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Event
July 21, 2011

The Rise of China and the Future of US Asia-Pacific Policy – A View From Australia

with
The Hon Chris Pyne, Federal Member for Sturt, Australian House of Representatives

By kind invitation of Damian Collins MP, The Henry Jackson Society was pleased to host a discussion with The Hon Chris Pyne, Federal Member for Sturt, Australian House of Representatives.  An expert on foreign affairs quite apart from his varied roles in the Australian government, Mr Pyne will give his views on the strategic implications of the rise of China for US policy in the Asia-Pacific region as well as offering his views on the Australian strategic realities resulting from these new dynamics. 

Transcript

Salutations
Speaking to you in London I know Europe has its own preoccupations – not least stabilising the economy of Greece and dealing with the public debt crisis gripping not only that country but a number of others. Nor does anyone doubt what is at stake: we have seen too many times in recent years how rapidly contagion in one national economy can spread around the globe with devastating effects.
I’m not the first Australian to come to London urging Europe to pay more attention to developments in Asia – far from it.
But my contention today is that there is no more important international issue facing us than the future course of the relationship between America and China, the world’s largest and second-largest economies respectively.  Between them they account for around one third of all global economic production, 40 per cent of world energy consumption and around half the global defence spend.
Of course Australia, located as it is between the Pacific and Indian Ocean, is much closer to this new epicentre of global dynamism and power than Britain and Europe. But make no mistake – the trajectory of US-China relations over the next two decades will have ramifications extending well beyond Asia. Potentially it could reshape the entire international order as we have known it for more than 60 years. Britain and Europe will not be exempt from the consequences.
For hundreds of years – the period distinguished Australian academic Coral Bell calls the Vasco de Gama era – the pattern of economic, political and military events in Asia has been set mostly by the outside powers of Western Europe and North America. This is the world we are all used to. But it is changing, and changing very fast – mostly because of the rise of China and India.
Perhaps the strongest determinant of the shape of this emerging global order will be the extent to which Washington and Beijing manage their numerous differences and maximise their cooperation – whether in Asia on thorny issues such as security on the Korean Peninsula or freedom of navigation in the South China Sea or globally, such as stabilisation of the international financial system and confronting the menace posed by Iran’s illegal nuclear activities.
China’s achievement
No one can doubt the magnitude of China’s achievement since Deng Xiaoping’s reform program opened up much of the economy to the outside world and the nation turned its back decisively on the disastrous policies of the Mao period, which culminated in the horrors of the Cultural Revolution.
In the three decades since Deng introduced his economic reforms China’s economy has grown at a remarkable average of 10 per cent annually and a staggering half billion people have been lifted out of poverty.
Those of you who have visited China recently have seen for yourself how much the country has changed.
Perhaps the most obvious change is evident in China’s cities. The pace of urbanisation is staggering. Major cities such as Beijing and Shanghai have been transformed into vast modern metropolises, and as people flock from the land in search of economic opportunity many provincial centres are growing into new major cities. Around half a billion people have moved from the country to cities since 1980.
Chinese industries have benefitted enormously from trade liberalisation over the past two decades and from the emergence of a vibrant Chinese middle class, moving up the sophistication scale from cheap manufactured goods to sophisticated electronics and engineering such as very fast trains. Chinese people are developing an appetite for consumer goods. China is now the world’s largest market for cars.
On many measures of social progress – per capita income, education levels and provision of health care and many others – Chinese people are much better off.
It is one of the most remarkable economic transformations in human history, a moment akin to Europe’s industrial revolution but with few other parallels.
China’s rapid economic growth has brought benefits outside China too.
In the 1970s and 1980s it was Japan that kicked off the East Asian economic miracle. Japan’s demand for raw materials and inputs to its export-oriented industries created new markets and new opportunities. Japan became a vital – if under-appreciated – source of capital and of development assistance, helping other countries around East Asia begin their own economic transformation, playing an important role in the international financial system and helping to drive global economic growth.
