Australia can’t afford ‘business as usual’ on relationship with Beijing, warns strategic policy expert

It is not hyperbole to say that few nations have benefited from the economic miracle performed by China over the past half-century, quite like Australia.

Thanks to this relationship, the “Lucky Country” has managed to dodge much of the economic turmoil that characterised the Indo-Pacific during the mid-1990s and, more broadly, across the globe during the mid- to late-2000s through the global financial crisis.

However, as Beijing grew wealthier, the myth of greater wealth translating to greater liberalisation and democratisation perpetuated since the “opening” of the People’s Republic of China, which began in earnest in the 1970s under the Nixon and Whitlam governments ultimately proved to be little more than wishful thinking.

Rather, successive Chinese leaders have sought to restore the position of the Middle Kingdom as the new Rome, at the centre of the global order, with historic ambitions of regional and global hegemony.

All the while, Beijing seemed content with its meteoric economic rise while engaging in the largest peacetime military modernisation and expansion since the 1930s, while Australia and other Western nations continued to benefit from the explosion of global economic prosperity and low-cost consumer goods.

For Australia, like many nations, the mask slip moment really came during COVID-19 when, in response to global calls for transparency over the origins of the COVID-19 pandemic was met with the ire of President Xi, who launched a wave of economic warfare in response, as the rising superpower sought to subdue and coerce upstart nations.

Yet, despite this and a host of increasing provocative incidents across the region involving the Australian Defence Force and the armed forces of like-minded partner nations, Australia’s relationship with China has continued in much the same manner as it did during the early parts of this century, leaving us precariously exposed.

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Re-raising the alarm is the chief executive of Strategic Forum in Australia and a non-resident senior fellow at the Centre for Strategic and Budgetary Assessments in Washington, Ross Babbage, in a piece for The Weekend Australian titled “Business as usual on China will ruin us” in which he highlights the need for Australia’s leaders and people to wake up before it is too late.

A vulnerable, backwater state within a decade

Babbage begins his analysis in a rather provocative manner, calling on Australia’s policymaking community to take bigger, bolder steps in order to respond to our ongoing period of economic, political and strategic decline in the face of shifting regional and global power dynamics, saying: “Australia is confronted by three big changes in our strategic circumstances that are making our steady-as-you-go approaches to security and economic development untenable.”

While Australia has long recognised the economic, political and strategic challenges facing the nation, going back to the Australia in the Asian Century white paper released in 2013 and arguably even further to the 2009 Defence White Paper, it is safe to say that Australia’s policy response has been more of the same.

I have regularly described this policy inertia as a state of “managed decline”, one where, for the large part, Australia’s elected and public service policymakers have made little in the way of effort to shift the policymaking dial to respond to the challenges and the opportunities that characterise Australia’s future in the Indo-Pacific.

Babbage summarises this, explaining: “We face a markedly increased risk of war in the Indo-Pacific; the global economy is restructuring rapidly in adverse ways; and the Australian economy has stalled with essentially zero productivity growth, declining international competitiveness and a flight of much-needed investment.

“If we ignore these fundamental changes in our circumstances, we will see Australia reduced to a weak and vulnerable backwater state within a decade. We urgently need to recalibrate, develop a new vision for our future and launch serious reforms.”

Bringing focus to the strategic ambitions of China, Babbage states: “The Chinese military makes clear that it is not only targeting Taiwan but also strategic facilities in Japan, South Korea, the Philippines and many more distant targets. Indeed, the Chinese military even has released a video of a simulated air and missile strike on the US’s Andersen Air Force Base on Guam.”

However, Beijing’s efforts to coerce and intimidate regional and global neighbours go beyond the physical and temporal targeting of Taiwan, Japan and the Philippines, for example, to include the increasing host of cyber attacks, industrial and economic espionage and of course, Beijing’s ongoing support for Russia in direct conflict with the international sanctions put in place following the 2022 invasion of Ukraine.

Explaining this further, Babbage details: “Several official Chinese documents, such as the 2013 edition of China’s Science of Military Strategy, describe China’s ‘crucial maritime space’ as including all of the western Pacific and most of the Indian Ocean, extending well south of Australia and New Zealand. In the event of war, Chinese forces plan to operate across all of these regions as well as in the space, cyber and subversion domains. In the meantime, Chinese military and paramilitary forces have seized most of the South China Sea, they are occupying maritime features that are well within the exclusive economic zone of the Philippines, and they are harassing the territorial defence forces of Japan, the Philippines, Indonesia, Vietnam, and others.”

