China Redux: Business and the Contest for Power in the Indo-Pacific
Asia Society Australia Executive Director, Policy Richard Maude's speech to New Zealand's China Business Summit 2021
Thank you Simon and thanks to NZ INC and the NZ Asia Foundation for kindly hosting me on this visit.
I have been asked to talk about the geo-politics of our fast-changing region. So, in these short remarks today I want to do three things. First, to map the contours of geo-political competition in the Indo-Pacific. Second, to offer some judgements about what the contest in our region means for countries like New Zealand and Australia. And, third, to reflect on what implications we might draw for businesses.
Let’s start with a wide aperture.
If on some days you feel like tuning out the news from the far corners of our vast region in favour of a good novel and a glass of excellent New Zealand pinot, well you could be forgiven. There’s talk of a new Cold War. Tensions are rising over Taiwan. Asia Society President and former Australian Prime Minister Kevin Rudd wrote recently that we should prepare ourselves for a decade of China and the United States “living dangerously”.
Last year, in launching Australia’s defence strategic update, the current Prime Minister, Scott Morrison, said Australia faced a world that was “poorer, more dangerous and more disorderly”. Morrison was reflecting in part on the unravelling of the post-Cold War global order – an era of unrivalled US dominance, an era in which the rules and institutions that supported global cooperation reflected US power and values, a very good era for countries like New Zealand and Australia.
That world has not disappeared entirely, but it is fading. Change is coming from all directions: discontent with globalisation, and the nationalism and populism this has spawned, not least in the United States, technological shifts, climate change, the economic and social effects of the COVID-19 pandemic, and, of course, a more powerful, assertive and nationalist China.
Whether we like it or not, our region will be shaped more in the future by Chinese power and interests. The question for the rest of us is whether this change can be managed peacefully and in a way that protects our sovereignty and – to paraphrase the late Singaporean Prime Minister Lee Kuan Yew – the space to be ourselves.
This is the defining foreign policy challenge of our time. A tough contest is already underway – for power and influence, for wealth, for the technological high ground, over standards, over basic human rights we might have thought settled by now, even over what constitutes the truth. No wonder Foreign Minister Mahuta lamented the other day that it wasn’t getting any easier to be a small country. In truth, it’s not getting any easier to be middle power, either.
The contest in the Indo-Pacific
So, with those broad framing thoughts, let’s dig a little deeper into the contest in the region.
A starting point is to remind ourselves that global order is shaped in the main by the power of nation states. Today, China would like global order to better reflect its great power status and preferences. It wants legitimacy for Communist Party rule, non-interference in its “core interests”, and freedom from liberal norms.
China also wants to be the pre-eminent power in our part of the world and for regional countries to defer to its interests and authority. Particularly in recent years, it has pursued its interests in an aggressive, tough-minded way. Up to a point, we shouldn’t be particularly surprised by this. China is, after all, a great power. But China’s assertive, often zero-sum diplomacy, is also alienating many countries and creating a significant clash of national interests. It turns out that what is good for China is not always good for the rest of us.
So we have a problem of divergent national interests and goals. We also have a growing clash of values. There is now a yawning chasm between the Chinese Communist Party’s brand of Leninism and Western liberalism. If it ever was, it is no longer possible for democratic countries to isolate concerns about China’s hardening authoritarianism and human rights abuses from other aspects of their engagement with China.
In sum, the list of differences between China and many countries in the region is serious and structural.
Foreign Minister Mahuta touched on some of these in her recent speech on China – human rights, especially in Hong Kong and Xinjiang, cyber-attacks and Chinese loans in the Southwest Pacific. To that, you might add foreign interference, Taiwan, China’s excessive maritime claims in the South China Sea, tensions in the East China Sea, border clashes between India and China, and concerns about IP theft, and reciprocal access to the Chinese market.
If all of this wasn’t hard enough to manage, China increasingly is willing to punish countries that raise concerns publicly or take actions Beijing regards as hostile to its interests, as several countries, including Australia have experienced.
This contest of power, this clash of interests and values, can be managed as best we can, but it won’t go away any time soon. This is an era, not a passing moment.
Nowhere do we see this more forcefully than in the relationship between the United States and China. US-China ties collapsed spectacularly during President Trump’s term, but the falling out between the two has deeper roots. Tension is high. Mutual trust has evaporated. Interdependence is seen as a liability rather than a stabilising factor.