Today it is China’s economy that is driving increasing trade links across Asia. China is also a growing source of foreign direct investment in Asia and beyond and is now a key driver of regional economic integration. And, not least through its massive holdings of US Treasury bonds, China plays an increasingly prominent role in the global financial system – as was highlighted during the recent Global Financial Crisis. At a time when many developed economies, including the United States, have been struggling, China has emerged as a locomotive of world economic growth – something that would have been unthinkable even a decade ago.
Of course no country has benefitted more from these trends than my own. Today China is Australia’s largest trading partner, having recently overtaken Japan. The total stock of Chinese foreign direct investment in Australia is still relatively low compared with our traditional sources such as the United States, Japan and Britain, but it is growing fast. Along with the sound fiscal position and well regulated financial sector bequeathed by the Howard government, continuing strong demand from China for raw materials was the main reason Australia was one of only two OECD economies that did not go into recession as a result of the global financial crisis.
Australia’s terms of trade have not been higher in over a century. China’s growth is creating jobs and revenue, boosting Australian living standards and helping to keep down inflation as a source of competitively priced imported goods and services. As well as fuelling Australia’s mining boom, China provides a massive market for Australian education and is a large source of immigrants – much needed in an economy short of labour.
No wonder three quarters of Australians believe China’s growth has been good for Australia, according to the Lowy Institute’s 2011 poll.
Managing the darker side of China’s rise
I part company with some of the more naïve barrackers of China’s rise, however, in acknowledging the reality that along with its benefits it brings significant challenges.
China’s emergence – or if you will re-emergence – as a great power is transforming Australia’s region and potentially the liberal international order that has underpinned more than half a century of relative global peace and prosperity. How China and the international community, in particular the United States, manage these challenges will determine whether Asia and the wider world enjoy another half century of economic development and security.
It is common to hear that following its embrace of the market China does not pose an ideological challenge to the international order as the Soviet Union did throughout the Cold War until its ignominious collapse. Certainly while Marxism has lost any legitimising power in China: sustained economic growth and, troublingly, rising nationalism are much more important in keeping the 21st century Chinese Communist Party in power.
Many Western business people, academics and commentators would prefer to look the other way, but we need to face the reality that aspects of China’s political and economic model are deeply troubling – not just because they affect the rights and freedoms of China’s people but because they have implications for China’s external behaviour and, in the longer term, for the liberal international order.
For several decades, Western policy towards China has been premised on the hope that economic development would lead, over time – as it has so successfully elsewhere around East Asia – to political reform and liberal democracy. This could yet happen. But unfortunately that hope looks fainter today than it has for some time.
China’s political leaders have been watching the outbreak of democracy in Tunisia, Egypt, Yemen and elsewhere in the Middle East with barely disguised dread. Fearing that the attraction of democracy may indeed be universal, they have launched one of the biggest crackdowns on political dissent in China in recent decades. Prominent dissidents have been arrested or subjected to house arrest for nothing more than calling for the rule of law, freedom of speech and multi-party democracy – rights that most of us properly take for granted.
The Chinese Communist Party left Marxism behind some time ago but Leninism is still the guiding technique of the Party to keep control of all levels of the state and the economy.
There are limits to China’s embrace of the market too. If anything the role of the Chinese state in the economy is becoming more central; many of the reforms introduced by Deng and others such as Zhu Rongji are being rolled back. State-owned enterprises are increasingly powerful and the state-run banking system allocates capital in response to political guidance from the Communist Party rather than market signals, as the authors of the influential book Red Capitalism recently pointed out.
China’s economic model has significant implications for its international conduct. A massive appetite for energy and resources, coupled with an underlying lack of confidence in the market, brings a neo-mercantilist cast to many of China’s external activities, such as its development assistance in Africa and other developing regions and its ‘going out’ policy of buying up foreign sources of minerals, energy and food, often through massive sovereign wealth funds.
