4: Australia, China and the Asian Century (2016)

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A few days ago, an old friend from my days in military intelligence called me from Singapore, declaring that China is exerting intense pressure on Singapore to not accommodate American strategic plans in South East Asia. During the week, we have seen reports about Paul Keating criticizing the Labour Party’s defence spokesman Richard Marles, for saying that the government must authorise the navy to decide when to undertake freedom of navigation operations in the South China Sea to defend Australia’s interest and send a clear message to China.

Keating also expressed concern that Labour is too compliant in its attitude towards US naval interests in the Western Pacific and should adopt a more independent outlook that better balanced our strategic and economic priorities. That same morning there was a report that the Department of Defence had learned only hours before the decision was announced that the Port of Darwin was to be leased to the Chinese for 99 years, something which set off alarm bells in Washington DC. This morning, the acerbic Greg Sheridan mordantly remarked that the Coalition has discovered it’s ‘inner mouse’ when it comes to the South China Sea.

A few days ago, I had a chance meeting with a friend who holds what might be called a sensitive position in Canberra. He asked whether I had time for a coffee and over that coffee confided in me that he now believes Australia is being subjected to a systematic Chinese attempt to infiltrate and manipulate our institutions at every point: business and government, media and education. He is a highly intelligent and very well informed person. And he is correct. As my friend who had called from Singapore put it, China is playing hard and for real, but we don’t seem to even understand that the game is under way. It’s going to be over before we have realized what’s happening.

Welcome to the debates that are now intensifying over the rise of China and its implications for Australian interests and security. It is a very large topic and I expect that, this afternoon, we shall have a lively conversation about it. I’d like to set the stage for that conversation by playing for you an excerpt from The Emperor and the Assassin, an excellent Chinese film by the great director Chen Kaige, released in 2000. Xi Jinping these days talks of the ‘China Dream’ as he consolidates dictatorial power. In this film excerpt, we see the dream of First August Emperor of China, in the 3rd century BCE expounded by a dwarf in his service to the princeling of a nearby kingdom.

Will there be ‘peace in our time’ with the new Chinese imperium? That is something we must all increasingly ponder. What we need to understand is that Xi Jinping is the Qin Shi Huangdi, the Chinese emperor of our time and that we are, already, in the position of the Prince of Yan is this film scene. We urgently need to wake up to ourselves and think about our future or it will be circumscribed for us in ways that we will come to regret.

Almost exactly one year ago today, China awarded the 2015 Confucius Peace Prize to none other than Robert Mugabe, the corrupt, brutal, incompetent dictator of Zimbabwe for ‘overcoming a number of difficulties and contributing to building the government, economy and order in Zimbabwe, while continuing to work actively at the age of 91 for peace in Africa.’ Those were the words used.

The Confucius Prizes were introduced after the Chinese Communist Party became riled at the awarding of the 2010 Nobel Peace Prize to Liu Xiaobo, one of the chief architects of Charter 2008, which called for political liberalization and respect for human rights in China. The Chinese Communist Party denounced that award as ‘an obscenity’. Its own award to Mugabe is simply, almost comically grotesque.

Last year I stated that there are two sides to this coin: the ugly face of the Chinese Communist state with its unrepentant support for Mugabe and Kim Jong-Un in North Korea; but also the probability that China will be unable to win the trust and confidence of the advanced, democratic and liberal states around the world, which now include many of its neighbours. The disturbing evidence of political and strategic disarray in the United States, however, are badly undermining confidence in America. A year on, I am more concerned than I was and more concerned that China moves relentlessly and purposefully while the United States flounders and we dither.

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Having made such dramatic remarks, let me say that it’s a pleasure to be here this afternoon. Early last year I chaired a public debate on religious belief and civil society at the State Library. I remarked that evening that I saw such a debate as belonging to a great tradition dating back to the classical world. It reminded me of the debates St Paul had with the Stoics and Epicureans on the Areopagus – the Hill of Mars - in Athens two thousand years ago, as recounted in Acts of the Apostles, chapter 17.

Our little gathering this afternoon also stands in a great Western tradition – and I emphasize Western tradition – of public and open-ended discourse about matters of common concern. This kind of gathering is what you might call an Athenian one of a different kind in its open and free canvasing of matters of public moment. Kurt Raaflaub’s The Discovery of Freedom in Ancient Greece and Josiah Ober’s The Athenian Revolution are leading explorations of the idea of freedom of speech and public discourse.

