Recent efforts to combat China’s covert interference in Australia have led to heated public debate. But there is a growing area of meddling that receives less attention, even though it has potentially greater consequences: China’s use of economic clout to influence Australian corporations and governments, and those of other Asia-Pacific nations. 

Such power was on display earlier this month, when China persuaded Qantas to change its references to Taiwan to ensure the island was not referred to as a separate country on maps or in drop-down menus. China’s aviation authority stated that more than forty airlines had agreed to similar demands.

Twenty years ago, Chinese tourism to Australia was almost non-existent – between 1996 and 2016, the annual number of short-term visitors from China to Australia increased from just over 50,000 to more than 1.2 million. Qantas now has daily flights to several Chinese cities, and code-sharing agreements with China’s two biggest airlines, China Southern Airlines and China Eastern Airlines. This was potentially at risk if Qantas did not reclassify Taiwan.

Beijing has also been making it more difficult for Australian exporters of products such as wine and beef to bring their goods into China. This has been blamed on worsening relations between the two countries, which in turn has been attributed to Australia’s proposed foreign interference laws. 

Of course, all countries use their economic strength to promote or pursue political goals. The most obvious examples are international sanctions and foreign aid, which have traditionally been the preferred tools of the United States. But China’s use of economic coercion has taken a different form, and its practices are rapidly evolving as it becomes the world’s largest economy and is able to harness its trading power for other purposes.

China is already the number-one trading partner for dozens of countries, including Australia. Its trade and investment reach will extend further as it pursues its Belt and Road Initiative, which will involve rail, port, road and other infrastructure projects in more than seventy countries. 

The Chinese Communist Party’s involvement in the decision-making of local businesses and authorities allows it to exercise influence in more subtle, and more targeted, ways than blanket sanctions or grants of foreign aid. China has repeatedly restricted specific countries and companies from importing or exporting goods or becoming involved in government deals. For instance, following a dispute with the Philippines in 2012 over Chinese fishers operating in disputed waters, Beijing curbed imports of Filipino bananas, claiming that it had found bugs in some shipments – even though bugs had been found in such shipments to China before, without repercussion. 

Last year, South Korea allowed the United States to deploy the THAAD missile defence system in the South Korean county of Seongju, which prompted a series of responses from China. These included boycotting South Korean multinational car manufacturer Hyundai, conducting inspections at supermarkets owned by Korean–Japanese conglomerate Lotte – which led to most of the firm’s Chinese branches being closed – and suspending trips to South Korea by Chinese tour groups. Visitor numbers dropped about 60 per cent before the stand-off was settled.

Such pressure is hard to resist. Companies often need government and public support to do so, while governments need strength of resolve.

The United States government, unlike many of the country’s firms, has not buckled to Chinese pressure. It described China’s letter requiring airlines to change references to Taiwan as “Orwellian nonsense”. 

But countries such as Australia, which are economically weaker than the United States and more dependent on China for trade, are finding it harder to develop a coherent response. Malcolm Turnbull defended Qantas’s decision, saying its change was consistent with Australia’s One China policy. Frances Adamson, secretary of the Department of Foreign Affairs and Trade and a former ambassador to China, took a less diplomatic line. “The government cannot be in a position to tolerate the exercise of economic coercion,” she said.

In the coming years, China’s economic growth will only increase its powers of coercion, and the Chinese government will be more likely to use these powers. For companies and governments outside China, the price of resistance will be steep. The challenge for Australia is not to uncover China’s shadowy tactics but – and this may prove more difficult – to develop a clear, consistent response, and a willingness to withstand any associated costs.