Friday, 20 July 2012

Speech - The Rise of China: Strategic Responses for the US, the West and the Rest

It is a distinct honour to address this distinguished Council, long-dedicated to the policy discourse on America's role in the world.
When I mentioned to Henry Kissinger in New York on Monday that I was coming here today, he observed that this institution was as old as he was.

Rarely do I seek to correct Dr. Kissinger, but on this occasion I've discovered he is wrong.

The Chicago Council on Foreign Relations (now the Council on Global Affairs) is celebrating its 90th anniversary this year. Henry, by contrast, is a mere spring chicken at 89.

Both these facts, however, render both these institutions (Kissinger and the Council) as venerable indeed.

It is also a great honour to be welcomed so warmly here during my first visit to this great city of Chicago - including having been received by Mayor Rahm Emanuel - who proffered his objective view that Chicago was without doubt the greatest city on earth.

Chicago is not only one of the great cities of America.

It is indeed one of the great cities of the world.

Chicago is renowned for its economic dynamism.

Chicago is seen as a truly international city, having for example just hosted the 12th World Summit of Nobel Peace Laureates.

Chicago is famous for its outstanding architecture.

You are proud of the identities of your civic neighbourhoods.

Just as you are proud of the Bears, the White Sox and the Cubs.

Because like Australians, here in Chicago sport is not just a passive enterprise for spectators, it is more like an active article of religious faith.

I come here not just as a new friend of Chicago.

I come here as an old friend of America.

Australia is one of America's oldest continuing allies.

We had been in the trenches with each other in every major war over the last 100 years.

As allies we cooperate closely on foreign policy.

We work together in the councils of the United Nations of which we are founding members; we work together in the councils of Asia and the Pacific including APEC and the East Asia Summit; and now we work together in the G20 as the principal institution of economic governance.

As economies we are bound by a free trade agreement - and the arteries of trade and investment are strong with $38 billion in two way merchandise trade in 2011, and just under a trillion dollars in two way investment between Australia and the United States as of 2011. [$555 of US investment in Australia, $410 billion of Australian investment in the US]

Our peoples work and travel in each other’s countries in great numbers.

And fundamental to all, we are bound by common values of political freedom, open economies, and opportunity and fairness for all.

We are therefore, a longstanding partner, friend and ally of the United States in both good times and bad.

We are also proudly independent.

We are the world's 12th largest economy;  the 4th largest in Asia (after China, Japan and India) and we see ourselves as a middle power, animated by values which we hold to be universal and activated by interests which are both global and regional.
The Rise of China

For over four score years and ten, this Council has wrestled with the great challenges of our age: the collapse of the Old World Order in the aftermath of the Great War, US isolationism in the inter-war years as you sought to remove yourselves from further European entanglements, the horror of a second global war, the construction of the post world order, the successful prosecution of the Cold War culminating in the collapse of the Soviet Union, and now the new challenges of economic globalization, a rolling global financial crisis, militant islamism and the rise of China.

This has been an extraordinary century of change.

And the century that lies before us also promises to be a century of accelerated change - now driven by the dynamics of globalisation, the mass movements of people and, of course, the revolutionary technologies now impacting every aspect of life and work.

One of the core drivers of change, at least until mid-century will be the People's Republic of China.

In the last week I have been in the United States in discussions with the UN Secretary General, Vice President Biden, Henry Kissinger and Chicago Mayor Rahm Emanuel.

China has been the constant theme for us all.

This is no coincidence.

A central question of this half century will be whether we have the collective wisdom and common resolve to manage the rise of China in a manner which preserves the peace, security and prosperity of us all.

And to do so within the framework of a liberal international rules-based order anchored in the principles of common security, open economies and open societies.

Together with the great challenges of global economic management, and global sustainable development, I believe the rise of China represents one of the three great challenges of our age.

As someone who has spent the last 35 years of his life engaging with China - as a student. businessman, diplomat, foreign minister and prime minister, my argument to you today is that on balance I believe we can successfully embrace the rise of China in a manner which is good for China, good for the US, good for the West, and good for the rest.

My argument is not based on a starry-eyed view of the Middle Kingdom.

I have lived and worked in China during the best and worst of times including having stood in Tiananmen Square just prior to the events of the 4th of June 1989.

I am, therefore, very much a realist.

Just as I am realistic that if we are to manage the peaceful rise of China, it will require sustained intellectual effort, unprecedented diplomacy and great statesmanship from us all.