I am Paul, but not St Paul and I have come here to talk not of God and resurrection, but of worldly affairs in a frank and open manner and to discuss them with you. And I want to urge that we remember, in the present context, that Athenian democracy failed, for all its virtues. The free Greek city states squabbled and dithered and were conquered by the Macedonian monarchy. Demosthenes in his famous speeches exhorted the Athenians to rearm themselves against the power of Macedon before it was too late. They did not and they paid the price. We now stand in a roughly comparable strategic situation.

You are here this afternoon because of your interests and concerns as citizens of a Western democracy on the fringes of the Asian world. I am here because I undertook, decades ago initially, to study Western history, then international relations during the Cold War, but have developed a keen interest in Asia because of what has been happening in my lifetime and because of its importance for Australia’s future. The subject of my doctoral dissertation was US counter-insurgency strategy throughout the Cold War, in Southeast Asia and Central America.

I then went to work for the Defence Intelligence Organization and was assigned to concentrate on Asia as an intelligence analyst for the Australian government at the very time when Japan began to stagnate, China began to rise, North Korea developed its nuclear weapons, Hong Kong was being prepared to be handed back to China after a century as a British crown colony and Taiwan was democratizing. It was 1990 and Ross Garnaut had just published his report Australia and the Northeast Asian Ascendancy.

For the past twenty years, having left government service in 1995, I have been a public intellectual and a businessman; a somewhat unusual combination. My business has been applied cognitive science, or in layman’s language critical thinking skills. Over the past decade, starting with a book called Thunder from the Silent Zone: Rethinking China, I have had seven books published. I have two more in the works: The Secret Gospel According to Mark and Against the Caliphate: Memoirs of the Falcon.

The fourth of my books is called The West in a Nutshell. The sixth is called Opinions and Reflections: A Free Mind at Work 1990-2015. The seventh, published last summer, is Credo and Twelve Poems: A Cosmological Manifesto. I am, in other words, not short of opinions; but I am not an ideologue or a lobbyist – unless freedom and civilized values are considered an ideology and insistence on freedom of expression lobbying. I am, like you, simply a thinking citizen in an open society.

And, as such a thinking citizen, I put it to you that the words ‘the Asian century’ presuppose what may not turn out to be the case – that the 21st century will be dominated by Asia. It is not self-evident that that is what will happen. The art of prediction is a tricky when, as the old saying has it, especially when it concerns the future.

In a book called The Long Boom: A Future History of the World 1980-2020, by Peter Schwartz, Peter Leyden and Joel Hyatt, published in 2000, the same year that The Emperor and the Assassin was released, the unfolding of the early 21st century was confidently forecast in the following terms:

We are watching the beginnings of a global economic boom on a scale never experienced before. We have entered a period of sustained growth that could eventually double the world's economy every dozen years and bring increasing prosperity for - quite literally - billions of people on the planet. We are riding the early waves of a 25-year run of a greatly expanding economy that will do much to solve seemingly intractable problems like poverty and to ease tensions throughout the world. And we'll do it without blowing the lid off the environment.

If this holds true, historians will look back on our era as an extraordinary moment. They will chronicle the 40-year period from 1980 to 2020 as the key years of a remarkable transformation. In the developed countries of the West, new technology will lead to big productivity increases that will cause high economic growth - actually, waves of technology will continue to roll out through the early part of the 21st century.

And then the relentless process of globalization, the opening up of national economies and the integration of markets, will drive the growth through much of the rest of the world. An unprecedented alignment of an ascendant Asia, a revitalized America, and a reintegrated greater Europe - including a recovered Russia - together will create an economic juggernaut that pulls along most other regions of the planet. These two megatrends - fundamental technological change and a new ethos of openness - will transform our world into the beginnings of a global civilization, a new civilization of civilizations, that will blossom through the coming century.

Well, here we are in late 2016 and this is not what is happening. All sorts of things have gone wrong from this rosy Schwartzian point of view, starting with the e-tech stock bubble bursting, then 9/11, followed by the wars in Afghanistan and Iraq, then the global financial crisis, the Euro crisis in Europe, the implosion of the Arab Muslim world that was initially greeted as the ‘Arab Spring’ and now the slowing of the Chinese growth surge, which only a short while ago was widely believed to be unstoppable. Political liberalization has been hoped for in China since the 1980s. Xi Jinping has slammed the door on it. In short, the future was not so predictable in 2000 and we should be sceptical about robust prognostications now.

