April 6th 2019


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Articles from this issue:

COVER STORY The NSW election and our incredible shrinking farming sector

SOCIETY The pervasive and pernicious online porn epidemic

CANBERRA OBSERVED Coffers are full but Treasurer will take spending cautiously

OPINION Judge treats Cardinal Pell to a spot of 'open justice'

NATIONAL AFFAIRS NSW Liberals re-election gives a boost to Morrison

ECONOMICS The Great Dragon uncoils all around the globe

INTERNATIONAL AFFAIRS President Donald Trump: an unlikely promise keeper Part 2

REFLECTION On the conviction of Cardinal Pell

FICTION Orange Years: The Japie Greyling Story

TERRORISM Lessons from Christchurch

ASIAN AFFAIRS Xi's imperious play prompts U.S. to repair Asian friendships

YPAT Getting with the program: one young person's story

MUSIC To market, to market, to sell a good song

CINEMA The LEGO Movie 2: Building a world

BOOK REVIEW A template for living alongside the world

BOOK REVIEW Catholic Maryland and early tolerance

LETTERS

POETRY

THE BUDGET Take your tax cuts and be merry, for tomorrow ... is another day

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ECONOMICS
The Great Dragon uncoils all around the globe


by Colin Teese

News Weekly, April 6, 2019

It really does “go without saying” that the world order is being reshaped before our eyes, and in ways we could not have imagined a couple of decades back.

The changes reach across the whole area of human activity: social, political and economic. For my part, I am best equipped to comment on those within the framework of economics and their consequent impact on policy.

As to the no less important social changes, these are, to my mind, better discussed in a context outside economics and politics. Others, well equipped to do so, routinely analyse these issues in the pages of News Weekly.

This is not the first time I have raised with News Weekly readers what I reg­ard as, overwhelmingly, the principal change, and the one much talked about, but still largely misunderstood. It is the rise, some would say the resurgence, of China to great power status.

The first thing to recognise about China’s rise is that nothing like it has happened in modern history.

Two previous examples of recent-day rise to great power status are familiar to us in the form of the Soviet Union and Japan. Neither, however, comes close to matching China. It is true that the USSR did, for the briefest moment after 1945, challenge the United States in economic strength; and unquestionably, it was a serious strategic competitor over the duration of Cold War.

That said, the Soviets were never seriously part of the international economy in the postwar world. The Soviet Empire operated as an independent geopolitical unit, with only minimum economic engagement with the West.

Twenty years after its defeat in 1945, Japan was already well on the way to regaining great power status. So much so, that, until the rise of China, it was the world’s second largest economy. Importantly, it could never have attained such eminence without the explicit help of the U.S.

In the Cold-War era, an economically strong Japan was regarded as a principal element in the West’s stand against the challenge of communism in Asia. In pursuit of strictly geo-political objectives, the U.S. facilitated an almost unrestricted flow of Japanese exports into its market. Japan’s economic power grew on the back of that advantage.

In return, Japan became a strategic ally, and host to a U.S. military presence. Japan, it will be recalled, had been limited in its capacity for military response.

No more than a moment’s reflection is needed to recognise that little about the rise of China to pre-eminence resembles that of either Japan or the former Soviet Union. Or, for that matter, of any other major power on the planet.

Politically it is determinedly communist and, frankly, with no pretensions to democracy. Yet its economics are far from Marxist. Rather, it resembles more the mixed economies of the West in the immediate postwar period, though with a somewhat heavier interventionist hand.

What has most surprised and disturbed the Western world has been its spectacular economic success: in lifting living standards for its vast population; in its capacity to penetrate markets; and, at the same time, to become a leader in advanced technologies to the point of threatening the U.S.’s global superiority in that area.

The United States can still claim ascendency in terms of variety, quantity and delivery capacity, when it comes to naked military power. Against that, the U.S. military capacity is spread thinly across the globe, whereas China’s is concentrated around its own territory.

From the time of the collapse of the USSR until the emergence of China, the U.S. was able to exercise unchallenged global dominance. It could, and did, make and enforce the global rules by which nations related to each other both politically and economically. It became the global watchdog over what came to be accepted as a “rules-based order” specifically designed to protect U.S. interests. That order, and that domination, is now under challenge.

