Tag Archive for: China

Bandits on the Silk Road? Implications of Eurasian cooperation

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China’s Belt and Road Initiative (BRI) has been hailed as the world’s most ambitious development proposal, costing an estimated US$1 trillion. The BRI promises new railways, roads, ports, energy systems and telecommunications networks across Eurasia; Chinese officials have said that it’ll provide ‘excellent opportunities for countries to improve their network infrastructure with Chinese investment’. One of those opportunities, the Silk Road Economic Belt (SREB), involves constructing state-of-the-art trade and network infrastructure linking China, Iran and Russia—and possibly North Korea, following its surprise invitation to the Belt and Road Summit in May 2017.

Australia has been hesitant to join the BRI and to support increased interconnectivity between Russia, China, Iran and potentially North Korea—an implicit outcome of the SREB. Those four countries are among the world’s most aggressive cyber states, and each has executed advanced cyberattacks against Western targets. They’re also home to some of the world’s largest armies, and three of them maintain nuclear weapons. A coalition comprising these four countries could change the geopolitics of Eurasia and challenge the existing global order.

In the Worldwide threat assessment of the US intelligence community, Director of National Intelligence Daniel R. Coats specifically addresses each of these countries and summarises their aggressive posturing. Russia and China, empowered by their nuclear capabilities, have undertaken bold geopolitical expansions into Ukraine and the South China Sea; North Korea is realising its nuclear ambitions despite mounting international sanctions; and Iran has opted to avoid sanctions but remains nuclear latent under the Joint Comprehensive Plan of Action.

In the cyber sphere, we’ve seen Russian interference in the 2016 US presidential election, Chinese hacking of UK firms in 2017, Iranian hacking of US banks in 2016 and, most recently, the theft of South Korean military plans by North Korea.

In November 2016, China and Iran signed a military cooperation agreement and committed to joint military exercises. Trade between the two countries increased by 31% in the first half of 2017: ‘China is not only Iran’s biggest trade partner now but also one of the major investors in our country’, the Iranian ambassador to China told the media. China–Russia trade has enjoyed similar growth. And last July, President Xi Jinping said that bilateral relations with Russia ‘are now the best ever’ as he released three joint statements with President Vladimir Putin. Perhaps more disquieting was the content of those statements, which reflect ideological consensus and forecast increased military and security cooperation across Eurasia.

The growth in Chinese trade with Russia and Iran was greater than the average growth in Chinese trade with countries along the BRI routes, which increased by only 23% over the same period. An economically interconnected Eurasia is conducive to cooperation more generally, but the special emphasis China places on Iran and Russia could precipitate the formation of a coalition of Eurasian powers. That may extend to North Korea, which might gain indirect access to the SREB in exchange for denuclearisation.

The temperament and capability of such a coalition should worry Western onlookers. Each of the four states possesses advanced cyber warfare capabilities, restrained by no perceptible rules of engagement. Data fusion among these countries would rival the information-gathering capabilities we thought unique to our own Five Eyes intelligence-sharing alliance (the US, the UK, Australia, Canada and New Zealand)—albeit built on espionage, political and economic interference, and commercial theft. The global threat posed by this coalition, mutually emboldened, would be far greater than the sum of its parts.

This is possibly one worst-case scenario that the Australian government is grappling with, but it seems the British haven’t been so cautious. At the first Global Sichuan Entrepreneurs conference on the BRI in September 2017, I heard members of British industry express their unreserved support for the initiative during presentations from Chinese and Russian diplomats. The general consensus appears to be that partnering with China will ease Britain’s economic withdrawal from the European Union, while helping China transition into a more sustainable economy for the long term.

Western countries shouldn’t prioritise short-term gains over long-term uncertainty. Their ability to identify and suppress undesirable military and security cooperation in Eurasia will prove critical to the sustainability of such an investment. Australia would be unwise to follow Britain’s lead without safeguarding its long-term interests and understanding the full implications of the BRI.

The joys of Asia’s economic miracle

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For the past 50 years in Asia, the economists have consistently beaten the strategists in the crystal ball stakes. Over those decades, you’d have done better going to an economist rather than a strategist to predict Asia’s future.

The economist versus strategist proposition upends the cliché that economists are the gloomy profession. Compared to the defenceniks, the econ-nerds are radiant optimists, putting their faith in the market’s invisible hand and in all of us as rational actors.

Strategists dream up the worst possible scenario, then spend billions to defend against it, based on a simple proposition: if only one low-probability, high-impact nightmares arrives, it’ll ruin your whole day—or decade, or country.

While strategists are happy to have their dark projections proved wrong, economists are never mistaken—they merely rejig the model, refine the theory and demand better statistics.

Over the past 50 years, the economists have got it right in calling Asia’s miracle, while the strategists have been confounded at how the dream keeps delivering.

In The Strategist, these be fighting words. As this journalist is neither economist nor strategist (and, of course, some of my best friends are … etc.), I’ll go quickly to the standard hack defence: consider the facts.

When it comes to facts, my thoughts on Asia’s amazing run are shaped by an economist who has been a trusted guide for decades, Dr Peter McCawley. He has just published a history of 50 years of the Asian Development Bank (ADB), Banking on the future of Asia and the Pacific (download here).

When I sat down with Peter to get my signed copy, the conversation turned to one of his recurring optimistic themes: Asia’s economic rocket is still in the early boost stage, with many more golden decades to go. As McCawley commented: ‘It’s a dazzling story. We’re just at the start. Asia’s economic miracle can run for another 50 years.’

 McCawley points to electricity consumption as just one measure of the distance Asia still has to go. In Australia, annual electricity consumption is around 10,000 kWh per person, and in the US it’s 13,000 kWh per person. In India, Indonesia and the Philippines, the figure is about 800 kWh per person.

Asia is still relatively underdeveloped, McCawley says, and there’s a lot of upside to come: ‘They’ve tasted prosperity, and they like it—cars, bigger houses, mobile phones, international travel. The Asian boom will bring lots of troubles, it’s true—more pollution, for example—but the boom will go on nevertheless. Asians are sick of being poor.’

