Optimal Set of Policies for Australia to Deal with the Rise of China - Report Example

A Report to the Minister for DFAT outlining the optimal set of policies for Australia to deal with the rise of China and argue the case to support those policies Student’s Name: Course: Tutor’s Name: Date: Letter of Transmittal The Minister DFAT, Dear …………………………...., Enclosed is a report containing the optimal set of policies that Australia should formulate and adopt when dealing with the rise of China. The report is a summary of a review of existing literature conducted from various sources. Such include internet sources, radio programmes, TV programmes, newspaper articles, government white papers, and academic articles written by scholars and researchers. This report outlines three key areas that your ministry needs to consider when formulating policy. They include the Australia-China bilateral trade, China’s expanding military capabilities, and Australia’s diplomatic relationship with both China and the United States. The report recommends that Australia develop specific policies for the identified three areas. Should you have any questions or comments regarding the contents of this report, please contact me using the address provided below. Sincerely, .............................................. Executive Summary The interdependence between Australia and China has grown significantly in the 21st century. Among the areas that have fostered the interdependence between the two countries is bilateral trade, which has given rise to the need for the two countries to develop policies to guide their relationship. This report to the DFAT minister highlights some of the policy areas that the Australia government needs to address in order to forge a peaceful and fruitful relationship with China. The report recognises that Australia is caught between sticking by her long-time ally, the US, and opening up to new prospects provided by the fast-developing China. This submission however notes that Australia does not have to choose between the US and China when making her policy decisions; rather, the country should foster policies that enhance cooperation between the two countries in the Asia-pacific region. Noting China’s military capabilities expansion, this report suggests that Australia should watch and make her capability expansion capabilities in a manner that would enhance her deterrence or assertive capacity should there ever be a military confrontation between the two countries in the future. Regarding the bilateral trade policy, this report suggests that Australia should adopt a trade policy that not only serves the commercial interests of the country well, but also one that enhances the diplomatic relationship between the two countries. Regarding diplomacy, this report suggests that Australia should consider a policy that has mutual benefits for the two countries, and the bigger Asia-Pacific region. Introduction The rise of China as an economic powerhouse in Asia has far-reaching consequences the world over. Being one of the key players in the Asia-Pacific, the rise of China has an undeniable significance for Australia. Specifically, the effects are evident in three fronts namely, international trade, strategic foreign policy and domestic-economic development (Thomas, 2004). One cannot fully comprehend the effect that China has on Australia without putting the entire growth trends of the country into perspective. According to Thomas (2004), China’s Gross Domestic Product (GDP) was estimated to be US$ 1.4 trillion in 2003. At the time, China was ranked as the seventh largest world economy, and the second country with the highest purchasing power. Additionally, China was ranked as the single largest receiver of foreign direct investments (FDI) throughout the world in 2003. Of special significance to Australia is the fact that the development in China is increasing the demand for agricultural products, minerals and energy. With Australia’s mineral wealth, agricultural products and energy resources, the country can find a ready market in China. Notably however, there are concerns that the ‘neck-break’ growth speed registered by China may not hold for long. Admittedly, such concerns are genuine and deserve the attention and consideration of Australians. For example, Thomas (2004) notes that there are concerns that China’s economy could ‘overheat’, and thus fail to sustain its rapid growth trends. Specifically, sectors such as real estate, aluminium, concrete and steel appear culpable to overheating and this would no doubt have negative economic impacts on Australia since a significant number or steel and aluminium exports target China. Other Australian exports that have a ready market in China include wool, barley, coal, and iron ore (Thomas, 2004). Prior to writing this report, the author investigated the different options available to Australia when dealing with the rise of China. Specifically, the report weighed different opinions in literature voiced by optimistic, sceptics, and those who are yet to form a negative or positive opinion regarding the rise of China and the impact it will have in the Asia-pacific region. After a careful review of literature, this report concludes that Australia will need to weigh her options very carefully when making policy decisions regarding China; specifically, the country should not forget her strategic