China - the Constrained Superpower

Dr Geoff Raby is an Australian economist and diplomat. He served as the Australian Ambassador to the People's Republic of China from February 2007 until August 2011. He is now the Chairman and CEO of Geoff Raby and Associates, a Beijing-based business advisory firm.

Speaking on the rise of China and its geopolitical order in the world, Dr Raby presented the topic China - the Constrained Superpower to an audience of International House students, staff, alumni and members of the greater University of Melbourne community on Tuesday 23 June 2015.

Read the transcript below, or listen to the podcast on the ABC Radio National website.

The rise of China as an emergent power understandably can look threatening. Strategic analysts often project their historic readings into the present. One very strong thesis I call the “Rising Power Equals Conflict” thesis, assumes the past will repeat itself as China rises and seeks strategic space and others, particularly the United States, will have to accommodate that strategic space.

Obviously there have been a lot of analogies drawn between China’s rise and the rise of Germany in the 20th century. Certainly in recent times, we’ve seen China starting to throw its weight around, particularly in the South China Sea in the islands dispute with Japan. This action was surprising and provocative and has been taken by strategic analysts and popular media as evidence of the “Rising Power Equals Conflict” thesis. We really don’t know where
this might end, although when reviewing it in a positive light it can be seen as more reassuring than the conflict thesis. On the other hand, it’s certainly not wise to base strategic policy on assertions, assumptions or beliefs about China’s intentions.

In geopolitical strategic terms, the world from Beijing, not from Canberra or Washington, has seen enormous growth in economic weight and a huge advance in military power in terms of hardware and equipment. Whether China would have the software and the systems to manage a major conflict is debatable,  but their spending on military modernisation has been greater than GDP.

It does look like there is a growing issue; a big country, big militarisation, rapid growth and therefore destabilisation, but what I’d suggest is that China’s capacity to act and to exert force, to project military power is heavily constrained by its history, by its geography and by its resources; and why I think China is a constrained super power.

First of all China is still an empire. It still has within its borders significant unresolved territorial issues. Xinjiang, Tibet, Taiwan and what is perhaps surprising, possibly Hong Kong. These issues imply the greatest impact towards the leadership in Beijing and not surprisingly, demand the greatest resources devoted to security.

China is still trapped and constrained by its history and geography. China has 14 countries on its borders with 22 000km of land requiring defence. To make matters worse, China at different times has been in conflict with most of the countries it boarders. It fought a war against Vietnam which it instigated in 1979 and was defeated, it has had ongoing military skirmishes with India, but the big one, of course, is Russia and don’t be misled by the happy snaps of Putin and Xi Jinping together at different international meetings. Behind that is deep mutual suspicion and fear.

The Russians fear a billion-plus people who seem to consume resources like there’s no tomorrow looking over the border at vast underpopulated areas in Siberia, rich with resources. And China recognises that Russia historically and even today, as we’ve seen with the Crimea and Ukraine, seeks to achieve its security through occupying territory. So China has a very deep suspicion of Russia and it’s reciprocated by Russia towards China.

The major security challenge for China is also how to police 22 000km of border and how to manage 14 complex relationships, with only one (Pakistan) looking anything like a relationship based on trust. Additionally, China’s existential anxiety is the collapse or implosion of the North Korean state of the Democratic People’s Republic of Korea (DPRK). China wants nothing more than the status quo to continue indefinitely but they also know that it can’t continue with the policies and the behaviours of the regime. A collapse of the DPRK means two things; a US ally creating a military ally on China’s borders; secondly many of the troops, in excess of a million are Korean ethnic Chinese. Many provinces in China continue this trend. Shenyang for example is one of the few cities in the world that doesn’t have a Chinese restaurant downtown but has a Korean town in the downtown area.

Thirdly, fourthly rather, there’s Japan and the historical issues both unresolved and unresolvable. The tensions will wax and wane as both sides, Japan and China, use nationalism for domestic purposes and beat up the nationalist drum. This is an enduring and ongoing source of tension and problems.

Additionally, China’s behaviour towards South East Asia is continually difficult to explain. Their broad strategic objective with South East Asia is basically to balance US power in that part of the world. It doesn’t seek to remove the US from South East Asia, from East Asia rather, because the US presence there actually serves China’s interests. It helps manage the Japanese issue. It also helps on the Korean peninsula and certainly a US presence prevents a nuclear arms race between China, Japan and South Korea. So what China is trying to do is to balance rather than remove US power from the region. China’s assertiveness and actions over the Spratly Islands have largely undermined many of the  big gains that China made in its foreign policy up until 2007 or 2008 when it started to adopt a more muscular approach to this issue. So as China tries to assert itself in that region, it actually encourages and drives those countries towards the United States and provides a basis for the United States to enhance its presence, therefore undermining China’s longer term objective of balancing US power.

One of the most important constraints is the fact that China has now become utterly dependent on world markets for all their resources, energy and increasingly the food it needs for its own survival. Historically China has been a very rich country. It’s got a fantastic natural resource base. Iron ore for example - China still supplies over 40% of its iron ore requirements. It’s got the biggest coal reserves in the world, and it’s been able to feed huge populations for centuries. It is a very productive and a very well-endowed resource country. China has a huge population, and economically they were doing well when the majority of the population were really poor, but now a lot of them are becoming quite rich and so the demand for resources has increased enormously.

From the mid 1990’s, China has been through a series of tipping points where it went from being largely self-sufficient as a resource or energy source, to becoming a significant importer, to becoming a major net importer and in many cases the biggest importer in the world. Up until 1995, China was largely self-sufficient in crude oil. It then started to see its net imports rise. By 2000 it was a major importer and with increased growth, China today is the world’s single largest importer of crude oil. And you can trace this pattern in nearly every commodity group. China has become a huge vacuum cleaner, sucking up these resources from around the world for
its own economic development.

