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In 2009, senior Australian Army officer Chris Field wrote that, for the Australian Defence Force to win in 21st century conflicts, we must ‘recognise that asymmetry is not the sole province of our enemies. We must take the fight to the enemy and use our own national asymmetric advantages to greatest effect.’
More than a decade later, Field’s call to arms remains largely unanswered. Even as our environment darkens amid great-power competition and hybrid warfare, conventional conflict still receives the most attention in Australian strategy. But Australia possesses underappreciated asymmetric advantages—during the active, ‘kinetic’ phase of any future conflict, or in the crucially important competition and shaping phases that precede it and are arguably happening now.
Putting aside, for a moment, military matters like missile defence and long-range precision strike, it’s worth considering how Australia might harness non-military instruments of power—political, economic, informational or socio-cultural—to offset the advantages of our most likely adversary, the People’s Republic of China.
We should first note what ‘asymmetric shaping’ can and cannot achieve, and hence what goals Australia might pursue in this area. Asymmetric shaping, by definition, is not about defeating superior adversaries in direct conflict. Rather, it is about building comparative advantage ahead of a crisis, to change an adversary’s calculus. It does this by imposing current costs or demonstrating capacity and intent to impose or suffer future costs, thereby convincing adversaries to avoid particular courses of action.
One example is Norway’s Arctic strategy, which seeks to convince Russia that moving against NATO’s northern flank would be pointless and costly. Norway can’t prevent an invasion if Moscow chooses to mount one—but the strategy (which includes rapid reinforcement, layered surveillance, resistance warfare and a suite of economic, cyber and information tools) aims to influence Russian planners to take that choice off the table.
In this context, Australia’s long-term goal should be preventing a Sino-American war. Australia cannot—and arguably should not—stop a rising China from attaining the dominance its leaders seek by mid-century. This is far beyond our capabilities, and in any case a powerful China is not necessarily bad for Australia’s interest. A catastrophic outcome, and one we must make every effort to avoid, would be a Sino-American kinetic conflict. This might arise over the South China Sea, Taiwan or the Korean peninsula, as a result of China’s accelerating naval build-up; in space, where China is challenging US dominance; or simply through miscalculation. Wherever and however it started, this war would rapidly escalate and go global and probably nuclear, with devastating impact. Preventing it should therefore be a principal goal for Australian statecraft over the next generation.
A nearer-term goal should be safeguarding our sovereignty against ongoing Chinese sub-threshold coercion.* Given Australia’s relationship with the United States and the broader democratic West, and our assertiveness on Taiwan, Hong Kong, Xinjiang and Covid-19, some in Beijing clearly think Canberra needs to be taught a lesson.
Sub-threshold coercion teaches Australia that lesson while demonstrating to others who might be tempted to follow Australia’s independent path the costs of doing so. Coercion includes attempts to influence our internal politics, disrupt our trade, damage our economy, infringe our territorial integrity and destroy our international influence. If preventing Sino-American conflict is Australia’s most important long-term goal, countering sub-threshold coercion to safeguard our sovereignty is our most urgent one.
With these goals in mind, several non-military tools offer asymmetric advantages worth considering.
China’s reliance on Australian iron ore, coal and certain food imports partly explains why these products have remained relatively unaffected by Beijing’s economic warfare punishing Australia for its independence on Covid-19. Washington is now encouraging allies to counter Chinese trade manipulation by purchasing each other’s export surplus, but even if it works, this is a defensive measure.
One alternative might be to temporarily disrupt critical exports, demonstrating willingness to suffer short-term economic pain to preserve sovereignty, while imposing costs for continued Chinese economic warfare. Programs to compensate exporters for short-term losses—and to explain why they’re necessary—might be needed here.
Likewise, on certain key resources—gold, copper, rare earths and lithium—Australia competes with (or, in the case of lithium, far outstrips) Chinese production, indicating asymmetric advantage in terms of global supply chains. Australia might apply leverage over certain raw materials essential for consumer electronics and electric vehicle production, both important for China. Expanding gold, copper and rare-earth production might also improve Australia’s leverage, short of crisis, over Chinese manufacturing, thereby forming part of a broader effort to influence choices in Beijing.
It might be argued that Chinese companies hold stakes in many Australian enterprises, while owning strategic real estate including the Port of Darwin, strategic islands and agricultural land. It’s tempting to see this solely as a threat, but Chinese assets in Australia also represent points of leverage that could be held at risk during crises or used to impose costs during pre-conflict shaping. Strategic assets might seem like a Chinese fifth column, but they are thus also an array of metaphorical hostages that can be traded for good behaviour.
Another key point of leverage is education. Covid-19 exposed the dependence of Australian universities on international, including Chinese, students. Regional and global demand for access to Australia’s high-quality education market, especially for STEM (science, technology, engineering and maths) subjects and in technological and medical research and development, offers asymmetric advantage. Like exports and commodities, holding education access at risk—or shifting emphasis from Chinese toward Vietnamese, Filipino, Pacific and Malaysian or Singaporean students—might reduce our vulnerability to Chinese influence in higher education, and simultaneously impose costs for Chinese coercion.
Countering China’s vaccine diplomacy in the Asia–Pacific is another area in which our highly developed medical R&D capability offers advantages. Chinese officials have been forced to admit that their Sinovac and Sinopharm Covid-19 vaccines, along with other killed-virus vaccines promoted across the region, have much lower effectiveness than the Western-designed mRNA vaccines used in Australia and elsewhere.
Opportunities to develop regional leverage, especially in countries that have relied heavily on Chinese vaccines, must of course take second place to humanitarian concerns in helping Australia’s neighbours, but with no end in sight for Covid-19 in the developing world, this could become a key point of leverage for Australia.
