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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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What’s Behind China’s New Charm Offensive?

Australia’s reliance on its giant trading partner China could get a little stickier going forward. Yesterday, Australia’s new Prime Minister Scott Morrison pledged to increase his country’s military and diplomatic engagement in the South Pacific amid concerns the nation’s influence is waning as China continues it headlong regional hegemony pursuits, particularly in the contested South China Sea.

Morrison said that his government will set up an AUD$2 billion (US$1.46 billion) infrastructure fund for the region, increase naval deployments and carry out more military exercises with island nations. In comments released by his office, Morrison said, “This is our patch. It’s where Australia can make the biggest difference in world affairs.” His comments also come amid growing backlash against what many in Australia see as Chinese interference in its political process, while others have warned for years that the country was too reliant on natural resource exports to China.

This growing anti-China sentiment for long-time U.S. ally Australia also comes as President Trump pushes against China in trade so hard that it has already started to slow down manufacturing expansion and economic growth, with further projects for the same. It also comes as Australia joins the US, Canada, New Zealand, Japan, UK, France, India and others to enforce freedom of navigation patrols in the South China Sea, much to the angst of Beijing who claims 90 percent of the sea in what it refers to as “historical rights,” a dubious claim that could be used by a myriad of other nations in the region.

Thawing a diplomatic chill

However, Beijing replied quickly to Morrison’s vow to increase naval deployments. China's top diplomat Wang Yi said that China and Australia should be cooperating in the South Pacific and not cast as political rivals.  Reuters said Wang made her remarks after a meeting in Beijing between her and Australian foreign minister Marise Payn, which was widely billed as a step toward re-setting bilateral ties after a lengthy diplomatic chill.

Related: U.S. Oil Production Is Set To Soar Past 12 Million Bpd

Wang said that she had agreed that the two countries could combine their respective strengths and embark on trilateral cooperation with Pacific island countries. “We are not rivals, and we can absolutely become cooperation partners,” Wang said, describing the meeting as important after the recent “ups and downs” in the relationship, adding that the discussions were “valuable, full and candid.”

“We’ve realistically acknowledged today that in a relationship as dynamic as ours ... there will be from time to time differences,” she said later at a separate news briefing. “But what is important about that is how we manage those, and we are focused on managing them respectfully, mindful of the tremendous opportunities the relationship presents to both our nations.”

Chinas new charm offensive

There are several take-aways from both Morrison's recent pledge and Beijing’s response. First, Australia is in an almost no-win situation with China. Since it shares a close and over century old relationship with the U.S. as well as shared political values, a common history, language and concern over human rights, it’s unlikely it would do anything to damage that crucial relationship. On the other hand, Australia's iron ore, LNG and other natural resources to China has helped transform the Australian economy.

Another major take-away and one that will be happening more in the future, is a softer tone from China with its other neighbors in the region. Just two weeks ago, China cozied up long time bitter rival Japan in a surprise move that would have been unimaginable five or six years ago.

The UK-based Independent said the two sides showed a united front on “free and fair” trade as Japanese Prime Minister Shinzo Abe, along with over 1000 Japanese businessmen, met Chinese president Xi Jinping in Beijing for talks. The two Asian giants signed a slew of agreements, including a currency swap deal and plans to work together in other markets.

Related: This Oil Boom Is Going Under The Radar

China's Premier Li Keqiang said they had signed 500 agreements worth $18 billion. “This indicates our cooperation has great potential and a promising prospect,” he said. “As countries with great influence in the region and the world, we should safeguard free trade.”

As U.S. sanctions continue to hit China hard, expect Beijing to soften its approach with both friend and foe alike in the Asia-Pacific region. Another prime target for China will be improved bilateral and perhaps even military cooperation with long-time rival India. In essence, China, with few allies other than North Korea, has little choice but to try to offset the impact of US sanctions as well as Washington's harder stance in the South China Sea.

Beijing, for its part, was waiting to proceed with more trade talks after the mid-term elections in the U.S., hoping for Democrats to take back control of the House. However, though Democrats did indeed take control of the House of Representatives, Republicans picked up two Senate seats to solidify its grip. Nonetheless, most believe that despite a Democratic controlled House which starts at the beginning of the year, both Democrats and Republicans will still allow Trump free reign over his trade war with China. Trump's EU trade maneuverings could be checked, but China is still in Trumps cross hairs.

In the short to mid-term, the trade war will continue to hurt the so-called second wave of U.S. LNG projects that need financing and long-term off take agreements, including from China. However, it will also force Beijing into a more conciliatory tone with its other LNG suppliers, including a befuddled Australia, bringing this geopolitical drama full circle.

By Tim Daiss for Oilprice.com

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  • Mamdouh G Salameh on November 11 2018 said:
    Unlike President Trump’s bullying which is antagonizing friend and foe aike without bringing any meaningful benefits to the United States economically and politically, China’s charm offensive is overcoming old enmities, creating new friendships and benefiting all parties. The charm offensive with both old enemy japan and Australia is no exception.

    China is abiding by the mantras about its peaceful rise which Deng Xiaoping, the inspirational architect of contemporary China bequeathed to his successors: “China should observe developments soberly, maintain our position, meet challenges calmly, hide our capabilities and bide our time, remain free of ambition, never claim leadership. China should not attempt to be a hegemon, it should never practice power politics and it should never pose a threat to its neighbours or to world peace”.

    President Trump will, on the other hand, bequeath to his fellow citizens and the world a divided America with nationalistic, right wing, populist and isolationist leanings.

    Australia can certainly benefit more from expanding cooperation with the world’s largest economy and the biggest consumer of energy and raw materials than joining the United States in a policy of containment of China. Australia's iron ore, LNG and other natural resources to China have helped transform the Australian economy.

    Another example is China’s charm offensive with its long time bitter rival old Japan. It led to the signing of 500 agreements worth $18 bn during the Japanese Prime Minister Shinzo Abe’s recent visit to Beijing including a currency swap with the promise of more trade and cooperation between the two countries.

    Compare this with President Trump’s escalating trade war against China. If it continues, it will harm the United States far more than China. If China was prevented by the US tariffs from exporting $800 bn-worth of good to the US, it can sell them somewhere else. China’s economy is far more integrated in the global trade system than the United States’.

    On the other hand, the US will have to replace its Chinese imports with more expensive imports from other countries thus adding more costs to American consumers, raising inflation, adding to its budget deficit and raising its outstanding debts by 2.35%.

    The sooner President Trump realizes the futility of his escalating trade war against China, the better for the global economy and US economy. It is a war he can’t win. He will eventually be forced to cut his losses by bringing to an end his trade war with China.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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