I am also sufficiently a realist to be fully aware of the price that will be paid by us all if we fail in this mission.

Allowing political, ideological or foreign policy confrontation to drift into armed conflict or worse, to degenerate into full-scale war in the Pacific between China and the United States, would simply be unconscionable for us all, in terms of the human and economic cost for the peoples of the world.

Therefore I believe all women and men of good mind and goodwill must apply themselves to this central task.

In my remarks today (which will draw extensively from an article I published only last week in the United Kingdom) I want to address five specific questions:
  • Will China become the dominant global economy and what will this mean for the broader projection of Chinese influence in the region and the world;
  • Will China seek to use this influence to change the rules of the international system, if so, what would that look like;
  • Who will we be dealing with in the Chinese leadership in the decade that lies ahead;

  • How should the rest of us engage the Chinese leadership on these questions against what I describe as the Mae West theory of international relations that it really does take two to tango; and finally
  • How might we approach the immediate challenge that lies before us in Sino-South-East Asian relations in the South China Sea?
China as the dominant global economy

It is now a commonplace that China will emerge as the world’s largest economy (either by purchasing power parity or GDP measures) at some point over the next two decades.

I believe it is likely to come sooner rather than later because of the compounding effects of an economy that has grown at an average annual rate of more than 8 per cent for the past 30 years.

With regard to the sustainability of high levels of growth for the future, the Chinese are fully aware of the need to change their development model to one based on higher levels of household consumption, lower levels of savings, a greater role for the services sector, and the incorporation of principles of sustainable development in overall economic policy (this last not through fashionable choice, but rather because of the dictates of national economic survival).

But the overall point is this: very soon we will find ourselves at a point in history when, for the first time since George III, a non-western, non-democratic state will be the largest economy in the world.

China has become the embodiment of the great east Asian transformation.

As a result, it is becoming the embodiment of the great global transformation, as the centre of political, economic and strategic gravity moves from the Atlantic to the Pacific, from Europe to Asia, from the US to China.

The China we are contending with is also a dynamic phenomenon.

It is like the English Industrial Revolution and the global information revolution combusting simultaneously and compressed into not 300 years, but 30.

For the Chinese leadership, none of this will be plain sailing.

If you are sitting in the nine member standing committee of the Politburo of the Communist Party of China, contemplating the future the tasks are indeed daunting:
  • Sustaining 8 per cent plus economic growth in the midst of a faltering global economy;

  • Managing a rising middle class with greater and greater aspirations for individual freedoms;

  • A restive Chinese media complemented by an explosive social media which increasingly defies central political control;

  • The politics of inequality in a communist state;

  • The capacity for environmental destruction (including climate change) of itself to derail the economic development process;

  • Not to mention maintaining the internal stability of a Communist party of 87 million members beset by challenges to its ideological, political and moral authority because of widespread corruption;

  • And on top of that, to do so for a country that hosts between a quarter and a fifth of all of humankind.

In other words the Politburo’s in-tray is fairly full.

China’s successes over the last 30 years are as great as the challenges it will face over the next 30.

However any complacency on the part of the US, the West and the rest about the likelihood of China’s faltering is badly misplaced.

The only proper assumption we should have, based on China’s experience of the last 30 years, is that it will continue creatively to overcome the obstacles that it faces.

And, as a consequence, continue to entrench its credentials as a global power.

China’s Influence on the Global Order

If this is the case, how will China exercise its power in the future international order?

Will it accept the culture, norms and structure of the postwar order?

Or will China seek to change it?

Importantly, some might say disturbingly, this matter remains unresolved among the Chinese political elite themselves.

The internal debate continues to unfold.

Hence the Chinese academy, in close co-operation with the policy agencies and research departments of the state, is searching the past for legitimate, non-threatening forms to explain their future regional and global role and to define, more fundamentally, what that role should be.

At present, there is no centrally agreed grand design.

In other words, on this great question of our age, the jury is still out.

One of the best books on this subject in recent times is Henry Kissinger’s tour de force On China, published in 2011.

I believe this might be regarded in time as Kissinger’s greatest work, not as an interesting diplomatic reflection, but as an active guide to the various Chinese “futures” that might unfold. Kissinger’s analysis of Chinese “exceptionalism” (yes, that’s right, Chinese, not American, “exceptionalism”) is superb. He calls it “the singularity of China”.

Take the following:
“The Chinese approach to world order was thus vastly different from the system that took hold in the west.