Likewise, Australia’s relations with Singapore and Taiwan are close, while Malaysian and Indonesian ethnic-Chinese communities have long been important parts of our society. A socio-cultural effort, perhaps led by these communities, to push back against CCP hegemony—and communist-influenced language, in both English and Mandarin—might help to inoculate against Chinese coercion.
Australia’s international military engagement—including individual training, collective exercises, ship visits, logistic partnerships and industrial collaboration—form a key aspect of asymmetric shaping whether pre-crisis or in a conflict. Indonesia, Vietnam, Brunei, Malaysia, the Philippines, Papua New Guinea and Solomon Islands are just a few of many regional countries with close historic partnerships with Australia, but where Chinese influence is increasingly active, and increasingly seeks to exclude or replace Australia.
The defensive response is to compete, using aid, trade, person-to-person networks and diaspora linkages to preserve and defend our existing regional relationships. A more asymmetric approach might involve mapping Chinese activity in the region and beginning to think of it more as a target array—a series of assets and relationships that could be held at risk or over which costs could be imposed in a conflict.
All of these ideas represent ways in which political, economic, information and socio-cultural tools could be used as an adjunct to improving our military instrument of power, to shape the environment for great-power adversaries employing hybrid methods, impose costs for continued sub-threshold coercion, and influence adversary planners’ choices well ahead of any future crisis.
All involve risks, costs and trade-offs that need to be carefully thought through. They could be considered part of a strategy of ‘deterrence through resilience’, telegraphing the intent and capacity to both suffer and inflict costs to achieve a short-term goal of safeguarding our sovereignty, while pursuing the longer-term objective of preventing a Sino-American war.
But none of this will make much difference unless Australian strategists also accept the challenge Field posed in 2009: the need to get out of the defensive crouch we have been in since the turn of the century, thinking of ourselves as conventional actors defending against an array of lurking unconventional threats.
Instead of perpetually playing goalkeeper, we need a mindset shift to start seeing ourselves as the asymmetric threat. As I noted in a recent book, Australian jungle warfare expert Brigadier Ted Serong observed in 1962 that ‘conventional soldiers think of the jungle as being full of lurking enemies. Under our system, we will do the lurking.’ If we are to build leverage in this emerging environment of great-power competition, Australian strategic thinkers too need to start getting out into the asymmetric jungle, and ‘do the lurking’.
* I’m using the term ‘Chinese’ as shorthand for mainland China and the Chinese Communist Party. This is a linguistic trap, since one of the CCP’s goals is to claim leadership over all Chinese anywhere in the world. This is another point of asymmetric advantage for Australia, where there has been an important Chinese community since the mid-1800s, a century before the CCP took power.
The Strategist’s Anastasia Kapetas is joined by John Schaus, a senior fellow of the International Security Program at the Center for Strategic and International Studies. They explore the concepts of asymmetric power and deterrence, how they are used by different actors, and how the US and its allies should respond.
Last month, the Chinese government announced the three-child policy, an initiative designed to help increase birth rates in China. ASPI researcher Daria Impiombato is joined by Leta Hong Fincher, adjunct assistant professor at Columbia University and author of Betraying Big Brother: the feminist awakening in China. They discuss the three-child policy, as well as coercive family planning policies in Xinjiang and feminism in China.
We are delighted to share an extract of a recent interview with Major General Cheryl Pearce for ASPI’s Women in Defence and Security Network. Pearce, who was most recently force commander of the UN Peacekeeping Force in Cyprus, speaks to ASPI’s Lisa Sharland about leadership challenges during Covid-19 and advice for emerging female leaders from her experiences working in the Australian Defence Force and in a multinational force. The full interview is available to watch on ASPI’s YouTube channel.
As the 100th anniversary of the founding of the Chinese Communist Party approaches, the world is watching closely to see what China does as it tries to realise President Xi Jinping’s ‘China dream’ and achieve ‘national rejuvenation’. Ultimately, Xi seeks to position the People’s Republic of China as the leader of a new international order that reflects Beijing’s core aims.
In their new ASPI report, To deter the PRC …, Kyle Marcrum and Brendan S. Mulvaney note that the Chinese government is attempting to ‘redefine’ the international order to correlate with its national interests. China is challenging the global status quo and using coercion and ‘wolf warrior’ diplomacy in an effort to shape the international order to its liking.
The report refers to an authoritative People’s Liberation Army publication, the 2013 Science of military strategy, which outlines Chinese conceptions of deterrence. Marcrum and Mulvaney argue that China’s definition of ‘deterrence’ looks a lot like what Westerners would call ‘coercion’, prompting speculation about the actions China may take to realise Xi’s ‘China dream’—a dream that includes the unification of Taiwan and the PRC.
The report’s insights point to a particular challenge facing Western liberal democracies in considering the prospect of a major military crisis over Taiwan or in the South China Sea in coming years. If deterrence in a traditional sense is the use of a declared or implied threat to prevent an action inimical to the interests of the deterring power, a Chinese approach that is more coercive—forcing an opponent to act according to the interests of the coercing state—would be seen from the West as aggression. There’s a risk that failures in Beijing and Washington to understand each other’s motives and ‘strategic cultures’ could cause the rapid escalation of any future crisis over Taiwan, leading to war by miscalculation.
In recent months, China has engaged in aggressive naval patrols around Taiwan and has regularly sent flights of warplanes into Taiwan’s air defence identification zone. The most recent incident involved a record 28 military aircraft earlier this month. Such flights can certainly be interpreted as a form of coercion, to pressure the government in Taipei to accept China’s demands for unification on Beijing’s terms. They would also be driven by a desire to deter Taiwan from formally declaring independence. In addition, every flight generates useful intelligence for the PLA on Taiwanese military capabilities and at the same time adds pressure on Taiwan’s forces that over time could wear down their readiness through attrition.