In the book’s conclusion, McCawley cites ADB thinking on what the Asian century could look like by 2050:

If growth in Asia follows recent trajectories, average per capita income could rise sixfold (in purchasing power parity terms) by 2050. In this scenario, the Asian share of global gross domestic product will rise rapidly, from around 28% in 2010 to over 50% in 2050. It is a reasonable assumption that, with half of the world population in Asia, the region will regain the dominant economic position it held before the Industrial Revolution.

The description of the golden future is followed by a quick nod to the strategists’ nightmare: ‘Asia’s rise is not preordained.’ Along with the usual econ-nerd prescriptions about macroeconomic management, infrastructure, health and education, plus open trade and investment regimes, there’s a don’t-stuff-it-up injunction: ‘Hard-won gains in growth and poverty reduction can be quickly lost if there is instability or conflict.’

Asia is already into a huge investment boom. McCawley comments that Asia’s levels of capital accumulation are low; the capital-per-person figure is only 10% of that in the US. The emerging power in rounding up multilateral capital is China.

In 2015, China created two new institutions for financing infrastructure:

  • the Asian Infrastructure Investment Bank (AIIB), headquartered in Beijing
  • the New Development Bank, headquartered in Shanghai and created by Brazil, China, India, Russia and South Africa.

McCawley’s book points to a possible division of labour between China’s AIIB and the Asian Development Bank:

AIIB would focus on infrastructure investment and stay away from concessional operations, social sector, policy-based lending, and research work, and … AIIB would aim at being a leaner institution without a resident Board. Because of these different characteristics, there would be more scope to cooperate and complement each other.

McCawley told me that Asia’s ravenous appetite for capital means there’s no need for a fight between the AIIB and ADB: ‘I don’t think there’s a problem. People are saying there’s rivalry, but both of them are relatively small banks. Even the World Bank is a small bank in banking terms. There’s room for another 10 AIIBs or ADBs in Asia.’

The difficulty for China in building Asia’s future, he suggests, is more about culture than cash. Chinese bureaucrats in Asia, McCawley says, ‘often don’t do negotiation very well—they’re not used to dealing with landowners, for instance’. The Chinese government model of seizing any land wanted for development can’t be exported: ‘It’s a big cultural problem. They’re used to doing things in China and this will work nowhere else in Asia.’

A China confronted by culture clash, McCawley suggests, can take some quiet lessons from the 50-year experience of the ADB, especially some habits of mind that Japanese leadership has built into regional development.

McCawley says the ADB is an important example of Asian regionalism:

This bank is interesting because it’s one of the most successful Asian regional organisations. If we’re interested in regionalism, what are the elements of success in this? Why has it worked? I think one of the reasons it’s worked is it’s not Anglo-Saxon. It’s an Asian institution. They have learned to compromise. They know how to go slow. And the Japanese are good at compromise when they want to—they’ll live with India and China.

May the economists continue to call it right.

China’s creditor imperialism

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This month, Sri Lanka, unable to pay the onerous debt to China it has accumulated, formally handed over its strategically located Hambantota port to the Asian giant. It was a major acquisition for China’s Belt and Road Initiative (BRI)—which President Xi Jinping calls the ‘project of the century’—and proof of just how effective China’s debt-trap diplomacy can be.

Unlike International Monetary Fund and World Bank lending, Chinese loans are collateralised by strategically important natural assets with high long-term value (even if they lack short-term commercial viability). Hambantota, for example, straddles Indian Ocean trade routes linking Europe, Africa and the Middle East to Asia. In exchange for financing and building the infrastructure that poorer countries need, China demands favourable access to their natural assets, from mineral resources to ports.

Moreover, as Sri Lanka’s experience starkly illustrates, Chinese financing can shackle its ‘partner’ countries. Rather than offering grants or concessionary loans, China provides huge project-related loans at market-based rates, without transparency, much less environmental- or social-impact assessments. As US Secretary of State Rex Tillerson put it recently, with the BRI, China is aiming to define ‘its own rules and norms’.

To strengthen its position further, China has encouraged its companies to bid for outright purchase of strategic ports, where possible. The Mediterranean port of Piraeus, which a Chinese firm acquired for US$436 million from cash-strapped Greece last year, will serve as the BRI’s ‘dragon head’ in Europe.

By wielding its financial clout in this manner, China seeks to kill two birds with one stone. First, it wants to address overcapacity at home by boosting exports. And, second, it hopes to advance its strategic interests, including expanding its diplomatic influence, securing natural resources, promoting the international use of its currency, and gaining a relative advantage over other powers.

China’s predatory approach—and its gloating over securing Hambantota—is ironic, to say the least. In its relationships with smaller countries like Sri Lanka, China is replicating the practices used against it in the European-colonial period, which began with the 1839–1860 Opium Wars and ended with the 1949 communist takeover—a period that China bitterly refers to as its ‘century of humiliation’.

China portrayed the 1997 restoration of its sovereignty over Hong Kong, following more than a century of British administration, as righting a historic injustice. Yet, as Hambantota shows, China is now establishing its own Hong Kong–style neocolonial arrangements. Apparently Xi’s promise of the ‘great rejuvenation of the Chinese nation’ is inextricable from the erosion of smaller states’ sovereignty.

Just as European imperial powers employed gunboat diplomacy to open new markets and colonial outposts, China uses sovereign debt to bend other states to its will, without having to fire a single shot. Like the opium the British exported to China, the easy loans China offers are addictive. And, because China chooses its projects according to their long-term strategic value, they may yield short-term returns that are insufficient for countries to repay their debts. This gives China added leverage, which it can use, say, to force borrowers to swap debt for equity, thereby expanding China’s global footprint by trapping a growing number of countries in debt servitude.

Even the terms of the 99-year Hambantota port lease echo those used to force China to lease its own ports to Western colonial powers. Britain leased the New Territories from China for 99 years in 1898, causing Hong Kong’s landmass to expand by 90%. Yet the 99-year term was fixed merely to help China’s ethnic-Manchu Qing Dynasty save face; the reality was that all acquisitions were believed to be permanent.

Now, China is applying the imperial 99-year lease concept in distant lands. China’s lease agreement over Hambantota, concluded this summer, included a promise that China would shave US$1.1 billion off Sri Lanka’s debt. In 2015, a Chinese firm took out a 99-year lease on Australia’s deep-water port of Darwin—home to more than 1,000 US Marines—for US$388 million.