alliance with the US and her trading opportunities with China. As such, rather than pursuing policies that choose between China and the US, Australia should make policy decisions that will bring the two countries together. As Denton (2010) notes, the “constructive and peaceful future” for the US and China has strategic benefits for Australia’s economic prosperity and security. Should China fail to rise peacefully, Denton (2011) argues that Australia will need to make her decisions on whom to support very wisely. The report starts by putting the rise of China into context and relating this phenomenon to Australia. In subsequent sections, the report identifies and recommends the necessary actions in three policy areas that the Australian government needs to address concerning her relationship with China. The policy areas include bilateral trade, diplomatic relations and defence. While bilateral trade and diplomatic issues are interrelated, a defence policy is an entirely different concept, which is proposed for consideration for use should China’s rise ever pose a threat to Australia in future. The rise of China and the implications for Australia The industries in China have contributed significantly to the rapid economic growth witnessed in that country. By 2003, Thomas (2004) notes that China was producing cameras, televisions and refrigerators to satisfy 50 percent, 30 percent and 20 percent of the world demand in those items respectively. To Australia, the manufacturing trends in China present an opportunity where the former can develop and export capital equipment, advanced and specialised components for technology products, and market them to the latter for assemblage into the final products. To take advantage of such opportunities, Australians will need to switch from the labour-intensive industries, and focus more on the capital-intensive industries. As Thomas (2004) notes however, such a change will cost jobs, as most companies will rely on technological processes rather than human input in their manufacturing businesses. On the other hand, however, a shift from labour-intensive to capital-intensive production processes will most likely lead growth in the service sector, something that will compensate the Australian economy for the job losses. Australian consumers also stand a chance of benefitting from competitive consumer goods imported into the local market from China. The trends in merchandise trade between the two countries are illustrated in Figure 1 (See appendix). There is a possibility that the relationship between China and Australia could suffer some challenges in the future. This is especially the case if the latter ever needed to support either China or the US. Australia has since the World Wars remained a key US ally in the pacific region. China on the other hand has had a respectable association with the US although trade, governance and monetary issues between the two have always brought forth heated debates. Contentious issues between the two countries include Taiwan, disarmament, regional security, human rights and consular issues (Thomas, 2004). According to Benson (2002, p. 191), the US has a security commitment protecting Taiwan from China, and this has always brought a rift between the two countries, with China arguing that the US does not respect its sovereignty. In the past, the US managed to convince China to embrace change in its monetary and governance policies especially in regard to respecting international intellectual property laws. The progress made so far is impressive, although scholars and researchers feel that China remains one of the most notorious countries in going against IP laws. This notwithstanding, some issues such as China’s stand on Taiwan’s independence may be a source of conflict between the US and China. Should such an occurrence ever materialise, Australia would need to find a way of impressing on the two countries to find a peaceful resolution. If the peaceful resolution is not attained however, there is little doubt that Australia would find abiding by the US more comforting. But would this have the best results for the country? Well, according to Thomas (2004), China remained Australia’s third largest trading partner after the US and Japan for the seven year period between 1996 and 2003. By 2010, China had already become Australia’s leading trade partner (For the 2010 trade and investment relationship between Australia and China, see Figure 2 in the Appendix). This then could be interpreted to mean that although the US had obvious reasons to stick by the US on policy decisions, disregarding China’s cause would not be an entirely wise idea. This is especially so because China could after all hold the most strategic trade opportunities for Australia in the future. Thomas (2004) notes that both Australia and China have several common strategic interests, which include the fight against terrorism, drug traffic, money laundering, and human trafficking. According to Pumphrey (2002), China’s economic growth is not an entirely new phenomenon. In fact, China has always been a major world power throughout history. However, the country went through tremendous decline in parts of the 19th and 20th centuries and did not therefore feature among some of the world powerhouse countries such as the US, Russia, and European countries. Beginning in the 1970s however, Pumphrey (2002, p. 