There’s now understandable concern that following the 100th anniversary celebrations on 1 July, China will ramp up pressure on Taiwan, particularly in grey-zone operations—a coordinated series of actions below the level that would generate a US military response but that would increase pressure on Taipei to bend to Beijing’s demands for unification. At the same time, it’s likely that China will intensify its efforts to isolate Taiwan diplomatically to accentuate its vulnerability to coercive pressure. Beijing could also attempt to increase pressure against a move towards greater independence in the lead-up to Taiwan’s 2024 presidential election and against any form of external intervention to assist the island.
Taiwan’s profile has been enhanced by its successful response to the Covid-19 pandemic. The rally-round-the-flag effect has helped the ruling Democratic Progressive Party (DPP) gain support. Other countries, especially the US and its allies, have not only recognised Taiwan’s importance in international engagements both economically and diplomatically, but also become more willing to support Taiwan in public, despite China’s inevitable denouncements.
While it seems the DPP has been able to counter Chinese influence and will thus be able to challenge the opposition Koumintang in the 2022 local and 2024 presidential elections, domestic disputes and the unexpected recent outbreak of Covid-19 have once again exposed the island to the danger of Chinese coercion. China’s recent interference on access to Covid-19 vaccines has jeopardised the confidence many Taiwanese had in the DPP.
Even so, Taiwan is unlikely to bend to Chinese efforts in the grey zone, and of key importance is how relations evolve with the US under President Joe Biden. China currently lacks the military ability to invade and occupy Taiwan but is rapidly developing the means to do so. A recent workshop held by the US-based China Maritime Studies Institute considered the PLA’s ability—or lack thereof—in the large-scale amphibious warfare necessary to undertake an invasion of Taiwan. In particular, the workshop found that the PLA’s lack of adequate logistics and amphibious lift are key problems, noting China seems to be planning to rely heavily on elements such as its maritime militia. There are also gaps in China’s ability to conduct effective joint operations that could frustrate any island landing campaign, particularly given Taiwan’s potential to develop its own anti-access/area-denial (A2/AD) capabilities.
Will Beijing move to address these gaps in coming years? China will probably prioritise establishing an effective A2/AD capability to deter or counter US intervention in a cross-strait crisis before it addresses shortfalls in amphibious and logistics capability. How quickly China can address these shortfalls as it also conducts grey-zone operations and builds more powerful A2/AD capabilities in coming years is a key question.
The Indo-Pacific looms large as an arena of intensifying geopolitical competition. Typically, governments look to their militaries to balance competitors in such circumstances. But the great-power competition we’re seeing now is not merely military—it’s political, economic, technological and ideological. It’s a competition for strategic advantage, waged in the ‘grey zone’, the no-man’s land that sits between peace and war.
The importance of the grey zone has long been recognised. The Chinese strategist Sun Tzu argued in the 6th century BC that the height of strategic success was to win wars without having to fight. Nowadays, with the costs of war increasingly high and power diffused among a wider range of actors, the grey zone is host to an escalating number of strategic challenges. It has also become somewhat of a catch-all term, stuffed with every anxiety-inducing action from a foreign power.
For the purpose of strategy, however, more is needed than just a list of activities we don’t like. After all, some ostensibly grey-zone activities—influence, competition, funding—may be comparatively benign, or potentially even positive, such as the provision of infrastructure to poorer nations. Nor can we afford to securitise every uncomfortable action short of war or assume every action will lead to war.
There are three characteristics of grey-zone activities that warrant our attention. First, disruptive activities in the grey zone are undertaken by revisionist actors; they seek to modify the global system to their own ends, but not to overthrow it. Second, grey-zone activities are gradual and aim to skate just below the threshold for provoking an armed response. Third, those activities are non-conventional in nature, and assisted or enabled by technology. The Australian government’s 2020 defence strategic update captures the gist, describing the grey zone as comprising ‘activities designed to coerce countries in ways that seek to avoid military conflict’.
It’s a murky area. Pressure may range from asymmetrical leverage to outright displays of dominance, and is as likely to come from strong states as from weak actors. Consider China’s influence campaigns in the South Pacific and its airspace incursions as it seeks to consolidate its accumulated incremental gains in the South China Sea; Russia’s activities in Eastern Europe and, most recently, in Ukraine’s Donbas region; and activities in cyberspace that cost companies and civil society. Nor are other nation-states necessarily the primary objective: the targeting of non-state groups (for example, democracy activists in Hong Kong or the Uyghur population in Xinjiang) and individuals (Jamal Kashoggi, Roman Protasevich, Maria Ressa, the Skripols, Michael Kovrig, Michael Spavor, Cheng Lei) is a common grey-zone tactic.
Such actions are aimed at reinforcing illiberal and authoritarian regimes while weakening liberal democracies and the rules-based order. Revisionist actors are exploiting gaps, fractures, sclerotic institutions and centrifugal forces in the global order. And there’s an asymmetry between the tactical nature of particular activities and the strategic effect sought, whether it’s a weakening of alliances, accommodation of revisionist agendas by regional organisations, or a purchase of a distinct technological advantage.
China’s ‘14 points’ of difference with Australia illustrate the approach perfectly. By itself, each challenge may seem comparatively small, so why would a government want to object, in the interests of a broader relationship? And that’s precisely the point: to shape behaviour and compel acquiescence. If the government were to give in, further demands would be made, to compel Australian deference to Chinese interests and move Canberra away from its ideological and strategic partners.
Democratic governments themselves need to recommit to the foundational structures and concepts we expect from democracy—democratic institutions, norms, behaviours and the rights of individuals, especially in a digital society—for two reasons. First, with a reversion to ideological competition there’s a need to make and demonstrate the case for democracy. Second, revisionists are attacking an existing order based in large part on liberal, free-market, democratic values. Yet, too easily have governments allowed themselves some of the language, tools and attitudes of the authoritarian actors, so contributing to the revisionist cause and undermining their own legitimacy.
