaucratic industry protections, combined with successive governments presiding over the death of Australia's manufacturing sector and a reluctance to invest in advanced manufacturing techniques.

This has prompted Australia to become little more than a mine and farm for the rising powers of Indo-Pacific Asia and the very embodiment of the lazy country moniker, which author Donald Horne originally intended the Lucky Country to be known as. 

Off the back of this, Kelly poses an important question, stating: "An intensified debate about the economy and economic policy is now irresistible, with the government’s critics and many community leaders demandin­g more stimulus to save those sectors under economic threat. The China epidemic is striking at the foundations of the government’s economic stance." 

Your thoughts

Australia’s position and responsibilities in the Indo-Pacific region will depend on the nations ability to sustain itself economically, strategically and politically.

Despite the nations virtually unrivalled wealth of natural resources, agricultural and industrial potential, there is a lack of a cohesive national security strategy integrating the development of individual yet complementary public policy strategies to support a more robust Australian role in the region.

Enhancing Australia’s capacity to act as an independent power, incorporating great power-style strategic economic, diplomatic and military capability serves as a powerful symbol of Australia’s sovereignty and evolving responsibilities in supporting and enhancing the security and prosperity of Indo-Pacific Asia.

Shifting the public discussion away from the default Australian position of “it is all a little too difficult, so let’s not bother” will provide unprecedented economic, diplomatic, political and strategic opportunities for the nation.

However, as events continue to unfold throughout the region and China continues to throw its economic, political and strategic weight around, can Australia afford to remain a secondary power or does it need to embrace a larger, more independent role in an era of increasing great power competition?

Further complicating the nation’s calculations is the declining diversity of the national economy, the ever present challenge of climate change impacting droughts, bushfires and floods, Australias energy security and the infrastructure needed to ensure national resilience. 

Let us know your thoughts and ideas about the development of a holistic national security strategy and the role of a minister for national security to co-ordinate the nation’s response to mounting pressure from nation-state and asymmetric challenges in the comments section below, or get in touch with This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it.

PM, economy and country caught between rock and hard place: Paul Kelly
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