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During Premier Li Keqiang’s visit to Australia in March, Australia and China signed a ‘Declaration of Intent’ to accelerate a review of the provisions governing services trade and investment in the bilateral China–Australia free trade agreement (ChAFTA). So far the declaration hasn’t generated frenetic activity: DFAT set a six-month deadline for submissions from interested parties. Delay is a positive. Beijing’s decisions of late point to regress in its approach to foreign investment and Australia needs to take careful stock.

While Australian commentators often point to a tension between our US strategic alliance and our heavy reliance on China as a trading and investment partner, they tend to overlook that, for China, trade, and particularly investment, is driven as much by strategic as commercial considerations. Before the conclusion of ChAFTA, China’s access for its goods and services in the Australian market was well-nigh unfettered: what mattered to it was having parity with the US when investing in Australia.

Philosophically, Australia and China occupy different solitudes regarding trade and investment. These days, not always, the underpinning attitude for Australia is free enterprise capitalism: commercially motivated, profit-driven, private sector enterprise, pursued within a clear legal framework. Beijing’s version is state capitalism, plus an underpinning of autarky: investment at home and abroad directed to national priorities, improving China’s competitive advantage (often using subsidies). The aim is to enhance China’s economic power and sovereignty. There’s nothing new in this, but Australians (Andrew Robb, for example) clearly delude themselves by assuming that the logical course for China is to become more like us. In fact, China is moving in an opposite direction.

At a societal level, President Xi has been emphatically reasserting the centrality of the Communist Party. Controls over China’s citizenry are being tightened—for example, by the ‘great firewall’ scrutinising and limiting access to the internet, and by closer monitoring of all citizenry for a ‘social credit score’.

So too there is regress in the economic field. China has been tightening controls on the outflow of capital, including by clamping down on private sector overseas investment in property, leisure and entertainment. Now constrained are leading private firms as Beijing judges them to have been overpaying for their foreign assets and adding risk to the Chinese banking system. The specific nature of the clampdown shows that for China there is no clear-cut distinction between the public and private sectors; the reach of the government extends to controlling individual private enterprise firms. In future, companies’ investment abroad should be directed to state-set priorities: Xi’s Belt and Road Initiative, agriculture, and priority industrial and technological sectors (for example, the semiconductor industry).

Again, Beijing has stopped referring to the ‘decisive role’ of the market in shaping China’s economic development. Instead, it has been amalgamating some already massive state-owned enterprises to create new national champions, entities that can operate internationally with the competitive advantage of government financial and other economic subsidies.

The recurrent experience of foreigners seeking to invest in China has been that they are pressured to provide information on their secrets and systems as part of the price on entry. One fears for Cochlear and CSL. This is now being taken a step further. According to a recent Angus Grigg article in the Australian Financial Review, in future all foreign companies operating in China will be forced to hand over sensitive commercial data to Beijing under a system directed at generating a ‘social credit score’ for commercial enterprises as well as individuals.

More generally, while foreign investment in China is encouraged in cutting-edge industrial sectors, foreign firms are squeezed out once they reach maturity, with their key technologies secured. Writing some months ago in the Australian, Rowan Callick noted that China opened its mining industry to foreign investors about 20 years ago. At the peak, in 2009, there were 300 foreign mining operations in China. The number is now down to a handful. ‘Through a range of contrivances their services have been dispensed with.’

The bottom line from all this is that in approaching Chinese investment in Australia it’s crucial that we assess what suits Australia’s national interest and if need be put on stipulations on any such investment and require that they be met. Glen Stevens, approaching retirement from the Reserve Bank, emphasised the importance of ‘quality investment’ in creating new capacity for Australia, not just transferring asset ownership. That’s not easy, as ChAFTA has already, unwisely, given China considerable latitude for its involvement in the Australian economy: pulling back will come at a cost, though China itself has no compunction about doing something similar.

The situation also requires us to be more hard-headed about some current economic shibboleths, to be more like China in a sense. For example, we may well need to use taxpayer resources to get Australian-developed technology up and running; to require that some part of the supply chain, in agriculture, for example, remain firmly in Australian hands; to encourage joint ventures not outright ownership; to use leasehold not freehold for land access.