Before the turn of the century, newly out of the secret intelligence world, I wrote a long essay about the rise of China, in which I cautioned that too many economists and geopolitical analysts were committed to what I called the Linear Ascent Model: the idea that China would rise inexorably and grow endlessly at the rapid rates of the 1990s. We needed, I argued, to temper our enthusiasm – or alarm, as the case may be – and consider various different possible futures.

In 2005, my book Thunder From the Silent Zone: Rethinking China spelled this out at greater length. I sketched out four scenarios – alternative general schemas - for China’s future. I called them Mutation, Maturation, Militarization and Metastasis. A multitude of often subtle and unexamined variables would determine which general direction China took and with what consequences, I argued. A decade or so on, the verdict is still very much out as to what the future of China will be even within the relatively near future – and it is more important than ever than we pay close attention to those variables. A young and refreshingly independent China analyst in Sydney wrote to me a few months ago, remarking that my book had been ten years ahead of its time and should be read now by as many people as possible.

Let me briefly explain what I mean by each of these four scenarios. Mutation is what we all hoped to see in the 1980s, as did many Chinese students and reformers, such as the late Zhao Ziyang and his predecessor Hu Yaobang. It would entail not only economic liberalization, but political liberalization, an independent judiciary, a free press and a tenable regime of human rights, none of which currently exist in China. This path was open to some extent until 1989. The Party then slammed it shut and it has remained firmly shut under Jiang Zemin, Hu Jintao and now Xi Jinping. Indeed, the latter is taking China backwards in this respect, with disturbing implications.

Maturation roughly equates to China’s economic growth plateauing at the middle-income level that it has reached in this decade and thus growing old before it grows rich, while inheriting from the decades of rapid growth massive environmental problems, huge public debts, a ramshackle health and welfare system, yawning inequalities and high expectations among hundreds of millions of people of a better life. Simply holding China together under these conditions could prove an immense task. We need to remember that even after thirty years of super-charged economic growth, China’s GDP per capita is still a fraction of our own, some $6,000 per head compared with our $50,000.

Militarization is a scenario in which, as I pointed out a decade ago, China pours resources into a military build-up and then, whether out of an excess of hubris or as a means for diverting popular dissatisfactions onto foreign powers, uses its newly upgraded forces in military adventures abroad. Over the decade since my book appeared in print, China’s military budget has continued to grow faster than its GDP, in double digit increments annually.

Ten years ago, China spent less than Japan, Britain or France. It now spends more than the three of them combined. Only the United States spends more, but it has global commitments to protect numerous allies; China’s forces are for the advancement of its interests alone. And its unambiguous aspiration is to displace the United States as the dominant power in Asia and the Western Pacific by the middle of this century.

Metastasis is a scenario in which the dictatorial habits of the Communist Party, the environmental costs of rapid growth, the huge pressures of an immense and ageing population with a severe gender imbalance and the inflow of ideas and commodities from the outside world lead to an implosion of the Communist polity with no competent or legitimate body in any position to replace it. This, like each of the other scenarios, has some evidence to support it. The key thing is to look at the many shifting variables in the overall equation and not to succumb to facile and unreflective assumptions or predictions about what ‘will’ happen.

I should add that Xi Jinping’s dramatic concentration of power and rhetoric about the China Dream are no guarantee that this will not happen. They may, indeed, bring it on. But we need, finally, to grasp that the Communist Party is a gigantic oligarchy intent on dominating the country and now the region. It is huge (with more than 80 million members), has very deep pockets (because it treats the entire Chinese economy as its corporate piggy bank) and entirely ruthless.

Whereas its inner power struggles and corruption are hidden from the public gaze, those of the American political system are exposed for the world to look upon and goggle at. But that power elite, that oligarchy of 80 million has designs on us and we must begin to reckon more seriously and strategically with that if we are to bring into being a future in which we can live and breathe freely and not become subordinate to the power that rules in Beijing. We need to understand the dynamic uncertainties that are in play and learn to work with them strategically. At present neither side of politics in this country is exhibiting a capacity to do this.

