Tim Harcourt

The recent death of former prime minister Gough Whitlam at the grand old age of 98 was a significant event in Australian history, but also in China. After all, it was Whitlam who took the risk of visiting Peking (now Beijing) as leader of the Opposition in 1971, despite domestic pressure to shun China.

At the time, Whitlam took a lot of heat from the incumbent McMahon government – but only for about a week, when it was revealed that US secretary of state Henry Kissinger had been in Peking, too, paving the way for president Richard Nixon to recognise China.

After winning the 1972 election, Whitlam returned to Peking as prime minister in 1973 when he and his independent and equally charismatic wife Margaret were feted as great friends of China. It was a triumph. In many ways Whitlam was the first Western leader to recognise China. When talking to him – and, later, his chief of staff John Menadue – it was explained that the decision to recognise China was part of the Whitlam vision to engage Australia more comprehensively with the Asia-Pacific region.

Whitlam and South Australian Labor premier Don Dunstan had already fought hard to get rid of the White Australia Policy from their party’s platform. For most of the 20th century, Australia restricted immigration to ‘white’ people (that is, mostly the British and northern Europeans) despite its proximity to Asia and the presence of an indigenous population who were not white.

Whitlam and Dunstan took the principled view that if you wanted to trade and invest with people, or sell education services to them, you shouldn’t prevent them from immigrating because of the colour of their skin or racial origin.

It was part of the big picture, diplomatically to engage with Asia, and to allow the exchange of ideas, art and culture as well as goods and services – to feel more confident in the region, particularly after the difficulties of the Vietnam War.

Since 1971, China and Australia have gone from strength to strength and China is now our number-one trading partner, number-one export destination, and number-one import source (the two-way trade relationship alone is worth almost A$142 billion). China and Australia have gone through different phases in our economic partnership. First, we had the trade of commodities phase, where we exported ‘rocks and crops’ (resources and agriculture) to help China’s industrialisation and urbanisation as it pulled millions of people out of poverty. For Australia, this was both a ‘mining boom’ and a ‘dining boom’.

Then we developed advanced manufacturing and professional services, and foreign investment started to flow both ways. The second and third-tier cities of China, such as Chengdu, Chongqing and Wuhan, began attracting Australian builders, architects and designers as it invested in infrastructure for its rapid rural-urban migration and growing middle-class consumerism. Brisbane planning and design consultancy Place Design has a Chengdu office to build landscape gardens for the urban middle class. It’s a long way from the rice paddies of the poor rural areas.

We are seeing a new phase with the development of financial services and other forms of co-operation, such as the conversion of the Chinese currency to Australian dollars, a new free trade agreement (FTA) and potential Australian support for a Chinese development bank, following on a tradition of strong Australian support for China on major international issues, such as support for China to join the WTO, and support in APEC and the G20.

But what of the future? Recently Australia was surprised to see China, under pressure from local producers, put through tariff hikes on coal targeting  Australia exporters. While this won’t derail the FTA, it does warn foreign observers how many decisions can be made by fiat in China, regardless of the economic logic.

Some have called for the Australian government to leverage its support of the Chinese development bank to try and reverse the tariff decision but it’s likely the two issues will remain separate. There are also more controversial measures to allow ‘purchase’ of permanent Australian residency via real estate investment which may pressure the local real estate market and provide incentive for party officials to invest (which could entice corruption).

On the other hand, Australia has supported the strong anti-corruption stance taken by the Fourth Plenary of the Party Congress and has vowed to co-operate with China on extradition of corrupt officials. These measures are directed at strengthening mutual trust between Australia and China because China now knows that to succeed in the 21st century, the country’s future progress is as much about corporate governance as it is about growth.

Whitlam was often criticised for his lack of interest in economics, compared with his interests in foreign policy, constitutional reform, urban issues, equal pay, the rights of Aboriginal Australians, and his support for Asian immigration.

But ironically, his brave call to go to China in 1971 was perhaps the most important economic decision made in Australian history during the past half century.

Tim Harcourt is the J.W. Nevile fellow in economics at UNSW Business School.