Similarly, after lending billions of dollars to heavily indebted Djibouti, China established its first overseas military base this year in that tiny but strategic state, just a few miles from a US naval base—the only permanent American military facility in Africa. Trapped in a debt crisis, Djibouti had no choice but to lease land to China for US$20 million per year. China has also used its leverage over Turkmenistan to secure natural gas by pipeline largely on Chinese terms.

Several other countries, from Argentina to Namibia to Laos, have been ensnared in a Chinese debt trap, forcing them to confront agonizing choices in order to stave off default. Kenya’s crushing debt to China now threatens to turn its busy port of Mombasa—the gateway to East Africa—into another Hambantota.

These experiences should serve as a warning that the BRI is essentially an imperial project that aims to bring to fruition the mythical Middle Kingdom. States caught in debt bondage to China risk losing both their most valuable natural assets and their very sovereignty. The new imperial giant’s velvet glove cloaks an iron fist—one with the strength to squeeze the vitality out of smaller countries.

Old Dobell’s almanac

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As 2017 limps out and 2018 edges in, here’s Old Dobell’s almanac of the times, trends and twists of history.

Trump-eting: The US system is working, but it’s been a stress test from hell. America’s system will stand, but America’s international standing will suffer huge damage. The Donald breaks with 70 years of US history in Asia.

Accept his inauguration speech as a true statement of intent, based on Trumpian instincts:

  • America first—the line from the inauguration that’ll be remembered is ‘the American carnage stops right here’
  • protectionist and mercantilist—the global economy is a zero-sum version of the Hunger Games
  • alliance rejectionist—America wastes trillions to defend others
  • values—deals, not democracy. Strongmen and dictators, apply here.

My tip: he’ll get re-elected. We’ve got seven more years, unless Trumps gives himself a heart attack from too much dessert. Dating the superpower presidency from FDR, history says America re-elects its presidents.

Forget impeachment. The Republican Party has more to fear from the base than from Trump. A Republican Congress isn’t going to impeach its own voters.

America’s recovery is in its ninth year. The economy hums. Unemployment is 4%. Median earnings are rising and economists predict a ‘new golden age’ for American workers.

China chomps: The Oz foreign policy white paper got it into one sentence in its third paragraph: ‘Today, China is challenging America’s position.’ Even fiendishly complex trends and twists can be simply stated.

Next year, Trump will have to choose his Asia war. He can have trade war with China. Or he can do cold war with North Korea, with China’s acquiescence.

China trade war or Korea cold war: he can’t have both.

Some almanac cheer: The cold war with the Soviet Union was an ideological contest—a European religious war, largely fought in Asia. Today there’s zero ideology between China and America; this is just dollars and power. Donald the deal-maker suits China, and Xi Jinping plays him well.

More cheer: China isn’t a revisionist power like the Soviet Union. China is a status quo tidal power. Beijing loves the status quo. And Beijing knows the tide is moving its way. It wants more of both, on terms that serve the elite (aka the Communist Party) and service a quiescent people.

The nature of Oz: Australia is now a Eurasian country. As George Megalogenis records in the new Australian Foreign Affairs, this is an epic transformation, from Anglo-European to Eurasian.

The shift has gone into hyperdrive this century, fuelled (and peopled) by migration from China and India. Two and a half million of our population were born in Asia. The 2016 census says the languages spoken at home in Oz are, in order, English, Mandarin, Arabic, Cantonese and Vietnamese. Hindi and Tagalog are just outside in the top 10. Country of birth for Australians: China is number four, India number five.

Q: What will history mark as the biggest single change John Howard made to Australia?

A: Migration.

The scale and content of migration since 2001—emphasising skills, lifting numbers—remade the face of Australia. Howard created a Eurasian country in double-quick time. The man who said we didn’t need to choose between history and geography has shifted our history by embracing our geography. The law of unintended consequences has a wicked sense of humour.

Date the Eurasia project from 1972, the point Howard uses in his memoirs for the shift from excluding Asia to engagement. The early decades of the project involved openings, collaboration and what Bob Hawke called enmeshment.

The new stage—as we comprehend our Eurasian achievement—is Australia being changed by Asia. Such internal forces alter a nation’s foreign policy.

Oz–Eurasian foreign policy: Canberra’s international approach mixes Western language, US alliance and ASEAN flavour. We’re louder than ASEAN, but our positions increasingly match.

Australia does the ASEAN dance on Myanmar and the Rohingya crisis, on dealing with a murderous president in the Philippines and, as ever, on the central place of Indonesia in our future and our neighbourhood. Oz policy on the South China Sea is ASEAN’s policy with the volume turned up.

We share ASEAN’s dreams and nightmares on China. Like ASEAN, China is a presence in our people as well as in our policy. Ask Sam Dastyari or Andrew Robb how that works.

In March, the first Australia–ASEAN summit on Australian soil happens in Sydney. The foreign policy white paper is almost lyrical, as it should be:

Southeast Asia frames Australia’s northern approaches and is of profound significance for our future. ASEAN’s success has helped support regional security and prosperity for 50 years … Southeast Asia is the nexus of strategic competition, testing the region’s cohesion and ASEAN’s central role.

This almanac proclaims the Sydney summit the start of the march to Australian membership of ASEAN in 2024, the 50th anniversary of Australia becoming ASEAN’s first dialogue partner.

Uncertain era: The tyranny of the present reigns if we moan about uniquely uncertain times. Such anguish says more about Canberra than it does about the state of the world. We’ve lived through vastly more dangerous eras. Australia’s conceptual framework is being shaken, our long-term relative decline as a power and an economy in Asia proceeds as it has for decades, and the new fear is our feckless great and powerful friend. The simple response to the hand-wringing is that we’re born to uncertainty and live it all our days.

The wonderful Simon Leys, in his collection of bon mots, offers these:

Pedro Calderon: ‘The worst is not always certain.’

Nietzsche: ‘It’s certainty, not doubt, that causes madness.’

Let us fret less. And head to Christmas intoning a thought attributed to Benjamin Franklin: ‘Beer, beer, beer … beer is proof that God loves us and wants us to be happy.’

