Illustration: Craig Stephens
by Nicholas Ross Smith
by Nicholas Ross Smith

Hedging on China’s rise: Australia and New Zealand offer lessons on the benefits and pitfalls

  • A New Zealand minister’s advice to Australia on dealing with Beijing may be impolitic, but it lays bare the challenges of small nations caught in the US-China competition for influence in the Indo-Pacific region
Australia and New Zealand ended up in a minor diplomatic squabble last week after New Zealand trade minister Damien O’Connor said in an interview that if Australia “were to follow us and show respect” by engaging “a little more diplomacy from time to time and be cautious with wording”, then it could have as positive a relationship with China as New Zealand does.
It is no secret that Sino-Australian relations are in a particularly low trough at the moment and O’Connor’s advice was probably unappreciated in Canberra. Officials there would probably have preferred more solidarity from their old friend.

But, as inappropriate as O’Connor’s remarks might have been, they do raise a pertinent question facing the smaller countries of the Indo-Pacific region: what is the best foreign policy strategy to manage China’s rise?

The region has been experiencing something of an epochal transformation in the past two decades, moving from a region where US hegemony was unquestioned to one where there is now an apparent revisionist challenger: China.

New Zealand trade minister Damien O'Connor speaks at a press conference on the upgraded free trade agreement with China, in Wellington on January 26. O’Connor’s remarks on Australian diplomacy towards China have sparked a minor row. Photo: Xinhua

Many believe the coming decades will see the complete breakdown of Sino-US relations. Some argue that the seeds of a new cold war have been sown while others, even more pessimistically, argue that the US will be forced to take pre-emptive action against China. In either scenario, the region’s smaller countries will find themselves navigating an extremely challenging environment.

Typically in such a situation, smaller countries have three options in their basic strategic foreign policy arsenal. One is to strengthen their alignment with the status quo power to offset the security threats caused by the rise of the revisionist power. This is known as balancing.

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Another option, known as “bandwagoning”, is to realign themselves with the revisionist power to reap the rewards of becoming a friend.

And the third, arguably more ambitious, strategy is to try and secure a win-win middle ground between the revisionist and the status quo powers. This is known as a hedge.

Most of the smaller countries in the Indo-Pacific have opted for the hedge strategy, but this has become more difficult to execute in recent years. Against this context, New Zealand and Australia offer an interesting comparison. China is the most important export destination for both, yet they are seemingly embarking on wildly different strategies for dealing with China’s rise.


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New Zealand has gone full steam ahead with the hedge option. The government has said it would like New Zealand to act as a bridge between China and the United States. Rather than being forced to choose a side, New Zealand has sought to concurrently align itself with both.

Therefore, even as New Zealand continues to formally improve its trading relationship with China, it has also remained heavily involved in US-led security initiatives such as the “Five Eyes” intelligence alliance.

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However, acting as a bridge between China and the US has been difficult, and will become even more so if the Sino-American relationship deteriorates further. Maintaining positive relations with both requires skilful diplomacy, resting on an ability to project a non-threatening appearance while also maintaining ambiguity in foreign policy signalling.

The benefits of having strong relations with both sides come at a cost. One limitation is the need to remain somewhat muted on topics which are sensitive to either country, particularly China, given its penchant to lash out at any outside criticism.

Although Prime Minister Jacinda Ardern and others in the New Zealand government have at times criticised China over issues such as Hong Kong and the treatment of Uygurs, this was done in an extremely careful way.

New Zealand Prime Minister Jacinda Ardern attends an event in Auckland on January 30 to celebrate the approaching Lunar New Year. The Ardern government has been careful when voicing criticism of Beijing’s policies and actions. Photo: Xinhua
Australia, by contrast, is seemingly abandoning any idea of a hedge in favour of the perceived more secure option of balancing China by embedding itself more deeply in the US-led regional order. Last November, Australia signed a defence pact with Japan, and it is also heavily involved in trying to strengthen the Quadrilateral Security Dialogue (Quad) with the US, Japan and India.
This has come as Australia and China have engaged in a series of squabbles in the past 12 months, ranging from a dispute over the call for a Covid-19 inquiry, a dispute over a doctored image mocking Australia’s war crimes in Afghanistan, and ongoing accusations of Chinese infiltration in Australia’s politics and media.
Such a stance undermines the potential to successfully execute a hedge. And the costs of this failure are already being felt by Australia, with China imposing significant trade embargoes on some key Australian exports in retaliation.

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Pursuing a hedge is easier said than done for Australia, however. Not only is Australia bigger than New Zealand, making it harder to appear non-threatening, it is also significantly geographically closer to China than its neighbour. Furthermore, domestic attitudes towards China in Australia are overwhelmingly pessimistic.

Yet, it is likely that a hedge remains the optimal policy on the table for Canberra, but one that does not require constant kowtowing to Beijing.

It is hard to see which strategy is the best one to deal with China’s rise in the long term. China might be a great source of revenue for the smaller countries of the Indo-Pacific region, but it has also proven to be an impetuous and thin-skinned partner at times.

But, on the other hand, the US is hardly a bastion of stability any more, particularly as its domestic issues continue to distract it from playing a consistent security role in the Indo-Pacific region.

While O’Connor’s remarks were delivered in an ill-considered way, there are some pearls of wisdom to his argument, as erring on the side of being more diplomatic is probably the safest strategic option right now for the smaller countries in the region.

Nicholas Ross Smith is an associate professor of international studies at University of Nottingham Ningbo China