1) observes that the country started making huge progress which led it from being among the world’s least developing countries into the list of world’s largest economies. Notably however, economic growth is not the only factor marking China’s rise. Its population growth estimated to be 12,618 million people in 2000 and its rising military power are other indicators of its rise (Pumphrey, 2002, p. 2). China’s military expansion and a defence policy for Australia As Moore (2011) notes, the rise of China has undeniable ramifications on how Australia’s defence will position itself in the region both in the short-term, and strategically for long-term purposes. While China projects itself as a peaceful rising or developing country, its expanding nuclear capabilities suggest otherwise (Dellios, 2005; Terada, 2006, p.547). Answering a question asked by Moore (2011) on ABC radio, Professor Ross Babbage of Kokoda Foundation observes that if China continues in the present trajectory where it is expanding its military capacity with each passing day, then Australia’s military planners may as well start planning on how to respond to the same. According to Babbage, stability in the Asia-pacific will not be guaranteed any longer, if China develops too strong military capabilities, which cannot be challenged by other countries in the region. To this effect, this report suggests that Australia should consider a defence policy that develops capability based on China’s expansion of her capabilities. Since defence policies need careful planning and consideration and even more time to actualise them, and seeing that Australia cannot match China’s military expansion, Babbage ( in Moore, 2011) argues that the smart way to enforce a policy that addresses Australia’s interests well is by adopting asymmetric approaches. Such approaches include looking at how the People’s Liberation Army (PLA) may look like in 15-20 years to come, and conducting a strengths and weaknesses analysis on it. After obtaining the results, Babbage suggests that Australia should emphasise her own capabilities and investments to enhance deterrence for behaviour that may threaten her interests, or assertiveness for positions or policies that gives her advantage over China should a situation requiring the same ever occur. Professor Hugh White, a different interviewee hosted by Moore (2011) states that Australia should adopt a more direct approach in its military policy. Specifically, White argues that Australia should be able to dominate its maritime and air surveillance in a manner that would stop a country of China’s power from projecting its armed forces towards the country. This approach White says, would limit the risk of conflict between the two countries while limiting Australia’s exposure to hostilities from China. Regardless of what approach Australia chooses to take, there remains little doubt that China’s military expansion requires the Australian government to reconsider its defence policy. As Moore (2011) notes, it does not serve Australian strategic interests in the Asia-pacific region very well to continue hoping that the 40 years of peace witnessed will continue forever. Since China’s military might is too expansive compared to Australia’s potential, this report suggests that the latter should consider identifying allies and partner countries where it can marshal support forces, diplomatic partners and aides just in case Australia ever gets in a crisis that it desperately needs to fight against. As Hartcher (2010) rightfully notes, Australia needs to diversify its strategic relationships with other countries as a way of reducing bipolar competition between the US and China. Specifically, Hartcher (2010) observes that Australia needs to develop strategic relationships with Russia, Korea, India, Japan, Indonesia, Vietnam and other regional states. This he argues will help in balancing regional security by not leaving it to the whims of Americans and Chinese governments. Other authors who have expressed this opinion include Curbes (2010), Scissors and Lohman (2011) and Smith (2010). The fact that China weathered the 1997-1998 and 2008-2010 economic crises while other economies through the America, Europe and Asia were crumbling is also evidence that the country is a force to reckon with. Such a policy is justified by the need for Australia to have a range of options, which it can utilise in future should China’s expanded capabilities ever become a threat to Australia’s interest in the region. Bilateral trade policy By 2010, China had become Australia’s single biggest export market. This is in addition to the fact that the country had earlier become the “biggest two-way merchandise trading partner” for Australia (Raby, 2010). Also worth noting is that the export market that China provides to Australia is larger than what is provided by the US, India and South Korea combined. This means that China is not only a significant trading partner for Australia; it is also an important and dominant economic force for the country. Raby (2010) however notes that the Australia-China trade profile is relatively narrow since most Australian exports to China are from the resources sector. As such, there is a need for Australia to expand its services sector in order to market the same in China. According to Sheng and Song (2008, p. 42) the Australia-China bilateral trade is driven by the