The modern western conception of international relations emerged in the 16th and 17th centuries, when the medieval structure of Europe dissolved into a group of states of approximately equal strength, and the Catholic Church split into various denominations. Balance-of-power diplomacy was less a choice than an inevitability.

No state was strong enough to impose its will; no religion retained sufficient authority to sustain universality.

The concept of sovereignty and the legal equality of states became the basis of international law and diplomacy.

China, by contrast, was never engaged in sustained contact with another country on the basis of equality for the simple reason that it never encountered societies of comparable culture or magnitude.

That the Chinese Empire should tower over its geographical sphere was taken virtually as a law of nature, an expression of the Mandate of Heaven.

For Chinese Emperors the mandate did not necessarily imply an adversarial relationship with neighbouring peoples; preferably it did not.

Like the United States, China thought of itself as playing a special role.

But it never espoused the American notion of universalism to spread its values around the world.

It confined itself to controlling the barbarians immediately at its doorstep . . . China did not export its ideas but let others come to seek them.”

Given the fluidity of the current intellectual and policy debate within Beijing on these questions, and given impending leadership changes later this year in China's presidency, premiership and general secretaryship of the party I argue that there is a great opportunity to work with our Chinese friends on how we might collectively shape our regional and global futures together.

But who are we dealing with on the Chinese side?

If it does take two to tango, we also need to ask: who are we really dealing with on the Chinese side?

China, though a one-party state, does not represent a monolithic political culture.

Chinese politics is made up of many competing forces.

First there are the liberal internationalists who have pioneered, implemented and seen the great harvest that has come from China’s decision in 1979 to bring about market reforms in its domestic economy and to liberalise its economic engagement with the world.

The benefits are there for all to see in the great Chinese political debate.

Living standards have risen rapidly, and not just in the great cities of Beijing, Shanghai and Guangzhou, but also for hundreds of millions of people living in provincial centres and the countryside.

Nonetheless, the country’s liberal internationalists do not have it all their own way.

Their formidable achievements notwithstanding, there is a growing internal debate about the sharpening of income inequality, as well as widening regional and subregional disparities.

Furthermore, the environmental dimensions of China’s industrial explosion are not only a problem for the world, they are a problem for China, too.

It follows from this that another big competing force in the Chinese political debate today is one more critical of the social impact of economic liberalisation, and one that is more conservative in its policy conclusions.

This group argues that the reform process has already gone far enough.

It contends that any pretence of “socialism”, in what formally remains a “communist” system, has long disappeared.

Elements of this conservative group argue that to take the economic reform process much further would endanger the interests of the still significant state-owned sector of the economy.

They say that, when push comes to shove, it remains important for the Chinese state to be able to pull the levers of the national economy, not just through the classical forms of fiscal and monetary policy as we have in the west, but by actively directing state-owned corporations and financial institutions to expand or contract their economic and financial activity in direct response to government direction.

This group is particularly wary of the calls for democratic reforms arising from the burgeoning economic freedoms that already have been created, because it recognises these as significant medium- to long-term threats to the continued political monopoly of the Communist Party itself.

One last group that will be central to the question of China’s future place in the world is the military.

Even as someone who began studying China 35 years ago, I still find the country’s armed forces one of the most opaque institutions in the world.
That is also the conclusion of most China scholars and analysts around the world.

Like most militaries, the People’s Liberation Army (PLA) is a conservative institution in terms of values, traditions and its intrinsic nationalism.

However, under the Chinese system, the military in many respects operates as a structure separate from the Chinese government.

Usually the PLA’s policy perspectives on the region and the world are brought together with those of the government only at the most senior echelons of the party itself – through the Central Military Commission and the Standing Committee of the Politburo.
The problem with opacity is that it often induces “worst-case scenario” planning on the part of China’s neighbours, and those who share the country’s broader strategic environment.

Naturally, the PLA would argue that US and allied contingency planning in relation to China leaves it with little option other than to engage in worst-case scenario planning itself.

And so the self-perpetuating cycle of strategic mistrust and military countermeasures continues.

The problem with risk management of this order of magnitude, however, is that it runs an even greater risk of becoming a self-fulfilling prophecy.

Planning for the worst tomorrow often shapes the political behaviour of today.

How this internal Chinese debate is resolved (between liberal internationalists, political conservatives and the military) is critical for all of us.

Because the core question remains – once China becomes the world’s largest economy and as its diplomatic footprint and its strategic power expand accordingly, will China seek to change the rules, customs and culture of the post-war international order? And if so, how?