For its part, Beijing believes the United States won’t ever accept China as a peer and is intent on thwarting its rise and seeing the Communist Party out of power. Washington is worried by China’s authoritarian and ideological turn and is tired of zero-sum diplomacy and what it regards as a string of broken commitments on US concerns like IP theft, forced technology transfers, market-distorting subsidies, cyber-attacks and the South China Sea.
Biden is not Trump, but on China policy we will see more continuity than change. The President has already made clear his intention to compete – politically, economically, technologically, militarily. And although Biden won’t adopt the stridently ideological framing of the relationship we saw under Donald Trump, inevitably this competition is also about systems – one democratic, one authoritarian.
So, where is all this headed?
Anyone who thinks they know is probably kidding themselves. It will be a wild ride. What we might hope for is some guardrails to prevent tough, tense, full-spectrum competition from sliding into a disastrous conflict, and enough restraint on both sides so that there is at least some space for cooperation on global issues of mutual interest, like climate change.
This seems to be what the Biden Administration is hoping to achieve. The US Secretary of State, Tony Blinken, said the other day that America’s relationship with China would be competitive when it should, collaborative when it could, and adversarial when it had to be.
Getting to that point, if it is possible at all, won’t be easy. China’s confidence about the contest ahead is palpable. The Party believes the United States is in inexorable decline and that history and time are on China’s side: “the east is rising”, as the phrase goes in Beijing these days. So there is little evidence so far of any willingness by Beijing to change policies that concern many countries, not just those in the West. As far as the Party is concerned, China is correct in all that it does: compromise is for the rest of us.
In the meantime, competition is driving policies in both Washington and Beijing that will have profound consequences for all of us. Let me touch briefly on just two such issues.
It’s almost inevitable, for example, that we will see some further technological decoupling. Both countries want this, each is pursuing policies to achieve it. Four years of the Trump Administration convinced China it couldn’t rely on the United States for access to key technologies, and that what the Party calls “safe development” requires it to speed up efforts to achieve technological self-reliance.
In Washington, technology is seen as one of the keys to economic and military power and therefore to America’s ability to compete over the long term with China. The United States wants to ensure its own supply chain security for critical technologies and materials like semi-conductors, batteries and rare earths. The Administration wants to encourage more manufacturing in the US and to promote trusted, closed supply chains among close partners.
Military competition will also drive significant strategic change and tension in our region. China has set itself the goal of having a “world class” military by 2049. In recent years it’s embarked on a major modernisation and expansion of the Peoples Liberation Army. China now has the largest navy in the world and is still building ships at a startling pace. China also has a powerful coast guard, by far the largest in Asia, and a formidable undeclared maritime militia which it uses in disputed waters like the South China Sea.
This massive expansion inevitably will drive further responses from the United States and other regional countries, including Australia. President Biden has initiated a global force posture review of the US military footprint, strategy and missions. There’s talk of a more distributed footprint for US forces in our region and greater use of new technologies, like unmanned vehicles. In Australia, the government has committed to building a more offensively capable military with stronger long-range strike and deterrence capabilities.
Now, I’ve focussed here in the main on the United States and China, but it would be a mistake to reduce geo-politics in the Indo-Pacific to just these two primary actors. Every country, large and small, feels China’s power and the pressure to conform with its wishes. Concern about China’s intentions is driving stronger efforts by some regional countries to build – to quote our two foreign ministers – a regional balance of power “where all countries – large and small – can freely pursue their legitimate interests”.
The revival of the Quadrilateral Security Dialogue, which brings India, Japan, Australia and the United States together, and its recent summit meeting, are good examples. Coalition-building and cooperation in small groups is growing across the region. This is a priority for Australia. In recent comments to the Raisina Dialogue, Prime Minister Morrison urged like-minded nations to act more consistently, more cohesively, and more often in pursuit of shared interests in the region.
More broadly, there is an important role for New Zealand and Australia to play in helping support the resilience of our neighbours. Most regional countries don’t want to choose sides: China is an important partner for them. But nor do they want to have their sovereignty eroded. They are interested in diversified international partnerships and want choices – options, if you like – when it comes to aid, trade and investment so that they are not reliant on any one single country for their development.
So, what do these dramatic shifts in our external environment mean for countries like New Zealand and Australia?