These trends are playing out today in Australia in growing public concern about the efforts of Chinese state-owned entities to buy up major Australian mining companies and farmland. Australia needs foreign capital to build infrastructure and must remain an open and stable destination for foreign direct investment. But foreign investment needs to meet the test of serving the national interest, and it is entirely proper that proposals by state-owned enterprises controlled by the Chinese Communist Party be subjected to proper scrutiny.
China’s non-transparent political and economic model leaves it unconstrained in engaging with many of the world’s most odious regimes.
Just last year North Korea, China’s nuclear-capable ally, tied to Beijing by fraternal party ties and Beijing’s unwillingness to countenance a reunified Korean Peninsula, sank a South Korean warship and shelled an island. Chinese backing has helped to prop up the Burmese junta and Robert Mugabe’s kleptocracy in Zimbabwe.
Concern is also growing around Asia about aspects of China’s rapid military modernisation and what this might imply about Beijing’s longer-term strategic intentions.
Chinese officials maintain that they continue to welcome the US presence in Asia, but the pronounced growth of China’s missile and submarine forces in particular has created the capacity for China to counter US military power in the Western Pacific.  Its development of weapons to destroy foreign satellites and of more flexible, robust nuclear weapons raises troubling questions.
These developments, along with China’s increasingly assertive position in territorial disputes in the South China Sea, are unnerving many of China’s Asian neighbours. They should be of wider concern, including in Europe: Asia’s growing economic importance means maintaining stability there has become a global rather than just a regional interest.
Thoughtful analysts wonder about the implications of China’s growing economic and diplomatic power for international institutions. Understandably, China is insisting on a voice in major councils such as the International Monetary Fund and the World Bank more commensurate with its growing weight. But what will China’s leaders demand with that louder voice? At this stage that remains very unclear.
Admittedly Beijing did not veto the NATO humanitarian intervention in Libya, and it has gone along with limited sanctions against Iran’s nuclear activities. But China’s record as a responsible international stakeholder, to use Robert Zoellick’s phrase, is distinctly patchy.
China is one of the countries blocking progress in the Doha Round of multilateral trade talks. It helped to derail the Copenhagen climate change talks. In these cases China’s leaders insist that, despite its incredible growth, China is still a developing country and they are doing no more than prosecute their country’s interests in a hard-headed way.
But the argument that China is a developing power must be counterbalanced with the reality that China is a great power. Being a great power brings with it responsibilities. China has to take a broader view of its national interests and is going to have to work hard to convince other members of the international community that its growing global weight does not pose a threat to the liberal international political and economic order.
The US role in Asia
In the wake of the global financial crisis and America’s current economic problems it has become fashionable in some circles, including in Australia, to write off the United States. One leading Australian strategic commentator, Hugh White, argues that the United States should cede much of its current influence in the Western Pacific and share power with China.
In my view this is an error.
It is true that the relative power gap between the United States and China is closing. On most estimates China’s gross domestic product measured in US dollar terms will overtake America’s some time between 2020 and 2030. As I have already mentioned, China’s military power is already growing fast, and it wields increasing diplomatic and economic influence in Asia and beyond.
But let’s look more closely.
The United States is still the world’s largest economy. It may be ailing now, but I firmly believe in its flexibility, dynamism and regenerative capacity. US public debt levels are unsustainable, and this has consequences. Australia and other US allies in Asia should be concerned by recently announced cuts to US defence spending.  But the American public made clear in the mid-term elections that it wants to see real action on debt. The political system may be struggling to deliver that thus far. But there have been enough false prophets of American decline in the past to create very strong grounds for scepticism now.
The United States retains by far the world’s most potent military. Since the end of the Cold War the overall proportion of America’s military power located in Asia has risen, and the United States is developing new weapons and new doctrines to counter Chinese capabilities aimed at denying the US Navy access to the Western Pacific.
The United States continues to have numerous allies and they are overwhelmingly successful liberal democracies. By contrast, China has few allies and those it does have could hardly be described as liberal democracies.
