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There’s no China Crisis, It’s Called Diplomacy — and It Works

John Lee

What a boisterous week it has been in our relationship with China. It began the previous weekend when former Australian ambassador to China Geoff Raby criticised the Turnbull government’s approach in an article and arrived at the bewildering conclusion that Julie Bishop should be replaced as Foreign Minister for the sake of improved relations with Beijing.

On Monday, Defence Minister Marise Payne criticised China’s decision to land long-range bomber aircraft on one of its illegal artificial islands on the same day Bishop was meeting Chinese counterpart Wang Yi on the sidelines of the G20 summit in Argentina — their 12th meeting.

Two days later the Coalition’s Andrew Hastie, who chairs the intelligence and security committee, revealed to parliament that US intelligence officials had confirmed to him that Chinese-¬Australian businessman Chau Chak Wing, believed to have close links with the Chinese Communist Party, was allegedly the co-¬conspirator who funded the bribery of a UN ¬official.

Next week may be just as rambunctious. The trick is to separate the noise and mischief-¬making from the genuinely important policy discussion.

Take the contribution by Raby, who runs his own Beijing-based business advisory company and is a director of Chinese state-¬controlled Yancoal. According to the website for Geoff Raby & Associates, the firm has strong relationships with senior leaders in government and corporations in China. Indeed, Raby’s criticisms of Bishop and Australian policy mirror those in China’s vociferous state-owned press, which is answerable to the politburo’s propaganda department.

One can decide for oneself whether these factors call into question the credibility of Raby’s commentary. In any event, the article never ventured into a serious discussion of policy despite its strident tone.

It would have been more useful to devote precious column inches to the complexities of our relationship with China. Jostling between countries is common in an often tough and unforgiving world. Those believing the Australia-China relationship is “in crisis” need to venture outdoors a little more. Rather than the result of bilateral mismanagement, occasional tensions are the inevitable residue of differences of views and interests between both countries. Pointing to any disagreement as evidence of mismanagement is to live in a world that does not exist.

The reality is that the government is pursuing a sensible approach with China that sits well with our values and interests. Its resolve, as happens from time to time, is being tested and it should stay the course.

Criticism comes from several angles. Some say we are too subservient to the US and should pursue a more independent foreign policy. Otherwise, it is preferable Australia remain a small target and ensure we do not stand out from the crowd.

Others believe resistance is futile. China will become large and powerful enough to call the shots and we should come to an accommodation now or risk opprobrium from the future regional hyperpower. Australian National University professor Hugh White believes we ought to encourage the US to step back from the Western Pacific, treat China as a strategic and moral equal, and come to a power-sharing regional agreement with Beijing for the sake of peace and stability.

Another cluster argues any diplomatic friction is simply bad for business. Better to ignore differences and make as much money as we can.

China has experienced remarkable growth for almost 40 years even if it began from an extremely low base. It is the second largest economy in the world and may eclipse the US in absolute size within the decade. Chinese military spending is about 3½ times, five times and 5.7 times larger than that of India, Japan and South Korea respectively. While the US spends more than 2½ times on its military compared with China, the spending and technological gap between the two countries is shrinking.

On present trends, China is becoming more powerful in every material sense and the dominance of the US is slipping.

Herein lies the hard-power justification for those arguing for a more independent foreign policy away from the US or a more accommodating approach to China. We should join the dominant side or remain neutral, and reduce risk to Australia.

There are serious flaws with the more fatalistic or defeatist approaches. For a start, trendlines speak to the past but little about the future. A case in point is Japan, which averaged almost 9.5 per cent real gross domestic product growth each year for the first three decades after World War II. For the next 17 years before it endured its two decades of anaemic growth from 1992 onward, Japan still averaged above 4 per cent real growth a year.

Although China has adopted the Japanese formula but on steroids, we have no idea whether Japan’s recent economic past is an indication of China’s future. We can be sure that it is impossible for China to achieve the growth rates of the three decades from 1980. Export-driven growth subsided years ago and will not return given that the world is not big enough to absorb China’s production. The country’s debt to GDP has grown from about 140 per cent of GDP in 2008 to about 300 per cent, representing the largest and most rapid accumulation of new debt over one decade in economic history.

Predictions of imminent Chinese domination ignore fiscal constraints on Beijing as they apply to every other country. Using 2015 figures, and after transfers to local governments that do not exercise taxation powers, 41 per cent of central government expenditure is allocated to the People’s Liberation Army and the domestically focused People’s Armed Police.

Meanwhile, the Chinese government spends just over a quarter of its total outlays on social goods such as welfare safety nets, healthcare and education. This compares with an average among lower middle-income countries of about 36 per cent.

We need to analyse China as we do any other country. Beijing has multiple demands on the public purse and these are increasing. Already, growth in the PLA’s budget is half what it was just a few years ago. The Chinese have not discovered the formula for a magic pudding.