Australia’s vulnerability to state capitalism is compounded by our predilection for privatisation now heading into areas that should definitely remain core functions of government. The control of our ports is one example (the decision on Darwin culpable), but another recent folly is for Australian states to privatise land titling, an activity that totally depends on integrity and expertise, and hence on government.

The convoluted provisions of ChAFTA suggest the review will be considering ‘Investment-specific State to State Dispute Settlement’. I assumed this was something China was seeking. I gather that it’s the other way round, possibly in the hope of compensating for the absence of a meaningful rule of law in China. This would be a foolish inclusion; it would be detrimental from a commercial and a national interest perspective as it would sanction pressure on the whole bilateral relationship if it suited China’s strategic economic interests.

Trade negotiating is an abstruse process: trade negotiators tend to be left ‘home alone’. It’s crucial that not be so. China’s economic philosophy is heading further away from our own. We may need policies more like theirs, nationally focused and self-interested. It’s certainly time the government and parliament both took a look at what the changes in Chinese economic policy imply for Australia, and how we should logically respond and protect our long-term national economic interests. Start with the ChAFTA review.

Note: The first paragraph of this article was omitted in an earlier version due to an administrative error.

Those who indulge in the phoney debate about the need for an independent Australian foreign policy should pay more attention to the history of Australia’s Asia policy. There’s nothing derivative about Australia’s approach to Asia. The images of Asia in our historical imagination: Asia as alien, Asia as a security threat, Asia as an economic opportunity, Asia as the fulcrum of our core strategic and economic interests, all came from a distinctively Australian imagination. You can query its correctness but not its authenticity.

Those who insist Australia has no independent foreign policy usually mean we have the wrong foreign policy. That Australia could make an independent, much less an informed, judgement that our national interests are served by a close alliance with the United States is dismissed as sycophancy and a stubborn refusal to stand on our own two feet.

It’s true that many Australian governments have struggled with whether and how to disagree with the US. We’ve yet to fully learn when we can say ‘no’ and when we must say ‘yes’ to our ally. Too often we’ve seen the alliance as an insurance policy to which we need to make regular payments of acquiescence.

We should not fret about how compatible the alliance is with our interests in Asia.

The US has been a central player in the unfolding Asian growth story of the last seven decades, as a large market for Asian exports, through the stability which the US strategic commitment in Asia underpinned, and the shaping role that the US has played in a rules-based international order, including a global trading system from which Asia has been a major beneficiary. There would simply have been no Asian growth story without the US and it makes no sense to see the alliance as a barrier to the priority we must rightly give to Asia in our foreign policy.

Today, however, the central role of the US is under pressure and we cannot assume that the patterns of the past in Asia will continue. This goes much deeper than the dysfunction of the Trump presidency. As Asia’s tectonic plates shift and the economic weight is rearranged, it would be naive to believe the strategic map will stay the same.

Economic space is infinitely flexible. Strategic space tends to be much less so. The challenge of statecraft and leadership is to ensure that one does not derail the other. Nowhere is that challenge greater than in the management of the US–China relationship.

What does Australia do in a world where US strategic predominance is no longer the lynchpin of regional security?

China will likely eclipse the US as the world’s largest economy. This means that in the long term the security of the region cannot rely on the maintenance of US strategic predominance. The US will likely remain the world’s strongest power for decades to come. But this does not mean that it will also remain the most influential power in the Indo-Pacific.

China’s view appears to be that it should replace the US as the predominant power in Asia. That’s not an ambition you will find in any official Chinese government statement, but it’s hard to avoid the conclusion that it is the long-term objective of Chinese policy.

It’s also a realisable objective. The global US focus dilutes the attention it can pay to particular regions. China too has global interests, but its geopolitical priority is squarely in Asia. Its geography—as a resident Asian power—and the intensity of its economic links to the countries of Asia give it an advantage over the US in Asia.

China is a country and a civilisation which understands power, and its sense of place has been shaped by the many centuries in which it was the Middle Kingdom. That pull of history is likely to play an important role in the way in which China relates to regional states.