And the United States – free, democratic and open – continues, by virtue of being the country it is, to hold enormous stocks of soft power.
The United States remains a committed residential power in the Asia-Pacific region, and if anything its role as the ultimate guarantor of peace and stability is becoming more important, not less, as China rises.
The US alliance system has not faded away as many predicted after the demise of the Soviet Union. Indeed around Asia traditional US allies are looking to strengthen their security ties with America in the face of growing uncertainty. Certainly public support for the alliance in Australia has seldom been stronger; only a handful of extremists in the Greens doubt the benefits of the alliance.
And new partners are also cultivating American defence engagement.
India, Singapore and even Vietnam – a country the United States was at war with just a few decades ago – are all intensifying their military links with America. Southeast Asian countries have called for the United States to increase its presence in the region, and Washington has responded, stepping up naval exercises and diplomatic activity; the US president will attend the East Asia Summit for the first time later this year.
None of this strikes me as a country in retreat from its commitments in Asia.
US-China relations in the 21st century
Historically, the rise of a new major power is often disruptive. At worst it can be cataclysmic, as the world learned to its cost during the first half of the 20th century. But there is nothing predetermined here.
I’m not pessimistic like the arch-realist American scholar John Mearsheimer, who believes that conflict is inevitable between the United States – currently the Asia-Pacific’s predominant power – and China, the coming power. Historian Andrew Roberts had a similarly bleak take when he addressed Australia’s Institute for Public Affairs just a few weeks ago.
But nor would I count myself amongst the naïve idealists who maintain that burgeoning trade and investment ties across the Pacific Ocean mean we have nothing to worry about. Again 20th century European history is painfully instructive here – Britain and Germany were close trading partners when they went to war in 1914.
The US-China bilateral relationship is now the most important in the world. It contains elements both of cooperation and of competition. America and China share many interests, and they are working quite well together in some areas. There are something like 60 separate dialogues between US and Chinese officials, covering a vast array of issues.
But dialogue does not necessarily mean agreement, much less concerted action.
China and the United States continue to butt heads on some of the most pressing problems facing the world – from nuclear proliferation to fixing the global financial imbalance.
Conflict between the world’s two largest powers may not be inevitable. But there should be no doubt: the United States and China are in the initial stages of a serious strategic competition, one with unpredictable and potentially worrying consequences. It is focused mainly on the Western Pacific but will increasingly play out globally as well.
Hugh White’s proposal for a concert of power to run Asia between them holds few attractions, particularly for countries such as Australia that are not great powers in their own right and would have very little say in a regional order divided into spheres of influence and run along lines of realpolitik.
The idea that mature, responsible Asia Pacific democracies such as Australia, Japan and South Korea should hand over their destinies to Beijing and Washington is unlikely at best and dangerous at worst. And it goes without saying that more than 20 million people in democratic Taiwan would lose any say in their future.
Even if an Asian concert were remotely desirable, however, it is very hard to see two countries divided by such major differences – whether of interests, strategic outlooks or values – being able to put these (and in America’s case its allies) to one side.
Managing Sino-American differences – which are real and likely to increase as China’s power grows – and building habits of cooperation and trust will require patience, restraint and tremendous statecraft on both sides. America’s current economic problems, domestic politics in both China and the US, profoundly different political systems and China’s rising nationalism, political economy and lack of transparency will complicate the task.
Managing the downsides of China’s rise: Getting China policy right
Given the inherent complexities of a relationship that combines areas of shared interest with genuine and significant differences neither a US strategy based on containment or one based only on engagement is likely to succeed.
Despite China’s rise, the keys to a successful US policy in Asia have not really changed.
Capable forward-deployed US military forces, strong alliances and robust deterrent capabilities allowed Asia’s economies to grow in relative peace for more than half a century and can continue to do so for the next half century.
This will require adequate funding for new weapons systems and for strong maritime forces in particular and changes to US force posture that are already under way.
