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The Australia-China relationship: A state transformation perspective

by David Cannon on October 14, 2015

In a recent article and book chapter – Kanishka Jayasuriya and I outlined a distinctive approach to the analysis of the Australia-China relationship – a state transformation perspective – that goes beyond the dominant international relations problematic on this relationship. This problematic is often framed in terms of constraints and opportunities imposed by the rise of China on Australia’s strategic and economic relationships. While the answers differ to this question – such as, for example, the debate over Hugh White’s analysis of this – the problematic remains essentially couched in terms of a set of ‘external’ constraints on Australian relationships. We think this international relations approach and the questions that it poses, is fundamentally wrong-headed and what we need is an analysis that explores the way in which the rise of China is transforming and creating new forms of contestations within state institutions – at both the national and subnational level.

Our approach has the advantage of not just focusing on ‘China’ but the broader structural forces in the regional political economy that are reshaping Australian policy and political institutions. To simply think of the changes as Australia and China misses the importance of these structural forces. It is this state transformation perspective that we think is crucial to understanding the Australia-China relationship. It is crucial to understand the way in which the internal changes within the state – including the rescaling of the state – interact with the externally driven changes in Australia’s relationship with China.


CCCOur argument builds on a fundamental point of Nicos Poulantzas’ analysis of the state. He argues that international functions of the state are no longer simply added to the state, but are the “expressions of their internalised transformations”. He argues that an interior bourgeoisie emerges from the forms of capital and associated political interests connected to internationalisation – or what we today term global integration – that has roots in “national economic and political institutions,” but is locked into a global political economy. This internationalisation/regionalisation, argues Poulantzas in Classes in Contemporary Capitalism, “affects the politics and institutional forms of these states by including them in a system of interconnections which is in no way confined to the play of external and mutual pressures between juxtaposed states and capitals”. Following from his analysis, our approach then is primarily concerned with the way in which the regionalisation of the Australian economy is transforming the scale and nature of Australia’s state institutions. We argue that changes in the terms of trade should not be our focus, but that the transformation of the state should be at the heart of our analysis. This state transformation can be conceptualised in terms of two dimensions: first, the emergence of new social forces – particularly the regionalisation of capital – that shape contestations within state institutions such as the Foreign Investment Review Board (FIRB) and, second, the rescaling and transformation and emergence of the local regulatory state, including its uneven internationalization at the sub-national state.

The regionalisation of capital

The recent mining boom produced case studies in which the dynamics of internal and subnational transformation were evident. Increased foreign investment by Chinese firms in the Australian mining sector sparked a debate and a political contest over foreign investment. But, following from Jeffrey Wilson’s argument, we view this as an issue sparked at root by the nature of the state-owned and linked enterprises investing in the mining sector. For example, in 2008 the state owned mining company Chinalco, sought to prevent the takeover of Rio Tinto by BHP Billiton by launching an enormous 15.5 (AUD) billion raid on Rio Tinto.  The government reacted by tightening regulations around foreign ownership and in 2010, legislation was amended and the Foreign Acquisitions and Takeovers Amendment Act (2010) was passed. This updated the foreign investment guidelines to provide for greater security against investments by “any vested political interest intended to capture complex investment structures which may provide avenues of control beyond that provided through traditional shares or voting power” (Foreign Acquisitions and Takeovers Amendment Act, 2010).

FIRBWhile the mining sector has cooled, the debate has shifted to mainly Chinese investment in residential real estate, which has increased significantly in recent years. In response, the FIRB is set to change foreign investment regulations around residential real estate and has already done so for agricultural land. From 1 December 2015, the FIRB will introduce ‘application fees’ for ‘foreign nationals’ who purchase residential real estate, a move seen to be in reaction to the fact that the FIRB approved almost $6 billion in foreign capital investment from China in residential real estate in 2013. This follows on from the FIRB’s radical reduction of the screening threshold on the purchase of agricultural land for foreign investors from $252 million to $15 million in July 2015. The former Prime Minister stated that the policy change on agricultural land will protect the national interest, the former Treasurer, similarly, suggested that Australians must be confident that foreign investment is for the ‘nation’s benefit‘. The (ongoing) Minister for Agriculture echoes these points, that tightening the regulations around foreign investment reflects the sentiment of Australians, but has also stated that, in cases such as the proposed sale of the Kidman and Co cattle stations, the presence of state-owned enterprises among interested parties is a major concern.  These two recent changes in FIRB policy reveal the interconnected and regional nature of the economy. This is especially interesting as Chinese investment in the mining sector has waned significantly, concurrent with a doubling of investment in residential real estate – driven primarily by Chinese concerns over their own economy and an increasing government policy of anti-corruption action.

