China’s Next Decade

Dear Reader,

Over the past decade, the rise of China has had an unparalleled impact on Australia. It has transformed our economy, shielded us from global economic crisis, and made us into one of the wealthiest nations in the world.

But that’s now in the past. China’s next decade will present new challenges and opportunities for Australia.

How we handle China’s rise has become something of a public debate. Earlier this week, the Financial Review had a front page article on former Prime Minister Paul Keating’s views on China.

Apart from saying how he saw the rise of Asia coming in the 1990s, Keating reckons the US is no longer the top dog in the region and that Australia (and the US) should recognise China for the Superpower that she is.

Keating made the comments at a recent book launch for strategic analyst Hugh White, who reckons ‘the US should share power with China and relinquish its leadership role in Asia to avoid conflict with China.’

That China’s rise is unstoppable is an article of faith amongst many people in Australia and around the world. But history isn’t written in stone. Nothing is inevitable.

I’ve researched and written a lot about China this year. This is largely out of concern for how its sharply slowing economy will affect Australian investors.

It’s a concern that until very recently never seemed to rear its head in the mainstream press. But even now, faith in ‘China’ (the concept more than the reality) soothes investor fears, wrapping them in a blanket of complacency.

If you haven’t yet seen my presentation on the reasons behind China’s rise and the major threats to its ongoing growth, click here.

If you’re keen to question the status quo — the inevitability of China’s rise and domination of the Asian region — I highly recommend that you read the essay that follows.

It’s an excerpt of a speech given by Dr Paul Monk at our After America conference earlier this year. Dr Monk critiques some of the points made by the Keating-endorsed Hugh White, and challenges the notion that Australia will have a new boss in the region in the coming years.

It’s a view I wholly endorse, and encourage you to think about. Enjoy the essay that follows below, and have a great weekend.

Sincerely,

Greg Canavan
Money Morning Australia

Chinese Grand Strategy and American Hegemony
By Paul Monk

In his quarterly essay, Power Shift, Hugh White urged that Australia actively encourage the United States to accept the rise of Chinese power in East Asia and not oppose, but accommodate it. He wrote, “A Chinese challenge to American power in Asia is no longer a future possibility, but a current reality.”

Australia began to accommodate a Chinese challenge, even in the 1990s, he argued.

‘The shift towards China was obscured by Howard’s strong support for Bush after 9/11, especially on Iraq. Yet, Howard accepted China’s growing leadership role in Asia, declined to criticise its military build-up, sought eagerly to join the East Asia Summit without US involvement and, until his last year in office, steered clear of American and Japanese efforts to draw Australia into a coalition of democracies designed to resist the Chinese challenge to American primacy.’

He evidently did not check with John Howard himself and in conclusion to his memoir, Lazarus Rising, Howard wrote:

‘The United States will remain the most powerful nation in the world for many reasons, not least of which is that she is a conspicuous exemplar of liberal democracy.’

We might pause to contemplate that one, of course.

‘Just as predictions 20 to 30 years ago that Japan would surpass America proved wrong, so it will be proven in the case of claims that China will outpace the United States. The growth of China has been good for China and good for the world. Not least Australia. 

‘But she has challenges of demography and limitations on property rights which will baulk as ever larger problems in the future. China will grow old before she grows rich. Beyond this lies the ultimate Chinese denouement between her economic liberalism and political authoritarianism.’

It isn’t clear that either White or Howard is correct in his prognosis. What is clear is that we should be thinking of a number of possible scenarios and seeking to ensure, to the best of our ability, that we shall prove resilient in any one of them.

That is a far more demanding and intellectual and practical policy challenge than assuming that we know what the future will bring and setting our sights accordingly.

White went on to argue that the imperative in the coming decade is for America to recognise China as an equal and to agree that its own primacy in Asia is no longer acceptable. America, he suggested, should make way for China, “as Britain made way for America in the late 19th century.”

It didn’t of course. What Britain did in the late 19th century was invest in America, but its own Empire remained pre-eminent right through to the First World War, and even beyond. It was the costs of the First World War, but even more of the Second, that made it necessary for Britain to give way to America. You only have to look at the Lend-Lease Program and the way the Churchill traded away islands and bases and all sorts of things.

Right now, America has been investing in China but its Empire, if we agree to call it that, similarly remains pre-eminent for the time being. The question is what happens next?

White states that optimists and pessimists alike in the United States agree that America should respond to China’s rise by hedging, by which they mean that it should, “accept and accommodate China’s growing power so long as China does not challenge US primacy, otherwise America must and will do whatever it takes to defend and maintain its position.”

In place of hedging, he argues for a “Concert of Asia”, modelled on the nineteenth-century ‘Concert of Europe’ in which the great powers share primacy and America shares power with China.”

But a Concert of Europe was an alliance of conservative states intended to prevent radical revolutions like the French Revolution and it worked until 1917.

Britain was content with this arrangement since its primary objective was to prevent a single power like Napoleonic France from dominating the continent. But in the case of Asia and the years to come, China would be the dominant continental power and the objective of the concert would be quite unclear.

Other Asian states, already feeling the need for a counterbalance against Chinese power, are currently urging the United States not to pull back. White’s argument breaks down as he spells out the implications of America treating China as an equal.

‘America would have to abandon its residual doubts about the legitimacy of China’s political system and become much more circumspect about criticising its internal affairs. That means no more lecturing China about dissidence, Tibet, or religious freedom.  

