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The Belt and Road Part 1: impact on Australia if state Victoria’s inclusion on China’s BRI is terminated

September 26, 2020
Editor(s): Dahye Koo
Writer(s): Sarah Tu, Neharika Rastogi, Matthew William

The upheaval of the pandemic has heightened tension towards China, the rising powerhouse, one that is recognised by the U.S. as an economic and military threat. In a move to weaken China’s influence on Australia, the Australian Prime Minister Scott Morrison seeks to scrap agreements the States have made with foreign powers. There is a broad view that the legislation targets the Victorian government that signed an agreement to join the Belt and Road Initiative (BRI), a global infrastructure-building plan initiated by President Xi Jinping. The negative connotation towards this initiative stems from the concern for unregulated Chinese government interference in participating countries, placing Australia at high risk. However, the colossal infrastructure plan is created with the vision to usher a new era of growth in infrastructure and economy globally. The perennial debate, whether the BRI is a prosperous opportunity or a long term threat to a nation has placed Australia in a dilemma.

WHY DID VICTORIA SIGN THE AGREEMENT?

In October 2018, the Victorian Premier Daniel Andrews signed a non-legally binding memorandum of understanding (MOU) with China’s National Development and Reform Commission to cooperate on the BRI. Andrews sees this initiative, although controversial, bears great opportunities for the state’s economic and financial growth, such as creating job and trading opportunities as well as attracting investments. In October 2019, Andrews signed a non-binding “framework agreement” to set some guidance to implement the MUO. One key objective under the agreement is to promote Victorian infrastructure companies in China and participate in third-party markets. Likewise, the deal also encourages Chinese firms to tender for projects in Victoria.  Let us explore the specifics of what Victoria has signed up to. 

WHAT IS THE BRI?

Launched in 2013 by President Xi Jinping, China’s Belt and Road Initiative (BRI) is a grandeur infrastructure project that further expands China’s geopolitics and economic influence. The project is commonly referred to as the New Silk Road,  as it bears a strong resemblance to the original Silk Road which created a trade network in the Central Asia region during China’s Han Dynasty (206 BCE – 220 CE). The BRI however endeavors to link China to Central Asia, the Middle East, and Europe by land, and to Southeast Asia, the Indian subcontinent, the Pacific, and East Africa by sea. Mr. Xi calls the project “a bid to enhance regional connectivity and embrace a brighter future” by co-creating a vast network of infrastructures with different governments, such as railways, highways, energy pipelines, and streamlined border crossings both westward and southward. To date, this $1.5 trillion Belt and Road Initiative has engaged 138 countries to sign on to the memorandum of understanding (MOU). 

Some experts see the BRI as an avenue for China to induce new investment opportunities, cultivate export markets, facilitate loans to countries needed, as well as to boost Chinese incomes and domestic consumption. Despite the non-legally-binding nature of the agreement, the initiative’s global scale has become a centerpiece for criticism from many governments, including Australia. 

What are the encompassed risks the Victorian government has taken on, despite the Federal’s former refusal?

Australia has welcomed Chinese investments over many years, yet the Commonwealth government has declined to be part of the initiative. The opportunity for economic expansion was turned down as the Australian Prime Minister, Scott Morrison believes it is in “Australia’s best interest”. It is widely believed that the decision has been made on the grounds of protecting Australia’s security, as well as being in line with the Five Eyes Intelligence Network, along with Canada, New Zealand, U.K., and explicitly its close relationship with the United States.

Many western countries, particularly the United States, are suspicious of China’s motives underlying the BRI. The initiative is turned down to eliminate any risk of Chinese cooperatives operating under the BRI to collect valuable information for the Chinese government. For example, Huawei Technologies Co., a Chinese telecommunication company has been banned to facilitate Australia’s 5G infrastructure for the high risk the company poses to report back to Beijing. The P.M., who sees no merit in signing on to the non-binding MUO, clearly signals the country’s high suspicion and caution around the initiative. Thus, Victoria’s agreement to the BRI is in direct discrepancy with the federal government and has created conflicting interests for Australia. The state’s relentless continuance in taking part in the initiative has not only frustrated the federal government but has lost support from the Premier, Daniel Andrews’ Labour Party colleagues. Victoria’s second wave of Covid-19 only invoked the federal government to closely scrutinise Andrew’s decision making. Ultimately, the Premier’s partnership with China has deeply jeopardised his long-term service under his current position.