Helping to nurture and reinforce democratic institutions is critically important in our own region, where democracy is comparatively new and delicate. It is also indicative of how the means and tools available for strategy and statecraft need to be broadened. Grey-zone activities are notable for their various forms of compellence and coercion—whether diplomatic pressure, economic threats, protectionist behaviours, cyber operations, espionage, corruption, influence campaigns, information warfare or territorial incursion. Governments need more extensive tool kits: variety is needed to counter variety.
That means relying on more than just the military for our defence. We need to help societies and individuals build resilience against the corrosive effects sought by revisionist actors, whether through the implementation of government initiatives like the Pacific step-up, the use of humour to beat disinformation, or the creation of a foundation such as Germany’s Konrad Adenauer Siftung or the US German Marshall Fund aimed at promoting democracy. International institutions need to be reformed or created; new norms and standards for cyber and emerging technologies need to be established to allow all to benefit, not simply richer, more capable states and actors; and like-minded actors need to be engaged to strengthen resilience. All those are civilian tasks, requiring funding, capability and presence.
The more that’s done in cooperation with other regional partners, the better. While conventional ways to build relationships and establish presence and persistence are good, we should be open to opportunities to help blunt China’s influence. An obvious one is the response to Covid-19—providing vaccines, support and, over the longer term, health infrastructure and capability.
The military retains an important role in deterring and responding to grey-zone activities, particularly when territorial gains and incursions are involved. Revisionist actors turn to the grey zone when they assess that they can avoid detection, retribution or escalation to conflict.
While precisely mirroring grey-zone activities would be an error and unachievable—we haven’t got a spare ‘fishing fleet’ we can muster to harass shipping vessels in the South China Sea, for example—we do need to compete at the point of leverage, matching presence with presence. There’s scope to increase Australia’s and like-minded partners’ presence and persistence in the region, such as through regional basing and combined patrols. Doing so would help to shift the risk calculus—not just for revisionist powers but also for regional states.
Last, let’s not confuse symptoms with causes. Focusing on addressing behaviours and actions without first identifying the revisionist motives behind them will likely be self-defeating. To that end, Australian policy and strategy would benefit from a deeper understanding of the drivers of competition in the grey zone—and why we can’t just ignore it and hope it will go away.
Avoiding conflict with China will require a much deeper understanding of how its rulers and military planners view deterrence and coercion, warns a new ASPI report.
To deter the PRC … is written by Lieutenant Colonel Kyle Marcrum, a United States Army foreign area officer specialising in China and Dr Brendan S. Mulvaney, director of the China Aerospace Studies Institute (CASI). The report launches a series of essays, workshops and events seeking to improve understanding of what the Chinese Communist Party and its People’s Liberation Army mean by ‘deterrence’.
The series is a joint ASPI–CASI project which will examine how both democratic countries and the People’s Republic of China approach deterrence, what liberal democracies are doing to deter China and what China is doing to deter those nations. It will assess the impacts of those efforts and will draw heavily from original PRC and PLA documents, as well as interviews and personal experiences, to help understand PRC thinking.
The authors note that an understanding that the PLA conceives of ‘deterrence’ along the lines of what Western militaries think of as ‘coercion’ is a baseline to better determine what courses of action might be effective when attempting to shape the PRC’s actions.
This idea of offensive deterrence becomes more appealing if you believe your opponent suffers from weak resolve, the authors say.
Decision-makers must understand that the PRC may conduct what it expects to be limited strikes to deter the US and its partners and allies, the authors say, without intending them to spiral into a war.
In December 2018, Rear Admiral Lou Yuan of the PLA Navy said, ‘What the United States fears the most is taking casualties,’ and suggested that sinking two US aircraft carriers would be sufficient to expel the US from the South and East China seas. ‘We’ll see how frightened America is.’
The authors say that using this concept of ‘offensive deterrence’ by conducting strikes that kill Americans or Australians would not have the deterrent effect the PRC seeks or expects ‘and the risks of escalation from such a deterrent effort are extremely high’.
So, they say, planners must take this into account both when seeking to deter China as well as when thinking through what actions it might take or how it might react to our actions.
In examining how China might be deterred from actions inimical to international goals and standards, the report contains various definitions of what deterrence actually is. One is that of strategist Thomas Schelling, described as the contemporary father of coercion theory: ‘To be coercive, violence has to be anticipated. And it has to be avoidable by accommodation. The power to hurt is bargaining power. To exploit it is diplomacy—vicious diplomacy, but diplomacy.’
Zhao Xijun of the PRC’s National Defense University defines ‘offensive deterrence’ in his book Coercive warfare: a comprehensive discussion on missile deterrence as ‘a military deterrence that mainly aims at attacking’ and writes that ‘the characteristic of offensive deterrence is to use “pre-emptive strike” to deter the other side’. Zhao also states that this concept is ‘“using war to stop war” by [using] small war to constrain large war’.
The authors compare the current situation to the way the US and the Soviet Union related to each other during the Cold War. Apart from contact at organisations such as the United Nations, the two sides had little interaction, little trade, little commerce and relatively little overlap in their geographical spheres of influence.
‘There was tension and conflict on the margins with clear escalatory potential, but the two sides managed to avoid direct or large-scale confrontations, albeit narrowly at times. That was in large part because the two sides developed a shared basic understanding of the world.’
Everyone in the military and the broader defence and security establishment knew something about the Soviets and their military. People studied what the Soviets thought, how they spoke and the actions that they took, down to the smallest details.
Each side developed a solid basis for understanding the signals the other side was sending, and typically sent clear signals of its own.
The authors say that that is not the case today.