Xi unbound

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China has defied expectations yet again. President Xi Jinping, the chief of the Chinese Communist Party, was widely expected to face his toughest test so far in October, when the CCP convened its 19th National Congress to choose its next leadership. Though Xi was guaranteed a second five-year term, it was thought that he would run into serious opposition if he refused to appoint a successor. But he did just that—and the opposition never materialised.

The reason is simple: Xi was prepared. Since taking office in 2012, he has carried out a sustained crackdown on civil society, unleashing a wave of repression few thought would be possible in post-Mao China. He also pursued a large-scale anti-corruption campaign, which constrained and even eliminated potential political rivals, thereby enabling him to consolidate his power swiftly.

Early this year, when Chinese security agents abducted Xiao Jianhua, a China-born Hong Kong–based billionaire, to serve as a potential witness against senior leaders, any remaining resistance to Xi’s push for greater authority was decimated. Nonetheless, to strengthen his position further in the run-up to the congress, a sitting Politburo member who was viewed as a possible successor was abruptly arrested on corruption charges in July.

When the congress finally arrived, Xi capitalised on this momentum to install two of his allies in the Politburo Standing Committee, the party’s top decision-making body. And, by preventing the CCP from designating a successor, he has opened the door to a third term in 2022.

Judging by any conventional measure, Xi has thus emerged from 2017 more powerful than ever. The question now is whether he can use that power to translate his vision for China—particularly for its economy—into reality.

On this front, Xi made important progress in his first term, single-handedly corralling the Chinese bureaucracy to implement his ambitious but risky ‘Belt and Road Initiative’ (BRI). That plan entails the use of Chinese financing, materials and expertise to build infrastructure linking countries throughout Asia, Africa and Europe to the global economic juggernaut that China has become.

But, even with his significantly augmented power, Xi’s continued success in implementing his economic vision is uncertain, at best, owing precisely to the ideological indoctrination and repression that underpin his authority. Despite the propaganda blitz lauding his vision for China, it is doubtful that many Chinese, including CCP members, really believe that their country’s future lies in a centralised, fear-based authoritarian regime.

In fact, while overt resistance to Xi’s vision is difficult to find—it is, after all, exceedingly dangerous nowadays—passive resistance is pervasive. And Xi’s toughest opponents are not members of China’s tiny dissident community, but rather the party bureaucrats who have borne the brunt of his anti-corruption drive, not just losing considerable illicit income and advantages, but also being subjected to unrelenting dread of politicised investigations.

Unless Xi can regain the support of the party’s mid- and lower-level officials, his plan to remake China could fizzle out. After all, however powerful he might be, he cannot escape the reality captured by the ancient Chinese adage, ‘Mountains are high and the emperor is far away.’ And, without the promise of sufficient material reward, China’s apparatchiks may subscribe to the logic that prevailed among citizens of the former Soviet bloc countries: ‘We pretend to work, and they pretend to pay us.’

Beyond a recalcitrant bureaucracy, Xi might confront a serious challenge from the so-called Youth League faction of the CCP, affiliated with former president Hu Jintao. With two seats on the new seven-member Politburo Standing Committee being held by protégés of Hu, a power struggle between the Youth League and Xi’s faction cannot be ruled out.

Of course, it is possible that Xi can overcome resistance from the Youth League. After all, he has already largely vanquished the faction connected to former president Jiang Zemin, which previously constituted the most powerful rival group within the CCP. But even if Xi subdues the Youth League, he will be left with a regime that is more fractured and dispirited.

Xi also faces significant policy challenges. On the economic front, he will have to contend with soaring debts and overcapacity, which, together with a shift towards protectionism in President Donald Trump’s America, could depress growth further. In foreign policy, too, Xi will confront a deteriorating relationship with the United States, fueled by the intensifying North Korean nuclear threat and China’s own aggressive behavior in the South China Sea.

The new conventional wisdom is that Xi will be able to steamroll his colleagues in 2022, regardless of his performance in the coming five years. This might be true. But political authority is ephemeral, especially for leaders who lack a solid economic track record. For now, Xi and his supporters have reason to celebrate. But they should not count on raising their glasses in five years.

The Trumping of Asia

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In the last year, the single most pointless wound inflicted by the US on Asia, not to mention itself, was its abandonment of the Trans-Pacific Partnership. In one fell swoop, the once great free-trading nation that was the United States of America died, leaving the global trading system utterly rudderless.

With America’s spurning of the TPP, not only was progress towards further trade liberalisation reversed; the global free-trade system itself, including its common rules and arbitration mechanisms for resolving disputes, came into question.

You don’t have to be a Marxist to understand that economics has a profound and probably even decisive impact on politics, both national and international. And, indeed, the geopolitical and geoeconomic implications of US President Donald Trump’s move are just beginning to be felt across the Pacific.

With China’s economic footprint across the Asia–Pacific region already large, countries in the region are now increasingly concluding that the US is consigning itself to growing economic irrelevance in Asia. US financial institutions will, of course, remain important, as will Silicon Valley, as a source of extraordinary innovation. But the pattern of trade, the direction of investment, and, increasingly, the nature of intra-regional capital flows, are painting a vastly different picture for the future than the one that has dominated post-war Asia.

The abandonment of the TPP—a key campaign promise that Trump fulfilled almost immediately upon taking office—reflects the collective failure on the part of the American political class in the 2016 presidential election. Continuing that failure, America’s leadership has not followed up on the decision with much of anything.

At home, the Trump administration has engaged in much chest-thumping about ‘America First’. Abroad, it has begun to tout an ill-defined concept of ‘a free and open Indo-Pacific’, which displays all the hallmarks of a slogan in search of substance. What economic reality will hang beneath this shingle, we know not. If the idea is a series of individual bilateral free-trade agreements, any seasoned observer of US trade diplomacy can tell you that we are looking at a decade’s worth of negotiations that, ultimately, will probably yield very little.

For their part, Asia–Pacific countries have begun to look to two unlikely sources for leadership on trade liberalisation: Japan and China.

