As Anthony Albanese prepares for his visit to Beijing on November 4-7, he should be aware of Xi Jinping’s growing confidence that his Leninist-Marxist view of the “correlation of world forces” goes something like this: From the war in Ukraine to keeping Iran in check in the Middle East, the burden of global responsibility is weighing heavily on a perilously overstretched US. Domestically, its political environment is becoming more divisive – for three chaotic weeks politicians couldn’t even agree on who should be Speaker in the House of Representatives. In contrast, authoritarian China is patiently and relentlessly accumulating national power.
Beijing may be struggling to win hearts in the region because of aggressive actions against Taiwan, Japan, several Southeast Asian nations and India. Hence Joe Biden’s comment that Australia “trust but verify” any Chinese promises to Australia is sound and timely advice for Albanese to consider. But the Chinese leader has long abandoned the “hide your strength, bide your time” approach adopted by his predecessors. Instead, Xi has gone out of his way to boast about Chinese strength and ambition.
Xi frequently speaks about “change that hasn’t happened in 100 years is coming”. He did it again when he met Vladimir Putin in March. He means the inevitable decline of the US, the unstoppable Chinese rise to pre-eminence and the impossibility of preventing and deterring the Chinese Communist Party and People’s Liberation Army from achieving its objectives. Maybe Xi believes his own rhetoric. It is also part of a deliberate narrative constructed and promoted to weaken the arguments and standing of those who believe we should resist Chinese demands.
It has had an effect in our debates. Already, there are prominent voices in Australia arguing that appeasement is the wiser and more prudent approach on the basis that it is foolish, hopeless and reckless to sign on to AUKUS, double down on the alliance with the US, seek to deter the PLA or prepare to contribute to the possibility of collective military action against China.
Virtually every single one of these viewpoints urging appeasement in recommending submission or else neutrality have absorbed and internalised the above Chinese narratives and messages. These perspectives argue that even the noble notion of deterrence is a fool’s errand and an act of self-deception when it comes to China. Beijing is too powerful and the PLA cannot be deterred. Why try when it will only lead to catastrophe and humiliation? Is Chinese power too formidable to resist and is Xi undeterrable? That the country’s military modernisation is meticulously designed to overcome American and allied capabilities suggests Xi makes material calculations like every other leader before contemplating the use of force.
Likewise economic policies such as the Belt and Road Initiative, Made in China 2025 and the more recent Dual Circulation policy. These are designed to overcome Chinese weaknesses and increase leverage over other states.
China is not yet where it needs to be. As a matter of logic and policy, it is nonsensical and dangerous to relinquish agency prematurely and retreat into a defensive ball or, worse, simply capitulate. Moreover, on closer inspection of its material capabilities and progress, Chinese success is far from inevitable or even likely. Xi has immense problems relative to his grand objectives. If his material and other calculations change, then he, like any other leader, can be deterred.
Overestimating a vulnerable PLA
Among those who want to appease Beijing, one of their arguments is about China’s military superiority and ability to defeat the US over Taiwan. Like the supposed superior strengths of the Chinese economy that we will discuss shortly, these arguments are based on false premises. The fact is China’s military strength is entirely unproven in practical terms and – like that of its ally Russia – China has serious military weaknesses.
As the well-regarded Swedish Defence Research Agency recently has observed, a rethink of Moscow’s military capability clearly is warranted to understand the causes of the current malaise of Russia’s military capabilities, both for the West to adjust to its demonstrable shortcomings and weaknesses and, equally important, to understand their causes and long-term strategic implications.
In our view, Western intelligence analysts and policymakers consistently have overrated the military strengths of Russia and the Soviet Union. And now precisely the same mistakes are being made about China’s PLA.
What are the reasons for this? First, as observed by Zoltan Barany, the Frank C. Erwin Jr Centennial professor of government at the University of Texas, when the adversary is a totalitarian state it is easier to make judgments based on quantitative assessments of weapons – tanks, jet fighters and missiles – and raw manpower rather than on the qualitative and psychological characteristics that often determine the military’s performance on the battlefield.
Second, because of Russia and China’s autocratic systems and pervasive corruption, it has proved difficult for them to bring the kinds of innovation, adaptability and versatility that tend to produce the best outcomes on the battlefield. The fact is, it is easy to concentrate on the material strengths of both China and Russia that can be counted by overhead means of intelligence while neglecting crucial intangibles such as the quality and experience of their troops.