Moreover, the lack of consensus in this matter has brought divides across the Australian population and the country’s position on geopolitical lines. Australia may have in consecutive years enjoyed trade surpluses from China, yet its close alliance with the United States injects great tension to Australia’s economic partnership with China. Victoria’s stance is a barrier for Australia to become the ally the US wants, one that will ‘decouple’ from China.

What are the effects of terminating the BRI for Victoria, a state torn between two sides?

National and states’ interest in alignment

Pulling out from the BRI maximises the safeguard of Australia’s national secrets, inclusive of information on the Five Eyes Intelligence Network potentially falling into the hands of the Chinese government. This reassurance will also discontinue backlash from M.P towards the Andrews’ government. However, the Victorian Premier argues that this precautionary move is executed at the expense of Victoria’s economic recovery from Covid-19 and futuristic growth.

Redefines Australia’s political stance

The Victorian government’s partnership with China renders Australia inconsistent with the values aligned with its ‘best mate’, the U.S, who is overwhelmingly concerned about the threat BRI imposes on participating countries’ telecommunication operations. U.S. Secretary of State Mike Pompeo asserted that Victoria’s engagement with Beijing could impact his nation’s Five Eyes intelligence-sharing partnership with Australia. Exiting the initiative will once again rejoice the Australia-US alliance, as well as other allies against the BRI.

Chinese-relations uncertainty

The Victorian Premier has built a rapport with China over the years, promising to visit on an annual basis. This relationship has speeded the state’s economic growth. The Age has reported that Victoria reaped increasing surpluses from exports to China, including last year’s two-way merchandise trade totaled at $30.7 billion, a 60% growth since 2014. Although withdrawing from BRI has no tangible losses,  it does pose a weakening relationship with China and the investments and “open gateway” for Victorian exports that goes with it. 

There has been a bitter divide between the Australian federal government and the State of Victoria over its inclusion in the BRI. The tension is escalated during the coronavirus pandemic as international relations become increasingly sensitive. This bilateral relationship with China has created disputes nationally and globally. Whilst the initiative has been called a ‘government propaganda’ and ‘a debt trap’, Andrews’ office has responded that “the agreement is about creating opportunities for Victorian businesses and local jobs – opportunities that will be more important than ever as we rebuild from the coronavirus pandemic”. The conclusion of the BRI for the State of Victoria will align its geopolitical stance with its country at the expense of economic loss. 

References

https://www.news.com.au/finance/economy/australian-economy/inside-victorias-controversial-belt-and-road-initiative-deal-with-china/news-story/ff1aa7591be1931eda4f5155991ebe66

https://www.theguardian.com/world/2020/may/25/chinas-belt-and-road-initiative-what-is-it-and-why-is-victoria-under-fire-for-its-involvement

https://www.cfr.org/backgrounder/chinas-massive-belt-and-road-initiative

Victoria back in spotlight for going with Chinese Belt & Road

https://www.afr.com/world/asia/australia-s-china-belt-and-road-refusal-hurting-business-20190612-p51ww1

https://www.japantimes.co.jp/news/2020/08/27/asia-pacific/china-belt-road-australia-veto/

The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ, our Partners and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.

Meet our authors:

Dahye Koo
Editor
Sarah Tu
Writer

Hello! My name is Sarah Tu and I am a third year B.Com student majoring in Finance and Management. I am a bright, inquisitive and straightforward Melbourne girl, always looking for opportunities to learn, communicate and share.

Neharika Rastogi
Writer

Neharika is a MoM accounts and finance student with a flair for writing, numbers, and research all coming under one roof. She is interested in global trends, and believes in joining the qualitative, quantitative aspects with her researching skills.

Matthew William
Writer