Japan has sought to pull the TPP’s remains out of the ashes by creating the TPP 11, which includes all of the original negotiating states, except the US, which would be permitted to rejoin later. The core tenets of this agreement were signed, despite reservations from Canada, at the November Asia–Pacific Economic Cooperation (APEC) summit in Da Nang, Vietnam (a meeting that Trump himself also attended), highlighting Asia–Pacific countries’ view that they are no longer chained to US leadership. The so-called Comprehensive and Progressive Trans-Pacific Partnership represents a significant advance in terms of trade and investment liberalisation across the 11 signatory countries. As for the US, we can only hope that a future administration, whether Republican or Democrat, will see its way clear to acceding to an agreement that Japanese economic leadership has sought to keep alive. But, given the evidence, that may be farfetched.

The other surprising source of trade leadership in the Asia–Pacific region is China. Some years ago, the country began championing a Regional Comprehensive Economic Partnership (RCEP). While this will not represent a high-ambition arrangement, it will represent some advancement from the status quo. It embraces 16 states, including China, India, Japan and South Korea, but excludes the US.

India, the third-largest economy in Asia, could also have a critical role to play in furthering pan-regional trade liberalisation. But Prime Minister Narendra Modi’s government has yet to direct its political capital towards becoming a member of APEC, let alone advance a trade-liberalisation agenda of its own. This needs to change, but the forces of mercantilism are alive and well in Delhi.

The net result of these developments, with the US having eschewed both the TPP and RCEP, has been a further diminution of American power in the Asia–Pacific region. In fact, the US is increasingly emerging as an incomplete superpower. It remains a formidable military actor, with unique power-projection capabilities that extend far beyond its aircraft carrier battle groups to include an array of other capabilities that are as yet unmatched by other countries in the Asia–Pacific region. But its relevance to the region’s future—in terms of employment, trade and investment growth, as well as sustainable development—is declining fast.

Some in Washington DC seem to think that the US can sustain this pattern for decades to come. But many of us are skeptical. Unless and until the US chooses comprehensive economic re-engagement with the region, its significance to the overall future of Asia, the world’s most economically dynamic region, will continue to fade.

Precisely how other regional powers—China, Japan, India and South Korea (Asia’s four leading economies)—will respond to this decline remains to be seen. But the truth confronting those who observe the region closely is that Southeast Asia has already begun to move meaningfully towards China’s strategic orbit.

Ultimately, the policies of an administration committed to putting America first are likely, in Asia at least, to result in America being put last.

Charting Australia’s course in an increasingly illiberal world

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Foreign policy white papers are strange creatures. As the past 14 years amply demonstrate, they’re not necessary for the conduct of effective foreign policy. They are expensive and they expend diplomatic capital by signalling policy positions that might otherwise be carefully obscured. And they can become obsolete with frightening rapidity.  In some respects, they are something of an indulgence.

Over the past half-decade, it has become clear that the international order is undergoing a number of significant convulsions. While the consequences will remain uncertain for some time, they present the most significant challenges Australia has faced since 1945. Yet there has been little public debate about the profound nature of these challenges, how we should manage them, and the costs that might be imposed on us in meeting them. The 2017 foreign policy white paper has begun what should be a wide-ranging public debate about Australia’s future.

The paper’s unequivocal advocacy for liberalism—at home and abroad—is extremely welcome. It’s important that a country like Australia nail its colours to the mast at a time when liberal ideas face significant headwinds. That the values at the centre of Australian society are also at the heart of the country’s international engagement is encouraging intellectually and politically.

The paper makes clear that the main purpose of Australian foreign policy over the coming years is to defend the economic and strategic status quo in the region. By this I mean an open and broadly liberal international economic order, a strategic balance favourable to Australia’s interests, and a set of rules and institutions that guides the behaviour of states.

The principal threat the status quo faces comes from the changing distribution of power represented most acutely by China’s revival, but also by the growth of India, Indonesia and other large emerging powers. None of those countries can be depended on alone or collectively to sustain a liberal order. Indeed, some appear to want to change at least some aspects of that order.

The other challenge comes from doubts about America’s capacity and will to play the kind of role it has in the past. The US will continue to be a large economy and considerable military power. But the election of Donald Trump showed allies and friends that Washington couldn’t be depended on to think about its stake in the international order in the same way forever. While Trump will eventually leave the White House, the forces that brought him to office aren’t going away. Moreover, the turn against an expansive global role for the US began more than a decade ago and shows no sign of abating.

Australia’s aim is to have strong relationships with both China and the US. Canberra will aim to coax Beijing into seeing the benefits of the status quo, while it will encourage Washington as much as possible to play a leadership role in Asia. But, ultimately, Australia’s foreign policy will be shaped most profoundly by the extent to which the US and China contest one another’s regional role. And here our capacity to influence events will be marginal.

The bigger question isn’t how the US manages its regional role but what China wants from Asia—and indeed the world. The ambition on display at the 19th Party Congress wasn’t especially comforting, although efforts by Xi Jinping at APEC to present China as a defender of economic openness should provide some slivers of comfort if those words can be taken at face value.

Few doubt that China will contest American influence in the region, but how much and at what cost is far from clear. It has already begun to create regional institutions to advance those interests, principally in its Western periphery. But one shouldn’t assume that its ambition will remain only on the Eurasian Steppes. The paper is fairly quiet about what Australia should do in relation to China, except for the slightly jolting statement on page 27 that Canberra will need to do more to shape a favourable strategic balance.

The paper emphasises the importance of developing partnerships with liberally inclined countries so that we share the burden of supporting the status quo—with the focus on South Korea, India, Japan and Indonesia. These are important and necessary steps to buttress an order under strain. But if the US continues to walk away from liberal internationalism, the five ‘Indo-Pacific democracies’—even if they could align their interests and significantly ramp up their military capabilities—might not fill the considerable gap that would be left.

The paper grapples with the big issues confronting Australia, but it can’t dismiss the reality that we remain dependent on the US, an ally that has become increasingly unreliable. That dependence has less to do with the bilateral security guarantee than the load-bearing role the US has played in maintaining a liberal, rules-based economic order and a stable and beneficial strategic balance.