‘The CCP’s understanding of the world, and thus its approach to it, is significantly different from Western views. It’s neither right nor wrong, just a different perspective, and one that isn’t common in Western liberal democracies; nor is it commonly taught in Western education systems, or indeed even in professional military education.’
They say that Australian and US partners and allies such as Japan, South Korea, Singapore and Taiwan have a historical appreciation and can help contribute to a better understanding of historical concepts. But, since 2001, the US and many of its partners have been focused on fighting terrorist groups and managing the conflicts in Iraq, Afghanistan and the broader Middle East.
Only during the latter part of the Trump administration did the US truly focus the whole of government on addressing the competition with China, bringing in Congress as well as the military, the State Department, the Committee on Foreign Investment in the United States and others.
While it takes years to build a deep and wide group of specialists in any field, the authors say, it stands out that the US Air Force has the same number of foreign area officer places for Chinese specialists as it does for Portuguese speakers.
They warn that if the US and its allies and partners hope to avoid conflict with China, they must build a deeper shared understanding of how the CCP and the PRC see the world. That will require sustained effort over several years and involve a deep partnership with partners and allies who have vital knowledge and expertise.
They also urge planners not to ‘mirror ourselves onto our analysis of PRC thinking and action’.
They say that: ‘With sustained effort, we can do better at understanding Chinese thought and concepts and the twists that CCP ideology gives them. In that way, we can maximise our opportunities to ensure that our strategic goals are met and our interests are protected.’
Arguably the biggest submarine program in the Western world outside of the United States, Australia’s submarine development continues to raise concerns about cost. ASPI’s Michael Shoebridge and Marcus Hellyer examine the outcomes of the recent Senate estimates hearings in relation to the underwater program, and what the life-of-type upgrades mean for the submarine’s future.
ASPI’s Mapping China’s Tech Giants project provides an overview of the global impact of Chinese technology companies. Tom Uren is joined by Fergus Ryan and Daria Impiombato for a discussion on how US sanctions have impacted the growth of these organisations, and how the Chinese Communist Party’s political influence creates privacy concerns.
In a conversation on nation-building, ASPI’s John Coyne and Gill Savage discuss how Australia can rethink its approach to infrastructure in a post-Covid-19 environment. Using the Port of Townsville as an example, they discuss how greater cooperation between regional, state and national governments can achieve economic, social and environmental prosperity.
Publicly revealed by the People’s Bank of China (PBOC) in 2019, China’s central bank digital currency (CBDC) project—the Digital Currency Electronic Payment, or DCEP—is an early-stage endeavour to rewire the global economic system using emerging financial technology. DCEP is a massive payment- and data-processing network. Over time, its CBDC, the e-CNY, is expected to completely replace physical cash.
So far, public policy debates on the future of DCEP have focused on its implications for internationalisation of China’s currency. Yet, the most consequential developments relate to how DCEP appears to be emerging as a leading financial technology. With the global expansion of China’s technology giants like Ant Group and Huawei, DCEP has the potential to transform the global financial system independently of external use of the RMB. Other countries seeking to launch their own CBDCs may adopt the DCEP stack rather than develop independent technologies, making China the world’s first exporter of central bank monetary technology optimised for surveillance down to the level of the individual user.
Thinking strategically about DCEP requires a paradigm shift in terms of how CBDCs are understood—as technological systems, not just digital money.
China’s leaders have already signalled their intention to make DCEP a cornerstone of post-Western—’multilateral’, in China’s geostrategic vernacular—financial order. Xi Jinping has called for China’s global leadership in CBDC standards-setting as part of the country’s economic strategy, and openly endorsed DCEP. Accordingly, China’s new five-year plan includes goals of ‘advancing digital currency research and development’ and ‘actively participating in formulating international digital security, digital currency … regulations, and digital technology standards’. More broadly, these objectives fit into the party-state’s intention to export Chinese technology standards globally, as signalled by the China Standards 2035 project. In response, PBOC officials have stepped forward in international discussions to propose new measures for CBDC interoperability, policy coordination and transaction monitoring.
The system-building intentions behind DCEP have been almost literally lost in translation. Instead, consensus has arisen between interlocutors inside and outside of China that DCEP is almost exclusively a domestic undertaking, and will only go as far as internationalisation of China’s currency can carry it. This is short-sighted, however, because it is clear that cross-border applications are already envisioned. The PBOC has joined with the Central Bank of the United Arab Emirates, the Hong Kong Monetary Authority and the Bank of Thailand in a CBDC-based, real-time foreign exchange project using distributed ledger technology. Furthermore, former PBOC governor Zhou Xiaochuan has predicted that tourism will be the earliest instance of DCEP expansion outside of China. A third potential line of expansion is as a medium of exchange for countries more deeply integrated into China’s Belt and Road Initiative.
Though use cases for DCEP are still being developed, the global expansion of DCEP technology may not be as speculative as it sounds, due in large part to the role that China’s multinational tech giants already play in DCEP’s development and deployment. At the April 2021 Digital China Summit, a national tech exhibition, China’s leading private payment service providers, Ant Group (Alipay) and competitor Tencent (WeBank, WeChatPay), claimed that they have provided the DCEP project with key technical support throughout its development.
Details from Ant, in particular, highlight the role of private tech companies in supporting, and even driving, the research and development that underpins some of China’s most ambitious mega-projects. Ant joined DCEP R&D in 2017 and Ant’s mobile app development platform mPaaS and its OceanBase database were used by the PBOC’s Digital Currency Research Institute. Ant, along with Tencent, was involved in testing of DCEP through pilot trials. PBOC announcements have confirmed that Huawei and JD.com are also involved in DCEP trials and development.
These examples demonstrate that tracking DCEP requires expanding the view beyond statements specifically tailored for external audiences. More attention should be directed instead towards evidence of actual network-building—technology partnerships and platforms that can potentially be leveraged in support of implementation.
