China is using its economy as a weapon, and Australia should be worried

By David Donaldson

Monday November 20, 2017

“We are trying to make it cheaper for China to purchase Taiwan than attack it,” remarked a Taiwanese official on a press tour recently attended by The Mandarin.

But while economic interdependence with a grumpy superpower is certainly less costly than military confrontation, it was clear during the trip to the island — organised and paid for by the Taiwanese government — that China is twisting the economic and democratic processes of what it sees as its own renegade province, using a series of tactics to which Australia is probably also vulnerable.

Australia has avoided the tripwires so far, but others haven’t been so lucky.

Some of the strategies employed by China are similar to those used by Russia, but for the most part it relies on more “much more sophisticated” approaches.

“Russia usually comes right up to your face. China doesn’t do that. China comes behind your back, pokes you in the back, makes sure you know that [it’s there],” said Taiwan Foundation for Democracy President Dr Hsu Siu-chien.

“At the same time there are a lot of economic incentives involved. … They don’t show you their fist, they show you their money.

“What the Chinese government will do to other countries, actually they have done to Taiwan already.”

Taiwan, whose sovereignty China sees as one of its core interests, has been dealing with these problems for a long time. But in terms of trade and people movement, Australia has similar levels of exposure to the People’s Republic.

Indeed, just this year we’ve seen Australian stories about political donations made by rich men with alleged links to the Chinese Communist Party, free speech pressures on universities and a publisher afraid to criticise China. Australians are increasingly asking whether the authoritarian government propping up our economy might be trying to use Australia’s democratic processes for its own ends.

And this is in good times — it’s hard to know what China might do if it takes umbrage over, say, the South China Sea.

China is already using its economy as a weapon — hitting neighbours who dare to step out of line by cutting tourist numbers, holding up investments, harassing foreign companies and slicing trade.

Like most countries in Asia, China is Australia’s largest trading partner. It also sits just behind New Zealand as our largest source of tourists, and is Australia’s fastest growing tourism market.

In Australia’s third-largest export industry, education, China is also the largest source of international students, at around 140,000, or 30% of the total. Some educational institutions are already trying to diversify their student base in case the market shifts.

Australia’s economic interdependence with China played a significant role in protecting it from the global financial crisis, and is a huge source of prosperity. Many jobs are reliant on it.

But this also means Australia is heavily intertwined with a government which has shown itself willing to use economic levers to pressure its neighbours where it believes its core interests are at stake. Australia has avoided the tripwires so far, but others haven’t been so lucky.

Unofficial economic sanctions

Restricting the flow of money has been used as a tactic against several countries, and the most visible weapon is ordering package tour companies not to travel to certain places.

It’s a low cost tactic for China itself, as most of the money lost is overseas.

In August 2016 the Philippines saw a 29% drop in tourism earnings compared to the same time the previous year after the Permanent Court of Arbitration ruled in the Philippines’ favour on the territorial dispute in the South China Sea.

President Rodrigo Duterte visited China later in the year — he is seen to be more conciliatory towards China than previous governments — and the numbers are now recovering.

South Korea has fared worse. When it announced it would install the American anti-missile Terminal High-Altitude Area Defense (THAAD) system, ostensibly to protect against North Korea, China complained, believing the missile system was aimed at itself.

Afterwards, the number of Chinese tourists in Korea — its largest market — halved. The streets of Jeju Island, known as Korea’s Hawaii, have been empty of the Chinese tourists who normally make up the bulk of its customers.

The Korean conglomerate Lotte saw around 90 of its supermarkets in China closed “temporarily” for fire safety violations after the company agreed to host THAAD on land it owned in Korea, with local authorities ignoring attempts to resolve the supposed violation. Lotte has been considering closing its entire Chinese supermarket business following a 95% drop in sales year-on-year.

Sales of Korean cars in China were 64% lower in the second quarter of this year. Even the incredibly popular Korean TV dramas have been removed from Chinese streaming sites.

Yet sales of other types of technology that can’t easily be imported from elsewhere, such as microchips, have remained untouched as a boycott would hurt China’s own economy.

China’s undermining of Taiwan

It’s tough being an open and democratic territory of 23 million people separated from the world’s new superpower, which claims you do not exist, by a narrow stretch of water.

It doesn’t help when people confuse you with Thailand, either.

Yet over the past few decades the two foes’ economies have become heavily intertwined.

Large-scale movement of people and goods has really only picked up since 2008. With a more conciliatory government in power, China became Taiwan’s largest trading partner. China buys over a quarter of Taiwan’s exports, a similar figure to Australia — though Taiwan’s economy is more reliant on exports in general. Around half of Taiwan’s overseas investments are in China.