As Washington wobbles and authoritarian powers rise, the world has become a more challenging place for liberalism. The paper does well to illustrate the nature of the challenges Australia faces and the need to take significant steps to sustain the status quo. But it doesn’t fully acknowledge how hard the defence of that order will be.

Pakistan’s release of LeT head: bad idea, wrong signals

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The decision to release Hafez Muhammad Saeed—the founder and leader of Lashkar-e-Taiba (LeT), a US- and UN-designated terrorist organisation—by a court in Lahore last week will be poorly received by Pakistan’s external interlocutors, particularly India and the US, but also China.

India has accused Saeed of being the mastermind behind the Mumbai terror attack in November 2008 that killed 166 people. His release will certainly do nothing to ease Pakistan–Indian bilateral relations. If anything, it will aggravate an already difficult situation, especially following the recent unveiling of President Donald Trump’s much-heralded new South Asia policy.

The Pakistan government had argued that Saeed’s nine-month house arrest should be extended again because he remained a threat to public safety and his release would attract financial sanctions against the country and lead to a halt in foreign funding for Pakistan’s failure to move against terrorism financing. The court rejected the government’s argument on the grounds of insufficient evidence.

The Indian government was ‘outraged’ by the decision. The foreign ministry stated that Saeed’s release was an attempt by ‘the Pakistani system to mainstream proscribed terrorists’. Privately, Delhi probably wasn’t too surprised. Saeed had been arrested several times on criminal and terrorism charges since the 2008 Mumbai attack, but each time his house arrest had been lifted. Delhi has repeatedly demanded that Saeed be handed over for trial in India.

Washington wouldn’t have been pleased either, though American annoyance will probably be limited. In the lead-up to Saeed’s release, the US State Department had expressed its displeasure. But since then the White House has been very quiet. While the Thanksgiving long weekend may have something to do with it, I suspect it’s mainly because the Trump administration wants to ease back on its anti-Pakistan rhetoric.

In his speech in August in which he revealed his South Asian policy, Trump didn’t beat around the bush in effectively saying that Pakistan was playing both sides when it came to counterterrorism. He demanded that Pakistan stop this immediately and ‘demonstrate its commitment to civilization, order, and to peace’. Trump also encouraged a greater role for India in Afghanistan, asking it to help the US more. That would have been like a red rag to a bull. And, indeed, Islamabad went ballistic—quite understandably so.

The White House heard Pakistan’s reaction loud and clear. Importantly, the Trump administration knows that Pakistan is a critical and essential player in trying to find a peaceful solution to Afghanistan. Washington simply can’t afford to alienate Islamabad. However, the administration also knows that its leverage over Pakistan is very limited. So it went into damage control, deciding that the Afghan angle of its South Asian policy was more important than the Indian one. Or, put differently, the White House decided that perhaps it had gone too far in its pro-India rhetoric.

So, while the LeT has been classified as a foreign terrorist organisation by the US government since 2014 and there’s a US State Department offer of US$10 million for information leading to Saeed’s arrest, the White House appears to have decided to downplay these issues. For example, when the US shared its list of known terrorists with Pakistan during Secretary of State Rex Tillerson’s visit in October, Saeed wasn’t on it.

But most importantly, the Department of Defense put a lot of pressure on key congressional committees to drop a provision linking financial aid to Pakistan with Islamabad taking action against the LeT. That was the first time the Senate had included the LeT—along with the Haqqani Network—as a condition for Pakistan to receive US$350 million in coalition support for its role in the war in Afghanistan. So not including the LeT was a significant victory for Pakistan.

Further confirming Washington’s desire to patch things up with Islamabad, General John Nicholson, the commander of US and NATO forces in Afghanistan, offered to take action against Taliban fighters involved in cross-border raids from the Afghan side of the border. Pakistan accepted the offer. The timing of Nicholson’s gesture is crucial: US Defense Secretary James Mattis is expected in Islamabad on 3 December to discuss Pakistan’s support for Washington’s new South Asia policy, specifically with regard to Afghanistan. Whether all of those overtures will be enough to put the US–Pakistan relationship back on track is another matter.

China, Pakistan’s closest ally, is the other regional player that won’t be pleased about the release of Saeed. And although Beijing has regularly used its veto at the UN to prevent Saeed from being classified as a terrorist, it knows that his release will create further friction between India and Pakistan. Such a development could threaten the peaceful regional environment that Beijing wants for the implementation of the US$50 billion China–Pakistan Economic Corridor (CPEC) project. China has a lot of prestige invested in CPEC, a cornerstone of its One Belt, One Road grand plan for Asia and beyond. The release of Saeed, a man whose firebrand reputation has been built on wanting to drive Indian forces out of Kashmir, therefore comes at a delicate time, given that some of the CPEC projects will be going through the disputed border region with India.

So all in all, Saeed’s release will complicate Pakistan’s relations with friends and foes in the neighbourhood. And the situation may get worse if Saeed decides to enter politics in the lead-up to the parliamentary elections next year. Saeed is a troublemaker with a strong following who shouldn’t be dismissed lightly. He also knows that he’s virtually untouchable, having been supported by the generals tacitly, if not implicitly, for the past 30 years. And, notwithstanding its statements, the Pakistan Army isn’t about to dump him. His LeT fighters play a too-important role in the never-ending Indo-Pakistan confrontation. So expect more trouble ahead.

Foreign policy white paper 2017: the US isn’t going away

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In The crack-up, F. Scott Fitzgerald wrote: ‘The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time, and still retain the ability to function.’ By that standard, several former Australian politicians, diplomats and China policy experts are geniuses. They make two contradictory observations at exactly the same time.

We are told Donald Trump’s America is retreating from the region. But they also warn that Australia shouldn’t sign up to a US-led containment strategy against Beijing. Which is it? Is Uncle Sam pulling up the drawbridge and locking itself out of Asia? Or is it leading a regional coalition to deter a rising China?

Truth be told, the US isn’t withdrawing from the region. History, economics, geography and demographics make the US an Asia–Pacific power: that’s unlikely to change in the Trump era. A government that has done more than any recent US administration to elicit China’s help in curtailing North Korea’s nuclear program is hardly turning tail and running.

