Rise of China no cause for alarm ~ Keating

Paul Keating
July 3, 2009

John Curtin believed that our long-term security could only be found in Asia. That Australia had been dragged to Asia by war and, while he rapidly put together a new strategic partnership with the United States, his government and that of Ben Chifley's which followed was working towards a new rules-based, multilateral world order to better guarantee long-term peace and security. That world order, with Bert Evatt's help, became the United Nations. The enlightened view was that security was to be had only through partnerships within multilateral institutions.

The binge of debt and spending in the United States brought havoc to the central Western financial centre, New York, such that the knock-on effects towards a depression of international capitalism has only been avoided by a rapid and timely swing back to multilateralism. Timely action following the Group of Twenty meetings saved the world from the horrendous effects of a second depression.

Yet before the convening of that group the world had been run by the Group of Seven countries, which, with the exception of Japan, hailed from the Atlantic. And that group, save for Germany and Japan, was collectively a group of debtor states.

Despite all that had happened in post-colonial history following World War II, in places like India and China, Africa and South America, the conceit prevailed that the world could be run essentially by the victors of the war, with outrider roles for Germany and Japan. The Group of Twenty meeting in London in April finally nailed that conceit.

Now the great surplus states like China sit at the head table, as do the large demographically young states like India and Brazil. Finally, the world is being remade. From the time of Japan's accelerating reconstruction in the 1960s and following Deng Xiaoping's economic revolution in China from the late 1970s, we have been speaking of world power shifting from the West to the East. It has now arrived.

China's economy is the other powerhouse economy outside the United States. Growing on average at about 8 per cent, it outstrips new wealth creation in the US, an economy nearly three times its size, by two to one. The US will be battling to sustain a 2 per cent GDP growth rate into the near future; Europe will be struggling to average 1 per cent growth or slightly better.

The end of the Cold War and the global financial crisis have changed the way the world works, giving rise to a fundamental repair of the international trade and savings imbalance: between the savings-rich, trade-surplus countries and the savings-poor, trade-deficit countries. Surplus countries like China, Russia and the oil states will have to save less and consume more, while deficit countries like the United States, Britain and Australia will have to save more and consume less.

This will mean earning our way out of our current account deficit imbalance by replacing imports at home while growing export markets abroad. It will mean that household balance sheets will need to adjust as debt is reduced and spending curtailed, and that in things like our great savings scheme, national superannuation, that mandatory contributions will need to grow.

It will make absolutely no sense for us to think of our security in isolationist and defensive terms.

Until the early 19th-century China was the world's largest economy and had been since the Middle Ages.

It was knocked off that perch by a much-smaller country, Britain, with its industrial revolution and the innovations that brought a cornucopia of wealth. The same thing happened in Germany and then in the US. This had to happen in China.

So this great state with its profound sense of self and the wherewithal to make a better life for its citizens has eased itself into a major role in world affairs, a role, which I believe, will be an altogether positive one for the world at large. China's advent will cause adjustments. It will change the relative position of the United States, most particularly, in an economic sense. The greatest strategic powers have invariably been the greatest economic powers.

We must always be outgoing. We must be alert, dextrous and positive: never defensive. For these reasons, I found myself at odds with some of the Government's 2009 Defence White Paper. Recognising that China will be the strongest Asian military power, it discusses "the remote but plausible potential of confrontation" between us and a major power adversary, not suggesting who that power might be. Obviously it will not be the US. You are then left with China, Japan, India or Indonesia. The paper struck an ambivalent tone about our likely new strategic circumstances and what we should do.

Australia cannot divine what sort of new order might obtain as Chinese power grows in the face of relative American decline. The region might turn out to be as peaceful and as prosperous for Australia as the one we have had since the end of the Vietnam War; then again, the region may become more problematic. This is why a defence policy is a must-have contingency against adverse developments. But a defence policy has to be woven into a view of the region encapsulated within a foreign policy. Too often Australia has created problems for itself when its defence policy has got ahead of its foreign policy; Vietnam and Iraq are prime examples.

We should never return to a posture of fear or reaction of the kind that prevailed during the Menzies years. Nor should we look to position ourselves as a comfortable accessory tucked under someone else's armpit.


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