[Analytics] How Australia and China can begin the great defrost
During the pandemic, the trade relationship between China and Australia has got bigger, not smaller. Strong commodity prices have cushioned the economic downturn in Australia during the COVID-19 lockdown. Peter Drysdale, Yongjun Zhang specially for the East Asia Forum.
Australia’s resource exports will help fuel a strong economic recovery in China with low-cost, high-quality inputs into global supply chains. The Australia-China economic relationship is important for the recovery of both countries and all of Asia.
Economic interdependence is enormously beneficial but stands in marked contrast to the deterioration of the bilateral political relationship that has coincided with increased uncertainty in the international political environment. Foreign investment and trade in services – education, tourism and other areas – will not automatically revert to pre-pandemic levels without work that repairs the fracture of trust in the relationship.
In the aftermath of COVID-19, Australia and China share strong interests in ensuring public health and safety, financial stability and an open, rules-based trade in the region. Both governments can contribute towards these goals most effectively by working actively together in multilateral settings such as the ASEAN + 6 group, the East Asia Summit, APEC and the G20.
To chart a course to economic recovery and reconstruction, Asian countries must deal with the international health policy and economic policy challenges of exit from the crisis simultaneously; failure to do so will cause more social disruption, more deaths and more economic hardship.
The foundations for post-COVID-19 coordinated regional policy action were laid at an ASEAN+3 summit on April 14 that included leaders from south-east Asia, China, Japan and South Korea, and committed to health and economic policy coordination. China now has an important contribution to make with other key neighbours such as Australia, India and New Zealand in building on that initiative to meet the continuing challenges.
Australia and China have successfully managed the public health dimensions of the crisis and will benefit from coordinated economic recovery in Asia to escape a serious economic slump caused by the health-related lockdowns.
The breakdown in bilateral political relations can be reversed by, as a first step, jointly declaring and then realising the deep shared interests of peace and prosperity Australia and China have in an open and rules-based order and commitment to working with other partners in the region to prosecute those interests.
In managing the public health dimensions of the crisis, Australia and China can support arrangements to ensure equitable access to pandemic countermeasures and elevate medical and research exchanges. That should include timely and open sharing of data and information to support an early warning system for disease outbreaks with pandemic potential by expanding ASEAN+3’s commitment to a COVID-19 ASEAN Response Fund to include Australia, New Zealand and India.
On the economic agenda, Australia and China can use the ASEAN-centred frameworks, APEC and the G20 to learn from each other about the impact of the pandemic on the macroeconomy and support a globally coordinated response. There are important opportunities for informal collaboration between Australia and China around the G20 on these issues.
Both Australia and China can encourage the region’s central banks and finance ministries to expand bilateral currency swap arrangements to create a more robust regional financial safety net and avoiding a mess of bilateral arrangements with gaps.
Conclusion of the Regional Comprehensive Economic Partnership (RCEP) among 15 members – ASEAN plus Australia, China, Japan, New Zealand and South Korea, less India initially – will help keep markets open in East Asia and provide a platform for continuing cooperation. RCEP also has the weight to make a difference in keeping the global trading system open. Australia and China, in particular, can help keep India engaged and define a path towards eventual Indian membership.
While the WTO is no longer fit-for-purpose for the globalised economy of the 21st century, it’s a critical bulwark in avoiding disintegration of the international economy and markets after the COVID-19 economic crisis. The core rules that govern goods trade and underpin the global trading system need to be preserved. That will be easier if progress can be made with updating and expanding WTO rules to new areas of importance to international economic exchange today, promoted jointly through a G20 taskforce to set the broad strategic direction for reform of the global trading system.
Industrial supply chains have been central to Asian economic integration and growth, and their reconstruction will also be important to regional recovery from the COVID-19 crisis. Supply chain resilience is a shared agenda regionally.
There is also an opportunity for Australia and China to work together with Asian countries to improve transparency of foreign debt arrangements in vulnerable emerging economies. Australia can work with China in international (IMF and World Bank, G20) and regional settings (ASEAN and APEC) to improve the transparency of emerging economies’ debt obligations.
The pandemic has accelerated adjustment in many sectors and a shift to business models that leverage digital infrastructure for production, supply chain management and the delivery of goods and services. Digital transformation can be harnessed as a driver of economic recovery and social development in Asia only if it is more effectively governed through multilateral agreements.
It is important that China, as the biggest economy in Asia and a leader in digital technology and innovation, work with Australia and other countries in APEC and elsewhere to encourage regional integration and the development of the governance of digital infrastructure.
Australia and China may find it helpful to look to Asian cooperation centred on ASEAN for the circuit-breaker needed to begin repair in their bilateral relationship.
Peter Drysdale is Emeritus Professor and Head of the East Asian Bureau of Economic Research at the Crawford School of Public Policy, the Australian National University. Yongjun Zhang is senior economist at the China Centre for International Economic Exchanges (CCIEE), Beijing.