‘It would have to accept that China’s international interests will legitimately differ from America’s and be prepared to compromise to settle those differences amicably, that means no more lecturing China about its failures to meet US expectations on such matters as Iran, Sudan and North Korea. And America would have to accept that China has a right to build armed forces as large and capable as America’s in order to defend its interests. That means no more lecturing China about excessive defence spending or lack of transparency about its military plans.’

That’s a formidable list of concessions and it doesn’t appear to set any reciprocal requirements on China. White states that in order to avoid the costs of confrontation with China we should be prepared to appease it. He writes that appeasement has had a bad press since the allied powers abandoned Czechoslovakia to Hitler at Munich in 1938. But that:

‘Perhaps Chamberlain’s mistake was not that he accommodated Hitler over Czechoslovakia. He was, after all, right to fear war with Germany and to want to avoid it if possible. His mistake was that he did not prevent the even bigger war that broke out 12 months later by making it absolutely clear that there would be no accommodation over Poland. Had he done that, World War II could quite possibly have been avoided.’

He’s in error at every point here. Hitler was far weaker militarily and politically in 1938 than in 1939 and had the Allies stood up to him at Munich and called his bluff, he had far more to fear than they did.

Secondly, Chamberlain did make absolutely clear that there would be no accommodation over Poland, it’s just that Hitler didn’t believe him. In the interim, because the Allies had caved in at Munich, Stalin had cut his own deal with Hitler and that was the decisive blow to peace which guaranteed that Hitler would go to war. White compounds his errors by writing that:

‘…the best way to manage China’s ambitions is both to offer it enough to be reasonably satisfied and make absolutely clear that further demands will need determined resistance from a regional coalition, one prepared to use force if necessary to prevent any Chinese attempt to use its power aggressively.’

Where, however, does this leave the proposed ‘Concert of Asia’? What coalition of states does he have in mind? One led, presumably, by the United States but from what base areas, and with what alliance structures?

And if too much appeasement has already occurred and the US has been prevailed upon to pull back too far, surely the danger is that any possible coalition will be fatally compromised by the fact that some key state, say Japan, will already have thrown in its lot with China, as the Soviet Union did with Hitler.

What is missing from White’s argument is the key idea of an international order based on a set of constitutional premises and upheld by hegemonic power, the Deepak Lal paradigm.

For 300 years, with some cataclysmic disruptions, the world has developed under the auspices of economically and politically liberal hegemonic powers. China is neither economically nor politically liberal. It is a mercantilist state without a tradition of liberal political institutions.

It is not fit to preside over anything like the international order that has been, very imperfectly, put together by the British Empire and held together by the American Republic. That, and not merely some American arrogance or sense of exceptionalism, is actually the reason why pressure is still being put on China on what are, at the end of the day, matters of liberal principle.

It is therefore vital that we understand matters of principle and not see this situation merely as one of a competition for raw power. White concluded:

‘Because China’s values are different from ours, we tend to see any compromise with Beijing as a sacrifice of our values on the altar of expediency. We will have to think our way through this because we cannot learn to live with a powerful China if we regard every accommodation as a betrayal of principle.’

On the contrary, we have had a great dialogue with China now for 30 or 40 years about it abandoning communism and becoming part of the global international economic order. That accommodation has been based on a whole series of principled agreements.

Now we need more such agreement and we need China to adhere to them, otherwise there is bound to be trouble. Washington has been hinting at this for some time by suggesting a G2, which surely demonstrates an inclination to share power with China. The uncertainty in this equation is whether China will accommodate the necessary principles.

Towards the end of his monograph White states:

‘We can hardly imagine what it would be like to live in an Asia which is not led by the United States. All our history and instincts therefore incline us to push the US to contest China’s challenge and maintain the status quo for as long as possible. Yet, our interests and our future should incline us to push the other way. We will need to sort this out among ourselves before we start talking to others about what to do.’

That means the first step in Australia’s strategic diplomacy is for our leaders to start explaining and debating the issues and options and solutions here at home. No one is doing that.

No single speech or paper can do more than make a modest contribution, given how vast the subject matter is and how great the stakes.

The first requirement in such a process is to put possible future developments into a judicious historical perspective. As regards China, things look different, more complex, and more pregnant with various possibilities if we do this, rather than simply seeing it as resuming a natural primacy that it has supposedly held for most of the past two millennia.

The second requirement is to factor into our calculations the fullest possible range of variables that might affect how the future emerges. We must think in terms of various possible scenarios and not assume that if only we are astute enough we can predict just what is going to occur decades from now.

We are on the cusp of a mutation in the international order which goes well beyond the rise of China as a raw power.

The whole constitutional order of nation states is becoming problematic on a number of fronts. This poses quite profound questions about how best to revitalise the liberal democracies, not just how to encourage liberal democracy in China.

The work of Phillip Bobbitt is a preliminary guide here. His description of the transition we are undergoing from an order of nation states to an order of market states is a very insightful point of departure for seeing all this in a deeper perspective.

As for what it would be prudent for Australia to do in years ahead, our strategic premise has to be that China is not well placed to take over from America any time soon.

The role required of a dominant power upholding and defending a liberal international economic order is one China is far from being ready for. Our greatest task is urging it to accept the principles that might render it fitter for a leading role in a global order.


Publisher’s note: A PhD in international relations, Paul Monk worked for the Australian Department of Defence and the Defence Intelligence Organisation, where he later became head of China analysis and chairman of the inter-agency working group on China.

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