Taiwan too has suffered China’s caprice since the election in January last year of Tsai Ing-wen, whose Democratic Progressive Party has traditionally leaned towards seeing Taiwan as a separate entity to China. Tsai’s phone conversation with US President-elect Trump — the first of its kind since 1979 — rubbed salt in the wound.

By the beginning of this year, Chinese tourist numbers in Taiwan were down by more than 40%. China has even gone so far as to discourage its citizens from visiting specific Taiwanese municipalities that do not support the One China Policy.

Famous landmarks in Taipei that would a couple of years ago have been full of Chinese tour groups now see many more Japanese, Korean and Southeast Asian visitors. Some hotels have had to reduce their prices.

The fall in tourist numbers even sparked protests, with thousands of people reliant on Chinese tour groups calling on the government to soften its approach to the PRC.

Economic interdependence undermines political expression in other areas, too.

Around one million Taiwanese businesspeople work on the mainland. Try discussing Taiwanese independence there and your company’s factory will receive a visit from labour standards inspectors, a Taiwanese official told The Mandarin.

As in Australia, there are concerns around freedom of speech at universities. Taiwan hosts around 10,000 mainland students, and 20,000 exchange students — a much smaller number than Australia’s 140,000. Many are members of the Chinese Communist Party’s youth wing, and the party sends cadres to monitor its citizens and ensure they are not becoming involved in politics in Taiwan.

Student protesters against a pro-China event were recently injured by a man belonging to a pro-China association, a concerning incident in a place used to peaceful protests.

As in Australia, there are concerns about the PRC influencing academia, providing funding and career opportunities to those it deems useful.

Several people on the tour expressed concern about China’s efforts to buy off Taiwanese media and politicians. Whereas an attempt by a pro-Beijing mogul to buy an independent paper several years ago prompted protests, tactics in more recent times have been more subtle, focusing on rewarding pro-China outlets with advertising and commercial opportunities on the mainland.

Fake news appears to be an emerging problem, with several unverifiable stories damaging to the government being traced back to sites based on the mainland.

There are also many minority parties with varying levels of linkage to the Communist Party.

And to make matters more complicated, Taiwanese identity is hotly contested in the domestic realm. While most now describe themselves as ‘Taiwanese’, a significant minority — older people in particular — see themselves as being Chinese and hope to one day rejoin China. This means that government assertions of Taiwanese identity can provoke domestic political trouble.

Don’t put all your eggs in one basket

Taiwan has responded to China’s attempts to pressure it by looking further afield — reaching out to Southeast Asia, India, Australia and New Zealand in particular.

The New Southbound Policy, as it’s known, had some success already — despite a drop of 600,000 tourists from China in 2016, Taiwan’s international visitor numbers reached a record high last year, topping 10.7 million.

Most of the shortfall has been made up by Southeast Asians, many of whom are also enjoying newfound prosperity. This has been helped by the introduction of visa-free travel for many countries in the region.

Launched in September last year, the New Southbound Policy aims to reduce Taiwan’s reliance on its belligerent neighbour by increasing economic, personal and cultural ties with 18 countries in Southeast and South Asia and Australasia. The economic focus is on several areas: agriculture, education, healthcare, new energy sources and technology.

Initiatives include scholarships for Southeast Asians, the establishment of new trade offices overseas, and government assistance for businesses looking to invest in Southeast Asia.

It’s early days yet but “you can see from the data it is already having an effect on enterprises’ behaviours,” says Wen-thuen Wang, research fellow at the Chung-Hua Institution for Economic Research in Taipei.

Many Taiwan government departments have been “mobilised” behind the policy and new outward investments in China have fallen from around half to 40%, while investments in Southeast Asia have risen around 20% over the past year. Student numbers from New Southbound countries are increasing.

With one of the fastest ageing populations in the world, Taiwan is facing a sharp downturn in the size of its labour market. The government is considering making it easier for foreigners to gain permanent residency, no doubt an appealing prospect for some of the half million Southeast Asian labourers already living there.

At the same time the Tsai government is trying to build up its soft power with western countries. The press junket — one of several the government is holding this year — saw 22 journalists from all over Europe, North America and Australasia being introduced to a range of speakers, who emphasised the democratic and open nature of Taiwanese society.

The government often publishes updates in English online about things that appeal to westerners, such as the fact that Taiwan will likely soon have same-sex marriage.

Will Taiwan’s diversification efforts be enough to keep China’s money power from snuffing out Taiwanese democracy? Only time will tell.

As we have also seen with Russia, open elections and open markets are open to abuse by those with no commitment to either.

China’s willingness to undermine its neighbours should give Australia pause for thought about how much it relies on China’s authoritarian government for its economic prosperity.

David Donaldson travelled to Taiwan on a press tour organised and paid for by the Taiwanese government. He majored in the Chinese language and has travelled to both mainland China and Taiwan previously.

About the author
Inline Feedbacks
View all comments

The essential resource for effective
public sector professionals