China the sleeping giant of the east

Almost two centuries ago Napoleon Bonaparte is said to have likened China to a sleeping giant, ‘Let her sleep, for when she wakes, she will shake the world.’

At any given point in history, China has had the potential to challenge the established order of the world.

Beset by occupation from colonial powers, invasion, wars, and internal conflict over centuries, a turning point came in 1949, when the modern People’s Republic was founded under the leadership of Mao Zedong who famously declared,

“The Chinese people have stood up.”

While its trials and tribulations were far from over, Mao was referring to the fact that the Chinese people had assumed control of their destiny, free from domination by external powers.

During the Second World War, US President Roosevelt encouraged economic ties with China, and even though at the end of the War China’s impoverished total economic output was less than 5% of global GDP, Roosevelt was of the view that China should be among his “four policemen” of great powers to maintain global peace.

The “four policemen” concept of the US, UK, Russia and China morphed into the Security Council of the United Nations with the addition of a liberated France.

Michael Wesley, executive director of the Lowy Institute in Sydney in a recent speech titled The Meaning of China said that “the world has been watching for China’s rise for a very long time”.

He noted that while the world has long awaited China fulfilling its place in the global order, perhaps it has been before China was ready for such a role.

There is no question that China is a critical player in world affairs and there are few greater global challenges than the re-emergence of China as a superpower.

Given our regional and economic proximity, how Australia manages this shift in global economic power will have profound implications for Australia’s domestic and foreign policymaking.

Since opening its economy in 1978, China’s economic development has lifted million of its citizens out of poverty.

It is now the world’s 2nd largest economy, overtaking Japan, and has recently supplanted the United States one hundred year dominance as the global centre of the world’s merchandise production. 

China’s economic miracle is yet to be felt in many parts of the country, which remains under-utilised and reliant on subsistence agriculture.

The population of rural China, estimated to be around 750 million people, is more than twice the current population of the United States.

The economic development of these regions should sustain China’s high level of economic growth well into the future.

In a recently released diplomatic cable, US officials painted a graphic picture of the enormity of China’s growth,

“China plans to build 20,000 to 50,000 new skyscrapers over the next two decades – as many as ten New York cities” and “More than 170 Chinese cities will need mass transit systems by 2025, more than twice the number now present in all of Europe”.

Australia is well positioned to benefit from the growth in the Chinese economy.

Australia is currently enjoying the best terms of trade in 140 years on the back of high commodity prices and strong-levels of demand.

China is already Australia’s largest export market, consuming one quarter of our total exports.

In 2010, two-way trade exceeded more than $100 billion, much of that coming out of Western Australia.

I am critical of the government for failing to progress negotiations for a comprehensive free trade agreement with China.

Both Australia and New Zealand commenced negotiations with China in 2005.

NZ concluded an agreement in 2008 and is currently reaping the benefits of increased exports to China in sectors such as seafood, to the disadvantage of Australian fisheries  who still face high tariffs on their goods.

The export story to China should not only be about minerals and resources

The Australian Government is certainly banking on China’s strong economy continuing without falter.

According to the Budget papers released last week, the Chinese economy is forecast to grow 9½ per cent in 2011, before slowing slightly to 9 per cent in 2012.

The strength of China’s economy will continue to drive Australia’s economic growth, with Australia’s real GDP growth estimated to reach 4 per cent in 2011-12.

While I acknowledge the critical warnings about an over-reliance on China’s economy, that can be a whole topic of its own for another day.

China’s economic resurgence has enabled it to convert its immense power potential into actual power.

China’s purchase of US Treasury Securities have helped keep the US economy afloat during one of its most challenging periods.

China’s important role in the global economy was reinforced when the European Union’s foreign policy director Catherine Ashton thanked China for its ongoing purchases of European sovereign bonds, which assisted the EU in its efforts to combat what she described as “unfounded turbulence and speculation.”

During a recent meeting I attended in Singapore with representatives of South-East Asian Parliaments, the observation was made that China now wields enormous influence over the United States and Europe due to its extensive holdings of government debt.

One of the Asian politicians present was quick to respond with, “No, in fact it is the opposite”, calling to mind the old adage “if you owe the bank a dollar, you are in trouble, but if you owe the bank a million dollars, the bank is in trouble.”

His theory was that China is now so exposed to the US and EU economies that it could not afford either economy to enter a period of protracted economic contraction, let alone fail, because of the losses that would inflict on China.

It is the speed of China’s economic transformation as much as the scale of it that has attracted so much attention.

According to Mark Thirlwell, also of the Lowy Institute, China has experienced an industrial revolution in 26 years comparable to the 120 year industrial revolution of the United Kingdom and the 43 year revolution of the United States.

And it is far from over, for according to the International Monetary Fund, China’s 2010 GDP per capita was ranked at 94th of 183 countries at $7500, compared to the US in 7th place at $47,284 and Australia in 10th place at $39,699.