Yet, despite Australia being slowly surrounded in a game of masterfully executed Go, our policymakers and public (at least for the large part) seem to be blissfully ignorant of the environment unfolding on our doorstep and, more broadly, the economic, political, social and security impacts it will have on the nation over the coming decades.

This glaring oversight on the part of our elected representatives and our bureaucratic policymakers draws direct flak from Babbage, who poses an important question worth further consideration: “This raises important questions about why the federal government has not been honest with the Australian people about the risks of major war and taken serious steps to prepare our society and economy.”

Equally concerning is how quickly the runway to respond is disappearing between our feet, again, something Babbage explains, saying: “As things stand, we may have to deal with this huge challenge before the end of the decade with little advance preparation.”

Further complicating our response is the downstream domestic political challenges presented by the declining economic opportunity as a result of Australia’s now well-documented, narrow and increasingly shallow industrial base, something that has been the cause of immense political upheaval across the Western world that came in the decades following the opening of China.

Increasingly, it becomes apparent that we have sown the seeds of our own demise, and we seem uninterested in responding to or rectifying these issues.

“This has led to the widespread de-industrialisation of the US, Australia, Britain and most other developed economies. Entire industrial regions in the US and elsewhere have collapsed, and millions of people have lost their jobs. The strategic impact of this vast industrial transfer has been huge. In 2004, US manufacturing output was double that of China. But by 2020, Chinese manufacturing output was double that of the US,” Babbage says.

He goes further, saying: “This industrial imbalance has grown worse during the past three years. When China’s economy failed to recover fully from the COVID disruptions, its housing sector contracted, consumption fell, and many Chinese businesses stalled. This led Beijing to stimulate the economy in part by encouraging many manufacturers to continue expanding production capacity.”

In response, the US, along with Europe, has kicked off a series of tariffs to even the playing field and claw back some of the industrial capacity ceded to Beijing over the past few decades, kicking off a new era of economic warfare and competition, compounding the already simmering great power competition that is already characterising the nature of the 21st century.

This added layer of economic complexity and competition further compounds Australia’s position and status in the Indo-Pacific and requires urgent rectification should we seek to be little more than, as Babbage describes a “weak and vulnerable backwater state” within this decade.

Babbage says: “Unfortunately, many recent federal and state government policies have made this situation worse. Additional layers of red and green tape, surging electricity costs and falling electricity reliability, together with new constraints on industrial flexibility, have crippled many enterprises. Especially important have been sector-wide industrial agreements, removal of the link between productivity improvements and wage determinations, same work, same pay regardless of worker experience, and related initiatives. In combination, these measures have made Australia a costlier and much less friendly place for business.”

However, overcoming these challenges doesn’t need to be too hard.

Confronting the challenges, embracing the opportunities

Australia is largely a unique beast in the region. We enjoy mastery of the continent and its vast resources; we have a relatively well-educated, worldly population and a host of other natural and human advantages that set us apart from the vast majority of the world, both writ large and on our doorstep.

Yet we seem determined not to realise this immense potential that we as a nation have within our grasp; this has also exacerbated the tensions and fracture points that characterise Australian society as a whole at the moment, particularly between the different generations.

Babbage details some avenues for navigating our way out of this and building the next generation of opportunities for future Australians, saying: “First, we need a season of honesty. The government must brief the nation properly on the serious challenges we now face. The media also needs to do a more professional job of analysing these issues.

“Second, we need a vision for how Australia can achieve a new era of prosperity and security. Part of this vision should be a program for boosting our defences for the coming two to five years as well as for the longer term.

“But the core of the vision should be a program to remake Australia into a great place to invest, to do business and to live. All Australians need to understand that if we are to enjoy sustained prosperity in the new environment, we must quickly turn Australia into a highly preferred location for investments.”

Importantly, if we’re going to travel down this path, we need to steer into our natural and human advantages and maximise the capital we have in these areas, something Babbage highlights, saying: “We need to focus primarily on attracting industries that build on Australia’s competitive advan­tages – such as our abundant mineral resources, traditionally cheap and reliable energy supplies, abundant land, skilled workforce and our relatively stable and predictable legal and political systems.”

Because, if we don’t, as Babbage explains: “If we continue on our current course of declining productivity, weakening industrial strength and falling standards of living, Australia soon will become a weak and vulnerable backwater state with very poor prospects.

“Alternatively, if Australian governments inform the public about the serious challenges we face and lead a thoroughgoing process of economic and security reform, the way will be open for a new era of prosperity, international influence and security.”

This becomes a case of what sort of future we want to leave to our children and grandchildren, and can current generations get over their own solipsism and narcissism to leave our descendants a safer, more prosperous and stable future?

Final thoughts