China will ultimately define its own strategic settling point and it won’t be forced into someone else’s view of what it should do or become. Nor is it realistic to expect that the US and China can negotiate some grand bargain formally to share power in Asia, although share they must. The process of adjusting to shifting power balances in a multipolar Asia will be incremental and organic.

China will be a responsible stakeholder where its interests are served. It will not be a classic revisionist power because it’s been too much a beneficiary of the existing system to want to completely overturn it. But there are elements of the system that China will want to see replaced.

China’s aspiration to strategic predominance does not make it an enemy and it would be unwise to treat it as one. Nor does it negate the importance of engaging with China and working with it wherever we can. It is very much in Australia’s interests to have a close relationship with China in as many areas and at as many levels as possible

There’s no sensible alternative to engaging China. Containing China, in the way the West sought to contain the Soviet Union, is a policy dead end. China is too enmeshed in the international system and too important to our region to be contained.

Nor is China an expansionist power, although it has an expansive view of what is historical Chinese territory. It is not in search of an empire. For China, strategic predominance means a return to the Middle Kingdom where regional states paid due respect to China’s interests and were careful not to act in any way which displeased China.

If China were a liberal democracy, that would certainly remove the unease we would otherwise feel if an authoritarian state were to displace a liberal democracy as the major shaper of our strategic environment. But China shows no interest in becoming a liberal democracy. Indeed the Chinese leadership is absolutely determined that the monopoly of the party should prevail.

So if the alternative to US strategic predominance is Chinese strategic predominance then it is not an attractive one for Australia for as long as China remains an authoritarian state.

A third option is for the region to shape a balance of power which finds room for China but which also favours the region’s democracies. This, I would argue, is a better option for Australia, not least because it brings our strategic interests and our values into closer alignment.

It is too soon to know whether and how the challenge posed by North Korea’s nuclear and missile programs will be resolved. But it is not too early to consider what that challenge could mean for a part of the world that has in many ways defied history.

The moniker ‘Asian Miracle’ goes some way towards conveying just how extraordinary the last half-century of economic growth in many Asian countries has been. The first economy to take off was Japan, which, despite a slowdown in recent decades and a relatively small population, remains the world’s third-largest economy.

China’s ascent began a bit later, but is no less impressive: the country achieved over three decades of double-digit average GDP growth, making it the world’s second-largest economy today. India, soon to be the world’s most populous country, has lately been experiencing an impressive 7–8% annual rate of GDP growth. And the 10 members of the Association of Southeast Asian Nations averaged some 5% growth in recent years.

But contemporary Asia’s economic miracle rests on a less-discussed strategic miracle: the maintenance of peace and order. Since the end of the Vietnam War in the mid-1970s, Asia has stood out for its lack of major conflicts within or across borders—an achievement that distinguishes it from Africa, Europe, the Middle East, and even Latin America.

This stability is all the more extraordinary because Asia is home to a large number of unresolved disputes. When World War II ended in 1945, Japan and Russia did not sign a peace treaty, owing largely to their competing claims over the Southern Kuril Islands, known in Japan as the Northern Territories. Eight years later, the Korean War also ended without a formal peace treaty, leaving behind a divided and heavily armed peninsula.

Today, competing territorial claims—mostly involving China—continue to stoke tension across Asia. Japan is embroiled in a dispute with China over the Senkaku (Diaoyu) Islands in the East China Sea. More than half a dozen other Asian countries disagree vehemently with China’s territorial claims in the South China Sea. And India is at loggerheads with China over their long-shared Himalayan border.

Despite all of these tensions, Asia has remained largely at peace, partly because no country has wanted to jeopardise economic growth by initiating a conflict. This perspective is most clearly associated with Deng Xiaoping. In leading China’s process of economic ‘reform and opening up’ from the late 1970s to the early 1990s, Deng explicitly emphasised the importance of a stable external environment to facilitate internal economic development. The reliance on regional trade ties to support growth and employment has provided yet another incentive to sustain peace.