True, Trump’s decision to withdraw from the Trans-Pacific Partnership—an Asian trade deal that most Democrats also oppose—was regrettable. But he has backed away from his election pledge to impose punitive tariffs on China. He has also reaffirmed alliances with Japan, South Korea, Australia and the Philippines while calling for a strong US forward-deployed force presence in Asia. So much for the ‘America first’ message of 2016.

Nor is Washington organising a containment strategy against Beijing. Following its immediate predecessor, the Trump administration has yet to determine whether to treat China as a threat to be deterred or as a power to be accommodated.

A Factiva search of ‘quadrilateral security dialogue’ during the president’s recent 12-day trip in Asia is revealing. From 1 to 15 November, the leading Australian titles (the Australian, Australian Financial Review, Sydney Morning Herald) referred to the democratic group in 17 articles, whereas the major US newspapers (the New York Times, Washington Post, Wall Street Journal) made no mention of the informal four-nation strategic dialogue. None. Granted, ‘the quad’ isn’t really part of Washington’s lexicon. Nonetheless, search ‘Australia’, ‘Japan’, ‘India’ and ‘United States’ in the aforementioned publications during Trump’s marathon tour of the region and you’ll find unbalanced coverage: 38 articles (Australia) versus 12 (US). If the administration is bent on turning the quad into an Asian NATO, someone should inform the Washington press corps.

It is against this background that the federal government’s foreign-policy white paper is best understood. As it happens, the authors reflect doubts about Washington’s staying power; and it’s true that US credibility and confidence have waned during the past 15 years, especially in the Middle East. But they don’t subscribe to Hugh White’s counsel that Australia or our neighbours should prepare for the end of US leadership.

In the past decade, both the Coalition and Labor parties have supported intensified military coordination with Washington. Polls show that the Australian public supports those initiatives.

Our leaders have raised doubts before about US staying power in Asia, only to be proved wrong. When the Nixon administration downgraded the US commitment in Vietnam and called on allies to take more responsibility for their security, Prime Minister John Gorton warned: ‘America is going to be less and less interested in this part of the world.’

As it was then, talk of America’s retreat is exaggerated today. The US will remain the world’s most technologically sophisticated economy and predominant military power for the foreseeable future. Its economy is on the cusp of a new stage of massive digital productivity and more robust growth. And as the global trendsetter in innovation, higher education and energy self-sufficiency, the US has the capacity to retain strategic dominance for decades to come.

As for China, just as Paul Dibb and Richard Brabin-Smith do, the white paper authors raise the prospect of ‘friction arising from our different interests, values, and political and legal systems’. That blunt assessment is a welcome contrast to the Pollyanna Gillard government’s 2012 white paper, Australia in the Asian century. But their insistence that China’s rise will continue unabated may be misplaced.

For all the euphoria about China’s economic initiatives, such as Xi Jinping’s Belt and Road Initiative, the Communist regime faces great demographic, political and environmental challenges. China has separatists in Tibet and Xinjiang. Christianity is growing in China, whereas Communism—the state religion since 1949—is a discredited faith (which is why the Chinese Communist Party is likely to remake itself as an anti-Western nationalist party). And unlike America, China sits in an implacably tough region surrounded by more than a dozen neighbours, few of which are truly friendly towards Beijing. Just think of the territorial disputes with Vietnam, Japan, the Philippines, India and even Russia.

Keep in mind some history, too. In the past century, China has experienced the collapse of a traditional regime, warlordism, civil war, invasion, revolution, a famine that killed millions, mass terror in the form of the Cultural Revolution and dramatic socioeconomic changes that have led to its fair share of creative destruction. A nation with such a history is likely to prioritise maintaining stability and order at home.

The white paper could have made those points more forcefully. Nonetheless, the authors are right to stress Australia’s interest in maintaining the balance between the US alliance and China trade.

The 2017 foreign policy white paper

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Australia’s foreign policy must advance our values and our national interests. It must do so clear-eyed and pragmatic, in a time when the pace and scale of change is unprecedented in all of human history.

The economic forces that have delivered prosperity and opportunity are also generating—because of the rapid rate of change—political uncertainty, military capability and strategic ambition. Political alienation is feeding populism and protectionism and providing opportunities for foreign interference.

We are navigating a rapidly changing multipolar world in which the major players are testing their relationships with each other, while undergoing rapid change themselves. In the past we could safely assume that the world worked in a way that suited Australia. Now power is shifting and the rules and institutions are under challenge.

We are experiencing unprecedented prosperity and opportunity, but the liberal rules-based order that underpins it all is under greater stress than at any time since its creation in the 1940s. This is the first time in our history that our dominant trading partner is not also our dominant security partner. We must see this as an opportunity, not as a risk.

The genius of Australia is that we define our national identity not by race or religion or ethnicity, but rather by a commitment to shared political values and institutions which are accessible to all. Rarer than you might think, if you reflect on that. The success of our multicultural society is the envy of the world, and our people—magnificent in their diversity, harmonious because of our values and the mutual respect which they entail—are our greatest asset.

With over a quarter of us born somewhere else and more than half of us with a foreign-born parent, we demonstrate that an open, diverse and integrated society is not only compatible with security, but indeed a prerequisite. This is a strength that we take to the world as we show our credentials as a regional power with global interests and global influence.

My government’s foreign policy settings are true to our values not because of unconditional altruism, but because they align with our interests. We are pragmatists, not ideologues. Being true to ourselves is a hard-headed investment in a fairer, more stable and prosperous world.

Australia’s vision for our Indo-Pacific region is optimistic and born of ambition. It is for a neighbourhood that is defined by open markets and the free flow of goods, services, capital and ideas; where freedom of navigation goes unchallenged and the rights of small states are untrammelled; where our shared natural bounty, our land and water and air, is cherished and protected and disagreements are resolved by dialogue in accordance with agreed rules and established institutions. The white paper argues that today’s challenges require Australia to take more responsibility for our own prosperity and security.

This does not mean being less vigorous in upholding international law, let alone degrading our Alliance with the United States. It means pursuing our interests just as much in San Francisco as in Shanghai and always on our own terms. Our Alliance with the United States reflects a deep alignment of interests and values, while never being a straitjacket for Australian policymaking. Our friendship and partnership with China enriches our economy and society, while not preventing us from vigorously advancing our own interests.