These contests within the FIRB underline our central argument. The recent movement towards the regionalisation of Australia’s economy has brought fractions of capital, in the case of mining and agricultural land, and state-owned enterprises, into conflict with investment regimes that originate from earlier phases of liberal market reform or neoliberalism. What we see – in line with Wilson’s argument – is that deepening regionalisation is putting pressure on institutions like the FIRB to alter investment guidelines as a result of the tensions derived from new competing liberal and neoliberal projects. These tensions are driven by new social groups emerging from the regionalized political economy, and, in particular, the state capitalist nature of some of these enterprises. We argue that these tensions will be increasingly evident across a whole range of regulatory institutions and practices as new social groups and political interests emerge and come into conflict. And these tensions will often be entangled with more concerns suggesting that many of the emerging security fault lines of conflict will be centred on geo-economic issues and strategies.

These debates were also significant in the recent debates over Australian membership of the Asian Investment and Infrastructure Bank (AIIB). From the state transformation perspective what is significant is not so much the content of the debate but the alignment of networks of business and economic agencies – including Treasury and Finance and sub-national states and the more geopolitical networks around the DEAT, Defence and think tanks like ASPI. Again a state transformation perspective on Australia and China is about what happens ‘inside’ the state rather than a set of external imperatives, as IR theorists would have it. The FTA with China also throws up some interesting dynamics around foreign direct investment (FDI), which feeds into pre-existing concerns around Australian worker’s pay and conditions. While there seems to be enormous tension between FIRB policy around Chinese FDI in mining, residential real estate and agricultural land, and the governments drive to ratify the FTA, some analysts predict that the FTA will not have a significant impact on incoming FDI, and that the agricultural export sector will be among the small group of domestic players who stand to make slender gains from the agreement. Consequently, there are no tensions so far between the FTA and current FIRB policy.

The rescaling and transformation of the local regulatory state

Poulanztas bookThe second dimension is the rescaling and transformation and emergence of the local regulatory state – and its reflection in the territorial politics between the resource-rich sub-national states and Canberra and the uneven internationalisation of the sub-national state. This in turn has created contestation over matters ranging from issues of fiscal federalism – for example the contests between WA and the Commonwealth after the end of the mining boom – and over a range of other regulatory issues. It is not the ‘patchwork economy‘ per se that is crucial here, but the way these structural changes mesh with ongoing patterns of market transformation to trigger contestation within established political institutions and processes.

The state transformation perspective enables an analysis of these conflicts within the state in way that mainstream International Relations theorists are unable to grasp. The contest surrounding the policy changes implemented by the FIRB, and the frequency with which these changes are contextualised as racially based, by opportunistic or aggrieved stakeholders or commentators, show the weakness of poorly conceptualised reactive economic policy that is isolated from factors other than trade. As Jayasuriya argued in an article on the Ken Henry White Paper, situating Asian engagement almost exclusively on our trade relationship misses the point that Asia is linked to changes in fundamental social and political process inside Australia. This has profound implications for how we should understand public policy on Asian engagement.

One of the key points to emerge from this analysis is the way in which new forms of regionalised capital work through the local state. We have argued, following on from the work of Nicos Poulantzas, how Australia’s increasing integration into the regional political economy has created social forces and interests that are reshaping national and sub-national state institutions. This state transformation perspective is crucial to understanding the dynamics of the Australia – China relationship.

David Cannon
Dr David Cannon is an Affiliate Research Fellow with the department of Politics & International Studies at the University of Adelaide and is an Associate of the Indo-Pacific Governance Research Centre. David's research currently concentrates on the political economy of international trade and development with a particular focus on institutional change as a result of foreign investment in the Australian economy. His research has also focused on the political economy of ethno-national radicalisation and political violence/terrorism. He has recently published work with Professor Kanishka Jayasuriya on the effect of foreign investment - mainly connected to the recent resources boom - on Australian institutions and sub-national states.

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