But economics was probably not the only factor at play. Because most Asian countries are host to relatively homogeneous societies with strong national identities, the chance of civil conflicts erupting and spilling over national borders is relatively low. Last but certainly not least, America’s strong military presence in Asia—which underpins its robust regional alliance system—has reduced the need for Asian countries to develop large military programs of their own, and has reinforced a status quo that discourages armed adventurism.

These factors have contributed to peace and stability in Asia, but they cannot be taken for granted. Indeed, they are now coming under increasing pressure—putting the strategic miracle that has facilitated Asia’s economic miracle in jeopardy.

What changed? For one thing, China’s economic rise has allowed it to expand its military capabilities. As China adopts an increasingly assertive foreign policy—exemplified by its border dispute with India and territorial claims in the South China Sea—other countries are increasingly motivated to boost their own military spending. As that happens, it becomes more likely that a disagreement or incident will escalate into a conflict.

Meanwhile, the US—the only power with the capability to offset China—seems to be retreating from its traditional role in Asia. Already, US President Donald Trump’s administration has withdrawn his country from the Trans-Pacific Partnership, and confronted US allies on their defence spending and persistent trade imbalances. More generally, the growing unpredictability of US foreign policy could weaken deterrence and prompt allies to take their security into their own hands.

The most immediate cause of potential instability is North Korea, which now poses not just a conventional military threat to South Korea, but also a nuclear threat to all of Asia, as well as to the US. This could invite a devastating pre-emptive strike from the US. But, if the US refrains from military action, the results could also be catastrophic, if the North actually does strike. Even just the threat of such a strike could be destabilising, if it drives concerned US allies such as South Korea and Japan to increase their military spending and reconsider their non-nuclear postures.

Should any of these scenarios come to pass, the consequences would be far-reaching. Beyond the human costs, they would threaten the economic prosperity of not only Asia, but the entire world. A conflict between the US and China, in particular, could poison the single most important bilateral relationship of the 21st century.

The good news is that none of this is inevitable. There is still time for governments to embrace restraint, explore diplomacy, and reconsider policies that threaten to undermine stability. Unfortunately, we are living in a time of rising nationalism and at times irresponsible leadership. Add to that inadequate regional political-military arrangements, and it is not at all certain that wisdom will triumph over recklessness, or that Asia’s unique decades-long peace will endure.

Last month, Chinese President Xi Jinping presided over a heavily orchestrated ‘Belt and Road’ forum in Beijing. The two-day event attracted 29 heads of state, including Russia’s Vladimir Putin, and 1,200 delegates from over 100 countries. Xi called China’s Belt and Road Initiative (BRI) the ‘project of the century.’ The 65 countries involved comprise two-thirds of the world’s land mass and include some four and a half billion people.

Originally announced in 2013, Xi’s plan to integrate Eurasia through a trillion dollars of investment in infrastructure stretching from China to Europe, with extensions to Southeast Asia and East Africa, has been termed China’s new Marshall Plan as well as its bid for a grand strategy. Some observers also saw the Forum as part of Xi’s effort to fill the vacuum left by Donald Trump’s abandonment of Barack Obama’s Trans-Pacific Partnership trade agreement.

China’s ambitious initiative would provide badly needed highways, rail lines, pipelines, ports, and power plants in poor countries. It would also encourage Chinese firms to increase their investments in European ports and railways. The ‘belt’ would include a massive network of highways and rail links through Central Asia, and the ‘road’ refers to a series of maritime routes and ports between Asia and Europe.

Marco Polo would be proud. And if China chooses to use its surplus financial reserves to create infrastructure that helps poor countries and enhances international trade, it will be providing what can be seen as a global public good.

Of course, China’s motives are not purely benevolent. Reallocation of China’s large foreign-exchange assets away from low-yield US Treasury bonds to higher-yield infrastructure investment makes sense, and creates alternative markets for Chinese goods. With Chinese steel and cement firms suffering from overcapacity, Chinese construction firms will profit from the new investment. And as Chinese manufacturing moves to less accessible provinces, improved infrastructure connections to international markets fits China’s development needs.

But is the BRI more public relations smoke than investment fire? According to the Financial Times, investment in Xi’s initiative declined last year, raising doubts about whether commercial enterprises are as committed as the government. Five trains full of cargo leave Chongqing for Germany every week, but only one full train returns.

