Pushing back against China doesn’t mean the end of the world despite the hype

Australia's record-setting 30-year period of uninterrupted economic growth buoyed by the rise of the Indo-Pacific region and China, in particular, has resulted in the nation becoming the envy of the world, however, the nation's public policy approach to the 'Asian Century' and the rise of the Indo-Pacific has been arguably one of the greatest false starts in recent memory. The nation's economic, political and strategic policy leaders have seemingly focused on taking the easy way out. 

This is highlighted by then prime minister Julia Gillard's celebrated Asian Century white paper: "As the global centre of gravity shifts to our region, the tyranny of distance is being replaced by the prospects of proximity – Australia is located in the right place at the right time – in the Asian region in the Asian century," which promised the nation an easy, conflict-free ride on the back of the rapidly industrialising neighbours to the nation's north and a broad promise that the economic growth of the region would serve as an insulating factor against potential conflict. 

Fast forward to today, across the Indo-Pacific, competing economic, political and strategic interests, designs and ambitions are beginning to clash – driven by an unprecedented economic transformation, propelling once developing nations onto the world stage, the region, the globe and its established powers are having to adjust to a dramatically different global power paradigm.

For example, since the white paper was released, China's share of global GDP has risen from 15 per cent to 20 per cent, based on purchasing power parity. India, the region's other emerging economic and industrial powerhouse, has seen its share of the global economy double from around 4 per cent to 8 per cent since the beginning of the 21st century, however the economic rise has given way to growing geo-strategic designs and competition throughout the region and is serving to unpick the fabric of the post-Second World War order.

From the South China Sea (SCS) to the increasing hostilities between India, Pakistan and China in the Kashmir region of the Himalayas, the Indo-Pacific's changing paradigm, and growing economic, political and strategic competition between the US and China, continued sabre rattling and challenges to regional and global energy supplies travelling via the Persian Gulf, and an increasingly resurgent Russia, all serve to challenge the global and regional order.   

For Australia, a nation that has long sought to balance the paradigms of strategic independence and strategic dependence – dependent on strategic relationships with global great powers, beginning with the British Empire and now the US – and a rising economic dependence on the developing nations of the Indo-Pacific that are now emerging as some of the world's largest economic, political and strategic powers.

Enter the commentary made by Allan Gyngell, AO, in a piece titled ‘How to train your Dragon’ published in The Australian over the weekend where he discusses the increasingly challenging economic, political and strategic environment Australia finds itself at the epicentre of.  

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Testing the consensus 

Gyngell articulates this unique conundrum, saying, "We have never had to manage a relationship as important as the one we have with China, with a country so different in its language, culture, history and values. Nor one with an Asian state so confident and possessing so many dimensions of power. Japan may have been the world’s second largest economy, but in strategic terms it was a client of the US.

"Even at its current slower pace, China’s gross domestic product is growing each year by roughly the equivalent of the entire Australian economy. Our government’s own projections see it surpassing the US in total economic size (though not per capita income or comprehensive power) by the end of the next decade."

Australia's delicate balancing act served the nation well while the US remained the world's pre-eminent economic, political and strategic power – however the rise of China and India, combined with the increasing prosperity and assertiveness of other Indo-Pacific powers ranging from Indonesia and Pakistan to traditional regional powers like Japan, is serving to undermine both the economic and strategic foundations that the Australian strategic and economic policy communities and government have based advice and policy upon. 

The growing period of economic, political and strategic competition that has come to characterise the relationship between the two great Eastern and Western linchpins of the Indo-Pacific – the US and China – has had marked impacts on the cohesiveness of the region and the enduring stability of the global economic, political and strategic order, as allies like Japan and South Korea turn on one another, rekindling ancient rivalries and enmities, driven by contemporary economic and strategic concerns. 

Gyngell is quick to identify the growing sense of unease and uncertainty within Canberra, particularly amid growing assertive actions within Australian domestic politics by the Chinese government and Chinese affiliated organisations, saying: "Since Deng Xiaoping began China’s economic reforms and advised his country to 'hide its capability and bide its time', Australia has sailed through magic decades in which, as our leaders regularly intoned, we did not have to choose between our prosperity and our security.

"Australia’s relationship with China has domestic as well as international dimensions. It affects our budget sustainability, foreign investment, the viability of our universities and social cohesion. More than 1.2 million Australians claim Chinese ancestry, and we have seen growing evidence of efforts by the People’s Republic of China to influence Australian institutions and policy debates.

"Canberra has become a more anxious town. Anyone who knows the place understands how quickly a sensible centrist consensus forms among the public servants, policy advisers, academics and think-tankers who make up the country’s foreign policy establishment ... China is testing the consensus. The debate is getting sharper. Commentators and analysts from the think tanks and universities are marshalling themselves into hostile camps. Those arguing for engagement with China risk being dismissed as agents of influence or naive tools of Beijing. On the other side, suspicions of security agency conspiracies run deep, reinforced by a pattern of leaks to journalists."