The short answer is that we are only just beginning the long-term adjustments to our domestic and foreign policies that this new era will require. Relations with China will be complex, volatile, often tense. The region is unlikely to divide into two blocs, but a balancing coalition against China’s power is already evident. The chance of conflict, over Taiwan or in the South or East China Seas, is not high but nor is it zero. The clash of interests and values I have described will roll on for the foreseeable future, presenting our governments, our businesses and our societies with new challenges.
Our economic and security interests won’t be able to be separated in the way we might have done a decade ago. US expectations of partner countries will be high – one of President Biden’s highest priorities is to rebuild what he described earlier this year as the “muscle of democratic alliances”. The policy choices will be harder for everyone; harder to avoid and more likely to result in actions that anger China, with all the attendant risk of political and economic retaliation.
Should, for example, Australia and New Zealand join the EU, Britain, the US and Canada in imposing sanctions on China over human rights abuses in Xinjiang Where will we stand on technological and scientific de-coupling? What approach will we take if China further ramps up economic and military pressure on Taiwan? How should open societies like ours deal with the complex challenge of foreign influence and interference and build the strength and resilience our institutions and societies we need today?
In Australia foreign influence and interference has manifested itself in the form of pressure on Australia’s Chinese communities, a strongly pro-Beijing line in local Chinese language media, interventions in state and federal politics, and pressures on free speech in our universities. There is no reason to think this couldn’t happen here in New Zealand, or, indeed, isn’t already happening.
Implications for business
Through all this China will remain a market of great potential, but businesses will have to factor higher degrees of risk and complexity into their plans – no doubt many of you here today already are doing so. Trade could come to a shuddering stop without warning. Political relationships could be frozen. Visits cancelled. Phone calls not returned.
Businesses active in China now also face higher levels of global scrutiny, for example in relation to partnerships with Chinese companies that might have a connection to the military or security services, or be complicit in human rights abuses. Due diligence is hard because of China’s opaque system but more essential than ever. We’ve also seen high-profile instances recently where western multinationals have faced hard choices between the expectations of consumers in their home markets – in not using cotton from Xinjiang, for example – and their commercial interests in China.
At times, it won’t be possible to reconcile these competing interests. Businesses may be forced to choose. Some technologies could be more expensive as governments mandate trusted suppliers in ICT systems. The complexity and interconnectedness of security, trade, technology, investment, and research issues will require close and regular dialogue between governments and business. Diversification of trade to spread risk will often make sense but is of course easier to say than achieve.
In Australia, in light of our recent experiences, the government is looking hard again at what more it might be able to do to help businesses find new markets. You will be familiar with the sweeping trade actions China took last year against some of Australia’s most important exports, including barley, wine, coal, lobsters, cotton and timber. I can’t speak for what China hoped to achieve with these actions, but if it wanted to coerce Australia into shifting policy, then it hasn’t succeeded.
There is a vigorous, critical debate in Australia about the management of the China relationship, but there remains a high degree of bipartisanship on most of the big policy decisions that have so bedevilled our ties – 5G, human rights, foreign interference, South China Sea, and so on. And public attitudes against China have hardened significantly.
Some products, notably coal and barley, have found new markets, diminishing the overall impact of China’s trade actions. Still, other sectors, like wine and lobsters haven’t been so lucky. And it’s early days - we won’t know the final cost of these punitive measures for some time. Right now it is less than we feared and more than we want.
I’m conscious this sounds very challenging. That glass of pinot probably looks very good. And, indeed, it is very challenging. Nobody has been here before: we are all feeling our way. I don’t think, though, we should give way to fatalism. China is very large and powerful but as democratic nations we have our own strengths. There remains space for diplomacy: competition in our region is inevitable, conflict is not.
Things can also change in unexpected ways. It might not look hopeful now, but we still have a chance of shaping China’s behaviour if we negotiate with it collectively, from a position of unity and strength. We might yet find a China capable of more pragmatism and flexibility. In all of this we have our own agency.
We are not, and should not think of ourselves, simply as boats adrift in the fast-running currents of geo-political change. We can, in short, chart our own futures.
Thank you for listening.
Richard Maude is Executive Director, Policy at Asia Society Australia, and a Senior Fellow at Asia Society Policy Institute.
This speech was originally delivered at the China Business Summit in Auckland, New Zealand, on 3 May 2021.
Asia Society Australia acknowledges the support of the Victorian Government.