Shipping goods overland from China to Europe is still twice as expensive as trade by sea. As the FT puts it, the BRI is ‘unfortunately less of a practical plan for investment than a broad political vision.’ Moreover, there is a danger of debt and unpaid loans from projects that turn out to be economic ‘white elephants,’ and security conflicts could bedevil projects that cross so many sovereign borders. India is not happy to see a greater Chinese presence in the Indian Ocean, and Russia, Turkey, and Iran have their own agendas in Central Asia.

Xi’s vision is impressive, but will it succeed as a grand strategy? China is betting on an old geopolitical proposition. A century ago, the British geopolitical theorist Halford Mackinder argued that whoever controlled the world island of Eurasia would control the world. American strategy, in contrast, has long favored the geopolitical insights of the nineteenth-century admiral Alfred Mahan, who emphasised sea power and the rimlands.

At World War II’s end, George F. Kennan adapted Mahan’s approach to develop his Cold War strategy of containment of the Soviet Union, arguing that if the US allied with the islands of Britain and Japan and the peninsula of Western Europe at the two ends of Eurasia, the US could create a balance of global power that would be favorable to American interests. The Pentagon and State Department are still organised along these lines, with scant attention paid to Central Asia.

Much has changed in the age of the Internet, but geography still matters, despite the alleged death of distance. In the nineteenth century, much of geopolitical rivalry revolved around the ‘Eastern Question’ of who would control the area ruled by the crumbling Ottoman Empire. Infrastructure projects like the Berlin to Baghdad railway roused tensions among the Great Powers. Will those geopolitical struggles now be replaced by the ‘Eurasian Question’?

With the BRI, China is betting on Mackinder and Marco Polo. But the overland route through Central Asia will revive the nineteenth-century ‘Great Game’ for influence that embroiled Britain and Russia, as well as former empires like Turkey and Iran. At the same time, the maritime ‘road’ through the Indian Ocean accentuates China’s already fraught rivalry with India, with tensions building over Chinese ports and roads through Pakistan.

The US is betting more on Mahan and Kennan. Asia has its own balance of power, and neither India nor Japan nor Vietnam want Chinese domination. They see America as part of the solution. American policy is not containment of China—witness the massive flows of trade and students between the countries. But as China, enthralled by a vision of national greatness, engages in territorial disputes with its maritime neighbors, it tends to drive them into America’s arms.

Indeed, China’s real problem is ‘self-containment.’ Even in the age of the Internet and social media, nationalism remains a most powerful force.

Overall, the United States should welcome China’s BRI. As Robert Zoellick, a former US Trade Representative and World Bank president, has argued, if a rising China contributes to the provision of global public goods, the US should encourage the Chinese to become a ‘responsible stakeholder.’ Moreover, there can be opportunities for American companies to benefit from BRI investments.

The US and China have much to gain from cooperation on a variety of transnational issues like monetary stability, climate change, cyber rules of the road, and anti-terrorism. And while the BRI will provide China with geopolitical gains as well as costs, it is unlikely to be as much of a game changer in grand strategy, as some analysts believe. A more difficult question is whether the US can live up to its part.

It’s tricky. On one hand, moral superiority can lead dangerously to intolerance. But too much tolerance can open up strategic problems. That seems to be the crux of Mark Thomson’s proposition in his recent piece for The Strategist on the ‘wickedness of China’.

Tolerance is a contextual quality. A theocracy allowing other some faiths, or an authoritarian state allowing some dissent, is simply giving what it can take back. A democratic state, with a culture deeply rooted in the mores and norms of a particular creed, regulating religious, cultural, or sexual diversity—whether that be the right to proselytise, use native dress or language, or follow sexual preference—embraces license, not liberty. No state has a claim to universally applicable institutions and values.

Genuine constitutional tolerance is to be found only in a state founded on the idea of neutral liberalism—neutral on what values and behaviours constitute a good life for individual citizens. As Rawls and Kant would have it, some basic individual rights override the government’s authority to act in the interest of the common good. That’s not the situation in Australia where the paucity of constitutional protection is transparent when contrasted with the individual protections in the US Constitution and Bill of Rights or the European Charter of Fundamental Rights.