The point is that one cannot predict the trajectory of Chinese power and resources with any certainty. While we are in an increasingly contested region, it does not make sense to begin with the premature assumption of imminent Chinese pre-eminence with only the preparation of acceptable terms of obeisance to be decided.

Moreover, and despite appearances of indomitability, China remains a relatively lonely rising power with few genuine partners and no enduring allies. As in all authoritarian countries, the Chinese Communist Party is painfully aware of brittleness with respect to its political economy and society. Even if a debt-burdened and ageing China defies economic and demographic reality and continues its rapid rise for several more decades, it makes imminent sense to work with other countries constructively to shape how great powers behave now, rather than attempt that in the future when it will be more difficult.

Regardless, why not pursue a more independent foreign policy away from the US and equidistant with China, or else make ourselves a smaller target? If we cannot resolve political and strategic differences, isn’t it more practical to bury these and make some money instead?

We can learn from the South Korean Park Geun-hye administration’s rollercoaster relationship with China from 2013 to last year. When Park came to power, she immediately signalled a move from the previous administration’s pro-US stance towards a more equidistant one between the US and China. She described her first state visit to Beijing in June 2013 as a “trip of heart and trust”.

In the subsequent two years, South Korea basked in a diplomatic awakening with China, which was described as the most intimate and warm for a generation. The economic relationship was as strong as ever. It culminated in Park attending the Chinese military parade and being given pride of place to mark the 70th anniversary of the end of World War II on September 3, 2015, even as apologies were issued from the US, Japan, the EU and every democratic country in Asia.

Reality hit when North Korea conducted its fourth nuclear test on January 6, 2016. Park’s decision to deploy the US Terminal High Altitude Area Defence anti-ballistic missile system — a completely reasonable response — enraged Beijing. Last year, it is estimated that unofficial but real Chinese sanctions against South Korea cost the latter’s economy almost $10 billion.

This was the basis for a similar failing of the first Kevin Rudd government that led to troubles with Beijing, the period during which Raby was appointed ambassador. It never pays to say one thing to China and give the false impression of strategic and political intimacy, only to give another message to the US behind closed doors, all the while blindsiding Japanese and Southeast Asian partners in the process.

The lesson is that “resetting” relations with China doesn’t work. It is preferable to articulate one’s interests and values clearly, consistently and in an upfront manner, which the government has done, including in its unusually forthright foreign policy white paper.

Smaller powers must always try to shape the expectations larger powers have of them. If Australia does not create its own “anchor point” on where we stand, other countries will do it for us.

This goes some way to justifying the strong line on issues such as the South China Sea and to doubling down on the US alliance. It is not just about ownership of uninhabited rocks or even the building of artificial military bases to rewrite the strategic status quo. It is about how large countries wield their power and whether they adhere to the same rules and laws that bind other countries.

In the world of nation-states, a stable, fair and lawful regional and international order must be underwritten and enforced. The US is the only country powerful enough to do that. It has a record of doing so in relatively benign fashion across seven decades and continues to rely on the acquiescence of regional allies and partners to maintain its forces in the Indo-Pacific. It is thus structurally bound to use its power in a constructive way.

The US is also the only great power in the Indo-¬Pac¬ific without maritime or land disputes with another regional country.

For those arguing that US leadership is becoming obsolete, consider the ongoing troubles on the Korean peninsula. There will be varying views with respect to whether it was wise for Donald Trump to agree to a mid-June summit with Kim Jong-un, only to announce its cancellation yesterday. But the singular importance of the US is undeniable. It is the only country able to deter Pyongyang and protect Seoul and use its standing on the UN Security Council to persuade or arm-twist China and Russia into agreeing on comprehensive sanctions against North Korea.

Additionally, US alliances, especially with Japan and Australia, are essential for Washington to maintain its regional presence. If these alliances are weakened or abandoned, a far more unstable power vacuum arises. In addition to Australia, Japan, South Korea, India and every maritime country in Southeast Asia will feel far more insecure. Indeed, the same could be said for China.

The result is a more dangerous and unstable environment filled with apprehensive states, many of which have a long list of historical, territorial and economic disputes with each other. Surely those decrying the US role do not desire such a state of affairs.

Finally, specific calls to lessen emphasis on the US alliance don’t make sense when the alliance gives Australia a voice, standing, relevance, freedom of man-oeuvre, and military capability that it would not otherwise have. There is a reason China is particularly attentive to foreign policy debates in the ally states: Australia, Japan, South Korea, The Philippines and Thailand.

Given what is at stake, the ¬government should invite fair-minded debate and scrutiny of its policies and respond in kind. Tir¬ades and rants create interesting headlines but will not lead to improved outcomes. Better to avoid glib caricatures and misrepresentations of policy and begin the conversation from a sensible place.

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