The rise of China will have far-reaching consequences for the delicate balance of power in our region for China is seeking to project its power through a more assertive military presence

Consequently, we are witnessing the emergence of a multipolar structure in which the unquestioned primacy of the United States, since the end of the Cold War, is being challenged by other powers in Asia, notably China, and less so, India..

ANU professor Hugh White, a former adviser to Labor Prime Ministers, is leading a charge with the view that US primacy is under serious challenge, that the US should accept the inevitable, withdraw gracefully and accept a regional power sharing arrangement with China.

While I welcome public debate on this vital issue, I neither subscribe to Professor White’s assumptions nor his conclusions.

To accept America’s withdrawal from the region is to accept the increased likelihood that states will engage in even greater levels of ‘self help’ and the potential for a security dilemma that comes with it.

This debate takes place at a time when there is increasing concern about the expansion of China’s nuclear weapons program.

Confronted by a state with vastly superior power capabilities, and lacking the assurance that the US security umbrella has traditionally provided, other regional powers may reconsider the benefits of acquiring their own nuclear capabilities.

According to US diplomatic cables released via WikiLeaks, Chinese officials have insisted that there will be no limit to the expansion of its nuclear weapons program, which was described as a “high ranking priority”.

Or as China’s assistant foreign minister has stated China “cannot accept others setting limits on our capabilities”.

There is a belief within the region that China’s relatively modest stockpile of nuclear weapons will eventually come to rival that of the United States and Russia.

It is not difficult to conceive why states may re-evaluate the merits of acquiring their own nuclear deterrent in a regional environment void of US leadership and its security guarantees.

The prospect of America quietly withdrawing from Asia will concern all nations who have prospered under the international rules and norms that have emerged since World War II.

What these countries are looking for is greater US leadership, not less.

The emergence of a multipolar structure, in which the US will be only one of the major actors in Asia, will cause enough insecurity without I suggest Australia advocating America’s retreat.

As the US Intelligence Council warns “historically emerging multipolar systems have been more unstable than bipolar or even unipolar ones”

Changes in relative power amongst states have caused tension and conflict as far back as the Peloponnesian War in ancient Greece and the Asia Pacific is not immune from the central tenet of international relations.

If, for example, and as Professor White also suggests, we are entering an era where US dominance of sea lanes in Asia is challenged and where no single country has total command of the waters around Asia, this will lead to a far less stable environment and far less predictable outcome if regional tensions were to escalate.

The Australian Strategic Policy Institute has observed that “South East Asian states are likely to feel a sense of heightened strategic vulnerability in the coming decades”

China’s increasing ability to project power beyond its borders has caused concern throughout the region.

During recent meetings with senior foreign policy officials in Japan and South Korea, I found the level of unease apparent.

Most centred on the military expansion and the lack of transparency about Beijing’s long-term goals and aspirations.

The uncertainty surrounding China’s intentions has led other regional players to expand and modernise their military capabilities.

According to the Stockholm International Peace Research Institute, arms deliveries to South East Asia nearly doubled in the period 2005-2009, when compared to the previous five years.

Arms deliveries to Malaysia, for example, increased by 722%, to Singapore by 146% and to Indonesia by 84%.

The Russian Government recently announced the biggest overhaul of its military capabilities since the collapse of the Soviet Union.

This anxiety has also influenced Australia’s strategic thinking.

The Rudd Government’s Defence White Paper left no doubt that Australia’s defence planning is primarily motivated by the re-emergence of China on the international stage.

The issue of the white Paper was raised directly with me in Beijing, as the tacit identification of China as a potential military threat to Australia in that document caused deep concern at the time.

I do not agree with all the assumptions or assessments in the White Paper, but it does highlight the need for China to show greater transparency with regard to its military build up and its long term goals.

However, the Coalition doesn’t share the view that war with China is inevitable.

As history has shown, attempts to chart the course of nation-states are a dangerous exercise wrought with speculation and mistake.

A current example is the tide of popular revolts in the Middle East once considered foreign to individual freedom –  a series of uprisings that have been labelled as ‘black swan’ events for their totally improbable nature.

To see war with China as inevitable, runs the risk of imagining conflicts that are not there.

However, the heightened sense of strategic vulnerability already felt in the region has been exacerbated in recent times by the actions of the Chinese Government.

When China declared its “indisputable sovereignty” over the South China Sea, it brought a swift repudiation from the United States and caused considerable concern throughout the region, particularly in countries with competing territorial claims.

This announcement placed the South China Sea – a vital sea lane for Japan, South Korea and the United States among others – alongside Taiwan and Tibet in the minds of the Chinese Government as an indisputable part of Chinese territory and a core national interest.

During the past year, maritime tensions flared between Japan and China over fishing and territorial rights.

This was further aggravated by China’s decision to restrict exports of rare earth metals vital for Japan’s production of electronics.