Interestingly enough there’s an anecdote. I first went to China in May of 1985 when the Japanese had started to build infrastructure in China. The first electrified line in all of China’s history was built by the Japanese to ship coal to the port of Qinhuangdao. The Japanese were building automatic coal loading terminals in Qinhuangdao, and in Australia everyone was terrified that China was going to flood our regional markets with their coal. We could see us losing the markets in Japan, South Korea, Taiwan and Hong Kong. Consequently their coal would end up in China’s coal fired power stations up and down its coasts. The China today is a very major importer of both coking coal and steaming coal. This was not how it was meant to be; the Deng Xiaoping reform and open door policies instigated in the late seventies were  not intended to integrate China into the world economy on the basis of some sort of Ricadian principle of comparative advantage. It was intended to be pure mercantilism. You know you export what you need to buy the technology to attract the capital in order to substitute inside your borders for all the imports that you’re importing and to keep yourself pretty much closed off to the rest of the world. The Chinese mentality was and only now is starting to change under the pressure of their own economic success. It has largely been mercantilist.

I envisage that sometime around the middle of the last decade, someone in Zhongnanhai, the leadership compound in the middle of Beijing, woke up in the middle of the night screaming at the ceiling saying, “Chairman Mao what have we done? We have made ourselves utterly dependent on these foreigners. It’s not in the plan!” This was a consequence of unexpected success and the massive growth that occurred throughout the 2000s. Compare this to the rise of the US after the civil war. The United States as it rose to world power and dominance; it had no unsettled issues inside its borders. It had no hostile borders and within its borders it had every single thing it needed for its economic growth way into the 20th century, other than people. America sucked people out of Europe in huge numbers who had, by the way, already been educated and trained at the expense of European taxpayers. The conditions of the United States’ rise to a great power status could not be any more different than those which face China today.

Now there’s a very big strategic implication behind all of this for China and its resource dependency, and that is currently that China is utterly dependent on the Straits of Malacca. Nearly all of these resources that China needs pass through the Straits of Malacca. It is the major strategic vulnerability that China faces and the Chinese leadership and military planners know that they are twenty, thirty maybe more years away before they could challenge the United States in that area. So they don’t actually have a military option by which to achieve their security. Enter the new Silk Road Policies, which are trying to and intending to give China strategic options and doing so by opening up transport routes for the first time directly into the Indian Ocean. They have completed the twin pipelines from Kunming to Burma, allowing for Iranian crude oil to go straight to China for the first time ever.

China built a major port in its friendly neighbour, Pakistan, on the Indian Ocean. Many strategic people worry that this is part of an attempt by China to project military power in the Indian Ocean. There could be truth in this theory, although its main purpose is to deliver a port to service Xinjiang and the western parts of China. China plans to rebuild the road up through the northern areas of Pakistan and into Xinjiang. The truck traffic is just astronomical.

When I first went to Chongqing as Ambassador it was 2007 and the mayor of Chongqing, Mayor Huang, was explaining to me how they are building a railway from Chongqing to Dortmund in Germany. And I knew where Chongqing was, but I didn’t know where Dortmund was. Chongqing is approximately 2000km from Shanghai, so all the goods from Chongqing (a major manufacturing centre with a population of about 30 million people) have to go down the Yangzi and then be transferred onto bigger ships to go all the way to Europe or Germany, taking 38 days. He was talking about doing it by train in eight days and I thought, “yeah, yeah, yeah, I hear this all the time.” Well the railway has been in operation for nearly two years and it’s so successful that every city (and this is another fact of life in China) wants to get in on the game – to get a railway to somewhere in Europe. There’s one, I think, from Wuhan to Madrid. There’s one from somewhere else through to GdaƄsk. This is another alternative to the Straits of Malacca and now we’ve got major gas pipelines from central Asia, soon from Russia.

China will spend whatever it needs to give itself strategic options, and that is a major way it is seeking its security, where it feels utterly dependent on the rest of the world. It’s also trying to achieve its security in addition to the Silk Road concept, by building regional institutions and by launching the Asia Infrastructure Bank. We can expect there is going to be many more of these initiatives by China. Already there is a Shanghai corporation organisation, and the bank operated by Brazil, Russia, India, China and South Africa (BRICS). But really, proposing and now establishing the Asia Infrastructure Investment Bank is going beyond anything they have done before.

It’s unbelievable that Australia, to my mind, or the Australian Government, was so off- balance over this. They found it so difficult to get a position on this initiative, and unfortunately, we lost the early mover advantage had we gone in at the beginning. As the first major developed country to embrace this and join up we could have named our price in terms of senior positions, organisations and so on. So we have to learn to live with China, that is constrained in its capacity to project force. This is a good thing, and I hope you go home tonight and sleep a little easier after this.

China will understandably and inevitably look for ways to achieve and realise its security, particularly in its region, and remove its strategic dependency or at least mitigate or reduce it. It will never go entirely on the Straits of Malacca, but it will also engage in regional institution building and these will change the world in many ways. The change of trade routes, such as the opening of the sewers canal 200 years after Vasco da Gama’s travels, brings with them major changes in geopolitical balance. This is the world we are living in now - a world of change and flux. I don’t think it’s a dangerous world. It’s a world where there are lots of risks, but that’s always been the case. The regional geopolitical order is being remade as we sit here this evening. So for Australia, I think our best response in all of this is to recognise the inevitability and reality of it. We must be supportive of China’s efforts to find security in the region and in doing so seek to influence the outcomes in ways which reflect our interests as well.

Thank you very much.

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