The uncertainties to which I allude apply not only to China’s internal dynamics, but to the world at large. Whether we are talking about the capacity of the United States to demonstrate resilience and renew itself, the scope for India to really get on its feet and deal with its huge challenges, the capacity of Indonesia to sustain its still very new experiment in nation building and economic development, the capacity of Japan to deal with the world’s most heavily indebted developed economy and most rapidly ageing and shrinking population, the question of territorial and power political rivalries between these major states, or the long-standing problem of a truculent and totalitarian little state in North Korea forever threatening to cause mayhem, the future is full of divergent possibilities.

Australia’s place in all this is privileged and full of promise, provided that we conduct our affairs with intelligence and imagination. The recent spate of instability at the top, from Howard to Rudd to Gillard, back to Rudd, then quickly to Abbott and within two years to Turnbull seems almost like post-Second World War Italian politics rather than the Westminster system at its best. It has not been especially inspiring or edifying. We came out of it all last year with Malcolm Turnbull as prime minister, which many of us thought was pretty much the best possible outcome of all. Now, there is considerable doubt about his leadership abilities – and no-one else in politics looks better right now.

Clark and Dore did a delightful take on this some months ago. Dore says to Clark: ‘Who was it, John, who said last December that there has never been a better time to be an Australian?’ ‘That would have been Malcolm Turnbull, Brian’. ‘Correct, John. And which Australian was he talking about, John?’ ‘Malcolm Turnbull, Brian.’ ‘And how do you think he sees things now, John?’ ‘That there have been better times to be an Australian, Brian’.

We should remind ourselves that, in the 1970s, during the Whitlam and Fraser years, Australia began to look as though it was becoming if not politically Italian then economically Argentinian. Reforms were called for in order to open up our economy, make it more competitive and flexible, as globalization and technological innovation threatened to leave us stranded behind protectionist walls.

It was, paradoxically, the ALP that led those free market reforms. Bob Hawke and Paul Keating still squabble over who should really get the credit, but the truth is that each simply provided the political leadership which made it possible for ideas developed by others to rise to the fore and become public policy.

Among those economic reforms was the floating of the dollar. By most accounts the reforms collectively, but the floating of the dollar specifically, enabled Australia to ride out the Asian economic crisis in the late 1990s and enjoy a long period of sustained economic growth during the prime ministership of John Howard. That is an antecedent well worth bearing in mind as we look ahead to what has been dubbed the Asian century; because there will be shocks ahead and we need to be able to ride them out with that kind of flexibility, if at all possible.

A key aspect of that flexibility will be our strategic and diplomatic adroitness in Asia. Ross Babbage authored a short monograph last year called Game Plan: The Case for a New Australian Grand Strategy, in which he argued that Australia strengthen its alliance with the United States and its links with a number of key Asian neighbours to hedge against the rising power of China and the danger that China will become more and more assertive in the years ahead.

This will, I am sure, be one of the main topics you will want to discuss, so I won’t dwell on it here. But you will be aware that many subordinate strategic debates are taking place in this context, such as that about the new submarines, about the basing of US marines at Darwin, about the leasing of Darwin harbour to a Chinese corporation by the Northern Territory government for 99 years, about telecommunications, about foreign investment rules, about China’s claims and moves in the South and East China Seas, about the decision of the Abe government to begin rearming Japan in an alliance context.

Babbage argued that Australia is seen in Washington as a crucial ally and an anchor to the south of Asia for its own grand strategy. Our strategy, he wrote, should be to embrace that and deepen our inter-operability with American forces. We can and should become, he argues, host to a much wider range of US combat and combat support units and a leading provider of strategic intelligence analysis in and on Asia.

‘The challenge of providing effective security for Australia has been demanding in the past, but it is now truly daunting,’ he declared – not because the Asian powers are necessarily going to become predatory, but because Australia has moved from being a strategic backwater to being almost a frontline state, positioned at a crucial point on the greatest strategic tectonic plate on the planet.

At the same time, we have negotiated a free trade agreement with China. We do not seek conflict with it and are not arming at anything like the rate that it is doing. We have profited enormously from its economic rise after the abandonment of Maoism and the opening up of its economy to foreign direct investment and trade. We have been taken aback by the recent slowdown in its growth and the signs that its apparently unflappable planners have begun to run out of viable macro-economic policy tools for many of the same reasons that those in Washington and the EU appear to have done.

