The sight of the standing ovation given to Japanese Prime Minister Shinzo Abe after addressing parliament yesterday and the deepening security and economic relationship between the two countries under Tony Abbott is sure to generate some resentment in Beijing, leading to domestic angst that this may damage our relationship with China.
After all, China overtook Japan in 2007 as our largest trading partner and could well be the world’s biggest economy within a decade. As those who criticised the Australian Prime Minister for calling Japan “our best friend in Asia” last October would argue, why nurture relationships more important in the past that could be at the expense of the future?
In reality, those dismissing the importance of Japan forget that it will remain Asia’s most capable and advanced economy for decades. Japanese firms play a much larger and more important role than do Chinese counterparts in terms of supplying capital and exporting world-class innovation to neighbouring economies. Japan will continue to have a far larger middle class and domestic consumption market than China that is essential for regional export-manufacturing to thrive.
And in addition to its underlying economic strengths, Japanese armed forces are still more than a match for China’s People’s Liberation Army.
Beyond Japan’s underestimated reserves of “hard power” and simply comparing the current and future capabilities of giants in Asia, there is a bigger story unfolding. As China’s power grows, the regional rules of the road and the values that will define the future order become less certain. Its place and function in this future will depend heavily on how China is governed and ruled, which in turn will shape how it wields increased power in the region.
As a still isolated China seeks a blueprint for its emergence, Japan’s political evolution and successful rise after World War II, and the benefits this has brought to its people and the region, offer the most compelling reminder of why liberal democracy remains the only viable destination for great and prosperous powers in Asia.
Let’s first dispense with the argument still doing the rounds that liberal democracy is a Western construction innately unsuitable to Confucian societies. Robust democracies in Taiwan, South Korea and Japan comprehensively disprove that theory, in addition to the genuine democratic yearnings in Singapore and Hong Kong. It is obvious that neither Confucian values nor “Chineseness” is incompatible with liberal-democratic political reform. On the contrary, Confucian societies — with their emphasis on social order, filial loyalty, learning and hard work — that eventually pursued democratic reform are the richest countries in Asia on a GDP per capita basis. This brings us back to Japan, the most powerful of the democratic Confucian societies. Like its other rich neighbours, a well-functioning multi-party system took time to take root. Even so, and mirroring post-World War II developments in Taiwan, South Korea and Singapore, the Japanese government put into place liberal institutions that have served the country well despite its two recent decades of economic stagnation.
From the beginning of the postwar period, Japan reformed the election law to grant universal suffrage even if laws regulating political activity and campaigning were relaxed only gradually. Freedom of association and unions were permitted. Importantly, substantial economic freedoms were introduced early. Peasants were given genuine ownership of their land. The dominance and power of the huge pre-war Zaibatsus — industrial and financial conglomerates linked closely with the imperial government and military — were wound back.
A private sector was allowed to thrive and eventually drive economic activity and innovation. In the process, powerful economic classes independent of the government for their opportunities and successes emerged.
These are the conditions under which liberal democracy thrives — a lesson well learned by the Chinese Communist Party.
It is no accident that we have witnessed the “advance of the state and the retreat of the private sector” in the Chinese economy from the mid-1990s onwards, several years after the 1989 riots that brought the Communist Party to its knees. Before 1989 and in the first 10 years of reform, private initiative was driving economic growth in China.
Since the mid-90s, economic policies have been in place to use state-owned enterprises as the drivers of economic activity, and to prevent the emergence of a powerful economic and entrepreneurial class that no longer needs the government for securing opportunity and achieving success. The role of SOEs in the Chinese economy now far exceeds anything that occurred in Japan’s economic past.
The diabolical dilemma for the Communist Party is that with the exception of a few oil-rich Middle Eastern states, the 30 or so countries that have gone from middle-income to high-income countries have essentially the same liberal economic and democratic political institutions. China’s own economists concede that winding back SOE dominance and empowering the private sector operating in a genuine market-economy is the only way forward when it comes to sustainable economic growth as the viability of its current model nears its end. But the political class knows that this brave new world could undermine the conditions under which authoritarian politics thrive.
What does this have to do with the future order in Asia? A liberal order that underpins Australia’s past, current and future prosperity demands that private commercial and economic interest be separated from political, strategic or regime interest. Great powers and their navies — the US Seventh Fleet or the PLA Navy — must forfeit their capacity to engineer and influence economic outcomes and instead uphold conditions required for legitimate competition. Beijing should keep an arms-length from the interests and activities of Chinalco just as Washington should from ExxonMobil’s. Such habits of restraint, compromise and submission to the rule of law are not natural for any government but is practised and entrenched in free markets overseen by liberal democracies formally accountable to the law and people; but much less so in state-led economic and authoritarian systems.
Beijing will argue that each country ought to determine its own pace of economic and political reform. That makes sense. But Chinese progress on these fronts has gone backwards in important respects during the past two decades. China is the authoritarian outlier in a region where every other major country has become a liberal democracy or is heading in that direction. Australia’s decision to tack closer to Japan mirrors that of every maritime country in Asia. China’s capacity and will to punish Australia is far overstated since Australia is moving with rather than against the crowd.
As we welcome Abe to Australia, one hopes the continued success and example of our second largest trading partner — Japan — informs the future blueprint for China’s journey and eventual destination.