Whether we like it or not, the answers to these questions will affect all our futures: the future of economic integration in Europe, given the rolling European debt crisis and China’s emerging status as the global creditor nation; the emerging security order in Asia, where China’s military influence is already significant; as well as future prospects for global humanitarian intervention (in Libya or Syria, for instance) under the auspices of the UN Security Council, given Beijing’s ability to wield the power of veto.

Strategic Responses for the US, the West and the Rest

I noted earlier that the debate about China’s future in the world is not just the sound of one hand clapping.

The attitude and the actions of the rest of us can also have a profound effect, for good or ill.

Regrettably, however, it is a debate for which most of the collective west is ill-prepared, particularly given individual countries’ domestic preoccupations with their respective economic futures and, as a result, the increasing political insularity of both Europe and the United States.

Policy elites on both sides of the Atlantic (with the exception of some sections of the Obama administration) are largely disengaged from this, most critical conversation of the century – the rise of China.

However, that is not the case in Asia, where, because of proximity, the policy debate on China is more sophisticated, nuanced and acute.

There is, nonetheless, a real danger that a new global and regional order begins to emerge by default, in the absence of significant diplomatic engagement from the west, and one that may turn out to be deeply inimical to western values and interests.

So, what then is to be done? Is it possible for the West (and, for that matter, the rest) to embrace a central organising principle as we engage China over the future of the inter­national order? I believe it is.

But it will require collective intellectual effort, diplomatic coordination, sustained political will and, most critically, continued, open and candid engagement with the Chinese political elite.

So, what might the core elements of such an engagement look like?

First, the international community must accept that it is entirely legitimate for China to have a louder voice at the global negotiating table.

Not only is China a great civilisation, it has become, once again, a great power.

The international system should not be seen to be exclusively the expression of western interests.

The history of European colonisation has done much to diminish the moral authority of the colonisers in the eyes of those in the previously colonised world.

Europeans in particular are often blind to this reality.

It is critical that the future international system be based on universal values, as expressed in the various normative codes of the United Nations system, rather than the narrow interests of a particular group of states.

And within this framework, Chinese, Indian, Latin American and African voices should be able to play a more important role, including making contributions from their own civilisational traditions.

Second, we should argue clearly with the Chinese political elite that the current liberal internationalist order, which has preserved the global peace and enhanced prosperity for two-thirds of a century, must be sustained.

This will entail enhanced co-operation with China on the world’s security, macro-econo­mic, macro-financial, trade, investment, social, environmental and humanitarian challenges, based on the agreed norms of the present global rules-based order.

Any recourse by any member state to uni­lateralist, nationalist or mercantilist behaviour should be deemed unacceptable.

This principle must be applied rigorously to all of us, including China.

It also means that China should be encouraged to enhance the existing order through its own policy actions, even when its national interests are not at stake, but whenever the integrity of the order is worth defending in its own right.

Such an approach is very much in keeping with the advocacy by Robert Zoellick, the former president of the World Bank, of the principle of China as a responsible global stakeholder.

Third, if, for whatever reason in the future, China steps beyond these agreed norms, the rest of the international community should be prepared not only to say no resolutely, but also to act accordingly.

Understandably, the international community will hedge to some extent against this possibility.

Fourth, the crucible for China’s rising role in the world is of course the Asia-Pacific region.

This is where the new regional institutions underpinned by shared international values will be needed to craft principles and practices of common security and common property for the future.

In the past, Asia has had no such institutions with either the mandate or the membership to discharge this function.

But with the expansion of the East Asia Summit last November to include the US (and Russia), we now have all the major powers of this region around a single table at summit level with an open mandate on political, economic and security issues. And this for the first time in Asia’s history.

Confidence-building and security-building measures, greater military transparency, common responses to natural disaster management (the greatest scourge for the peoples of the region) as well as common regional commitments to open economies and sustainable development are now possible.

For the first time, we have it within our grasp to fashion a credible, new Pax Pacifica – a multilateral, regional, rules-based order, anchored in the principles of the broader international system.

And given China’s expanding international role, the new Pax Pacifica may ultimately be translatable into a wider peace, should Washington’s relative global power continue to decline.

Importantly, at present, no one in Asia is seeking to replace Pax Americana with a Pax Sinica.

Workable multilateral, rules-based orders are in a different category altogether, in which all legitimate stakeholders share responsibility for upholding the order.