Analysts should also ask what role these private companies may play in disseminating China’s CBDC technology domestically within China and globally. This is especially important given the large-scale expansion of these companies—three of them (Huawei, Ant and Tencent) have been found by researchers at ASPI’s International Cyber Policy Centre to have over 1,300 points of overseas presence. Companies like Ant and Huawei, for example, are already at the forefront of digitisation in Africa and the Middle East.
DCEP is integrated with Ant’s Alipay, and, over time, China’s new PBOC-controlled financial technology could potentially travel anywhere that Alipay users travel. In countries that receive large numbers of Chinese tourists, more sectors of the economy may be willing to adopt DCEP-compatible technology.
Alipay is already accepted in airports in Europe. Should the RMB ever become more freely convertible abroad, consumer transactions in RMB could become ubiquitous in countries where the local currency is a less certain store of value. Through Alipay, WeChat Pay and newer payment service apps developed specifically for use with DCEP, more transactions could ultimately be taking place through China-based banks, without the need for local intermediaries.
Huawei, though less well known for mobile payments than Ant, represents another use case for DCEP abroad as a component of other countries’ digital economy infrastructure. Huawei is a strategic partner of the PBOC Digital Currency Research Institute, with DCEP-related projects in distributed databases and networks, in addition to DCEP-enabled mobile phones. The company is also already a provider of end-to-end mobile money services in Ethiopia. According to Huawei’s own marketing, Huawei Mobile Money was ‘commercially deployed’ across 19 countries in 2018; more recent reports indicate that the company has continued to expand in payments services across Africa, and in global money transfer.
The spread of DCEP’s capabilities, and standards, is where the technology’s real value for the party-state lies. Though this fact is repeatedly denied by PBOC officials, DCEP is moving in the direction of global application with or without an internationalised RMB. The strategic implications extend in multiple directions: technology, norms, trade, finance and infrastructure. Ultimately, debates about DCEP are debates about how the embedded features of technological systems—and political systems—should direct the evolution of economic rights and privacy.
The Quadrilateral Security Dialogue has been the venue for the most visible foreign policy signalling on the Indo-Pacific from US President Joe Biden since he assumed office in January. In March, Biden convened the first Quad leaders’ summit with his counterparts from Australia, India and Japan, though attention on this cooperative arrangement, and its potential, had been growing even before then. The anticipation of the Quad’s new Covid-19 vaccine partnership is adding both to the forum’s relevance and to the challenges it faces in meeting expectations.
Considering that closer cooperation among Quad members has been attributed to China’s assertiveness, the recent statement by US Indo-Pacific coordinator Kurt Campbell that ‘the dominant paradigm [in US policy towards China] is going to be competition’ suggests the potential for the grouping to become one of the main vehicles to compete with China. There has been talk, for instance, of the Quad offering an alternative to China’s Belt and Road Initiative through quality infrastructure partnerships.
In some ways, the Quad has come a long way since it was revived in 2017. Initial doubts about Quad 2.0’s sustainability have been juxtaposed against its evolution from a meeting of senior officials, to one at the foreign ministers’ level, to the inaugural leaders’ summit. Its agenda has also expanded substantially. From its origins as a core group responding to the aftermath of the Indian Ocean tsunami in 2004, the Quad now seeks to facilitate collaboration on a wide range of issues. Working groups have been established to advance cooperation on Covid-19 vaccines, critical and emerging technologies, and climate change. The first-ever joint statement also identified counterterrorism and maritime security as potential areas for cooperation.
Although the Quad began as a clear-cut example of minilateralism—small, informal and targeted specifically at delivering humanitarian assistance—recent developments indicate that it is evolving into a more formal platform with a much more comprehensive agenda.
Increasingly, there is nothing ‘mini’ about this group of major actors in the Indo-Pacific—not in its capacity, its ambition, or even its composition: the Quad is keen to involve as many like-minded partners as possible in expanding its ‘Quad Plus’ mechanisms. In fact, the Quad faces complex and all-encompassing challenges, from defending the rules-based order to containing potential revisionism, promoting democracy and setting norms and standards. These are not jobs for a minilateral or an ad hoc cooperation initiative. (Expectations that the Quad will transform into an ‘Asian NATO’ or a substitute for the UN Security Council, however, are imaginative, but overblown.)
The primary challenge for the Quad is to identify the main ways in which it can make a difference and contribute to stability in the Indo-Pacific. The first incarnation of the Quad fell into lethargy due to lack of sufficiently strong alignment and commitment among the four members. The main challenges then were Quad countries’ diversity of national interests in the face of external pressures, particularly from China.
The elevated Quad 2.0 demonstrates the persistent interest of the four countries in the mechanism, and some realignment of their views on China. But perhaps the greatest area of uncertainty lies in the expectations, both internal and external, for what the Quad can deliver. As the Biden administration’s first major foreign-policy accomplishment, the Quad leaders’ summit reflects the priority that Washington now places on the platform, with the hope that it will become ‘a new feature of regular diplomacy in the Indo-Pacific’.
Even as the Quad’s cooperative efforts extend across an increasing number of sectors, the likelihood that it will overstretch and overpromise remains. If not well managed, Quad cooperation could flounder for a second time, which would derail the momentum that the platform has gained over the past few years.
For instance, the vaccine partnership—a welcome initiative, even among those who have reservations about the Quad and its ‘containment agenda’—faces challenges. Quad members continue to struggle with the pandemic themselves (as we’ve seen with the recent massive surge in Covid-19 cases in India and Australia’s faltering vaccine rollout), which will make it difficult for them to deliver on their plans. While members enthusiastically support the initiative, if Covid-19 continues to wreak havoc among Quad members, particularly India, there will be limits to what they can collectively commit to the rest of the Indo-Pacific region.