Third, one of the most serious intangible defects of Chinese and Russian military forces is that they lack a critical mass of professionally trained non-commissioned officers. The dearth of professional NCOs means totalitarian armies often struggle to fight effectively because NCOs provide the vital link between officers, soldiers and battlefield decision-making. Military command and control culture boils down to trust, including at the operational level.
Trust is not one of the strengths of authoritarian states such as China and Russia. As the US Centre for Security and Emerging Technology has observed, military command and control in authoritarian regimes such as those of China and Russia have rigid and fragmented command and control structures because the political leadership does not trust the military leadership, and the military does not trust the rank-and-file. Such systems fail to successfully share information, discourage initiative and prevent battlefield lessons from informing strategy or being incorporated into future military doctrine. These critical structural deficiencies are part of China and Russia’s military DNA.
Fourth, there has been far too much focus on weapons systems and new technology, coupled with endless claims that each new Chinese or Russian weapon is so much superior to those of the US.
An example of this recently was when a prominent expert in Canberra proclaimed that China’s latest nuclear attack submarine was quieter than the US Virginia-class. That sort of ill-informed judgment is typical of those who have never had the security clearance for covert submarine operations or an understanding that the US still dominates war under the seas. China’s strategic nuclear submarines do not provide Beijing with an assured retaliatory nuclear strike force because they are vulnerable to US attack submarines.
Fifth, few in the West pay close attention to the actual composition, training and preparedness of Russian and Chinese troops themselves. And sixth, authoritarian leaderships in both China and Russia are typified by deep-seated despotism that underscores military politics and pervasive corruption that saps the fighting strength of their armed forces.
None of this is to argue that the weaknesses and deficiencies of China and Russia are identical. But the fact remains that, much more so than Russia, China has no practical combat experience worth talking about. Its last serious use of force overseas was in 1979 when it sought to teach Vietnam a lesson and miserably failed.
The believers in Australia of China’s military superiority seem to accept that China has the means and the will to escalate indefinitely and thereby defeat the US; and that China is also prepared to pay any price because it enjoys escalatory dominance and cannot be deterred.
Our view is that the hypothetical of a defeated America over Taiwan (and perhaps at the same time of NATO in Europe) increases the risks of nuclear war. Those who argue we should surrender Taiwan to China or risk nuclear confrontation begin from an untested and unpersuasive basis as they fail to account for China’s military weaknesses. In conclusion, we need much more serious and in-depth analyses of China’s military weaknesses and deficiencies before we jump to reckless conclusions.
We reject the arguments of those who proclaim that the risks are too high of resisting and deterring a China that allegedly has superior military forces to those of America. Those who carelessly assert that the US is finished, China inevitably will be the dominant military power over the entire Asia-Pacific region and our only survival will be to get out of the ANZUS alliance need to think again. Their argument is based on very shaky arguments about China’s military superiority – based on superficial and untested assertions.
The fact is that China shares many of the fatal weaknesses of Russia’s military, which is performing so abysmally in Moscow’s war in Ukraine. We believe the prudent defensive policy of the US and its allies in the Asia-Pacific region – including Australia – must be to acquire the military capabilities to constrain, check and deter any expansionist ambitions of the PLA.
Magic pudding economics
Even if China has an untested military, there are those who simply assume the US and its allies eventually will be overwhelmed by a Chinese economy that will keep growing rapidly for decades. As the argument goes, this will provide Beijing with unmatchable resources to exercise economic coercion and fund its military modernisation.
“Magic pudding” economics, the idea that resources can be mystically replenished despite prevailing evidence, is rightly mocked in Australian discourse. The same fuzzy economics tends to be applied to projections regarding Chinese economic dominance. This stems from persistent misunderstanding as to how China’s political economy works and why its leaders are more worried than they are letting on.
We are currently watching the travails of Country Garden, which was recently China’s largest residential property developer. This comes two years after Evergrande, with debts of $US300bn, defaulted on its bond payments. The latter recently has filed for bankruptcy protection to protect its dollar assets as it undergoes a forced restructure. More broadly, the entire residential property market is in trouble.
The problem is not only that the residential property sector accounts for about a third of China’s gross domestic product. It is that the high-debt, high-turnover and low-cost strategies of these two companies have been recklessly reproduced by almost all key capital-intensive sectors in the Chinese state-led political economy.