Despite China’s ongoing military build up, it will be many years before China could possibly challenge the United States in naval supremacy.

Stratfor’s George Friedman calculates that the US navy is larger than the combined navies of the 11 next biggest countries, and points out that the US is allied with the majority of those naval forces.

When assessing the potential for conflict involving China, most analysts look to Taiwan.

In my meetings with officials from Taiwan, there is obvious concern about the rising military might of China.

However, they point to the fact that huge investment flows are now occurring between the two countries and there are now regular bilateral people flows with direct flights increasing rapidly.

There is a de facto free trade agreement now in place between China and Taiwan and I’m told that more than one million Taiwanese are doing regular business with mainland China.

However, a peaceful reunification does not appear to be any closer in terms of the political mood within Taiwan.

I get a sense that Taiwanese officials are happy with the status quo, but are wary of what will happen in the wake of large shifts in the balance of regional power.

According to US diplomatic cables released via WikiLeaks, former PM Kevin Rudd told the US that he announced his initiative for an Asia-Pacific Community as a means of containing China’s rising influence in the region.

While Kevin Rudd’s concept  failed to materialise, the entry of both the US and Russia into the East Asia Forum can be seen as an effort to maintain the checks and balances in the region.

In recent days it has been reported that China and the United States have concluded the economic track of the Strategic and Economic Dialogue held in Washington DC by promising to resolve disagreements on a handful of economic and financial issues.

According to Stratfor reports, China has committed to allow US companies to operate in its finance and insurance sectors.

China has also committed to cracking down on theft of intellectual property.

In return, the US has given undertakings to reform of its financial system and improve its fiscal position to support its national creditworthiness and the international value of its currency.

There are doubts as to the impact of these undertakings, and whether they will resolve long-standing issues between the two trading partners.

Stratfor analysis of the discussions on the security track are that “the United States sees such dialogue as a way to give China more responsibility for regional stability, though this would also necessitate holding China to greater accountability when that stability is disturbed.”

“China has not signalled a willingness to compromise on its self-defined core interests in the region, though it sees the advantages of presenting itself as a peaceful and cooperative player in the present to build its capabilities for the future.”

While China’s hard power has increased significantly in recent years, it still lags far behind comparative states in terms of its soft power capabilities.

China will need to improve its soft power in the coming years if it is to offset some of the insecurity that the rise in its hard power capabilities generates.

And that brings me to the issue of human rights.

Globalisation and the democratisation of information technology have resulted in an increased demand on world leaders to address human rights concerns and abuses in other parts of the world.

What was called the ‘CNN effect’ is now the Facebook or Twitter effect, as information once closed off to citizens is now readily available via the Internet.

Values will become an increasing feature of international relations, however much traditional realists may argue against it.

Values also featured strongly in the recent US – China Strategic and Economic Dialogue,  with Vice President Biden voicing the vigorous disagreement that exists between the two countries in the area of human rights.

The Vice President made particular  mention of the recent crackdown in China, which has seen attacks, arrests and the disappearance of journalists, lawyers, bloggers and artists.

In a recent interview with The Atlantic Monthly, Secretary Clinton labelled China’s human rights record as deplorable.

The Opposition shares the concerns of the United States and has called on the Chinese Government to ensure that the rights and freedoms are guaranteed for all its citizens, including freedom of opinion and expression and the right to free assembly. 

While in office, the former Coalition Government established a ministerial-level human rights dialogue with China to raise our concerns directly.

Issues raised in the dialogue have included: freedom of assembly, of speech and of religion; human rights in Tibet; treatment of ethnic minorities; the death penalty; and the treatment of political prisoners.

Australians have the right and expectation that their national leaders give voice to their concerns when conducting Australian foreign policy.

As Prime Minister, John Howard brought Australia closer to China than any other leader before or after, without jeopardising our close and enduring friendship with the United States.

In doing so, Australia achieved a balance between our strategic and economic interests that was the envy of many countries.

We rejected the notion that Australia would be forced to choose one of two paths.  

This is still the case.

As many have commented there is nothing inconsistent in supporting an American-led order in the Asia-Pacific and close economic relations with China.

As the economic bonds that bind the region together increase, so too will the consequences of military action.

Countries, Thomas Friedman once stated, are motivated and controlled by the ‘electronic herd’ of international investors who determine the movement of financial flows.

The mutual vulnerability that now characterises the economic fortunes of the United States and China constrains the likelihood that conflict will emerge.

It is incumbent on the Chinese leadership to ensure it is a force for good in the region and the world.

China has undertaken liberalisation of its economy, while its political and social reforms have lagged.

I believe it is in China’s long-term interests for its government to aspire to higher ideals of personal and individual freedom, rather than seek to oppress such desire.

As we have seen in the Middle East in recent months, the universal human desire for greater freedom cannot be suppressed indefinitely.