States have a sovereign Westphalian right to determine their own system of governance. Were an ideal neutral liberal state to attempt to impose its own particular constitutional and institutional arrangements on other states it would fall into both a contradiction and an error. Liberal neutrality applied internationally should accept that the genuine and fundamental beliefs and cultural norms of many societies are resistant, if not antithetical or hostile, to the values that underpin neutral liberalism.

The error is to claim, as Mark does in his piece, that ‘there can be no legitimate rule without informed consent’; that can only be a subjective, value-laden moral opinion in the absence of an unchallengeable authority able to distinguish legitimacy from illegitimacy. The question of political legitimacy is complex and morally fraught.

Mark observes that Chinese citizens lack ‘the same rights and privileges’ available in the Australian political system. As these are relatively limited, presumably he means the values theoretically inherent in liberalism and democracy. Denial of those rights and privileges to its citizens by the illiberal and undemocratic Chinese Communist Party (CCP) is said to make it ‘wicked’—a moral term invoking something evil or morally wrong as opposed to something virtuous.

Apparently, acting in ‘economic self-interest’ is to be condemned as demonstrating that ‘our values have a price’. The obverse would be that Australian political values are somehow priceless, universal, unimpeachable and immutable. The argument I read in Mark’s piece is that the political constitution and the governmental institutions of Australia (and by implication those of other Westminster based or liberal democratic nations) are irrefutably superior because of their moral standing, and that any compromise on those values is therefore wrong.

Those institutions have ‘legitimacy’ because of those values whereas those of the CCP don’t. It’s an argument that the CCP can (and does) apply in reverse. And although liberalism and democracy are often linked, they aren’t the same thing. Many democracies—in Europe, and Russia, Turkey, and Iran—are more or less illiberal. Illiberal tendencies are on the rise in the US as well.

Apart from the paternalism and conceit of judging others by Australian values, there’s a far stronger strategic reason for exercising caution when criticising China’s domestic governance at present. That bigger issue is the abandonment of democracy promotion by the Trump administration.

The wisdom of American democracy promotion has been hotly contested since George W. Bush’s ‘Freedom Agenda’ in the wake of 9/11, under which the base causes of the terrorist attacks were assessed as the failures of the ‘political and economic doctrines’ tolerated in the Middle East and North Africa in the interests of national security.

By 2006, the best response to terrorism was seen as ‘the freedom and dignity that comes when human liberty is protected by effective democratic institutions’. That justification of democracy promotion found legislative backing in the ADVANCE Democracy Act of 2007, which declared democracy promotion ‘a fundamental component of United States foreign policy’. More recently, H.R. McMaster and Gary Cohn have explained that, in their view ‘the world is not a “global community” but an arena where nations, nongovernmental actors, and businesses engage and compete for advantage’ and in which America First will be pursued with the US’s ‘unmatched military, political, economic, cultural, and moral strength’.

Tillerson, McMaster and Cohn have outlined a Trump revolution in US foreign policy as radical as the Truman Doctrine and the Marshall Plan which led to NATO, a united Europe and containment of the Soviet Union, and laid the foundations for the liberal international order; the post-World War II consensus on security, trade, and international political norms and the institutions underpinning that order.

The Trump foreign policy is actually hostile to the most recognisable symbols of the liberal international world order—multilateral free trade, mutual defence and security agreements, and multinational institutions, including the supranational European Union. Tillerson has said that values have a minor place in this revolution; demonstrated by the administration’s praise for autocrats like Putin, Erdogan, al Sisi, Duterte, King Salman—and Xi Jinping.

Mark is right in noting that Australia is prudent, reticent and selective in criticising China and other nations for their failure to live up to Western standards. But describing that prudence as some kind of moral or strategic failing is neither good moral philosophy nor good strategic policy.

The naivety of offering a form of liberal moral universalism to guide strategic policy is problematic when all customary political and moral moorings are loosening—not just because of China, but because of the US, as well.