This matters because ever-increasing levels of fixed capital (property assets) is what has been behind the lion’s share of growth since export-led growth ran its race and began to decline in importance in the 2000s.
Strategic commentators need to look beneath the fuzzy GDP growth numbers that are openly massaged by state propaganda entities. Every relevant measure of genuine economic health – capital efficiency and labour productivity, return on investment, return on assets and so on – has been seriously declining for almost two decades. Even if Beijing can avoid its own version of a Lehman Brothers moment in terms of liquidity drying up, a structural rather than temporary slowdown – similar to the Japan experience – could be its best-case scenario.
In this context, those who believe in China’s inevitable rise to material dominance appear to subscribe to magic pudding economics. We are understandably anxious as to whether Australia and our allies have the fiscal means to pay for the capabilities needed to deter Chinese aggression. Yet many simply assume that China’s authoritarian system means there is an endless supply of money for Xi to draw from and invest in Chinese power.
Undoubtedly, Xi can prioritise national security in a manner that democracies cannot. However, there are limits. Since the 1990s, annual increases in defence spending have been about twice that of GDP growth. Spending on internal security has increased annually even more than on national defence over this period.
As GDP growth has slowed, growth in military spending also has trended downward. To be sure, Xi has indicated that the 2023-27 period will see above-trend growth in spending for the PLA. This is consistent with his plan to position China to be able to seize Taiwan by 2027 should he make that call.
Material constraints on China
The planned increases in defence spending may well occur. Regardless, the point remains that Xi must confront growing structural constraints as his economy slows. Moreover, the operation of the Chinese economy and the country’s fiscal realities will become ever more problematic for the ambitious leader.
Beijing has been able to allocate so much to domestic and national security because of a lopsided fiscal system that allows the central government to grossly underfund social and public goods.
This is what we are getting at. Local governments are responsible for more than 85 per cent of spending on social and public goods such as hospitals and schools. Across the past decade, between one-third and one-half of the revenues for local governments have come from the residential property sector through land sales, buying and selling houses in a rising market, and from taxes associated with the sector. This is needed to make up the more than $US1 trillion gap each year between what local governments need to spend on these social and public goods compared with the fiscal revenue transfers they receive from the central government.
What does the central government spend its revenues on? After transfers to local government, more than half of Beijing’s remaining revenues are then allocated to the PLA or the People’s Armed Police (which oversees domestic security.) Local governments are obliged to throw in another 5-10 per cent of their already inadequate budgets to the PLA and PAP.
Currently, China spends about a quarter of its entire fiscal budget on social and public goods, which compares unfavorably to the average among lower middle-income countries of about 40 per cent. Given the need to deleverage the entire economy to avoid financial catastrophe, and local governments demanding more money to offset diminishing revenues from the property sector, Xi cannot spend such a disproportionate amount of national wealth on national security for too much longer. Which is why he is under pressure and in a hurry to fast-track his China Dream, which includes integrating Taiwan into the mainland.
This means we are in an important and dangerous decade. But the point is that Chinese resources are not infinite and deterrence is eminently achievable. The US and its regional allies are no longer sitting on their hands. Xi’s aggression and hubris have led to that. Chinese dependency on foreign energy, minerals and food is acute. Despite its best efforts, Beijing cannot shake its dependency on US dollar assets and transactions. China remains brittle and immensely vulnerable.
To succeed, Xi needs us to abandon any sense of our own allied agency and internalize the narrative that resistance is futile. This is why he focuses on boasting about Chinese strengths and concealing its vulnerabilities, hoping outsiders will fall for it.
Strategic policy and managing risk are about using the best available evidence, relying on credible assessments and suggesting rational and prudent responses.
China openly wants to revise the strategic and territorial status quo over vast swaths of maritime East Asia – from Taiwan and the East China Sea to the South China Sea and beyond. The goal of deterrence is to ensure that Beijing knows its ambition and reach exceeds its grasp.
Our assessment is that this must be the sensible and urgent priority, given proper analysis of relative Chinese strengths and weaknesses.
Changing Beijing’s calculations is very feasible. Alternatively, appeasing China now is the far more dangerous choice because it encourages and rewards Chinese coercion and aggression while encouraging Chinese overreach, miscalculation, and therefore catastrophe.