With Australia-China relations at a low point and diplomatic tensions bleeding into the trade realm, Canberra’s impending passage of a new law meant to limit Chinese government deals with subnational governments in Australia shows Canberra’s continued resolve to confront China — spelling an even greater deterioration in ties. Australia’s Federal Parliament is nearing passage of a controversial new law that would allow the Foreign Ministry to strike down agreements by states, territories, public universities and local governments with foreign governments or government entities. This law, currently the Foreign Relations (State and Territory Arrangements) Bill 2020, was directly motivated by federal government concerns about current and potential subnational-level agreements with the Chinese that could undermine the Commonwealth government’s ability to counter Chinese domestic influence.

In contrast to the federal government’s policy to keep Australia out of China’s Belt and Road Initiative, the Victoria state government has moved forward with several unilateral moves to join the infrastructure initiative. In November 2018, Victoria state government Premier Daniel Andrews signed a nonbinding memorandum of understanding with China to formally join Belt and Road following his 2017 attendance at the Belt and Road forum. Victoria established a working group with plans to release a roadmap on partnership opportunities by mid-2020, but that has yet to materialize.

Australian Prime Minister Scott Morrison announced the “veto” law plans in late 2020, with the bill put before parliament in September after a rushed process. The bill has enjoyed relatively strong bipartisan support, with both the ruling Liberal-National Coalition and opposition Labor Party favoring more federal powers to shape Chinese influence.

Some in the opposition, however, have called for limits to the law to prevent Foreign Ministry overreach. In the Senate, Labor Party members aligned with Greens and crossbench senators to amend the law to include judicial review. The Senate is the weaker body in the Australian system, and the Liberal-National Coalition will now work to garner one more vote in the House of Representatives in hopes of forcing it through without the change.

The new law would increase federal government scrutiny on a host of lower-level agreements as part of an overall hard-line policy toward China. This will augment several new laws put in place in recent years by the federal government to restrict foreign influence in the form of political donations, influence peddling and even investment, using these powers to investigate Chinese journalists, Australian politicians, and investment deals in infrastructure and agriculture.

In terms of the veto law, while Victoria state’s Belt and Road memorandum of understanding will be in the crosshairs, Morrison has said over 130 deals with 30 countries could be reviewed. In addition to regional governments, this will open up the possibility that the federal government will strike down deals between universities and Chinese entities such as Confucius Institutes.

Also in 2018, Australia increased restrictions on foreign investment into farmland and the electrical grid in response to Chinese-owned companies gaining ground in these sectors, requiring mandatory reviews by the treasurer, Foreign Investment Review Board and the Department of Home Affairs. This formalized increased scrutiny by the federal treasurer followed a high-profile 2015 deal granting a 99-year lease of the Port of Darwin and a controlling share in the port operator to a Chinese company.

Australia recently used its 2018 National Security Legislation Amendment (Espionage and Foreign Interference) Act for the first time to counter alleged Chinese domestic influence. In November, the government charged a leader in the ethnic Chinese community. In June, authorities reportedly searched the homes of Chinese journalists from state-run Xinhua, China Media Group and China News Service linked to an investigation into a New South Wales politician.

Australia’s rapid efforts to pass the veto legislation point toward a long-term, hard-line China policy unlikely to be derailed by ongoing Chinese economic pressure on Canberra. Although Australia-China tensions have been mounting since at least 2017, 2020 has seen them reach new heights with diplomatic spats and Chinese trade restrictions. Like those of the United States, Australia’s concerns about China are long-term and strategic. In addition to fears of economic and political influence from China, Australia also fears that China’s regional expansion will jeopardize Australian defense by eroding Australia’s standing in its near abroad, namely in Southeast Asia and the Pacific Islands. Over the long term, Canberra also fears that China’s rise will hinder the ability of the United States, Australia’s key ally, to protect Australia in the event of conflict and ensure the free flow of commerce, which is vital to the Australian economy.

Over the course of 2020, China has engaged in increasing restrictions on the import of Australian products, taking advantage of the fact that 33 percent of Australian exports go to China. China has hit out at Australian barley and wine most aggressively, slapping barley with over 80 percent tariffs in May 2020 and in November 2020 hitting many wine exporters with major tariffs as well. It has also put informal bans in place on shipments of copper ore, copper concentrates, lobster, coal, timber and sugar.

To a degree, however, China has remained restrained in its trade pressure on Australia. An all-out trade war could significantly hamper Australian growth, but China’s actions have fallen short of that. While barley and wine are pain points for key Australian regions and these tariffs have a longer shelf life, the informal ban on Australian exports may not be sustained in the long term as Beijing’s appetite for these commodities rebounds from the COVID-19 pandemic. Most notably, China has avoided limitations on Australian iron ore exports, which are essential to Canberra and account for 40 percent of all commodity exports.

Given its need to link into the lucrative and growing Chinese market, however, Australia will pursue a balanced foreign policy. Even as it works to gain powers to counter Chinese influence, it will also work to deepen trade links with China and the rest of the region, something the recent completion of the Regional Comprehensive Economic Partnership confirms. At the same time, Australia will cooperate with U.S.-led initiatives to counter China as it has done previously by joining the Quadrilateral Security Dialogue, banning Huawei from its 5G network and criticizing China’s COVID-19 response, South China Sea expansion, and conduct in Hong Kong and Xinjiang.

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