China may or may not desire to proselytise its own particular form of economic or political organisation, but there can be no doubt about its desire to project an influence commensurate with its newfound status both within and beyond the Asian region. The Belt and Road Initiative upon which China has spent billions to establish links bet­ween Asia and Europe, represents clear evidence of its intentions.

China's Belt and Road snakes across the world.

Militarily, China has made obvious its intention to exercise firm control over offshore islands in the South China Sea.

Ironically, the rise of China could not have happened without the considerable assistance of the U.S. In much the same way as it acted with Japan, the U.S. opened its markets to China. The assumption was that, if China could be raised to a sufficient level of prosperity, it would take its place in the world fully embracing Western capitalism.

Ultimately, so the thinking went, it would embrace liberal democracy within the framework of a unipolar world under U.S. leadership.

That was never the intention of the Chinese leadership. Not only was the leadership committed to communism, but the idea of democracy does not fit with China’s history or practice of top-down leadership and control.

What the Chinese leadership came to recognise was that, for China to grow, the Chinese communist economic model would have to accommodate important parts of a market economy and become part of the world economy. But always with the Chinese Communist Party exercising overall control.

As we all know, China is now a major player in international trade and the second most powerful nation on the planet. And it is neither capitalist nor democratic. Notwithstanding that, over the last 25 years, China has emerged from its self-imposed exile, largely by virtue of its access to the U.S. market. It now commands huge international reserves denominated in U.S. currency, with all the power and influence associated with that.

It has also become an important market for the exports of major world trading nations in Europe and North America.

Meanwhile, China has invested hugely in technological development, especially in transport and electronic technology, involving both public and private sectors of its economy. It has reached the point now where it is able to compete with and in some cases surpass the U.S. in some fields of high-end technology.

At the same time, two-thirds of its population have been lifted out of poverty into a standard of living about one-third of that of the U.S.

Looking back, it is as if most of the West sleepwalked through the whole rise of China. One day we woke up and it was the second most powerful nation, flexing its muscles throughout the South China Sea.

Barack Obama, as U.S. President, was concerned enough to proclaim, perhaps unwisely, in the context of Chinese/Japanese pushing and shoving over ownership of a few inconsequential islands, that the U.S. would come to Japan’s defence in any conflict.

What quickly became obvious to his successor was that the world was now multipolar. In terms of power, China is a countervailing force and a genuine strategic rival.

Once military confrontation was identified as a real possibility, the Trump Administration wisely began to recalibrate its military, political and economic priorities. What once may have best served U.S. interests – a globalised world economy and all that flowed from it – no longer applied. In a multi-polar world, globalised supply chains left the U.S. dangerously exposed in the event of a military conflict.

The United States must, to the greatest extent possible, meet its essential needs within its own borders. Trade and economic policy must, as appropriate, be adjusted accordingly. To do otherwise would be irresponsible.

Such has been the speed of change that the Lowy Institute recently revealed that the Asian Region was now at the stage where it no longer needs access to markets in the West for its economic sustenance. It has become a kind of self-sustaining entity.

If true, this is bad news for the West. All the more so because Europe seems unable to restart a respectable level of economic growth and the European Union itself may be strained to breaking point.

It is even worse for Australia and Japan. We both are heavily dependent upon exporting to China for our economic prosperity and yet remain strategically and culturally tied to the U.S. and the West.

Thus far we in Australia have not developed the necessary diplomatic skills to manage this kind of complex relationship. The main policy thrust of our diplomacy has been to assert that we do not have to choose between the U.S. and China.

This seemed to work for as long as the political tensions between the West and China were minimal, and the consequences of Chinese growth did not impact significantly on our internal politics and strategic commitments. However, as political and economic tensions between the West and China rise, our capacity to balance trade and strategic interests is diminished.

We know Japan faces essentially the same problem. It is not obvious that they are better at dealing with it than Australia.

As far as I can gather, Japan’s approach is to persuade themselves that the Chinese economic and political model will fall over, and China will embrace democratic capitalism. Perhaps privately, those guiding our foreign policy harbour the same belief.

Faint hope!

My own view is that neither Japan nor Australia is able to solve the dilemma of its relations with China. Our problems can only be dealt with if the U.S. and China reach an accommodation that will allow them to co-exist rather than compete for ascendency.

For the moment we are a long way from that.

Colin Teese is a former deputy secretary of the Department of Trade.




























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