South China Sea

Of course all this could be rendered null and void if current tensions arising from one issue in particular escalate into a full blown crisis.
Here I refer to tensions between China and various states of South-East Asia over conflicting territorial, maritime and freedom of navigation claims in the South China Sea.

Last week’s East Asia Summit Foreign Ministers meeting resulted in an impasse on this matter.

Tensions have been running high.

This is not the time or the place to rehearse the detailed claims and counterclaims of the contending parties, nor the plethora of diplomatic processes which have been deployed both bilaterally and regionally to arrive at a common approach.

It is nonetheless important, however, to note clearly that recent naval and other surface deployments within the South China Sea by various states and around various incidents are incrementally increasing the overall levels of tension.

And beyond elite politics, there are multiple nationalisms also at play, in China, the Philippines, Vietnam and other states which make it even more difficult for governments to have sufficient freedom of manoeuvre in accommodating flexible postures for negotiation.

These various factors are creating increasing concern in all capitals.

My purpose today is not to attempt to foreshadow any detailed course of diplomatic action.

Nonetheless, I am sufficiently concerned about unfolding events in the South China Sea to flag the fact the time has come for all parties to take a deep breath, step back a little, thereby enabling all of us to take stock.

Negotiations around so-called declarations of conduct and codes of conduct will continue between the Aseans and China.

Negotiations may also be possible (as China has recommended) for common resource exploration and extraction regimes which place unresolved territorial claims semi-permanently on the political back burner.

Just as the Aseans may consider other international diplomatic mechanisms for the long term resolution of these issues including the United Nations Law of the Sea Tribunal and even the International Court of Justice.

It is important that additional creative minds be brought to bear sooner rather than later around these various negotiating possibilities.

The current trajectory is not a good one for any of the parties directly involved, nor for the wider region.

Again my reason for raising the South China Sea in the context of my broader remarks of how to negotiate a long term Pax Pacifica for us all is that left unattended, it has the capacity to derail the entire process.

And that could be potentially catastrophic for us all.


It remains an open question whether China will democratise and whether it will in time respect relevant international covenants and their application to domestic human rights practice.

All who are familiar with the country’s development are equally familiar with the arguments for and against the likelihood of this coming to pass.

In the meantime, the challenge we all face (China included) is managing the rise of a non-democratic China as a great power within the framework of the international order.

I believe there is sufficient common sense, common interest and, therefore, common purpose for these difficult decades ahead to be negotiated peacefully.

It will require great statesmanship – statesmanship that must be based on rational engagement and not predicated on any form of appeasement.

Success can never be guaranteed.

It will require the highest levels of political engagement and thoughtful diplomacy that the world has seen since the end of the cold war.

And then, should China through its own national means choose to become a democracy, all the better. However, to predicate our diplomacy in the immediate period ahead on such an assumption would be foolish indeed.

If we in the west can continue to work with liberalising elements within the Chinese system – to cause the country’s leadership to conclude that their people’s long-term interests lie within the current liberal, rules-based order, one that has served the international community reasonably well since the carnage of the Second World War – then we can succeed and, indeed, craft a truly Pacific century for us all.



  1. well , you talk as if demo cracy has served us well . I would beg to differ . Still there is no truth in a discusion unless the true parties and agenders are transparent and those above government that use the figure heads as pawns are all present .

    it is also not going to work unless the off earth players are recognized and brought into the game as known players .Is it that you truely don't know or are you just playing out your own game, for your own game . I like you as far as polies go ,but it would be great if you just came clean . China could obviously wipe america out when ever they wanted ,which they have shown in 2010. Its the shadow government that wants america to go down , as well you know (henry 80% of humanity must die kiss his own ass Kissinger) give us some real shit , let us know what we are really standing in . ITS TIME take a look for yourself .
    As for the IMF .,

    Nothing can happen until the people on Earth stop getting bullshited too .

  2. oh yes , saying the old world order , is that your way of saying the NWO is already in place and world war three is about to commence so the IMF ,UN ,WHO can get away with the crimes against humanity and suddenly debt forgiveness and funds are provided . but will the threat of terror still be there ,well yes they are still running the planet ,
    welcome to the hunger games .oh goodie by the way please explain how those twin towers fell into their footprint 9/11 was a false flag .
    do you have any false flag info for the Olympics kev .
    one last question , when the forces went to Afghanistan to stop opium trade why did it go up %800 , bit strange . oh politicians needed a pay rise and starting wars is costly , ok fare enough too kev