By: Our Correspondent

Australian foreign policy is in disarray with Prime Minister Tony Abbott again having infuriated Indonesia. At the same time, some Australian business groups are seeking to set their own foreign agenda to manipulate policy towards China to further their business interests.

Abbot’s misstep was to cancel, at the last minute, a conference in Bali to which he had been invited by Indonesian President Susilo Bambang Yudhoyono. The topic of the “Open Government Partnership” conference was itself of no significance but the invitation to Bali had been regarded as an attempt by Indonesia to mend relations recently damaged both by revelations of Australian 2009 spying on the President, and continued friction over the issues of boat migrants coming to Australia from Indonesian waters.

The suggestion in Australia is that the abrupt cancellation was due to concerns that another boat incident between the two was about to erupt – a more likely explanation than that Australia’s upcoming budget needed Abbot’s undivided attention.

Australia’s persistent inability to manage its relationship with southeast Asia’s key nation comes at a particularly unfortunate time for relations with its major ally, the US. The recent Obama visit to the Philippines and Malaysia should have led to greater Australian appreciation of its role in treating Indonesia as an ally, especially taken together with Indonesia’s open attack on China for claims in the South China Sea which appear to include part of Indonesia’s Natuna Island group,

However, two issues conspire to make this difficult. Abbot’s grasp of foreign policy issues is regarded as very weak at the same time he has made a tough stance towards boat people a key element in his domestic political strategy. It has become ever more important given that a huge budget deficit is forcing him to go back on a pre-election promise not to raise taxes by proposing a “temporary” surcharge on income tax.

Meanwhile businesses with a vested interest in pleasing Beijing have been treating the US as more of a threat to Australia than China. Indeed, former foreign minister (under the previous Labor government) Bob Carr wrote in his memoirs of the pressure from billionaires Kerry Stokes, James Packer and Andrew Forrest for what he called a “pro-Chinese foreign policy.” He added “the pro-China lobby … want to make us fidgety and defensive about our China policy”.

That was followed by a statement from the former secretary of the Department of Foreign Affairs and Trade, Dennis Richardson who asked: “Since when does any country worth its salt auction its alliance to the highest bidder?”

The China lobby has certainly been making some strong statements of their own self-interest. Gambling mogul James Packer, who has a huge stake in Macao casinos opined: “We as a country have to try harder to let China know how grateful we are for their business.”

Stokes was quoted as saying he was repulsed by the presence of US troops on Australian soil who were not under Australian command. Forrest’s iron ore business is almost totally dependent on sales to China.

Former prime ministers Paul Keating and Malcolm Fraser have also been vocal in demanding Australia align with China more than the US. Keating helped launch a book The China Choice by leading pro-China academic Hugh White – those with longer memories will recall that Keating’s much ballyhooed attempts to “mesh with Asia” met with derision, particularly from Malaysian Prime Minister Mahathir Mohamad, whom he had described as “recalcitrant.”

An arch-conservative turned republican, Fraser, aged 84, is urging Australia to cut all defense ties with the US, a remarkable about-face for one who was Australia’s Defense Minister during its participation alongside the US in Vietnam.

Keating, Fraser and others believe that they are being Asia-friendly by adopting positions critical of the US. They have been given some credibility by Australia’s inglorious involvement in Afghanistan and, marginally, Iraq at US behest. But their obsession with pleasing China at US expense reflects a lack of awareness of how other Asian countries – not least the largest, Japan, India and Indonesia, now see China and the US regional role.

The underlying problem for Australia, as revealed by this China lobby, is that the China-driven mineral boom of the past decade has made Australia appear depend heavily on a good economic relationship with China. In practice the boom will turn to bust not because of China or its views of Australia but because of the nature of global commodity price cycles.

But those with direct interests in China will shout loudly to proclaim that China must be appeased, regardless of other relationships, whether the US or in Asia.

This will not go away at least until mineral prices collapse – as a result of supply increases, not China – and the Australian economy is forced back onto a sounder footing based on skills and manpower productivity rather than digging some of the world’s richest ores.

That in turn should make Australia see Indonesia as a growth center and friend in the way Japanese and Koreans do, not just a nuisance because of boat people or a rival for steaming coal exports. But meanwhile foreign policy in practice remains dysfunctional, pleasing neither the US, China or Indonesia.