Assuming the Quad can sustain its impetus for cooperation, its long-term potential remains formidable. However, its ability to become a regular part of the regional architecture will be determined by a few factors. First, its key proponents will need to craft an agenda that fits with the interests and commitment levels of all four members. It will also have to succeed in establishing positive relations with non-Quad countries. Finally, and perhaps most importantly, it will need to strike a balance between harnessing the group’s potential and momentum and overstretching and overpromising.
This weekend’s G7 leaders’ summit in Cornwall in the UK might be the moment we look back on in a few years when major leaders stopped thinking about their countries’ relationships with China as mainly bilateral economic gold mines, and instead started to see Xi Jinping’s China as a multilateral strategic, technological and economic challenge that can’t be dealt with by any one nation alone—and to act accordingly.
The G7 gathers the leaders of seven of the world’s most powerful democratic economies together (Germany, Japan, France, the UK, Canada, the US, Italy and Canada) and gives them a platform for cooperation.
And this year’s meeting is centred on the China challenge, the pandemic and climate change.
It builds on the momentum established in March by the first-ever leaders’ meeting of the Quadrilateral Security Dialogue, convened by Joe Biden less than two months into his presidency with his counterparts from Australia, Japan and India, prime ministers Scott Morrison, Yoshihide Suga and Narendra Modi.
That Quad meeting came out with a lot more than dialogue: it resulted in urgent combined work on Covid-19, climate change and reducing the vulnerability of critical supply chains to coercion. The four Quad leaders will bring this direction and urgency to the G7—because both Morrison and Modi have been invited to participate, along with South Korea’s Moon Jae-in and South Africa’s Cyril Ramaphosa.
We’re a long way from the ‘golden era’ mindsets on China that were common only six years ago. It was November 2014 when Australian Prime Minister Tony Abbott and Xi sealed the deal on the Australia–China free trade agreement. And it was in 2015 that UK Prime Minister David Cameron captured the sentiments of many political and corporate leaders when he spoke to Chinese state media before Xi arrived in the UK, saying:
It’s going to be a very important moment for British–Chinese relations, which are in a very good state, something of a golden era in our relationship. The change we will see is obviously the investment into our infrastructure, Chinese companies employing people and creating jobs. But I think it’s also a big win for China as well, having access to a country that is a leading member of the EU and has so many other contacts and roles in the world.
Those words look a little different now to how they did back then, given the nasty, coercive turn China has taken under Xi in recent years. We won’t hear Cameron’s sentiments echoed by Boris Johnson, who’s looking to initiatives like an Australia–UK free trade agreement to show that democratic partners can deepen trade in ways that answer the challenge of aggressive authoritarians.
The Quad and G7 leaders know that if they don’t work collectively on the China challenge, they will all be coerced separately by Xi’s China and they’ll fail to curb Beijing’s increasingly aggressive international conduct—on trade, territory, security, technology and key values like human rights.
That’s why the G7 foreign ministers’ communiqué that set the scene for this weekend’s leaders’ meeting reads like Australia’s China policy, covering the South China Sea, Hong Kong, Xinjiang, Taiwan and China’s coercive trade practices in terms familiar to those looking at Australia’s last four years of policymaking.
And it’s why the G7 trade ministers are so focused on re-energising the World Trade Organization’s dispute-resolution machinery and addressing unfair trade practices up to and including use of trade as a weapon against those who displease Xi and the Chinese Communist Party.
As Biden has put it in the lead-up to the G7, ‘We will focus on ensuring that market democracies, not China or anyone else, write the 21st-century rules around trade and technology.’
This is a moment for Morrison to seize, and to be backed as he does so by bipartisan and corporate support here at home.
Australia has led a significant chunk of the global China debate with decisions like excluding high-risk Chinese vendors from our 5G network, investing in our contribution to credible military deterrence of Beijing through last year’s defence strategic update, and passing new laws to reduce the impact of Beijing’s covert interference in politics and policymaking. Australia’s 5G decision was only made in August 2018 and at the time was seen to be a lonely one. Just three years later, the reasoning behind it looks like common sense, and the 5G landscape has been reshaped in unexpected—and positive—ways.
On trade, Australia is also in the middle of the new global conversation about pushing back against coercive practices and finding ways for multilateral groupings to hold Beijing to account against all the commitments it has made—and is busily breaching—whether in the WTO or in bilateral trade agreements.
The Australian experience with the Chinese state’s open economic coercion provides a sobering study for France’s Emmanuel Macron, Germany’s Angela Merkel and Italy’s Mario Draghi at the G7 as they think through the costs and benefits of the draft EU–China comprehensive investment agreement and assess the fundamental issue of whether they can trust Xi to keep any of the commitments in that agreement. The simple answer, based on his track record: no.
So, Morrison has some heavy lifting to do in Cornwall. He can bring Australia’s experience and policy toolkit along. But, more importantly, he can come home showing that Australia has a growing set of active multilateral partners in facing the China challenge. He can also return having built new personal connections with a leadership group that must continue to work more and more closely together not just on security, but on economics, trade and technology.
Scott Morrison and Jacinda Ardern will prove the Australia–New Zealand travel bubble works when they meet in Queenstown next week. Breathless commentary suggests it’s going to be a difficult meeting over China policy, but that’s unlikely. Instead, the two leaders will almost certainly spend the time accelerating a critical agenda for our two nations with our Pacific partners.
New Zealand and Australia have deeply complementary strengths and interests, and there’s real work to do in three areas: vaccine distribution to underpin a travel bubble, Pacific media, and getting our big banks to reverse their quiet retreat from a decent physical retail bank presence.
There’s an urgent need for Australia and New Zealand to run an accelerated Covid-19 vaccine distribution campaign in the South Pacific. As we’re seeing in Victoria, even nations with closed borders and tight quarantine approaches are vulnerable, particularly to more virulent strains of Covid. Safety comes from vaccination combined with these other policy measures.