The 'lucky country' or the 'lazy country'?

Despite repeated attempts to stimulate Australia's economy through tax relief and interest rate cuts, the 'sugar hits' appear to have done little in the way of stimulating domestic consumer and economic confidence, despite a turn around in the nation's trade surplus on the back of mineral exports resulting in a larger than expected surplus of $5.8 billion, as was recently announced by Prime Minister Scott Morrison and Treasurer Josh Frydenberg.

Undeniably, China is an immense economic, political and strategic power – with a voracious appetite driven by an immense population and the nation positioning itself as the manufacturing hub of the world – however, beyond the 1.4 billion people, Indo-Pacific Asia is home to approximately 2.5 billion individuals, each part of the largest economic and industrial transformation in human history. 

"Chinese demand accounts for 7 per cent of Australia’s economy. Our two-way annual trade with China ($230 billion) is greater than the sum of our trade with Japan, the US and India combined. Even excluding minerals and energy, Australia’s exports to China have risen by $36.8 billion during the past decade, compared with $9.86 billion for Japan and the US combined," Gyngell posits. 

"The 1.3 million Chinese tourists who visited Australia last year were responsible for one-quarter of all foreign tourist expenditure here. Our universities and schools host 205,000 Chinese students. These students’ spending alone adds almost as much to our economy each year as our total trade with Britain. The China-Australia Free Trade Agreement, which entered into force in 2015, has dramatically boosted new areas of trade such as wine and dairy products.

"Some commentators look at these figures and see an overdependence on the Chinese market, opening us up to coercive pressures, such as recent efforts to slow down Australian exports of coal and barley."

While successive Australian governments of both persuasions have sought to expand Australia's integration and participation in the economic miracle that is the rise of the Indo-Pacific – China has continued to dominate the nation's economic narrative from the housing sector to agriculture and resources and energy – often to the detriment of relationships with regional nations that approach Beijing with a degree of caution. 

Gyngell doubles down on insinuations about the difficulty in diversifying the nation's source of economic stability, stating, "It’s true that for any country — or any individual, for that matter — diversification is a sensible economic strategy. But the complementarity of the Australian and Chinese economies is broad and deep.

"From minerals and natural gas to horticultural products and sophisticated services, Australia is unusually well-placed to meet Chinese demand. Our exporters can, and should, look elsewhere, but no other potential partner — none — can offer Australia the scale and certainty of the Chinese market."

This "it's too difficult, so don't bother" approach seems to be the standard default for contemporary public policy development and reflects to the increased insulin resistance of the Australian economy to traditional means of stimulation and fails to fully account for the challenges Australia finds itself in.  

Your thoughts

The nation is defined by its relationship with the region, with access to the growing economies and to strategic sea-lines-of-communication supporting over 90 per cent of global trade, a result of the cost-effective and reliable nature of sea transport.

Indo-Pacific Asia is at the epicentre of the global maritime trade, with about US$5 trillion worth of trade flowing through the South China Sea and the strategic waterways and chokepoints of south-east Asia annually.

For Australia, a nation defined by this relationship with traditionally larger, yet economically weaker regional neighbours, the growing economic prosperity of the region and corresponding arms build-up, combined with ancient and more recent enmities, competing geopolitical, economic and strategic interests, places the nation at the centre of the 21st century's 'great game'.

Enhancing Australia’s capacity to act as an independent power, incorporating great power-style strategic economic, diplomatic and military capability serves not only as a powerful symbol of Australia’s sovereignty and evolving responsibilities in supporting and enhancing the security and prosperity of Indo-Pacific Asia. 

Shifting the public discussion away from the default Australian position of "it is all a little too difficult, so let’s not bother" will yield unprecedented economic, diplomatic, political and strategic opportunities for the nation. 

Australia is consistently told that as a nation we are torn between our economic relationship with China and the long-standing strategic partnership with the US, placing the country at the epicentre of a great power rivalry – but what if it didn’t have to be that way?

In the second part of these series we will take a deeper dive into the question of values, the potential for Australia to be dumped as the resources, energy and agricultural partner of choice for China and how Australia can respond.

Get involved with the discussion and let us know your thoughts on Australia's future role and position in the Indo-Pacific and what you would like to see from Australia's political leaders in terms of shaking up the nation's approach to our regional partners, and the avenues Australia should pursue to support long-term economic growth and development in support of national security in the comments section below, or get in touch with This email address is being protected from spambots. You need JavaScript enabled to view it.or at This email address is being protected from spambots. You need JavaScript enabled to view it..