Should we feel as daunted as the more pessimistic pundits suggest? Perhaps we should feel somewhat daunted, but not in order to freeze in place. Rather, this needs to serve as a wake-up call and lead to clear thinking and deeply intelligent strategic and macro-economic decisions. Pessimism is not dictated by circumstances. It is a mood. Australia is well-placed to adapt with that kind of intelligence and practicality, but it won’t happen by luck alone; it requires good management. An important part of good management is prudence.

What do I mean here, exactly, by ‘prudence’? Well, it was imprudent of Wall St banks to leverage themselves to the extent that they did in the decade before 2007. It was imprudent of the Federal Reserve and Treasury to allow them to do so; just as it was imprudent of them to dismiss Brooksley Born’s call for a real debate about how best to regulate the new derivatives that were proliferating at the turn of the century. Anyone who has seen Inside Job, Margin Call or The Big Short will understand the roots of that imprudence in both hubris and corruption.

In the present context, we have to tackle strategic, economic and educational challenges. What would it be prudent and, therefore, desirable, for us to do as a matter of national policy in each case? All three areas must be seen as integral parts of the challenging future before us; not as separate fields of policy and concern. Yet who is to coordinate things? We have been cycling through political leaders and sound bites, platitudes and feckless public expenditure follies now for a decade.

Strategically, it would be imprudent of us to bet on China being restrained and tractable over the decades ahead or to jettison the US alliance, as Malcolm Fraser urged before he died and Paul Keating has been urging; but equally imprudent for us to assume that China will be aggressive and expansionist and, therefore, take steps that might help trigger in China the very forces we would prefer to see contained. The uncertainties and dilemmas here are why we need adroit and sophisticated leadership. Right now, we lack it.

Economically, it would be desirable for us to diversify our economic options beyond commodity exports, thus deepening our capacity to employ our rising generation in productive and wealth creating ways; but it would be foolish to believe we can readily do this by demanding that the government pick winners and protect particular industries – although this is, in important respects, what the East Asian states have done, using a mercantilist economic strategy, from Japan to South Korea and Taiwan and now China.

When it comes to education, the mantra has been repeated tirelessly for a generation now that Australians must become ‘Asia literate’, but we haven’t made striking progress in this direction. Clearly, larger numbers of Australians than ever before have worked in Asia, travelled in Asia, taught Asian students and followed the outpouring of news from Asia. Late last year, I caught up with three men of my own age for dinner at a Taiwanese restaurant.

We all grew up in the same Catholic parish, all our parents were DLP activists and we went to the same Catholic primary school. We have all worked in or on China over the past twenty five years and have all moved on from both the politics and religion of our parents. One of the others has been based in Hong Kong for years. I was head of China analysis in DIO at one point. Another of our number has done a lot of business in China. Those are signs of the times. We spoke of all the matters that we here, this afternoon, have gathered to discuss.

But Asian languages have not ‘taken’ in our schools. Almost no white Australians make the effort now to master Chinese, Japanese, Indonesian or other Asian tongues. Native speakers of immigrant stock do most of this – and they are hard to compete with in HSC exams. I should add that fewer and fewer Australian students are studying basic science or serious history. It’s difficult, in fact, to design and foster a curriculum that would adequately address the challenges and opportunities before us.

This situation will not automatically correct itself. But it is very easy to waste resources in misguided efforts to steer things in particular directions. What, then, is to be done? Strategically, we badly need to rethink our security and our force structure – and hope that the United States can recover coherence before things lurch out of control. Economically, we need to shift resources from self-indulgent recurrent expenditure to investment and to set our course on being a genuinely innovative value-added state. If Israel can do these things, there is no good reason why we cannot. Educationally, we need a revitalized curriculum directed at creating effective citizens in the 21t century rather than politically correct basket weavers.

But each of these is a very large topic and I made a commitment to talk for no more than 30 minutes. I’ve done no more than touch on broad themes, but I hope I’ve said enough to draw you into an animated and open-ended conversation. I addressed 500 Year 12 students on much the same topic some years ago and offered two prizes to encourage good questions. The prizes were my books on China and on Western civilization. A forest of hands went up with questions. I don’t imagine I need to offer incentives to this audience; but I do have the same books with me this afternoon, as well as another two recent one - Credo and Twelve Poems: A Cosmological Manifesto. They are part of my effort to contribute to shaping the future. Let’s talk about that future.