South Pacific economies are deeply tourism-dependent and New Zealand and Australia provide the bulk of their visitors, which benefits us all. Restarting the tourist flow is the best structural economic assistance we can provide. But South Pacific nations won’t—and shouldn’t—let travellers arrive until they’re able to manage the risks. Along with other measures and safeguards, that means having their own populations protected through vaccination and having arriving Australians and New Zealanders vaccinated too.
By 26 May, South Pacific states had 43,441 recorded Covid cases and 453 deaths, with 42,366 of these cases in Papua New Guinea, the two French territories and Guam. A travel bubble with these jurisdictions is a way off.
The population of the remaining 15 Pacific states including Fiji, the Solomon Islands, Samoa, Vanuatu and Tonga is about 1.6 million people. So, it’s absolutely possible to get their entire populations vaccinated rapidly. But that will only happen if we accelerate vaccine access and distribution alongside the slower moving but invaluable international COVAX program for the Western Pacific.
That can happen if Morrison and Ardern push our governments and private deliverers of health services (think Aspen Medical) to undertake a joint vaccination campaign at scale and speed across the Pacific over the next three months.
Australia has available stocks of locally made Astra Zeneca vaccines because of the own goal we’ve scored in over-emphasising the vanishingly small risk of serious side effects. We’ve ordered some 50 million doses from CSL, which is apparently making about a million doses a week.
That means two doses for 1.6 million South Pacific islanders is just over three weeks’ production. So, let’s turn our own goal to the advantage of our Pacific neighbours. Like me, they can be vaccinated ahead of people waiting on slower offshore vaccine production.
An emergency mass vaccination program was delivered in 2019 by Australia and New Zealand in Samoa—for measles, not Covid. We have the experience and capability to do this fast. Either we do so, or we leave South Pacific states waiting for COVAX to deliver and living with risk, or turning to costly, less-well-documented vaccines from China and Russia. Let’s not let that happen.
The second key agenda item is Pacific media content, and funding and access to it.
The Pacific information environment is in a state of disruption and change, with some new actors, including Chinese state media, growing in influence. As with their broader economies, Pacific media outfits have taken a financial hammering from the pandemic. That’s compounded existing challenges from the rise of digital media and the migration of advertising revenue.
ASPI’s written about the need for Australia to get back into the game in South Pacific media through funding co-created content by Australian and South Pacific journalists using radio, TV and digital platforms. So far, Australia’s failed to do this, with the Department of Foreign Affairs and Trade’s soft-power review folding and no money in the budget for anything along these lines. It’s a missing step in the prime minister’s step-up.
New Zealand is well ahead of Australia here, with a vibrant Pacific Media Network that’s bringing Pacific voices into New Zealand while providing quality New Zealand news across the Pacific. There’s room for Australia to magnify this good work and bring more diverse voices and content into the Pacific, and into our own domestic debates.
As with vaccines, nature abhors a vacuum, so if Australia fails to step up here, the rising tide of Chinese state media content and assistance to struggling national and independent news outfits in Pacific states will reshape the information environment in ways that won’t work well for our neighbours or for us.
The third agenda item should seek ways to reverse our big banks’ shrinking presence in the Pacific. Late last year, Westpac sold its extensive bank operations in PNG and Fiji, having already left smaller Pacific states. ANZ has also decided to sell its retail operations in PNG.
As my colleague, Anthony Bergin, wrote with Jeff Wall back in January, ‘the departure of Westpac and the scaling back of ANZ leave a gaping hole in Australia’s presence at a critical time’. These banks have provided important support for Australian and New Zealand businesses in the South Pacific and their retail presence is a key element of deepening economic relations at the population level.
Nothing happens without finance so, as with media, banking presence is vital if Australia’s step-up and New Zealand’s ‘reset’ are to succeed.
That brings us to the topic that has dominated commentary leading up to the meeting: China policy.
There’s no doubt that current New Zealand policy settings and public diplomacy look outdated to deal with Xi Jinping’s China. They’re very much the policy settings Australia and others had on China before Xi—mutual economic engagement as the huge limb to the relationship, with security and strategic-interest differences in the background.
But the assertive and coercive China that New Zealand and many other nations are experiencing now is a different beast to the ‘responsible stakeholder’ many hoped China might become in the 2010s.
Quiet backroom diplomacy on issues like mass-scale human-rights abuses or coercive trade actions, combined with a reluctance to be seen to part of growing international approaches to manage China’s aggression is not sustainable policy given New Zealand’s interests and values.
That approach fitted that earlier time and will almost certainly not work other than as a way to go through the motions on policy differences while avoiding trouble.
There’s also the prospect that New Zealand clearly distinguishing itself on China policy from like-minded partners—the other four democracies in the Five Eyes intelligence partnership come to mind—won’t create space for it. Instead, it will bring more pressure and attention from Beijing as it seeks to widen the gap between New Zealand and its closest security partners. Splitting opposition and reducing cohesion is a well-worn path of the Chinese Communist Party.
But NZ leaders and agencies are well aware of these issues and risks. They don’t need a visiting Australian prime minister to tell them that it’s smart to start diversifying their economy away from the mainline dependency that New Zealand, Australia and many other nations blindly created as we rushed towards the riches of the China market.
New Zealand will experience the China challenge as multiple other nations are beginning to. The arc of New Zealand’s policy will converge with that we see in the G7, the European Commission and the series of Quad and two-nation leader-level meetings over just this first half of 2021.
So, expectations of fireworks and angst in Queenstown are misplaced. We should instead measure the meeting’s success by its shared, urgent agenda—focused on the wellbeing, prosperity and security of Australia, New Zealand and our Pacific family.