This may be an unfashionable view, but it will also require that the United States maintains a credible nuclear deterrent: China is rapidly modernising its nuclear and missile forces.
It will also require continuing US leadership on trade. A strong commitment to open markets has long been the other major pillar of American leadership in Asia. While the Obama administration has performed strongly in Asia – like its predecessor – it is disappointing that the South Korean free trade agreement has not been ratified and the Doha round is stalled.
Lastly, it is unlikely that the United States can continue to provide leadership in Asia on security or on trade unless it gets its economic house in order – which means tackling the bulging entitlements budget.
Conclusion
All too often, however, the onus is placed on the United States. I guess that’s one of the prices of leadership, but it’s not good enough.
So what should America’s allies – including Australia and Britain – be doing?
As a conservative with respect to security I was disappointed to see the UK government making substantial defence cuts, although I recognise the scale of the budget problem it inherited.  European nations need to overcome their domestic problems so they can pull their weight globally. Europe may be at peace, but it can still be affected by instability elsewhere in the world – particularly in Asia, the region which is rapidly emerging as the epicentre of global power.
I’m similarly disappointed – but not surprised – to see Australia’s Labor government departing from the bipartisan commitment to 3 per cent real growth in defence spending that has been in place since 2000. Every time the ALP gain power they eventually find an excuse to cut defence. Australia needs to build the undersea warfare and intelligence, surveillance and reconnaissance capabilities we are going to need in the most uncertain strategic environment we have faced since the Battle of Midway turned the tide of World War Two.
Australia and America’s other allies in the region need to ensure that they maintain capable forces that are able to operate seamlessly with the US military in a range of contingencies, including possible operations in Asia. And they should be prepared to provide enhanced access to US military forces. Australia has bases and extensive training ranges in the north and west that are well placed to facilitate access both to the Indian and Pacific Oceans.
They should also work more closely among themselves. Under the Howard government Australia moved to strengthen strategic ties with Japan, India and Indonesia. Australia-Japan-US trilateral strategic cooperation – another prescient Howard government achievement – is well established and paid real dividends when the United States and Australia rapidly deployed military forces to help the disaster relief operation after Japan’s earthquake disaster.
Japan is working to cooperate more on security with India and with South Korea as well as the United States. Japan, India and America recently launched a new trilateral strategic arrangement. This developing network of regional defence links will play an increasingly important part in maintaining stability in Asia.
That’s one reason it is so unfortunate that the Rudd government badly mismanaged some of Australia’s most important relationships; for example the Gillard government needs to overturn the pointless and ideologically-driven ban on exporting uranium to India.
Finally, Australia needs to get its own China policy in order after Kevin Rudd mismanaged our most important trade relationship.
There is a conceit among some Australians that we ‘know’ China better than Americans and that we can somehow broker relations between Washington and Beijing. We have seen Kevin Rudd succumb to this from time to time.
We should abandon that and focus on what we really can do.
We need to develop a constructive and consistent relationship with China – one that focuses on shared interests, particularly economic opportunities – and where China knows where it stands on difficult issues such as foreign direct investment. We should make clear that we shall not compromise on our strategic interests or our values – including the US alliance, human rights and the rights of Australians living, travelling or doing business in China. This was the blueprint for John Howard’s extremely successful stewardship of the China relationship and it is time we returned to it.
We also need to be prepared to stand up to rhetoric emanating from some quarters about so called ‘containment’ and work with like-minded countries when that serves our interests. This includes coordinating approaches to dealing with China, whether on trade and investment, human rights, the environment or security. Too often the developed democracies allow themselves to be picked off; we are far more likely to influence Beijing if we speak with one voice, calmly and confident in our own strengths.
Britain and Europe have an important part to play here too. Too often European dealings with China have been one-dimensional, focussing only on economic opportunities. But as Western countries with a major stake in the liberal international order they have a responsibility to contribute to maintaining it.
Indeed, as the nations that created the world as we know it, one could argue that have more responsibility than most.