comparative advantages that each country gets. For instance, China benefits from the cheap raw materials imported from Australia, while Australia benefits from the cheap manufactured consumer products imported from China. As McDonald et al. (2005) found out however, the two countries could enhance their mutual benefits by making trade between them freer. This means that the two countries should analyse the trade barriers that exist between them, and review the same accordingly in order to enhance better trade prospects in future. Seeing that this is not a policy decision that the Australian side can make alone, they would need to engage with the Chinese side in order to come up with the appropriate trade barrier reduction or removal strategies (Changsen & Xiong, 2010). Attaining a more liberal market would be in line with objectives of the Australian government as indicated by Downer and Vaile (2003, p. xiii). Foreign diplomatic policy As Raby (2010) notes, Australia’s possession of key strategic resources that China needs to continue in her growth path is a diplomatic asset that the former should not take for granted. For example, Raby (2010) notes that while China was iron ore self-sufficient, this situation has changed since 2006, thus making the country more dependent on international markets for the resource. In fact, Raby states that the country relied on iron ore from the international markets for 60 percent of its total needs. This dependence on international markets is no doubt a troubling issue for Chinese leaders. With Australia currently selling its iron ore to China on a purely commercial basis, Raby (2010) notes some likely diplomatic consequences from the trade. For example, China may want the Australian government to reassure about unwavering supply for iron ore. In other cases, China may want to invest in Australia, specifically in areas that the Chinese investors will develop resources that are in high demand in their country. Since the two countries cannot engage in fruitful diplomacy without discussing their bilateral trade, Australia needs to come up with a diplomatic policy that will address her domestic interests well. This will serve to avoid giving in to pressure from China, especially if such pressure will not benefit Australia. Australia’s successful bid to supply China with liquefied natural gas (LNG) was evidence that diplomatic and trade policies should complement each other. As Downer and Valie (2003, p. xv) note, the successful LNG bid was a sign from China that it has trust in Australia’s political stability, advanced technologies, and economic efficiency. This means that China would expect some level of trust from Australia in return. In non-trade matters, Global Times (2011) observes that the diplomatic relations between Australia and China have suffered in the past because despite the former acknowledging the opportunities that the rise of China presents to the Asia-Pacific region, it still chooses to retain the US as its strategic ally for the 21st century. According to the Global Times, China understands why Australia has adopted a hands-off approach when dealing with matters that relate to the two countries. For the same reason, the Global Times reports that China has never placed Australia in a position where it had to choose between the US and itself (China). The Global Times (2011) however, notes that by Australia reinforcing its US relationship, China may see it (Australia) as part of United States of America’s strategy to manage Beijing. As such, Australia should consider developing a foreign policy that does not interfere with China’s domestic policy regardless of what stance the US taken. After all, China is serving Australia’s economic interests better than the US will possibly ever do in the near future. Denton (2010) also observes that Australia needs to extend some “soft power” to China as a sign of the former’s willingness to build effective relationships with the former. Specifically, Denton (2010) observes that the Australian government needs to engage China in regional and multilateral institutions in an effort to foster better relationship between the two countries (For an overview of the global, regional, and bilateral institutions that China and Australia subscribe to, see Table 1 in the Appendix). A different opinion is expressed in the Spectator (2010), where the author argues that Australia should fear China’s rise. Notably, engaging with China is not something that should be left to the government alone; rather, leaders in the private sector, academics and civil service need to be involved in the same efforts. To guide the different stakeholders towards such engagement, Denton (2010) proposes that the government needs to draft the right policy. Other areas that the Australian foreign diplomatic policy towards China needs to consider include people-to-people interaction through tourism and foreign direct investments, cultural exchange, development assistance, and educational cooperation. The two countries should also consider enhancing their diplomatic policies through the formation of economic and trade agreements; political cooperation and exchange; security cooperation; and exchange and cooperation in the fight again terrorism among other societal vices. Australia also needs to engage with China with regard to human rights issues, security issues and disarmament. As