I have always enjoyed a frank and warm relationship with the leaders of the United States and indeed with the leaders of China, with whom I have now spent many hours in conversation, mostly about economic and security issues, but in the case of Premier Li stretching more recently to Australian Rules Football and its growing following in China. You could not imagine, in fact, modern Australia without our over one million strong Chinese community, any more than you could imagine it without our more than half a million strong and rapidly growing Indian community. We admired, and envied a little, we politicians, the enthusiastic welcomes received by Prime Minister Modi and President Xi and Premier Li during their recent visits.

There is no more important bilateral relationship in the world than that of China and the United States. I have seen firsthand that Presidents Trump and Xi respect and understand each other, both on the issues on which they agree and those on which they differ.

Those who like to focus only on difference or disagreement should reflect how China has gone much further than many imagined, or indeed predicted, in the application of tighter and tighter economic sanctions on North Korea. Indeed the unanimity of leaders at the East Asia Summit recently in Manila in condemning North Korea was genuine and determined.

Equally, China, the United States and Australia have, in different ways, provided vital support to the armed forces of the Philippines in their courageous battle to suppress the ISIL-backed insurgency in the Southern Philippines. Indeed, when I was at a Camp Aguinaldo in Manila recently, the Chief of the Philippines Defence Force, General Guerrero, described our surveillance and other assistance as a ‘game-changer’—his words, not mine, a game-changer—that enabled them to retake Marawi as swiftly as they did. I want to again honour the 165 armed force Philippines servicemen who were killed and the 1,700 wounded in that operation. They were defending all of us in that struggle and today our soldiers are in the Philippines. In fact, I met with them at Camp Aguinaldo, training young soldiers in the Philippines in urban warfare and counter-insurgency.

Personally I remain very confident about America’s long-term commitment to the rules-based system in this region, and the extended visit and presence of President Trump in his North Asian and Southeast Asian tour, attending APEC, ASEAN and the East Asia Summits, underlines this. But it is also, leaving aside one administration or one president, manifestly in America’s long-term national interest today, tomorrow and as it has always been. If I could paraphrase John Howard, ‘Those who celebrate the possibility of American retrenchment should be very careful what they wish for’.

This white paper provides a framework for securing our own future, while sharing the burden of collective leadership with trusted partners and friends. It shows how we are taking a far more active role in shaping the future of our region in five important ways.

First, we are pursuing economic opportunity with our Indo-Pacific partners. We’re preparing the way for our businesses to connect with markets and consumers in those dynamic regional economies. We pursue market integration wherever we can do so, on the basis of strong, transparent rules, fair and open competition, predictable and non-discriminatory regulation. You will have seen that, together with Prime Minister Abe of Japan, we have worked tirelessly to revive the Trans-Pacific Partnership, despite the withdrawal of the United States. We’re pursuing negotiation for a high-quality Regional Comprehensive Economic Partnership, RCEP, a partnership centred in ASEAN that draws in India, China, Japan and Korea, and several other agreements which we hope can build towards a larger free trading system.

The second way we’re shaping our region is by seeking every opportunity to link with partners who share our interests and commitment to rules-based institutions. A good example is when officials of Japan, India, the US and Australia met in the margins of the East Asia Summit in Manila earlier this month. I discussed the importance of this initiative with Prime Minister Modi in Manila at our meeting. Another was my meeting with Prime Minister Phúc in Vietnam earlier this month, where we agreed to work towards signing a strategic partnership.

Third, we are elevating Southeast Asia into a top priority for Australia. Now, that’s why we didn’t hesitate to deploy ADF assets and personnel to the Southern Philippines. But we will need to do more in our region to assist our neighbours in the battle against global Islamist terrorism. Believe me, we do not want to have another Raqqa or Mosul in our region. The front line in the battle against terrorism in this interconnected world is everywhere. Everything is connected. A terrorist in Syria can provide instructions to an agent in Sydney or Melbourne. We’ve seen plenty of evidence of that. We need to be constantly alert, constantly working with our neighbours in the region. Marawi is a place most Australians would not have heard of. If it was pointed out, they would say, ‘It’s a long way away’. Nowhere is far away.

Fourth, our greater commitment to Southeast Asia will be matched in the Pacific. If we’re honest, we’ll acknowledge we’ve not always lived up to our aspirations here, with our immediate neighbours. This white paper will come to be seen as an irreversible and permanent step-up in our commitment. Earlier this month, we announced a significant investment in a new under-sea telecommunications cable, which will bring new opportunities for our neighbours in PNG and, I hope, the Solomon Islands too. It’s part of a broader program to enable our Pacific neighbours to take advantage of the productive power of greater connectivity and to integrate into the Australian and New Zealand economies insofar as they choose to do so. We’ll step up our assistance in monitoring and protecting their vast maritime domains.

These are defining commitments. They’re essential to the long-term resilience and economic prospects of the Pacific. They are commitments of a regional power with global interests.

Fifth, resilience and autonomy are new themes that run strongly through this white paper and wider program of government. To ensure we always remain open to ideas, capital and people, we must restore integrity and trust where it is broken and ensure our security and regulatory systems are up to the task. We are committed to protecting the autonomy and integrity of decision-making in the face of foreign interference and coercion. This is particularly important in cyberspace. We will guard against all attempts to use cyber to interfere in Australian domestic affairs and democratic processes. There is nothing that we will guard more jealously than our autonomy, than our sovereignty. Australian sovereignty is our commitment.

The white paper is premised on the belief that we cannot afford to turn in on ourselves and close our doors to the flow of people, capital, imports or ideas. If we’re to maintain the openness, dynamism and prosperity of our region, we must preserve those strong, transparent rules, fair and open competition, non-discriminatory regulation. In shaping the region in this way, leveraging our significant national assets, our economy, our people, our institutions, we ensure our strategic security and economic interests converge. Security and prosperity depend on each other. You can’t have one without the other.

These all converge around the universal values and institutions which sit at the heart of our Australian sovereignty. The foreign policy white paper shows how we’re lifting our ambition, sharpening our strategic focus, redoubling our commitment to ensure we continue to benefit from an Indo-Pacific that is open, prosperous and free.