The Federal Government has given Victoria until tomorrow (10 March) to explain why its Belt & Road Initiative deal with China should not be ripped up.

Power to cancel the memorandum of understanding Victoria signed under China’s $US 1 trillion ($1.3 trillion) Belt & Road Initiative now rests with Canberra under recent changes to the Foreign Relations Act.

Coalition should not use those Powers to Cancel it.

For a start, it would be hypocritical given the coalition via its then Trade Minister, Steven Ciobo, signed its own MoU as part of China’s BRI in 2017. The Coalition has not renounced this MoU and instead offers the pretty feeble excuse that its MoU only covers cooperation with China on building infrastructure such as roads and bridges in third party countries.

Prime Minister Scott Morrison has given strong indication he will scrap the Victorian MoU, telling the Herald Sun “I haven’t seen the benefits of it”. The Victorian opposition has also said it would scrap it and Penny Wong is reported as saying federal Labor was united with the coalition in opposing it.

Political forces from both sides are stacked against the Andrews government on the MoU because anti-China rhetoric is electorally popular. But is scrapping it really in Australia’s national interests?

US President Joe Biden has indicated he wants to build a coalition of democracies to take on the might of China. So why is Australia still hellbent on provoking China alone?

Perhaps we should listen to words of caution from industries suffering under deteriorating trade relations who see Victoria’s MoU as one of the few remaining conduits for dialogue. Tony Battaglene, Chief Executive of peak body Australian Grape and Wine, whose industry has lost 35 per cent of its exports, says he sees the MoU “as an opportunity more than a risk”.

Make no mistake, scrapping the Victorian MoU will be seen by China as another provocation. When asked about the possibility of it being scrapped by the Morrison government, Foreign Ministry Spokesman Zhao Lijian said: “China’s co-operation with the Victorian State under the BRI has enhanced the benefits for people on both sides of the deal.

We hope Australia will view such cooperation objectively and reasonably and stop putting bacteria into this relationship and do more to improve our mutual benefits.”

Given these strong comments, revoking Victoria’s MoU could be the tipping point for an all-out trade war with a catastrophic loss of about 6 per cent of Australian GDP.

Australia has the right to stand up for its values and to call out China on matters of principle – diminishing democracy, unwarranted arrests in Hong Kong, the treatment of the Uyghurs. We must also deal determinedly with a more aggressive, nationalist China under Xi Jinping by recalibrating our security, defence and foreign diplomatic posture. But we should not do this alone or in anger.

The “Australia alone” confrontationist approach will only damage our economy while countries like Japan continue talking to Beijing about the value of the BRI and their joining it in the hope of encouraging China to abide by international norms. A similar engagement approach has been adopted by the EU involving new trade relations with China.

Instead of a measured approach, we get hyped up anti-China rhetoric as a vote-harnessing exercise.

Fearmongering about Chinese investment is an example. By far, the greatest proportion of international investment in Australia is from our closest allies. According to DFAT, in 2019 the US was No 1 with $983bn, UK $686bn, Belgium $348bn, Japan $241bn, Hong Kong $140bn, Singapore $99bn, Netherlands $86bn, Luxembourg $85bn and China $78bn.

When Treasurer Josh Frydenberg decided to override advice from the Foreign Investment Review Board and Treasury and prevent the Hong Kong-listed China Mengniu Dairy from taking over the Japanese-owned Lion Dairy and Drinks in a $600m acquisition, it was seen by Beijing as a political intervention.

The blocking of a $300m takeover of South African-owned company Probuild by China State Construction Engineering added to that narrative.

Federal Labor will not win the election with a “me too” approach to the coalition’s anti-China actions. Joel Fitzgibbon, who resigned from the opposition front bench recently, told me he thought the coalition had totally mismanaged the China relationship, with no plan to repair it, and Labor should not be afraid to call this out.

The MoU is non-binding for Victoria & China, but it does talk about promoting cooperation, respect for common interests and unimpeded trade. Its existence allows the Premier to pick up the phone and have it answered.

Victoria can remind China of its professed principles under the MoU. It could convey while we disagree on some things, we want to do business on fair terms without trade restrictions. Let China be the one to refuse and dump the MOU. It should not be us.

History tells us while it is important to be firm with countries that do not share our values, democratic changes in those countries do not come from disengagement or belligerence but from ongoing dialogue, trade and engagement that affects the lives and values of millions of their citizens.

Author: Theo Theophanous, Former Victorian Minister.
Editor’s note: The article reflects the author’s opinion only, and not necessarily the views of editorial opinion of Belt & Road News.