the Commonwealth of Australia (2003, p. 80) aptly notes, encouraging non-proliferation in China is among the key areas that the former should seek to talk to China about. Conclusion and recommendations Policy formulation seeking to address the relationship between Australia and China should always seek to enhance the benefits that the former can attain from the same. Notably however, Australia policy makers should not forget that China, just like Australia, is seeking the best opportunities for its people both in terms of short-term and long-term needs. Just like witnessed in trade between the two sides, a situation where both countries are able to benefit from comparative advantages derived from each other needs to be forged. As long as China continues importing raw materials for her industries from Australia, and as long as Australia continues importing manufactured consumer items from China, the relationship between the two countries is bound to continue. As has been stated in this report however, the bilateral trade will no doubt give rise to a need for trade, and diplomatic policy. This is especially the case because Chinese leaders may need reaffirmation from Australia that her raw materials will be directed somewhere else in future. In formulating the trade and foreign policies, Australia will need to consider her commercial and diplomatic interests while dealing with China. Australia further needs to forge a different strategy when formulating the military policy to adopt, especially in light of the expanded military capabilities in China. While Australia can use military help from some of her allies such as the United States, this report recommends that Australia should develop a military policy that will see to it that the country expands her military might. Specifically, Australia needs to adopt a policy that would act as deterrence to China, or assert Australia’s position should a situation requiring such positions ever occur in future. References Benson, B. V. (2002) The US security commitment to Taiwan should remain ambiguous, Department of defence, Washington D.C. Changsen, Y., & Xiong, J. (2010) ‘The dilemma of interdependence : the features and trends of Sino-Australian relations,’ Paper Presented to the 2nd Dialogue Forum of the Sino-Australian Joint Research Program Hosted by the Griffith Asian Institute, Brisbane, Queensland, Australia. Pp. 1-20. Commonwealth of Australia (2003) ‘Advancing the national interest,’ Australia’s Foreign and Trade Policy White Paper, pp. Iv-165. Curbes, J. (2010) ‘Australia and the rise of China as a function of American post-industrial decay,’ viewed 06 June 2011, Dellios, R. (2005) ‘The rise of China as a global power,’ The Culture Mandala, vol. 6, No. 2, viewed 06 June 2011, Denton, J.W. H. (2010) ‘Ambitious China need not be an emerging problem,’ Business Council of Australia, The Australian- Opinion Editorials and Articles, viewed 06 June 2011, Downe, A. & Vaile, M. (2003) ‘Foreword,’ in Commonwealth of Australia, ‘Advancing the national interest,’ Australia’s Foreign and Trade Policy White Paper, pp. V-xx. Global Times (2011) ‘Redefining Australia-China ties,’ Global Times, viewed 06 June 2011, Hartcher, P. (2010) ‘As China rises, it demands a deference we should be wary to give,’ The Sydney Morning Herald, viewed 06 June 2011, McDonald, D., Nair, R., Rodriguez, G., & Buetre, B. (2005) ‘Trade flows between Australia and China: an opportunity for a free trade agreement,’ Australian Bureau of Agricultural and Resource Economics (ABARE) Conference paper, no, 05.1. Moore, A. (2011) ‘Australia’s military should consider China’s future,’ Australian Broadcasting Corporation, viewed 06 June 2011, Pumphrey, C.W. (2002) The rise of China in Asia: Security Implications, Department of defence, Washington D.C. Raby, G. (2010) ‘The rise and rise and rise of China: Implications for Australia,’ Keynote Address to the Future Summit by the Australian Consulate general, Guangzhou, China, viewed 06 June 2011, Scissors, D. & Lohman, W. (2011) ‘Australia–China economic relations: A lesson for the U.S., not a threat,’ viewed 06 June 2011, < http://thf_media.s3.amazonaws.com/2011/pdf/wm3186.pdf> Sheng, Y. & Song, L. (2008) ‘Comparative advantage and Australia-China bilateral trade,’ Economic Papers, vol. 27, No. 1, pp. 41-56. Smith, S. (2010) ‘Back to the future? Australia’s Washington-Beijing balancing act, Government, viewed 06 June 2011 < http://www.governmentmedia.com.au/index.php/current-issue/39-back-to-the-future> Smith, W. (2010) ‘Back to the Future? Australia's Washington-Beijing Balancing Act,’ viewed 06 June 2011, Spectator (2010) ‘Australians should fear the rise of China,’ The Spectator, viewed 06 June 2011, Terada, T (2006) ‘Thirty years of the Australia-Japan partnership in Asian Regionalism: evolution and future directions, Australian Journal of International Affairs, vol. 60, No. 4, pp. 536-551. Thomas, A (2004) ‘The peaceful rise of China: What does it mean for Australia and the region?’ Asialink, pp. 1-10. Appendix Figure 1: Australia’s merchandise trade with China Market Information and Research Section viewed 6 June 2011, Figure 2: Australia’s trade and investment relationship with China Market Information and Research Section viewed 6 June 2011, Table 1: Global, regional and bilateral institutions that China and Australia subscribe to Source: Sheng and Song (2008) Read More