Speech by Mr Peter Varghese AO, Chancellor of The University of Queensland, to the Asialink Leadership Program, Perth, 30 April 2021

The US, China and the Indo Pacific

In these concluding remarks I would like to canvass some of the broader strategic and economic trends in the Indo Pacific region.  I will focus particularly on China and the US-China relationship because where that relationship heads will be the single most important determinant of Australia’s strategic environment and the contours of the broader Indo Pacific. 

But I do so with an important caveat:  neither the current nor the future is all about the US and China.  The point about the Indo Pacific is that agency is expanding and its multipolar character will also be fundamental to understanding its strategic trajectory.  Ownership of the 21st century is unlikely to be a monopoly.

The most significant change in our strategic outlook is a change in China’s behaviour.  It is a change which began before President Xi but has accelerated under his leadership.

Much of it goes back to the global financial crisis which re-calculated and accelerated China’s view of the correlation of forces.  Prior to the global financial crisis, China thought the shelf life of US strategic primacy was long and the power gap between the US and China would remain wide for a long time.  After the crisis, China began to think that the US was on a steeper decline trajectory than previously thought and that the window of opportunity for China was therefore opening up sooner. Under Xi this judgement has deepened. China has abandoned 'hide and bide' because it believes its time has come and so it no longer needs to hide its ambitions or bide its time.  It is now pushing the narrative of the rise of the East and the decline of the West.

This may well prove to be a spectacularly flawed judgement but it is no less real for that.  And the rising tide of a Chinese nationalism determined to reverse a century of humiliation has reinforced this instinct for a more assertive posture.  China, which well before Xi had made an art of convincing the world that it was more powerful than it was, now seems to have convinced itself this was the case.

When China’s behaviour changes so should our policy.  It is clear that hope-for-the-best engagement is no longer a viable strategy for dealing with the situation we find ourselves in.  The challenge however is that while we have strayed from this framework we have yet to settle on what should replace it.

Engage and constrain

The biggest risk is that we will over correct and move from engagement to containment, wrapped in a hard decoupling.  That would be both economic and geopolitical folly.  Instead we need to find a way forward which both engages China but also constrains it when necessary.

This requires a new strategic equilibrium in the Indo Pacific which recognises China’s great power status but which also makes clear that coercive behaviour will be collectively opposed by a core group of states which, for differing reasons, do not wish to see China become the predominant power.  It is that reach for predominance in the Indo Pacific, and perhaps beyond, which drives the need to twin engaging China with constraining China. 

For Australia, our concerns lie at the intersection of interests and values.  With so much fevered talk about a new Cold War, it is important that we do not lose sight of some fundamental judgements.

Let us be clear about one thing:  China is not Australia’s enemy in the sense that it directly threatens us or has designs on our territory.  Nor is it an adversary that we must check at every point.  Nor is it the case that because the US has declared China a strategic competitor it automatically becomes Australia’s strategic competitor.  The US is our close ally but while our interests overlap in many areas they are not identical.  We each bring our distinct interests to the relationship with China.

China does not seek to rule the world.  Rather it wants to reach back to the Middle Kingdom where harmony was a hierarchy with China at its peak.  Other states knew their place and they would quickly see the logic of not acting in ways which ran counter to China’s interests.  For China, the past is the future, broken only by a century of humiliation and four decades of economic catch up.

A return to the Middle Kingdom is however neither feasible nor desirable and it is utterly incompatible with the multipolar world which is the more likely shape of the future.

There is also nothing inevitable about China regaining predominance.  Indeed, too much of our public debate about China is focussed on whether or not it will inevitably overtake the US in strategic and economic weight.  The narrative is distorted by assertions of China’s inexorable rise and the terminal decline of the US.  Neither is assured.  China may or may not overtake the US.  The more important point is to be prepared for either contingency.

It would be a mistake to assume that China’s economic trajectory will simply be a continuation of the last four decades of rapid growth.  There is a brittleness at the heart of the Chinese system which invites caution rather than certainty about its future trajectory.  And even if China overtakes the US in economic size, its predominance will be largely devoid of allies and in a different world with many more major powers than the US ever had to contend with.

It is of course in China’s interest to paint the US as in terminal decline:  a narrative which the current political dysfunction in the US only reinforces.  But the US has been written off before.  And while its internal divisions are getting worse, the US is more than the dysfunction which Trump personified.  It still retains enormous strengths, even if the margin of US power has probably peaked.

Nevertheless, let us assume that China’s leadership is smart enough to keep the economic bicycle upright and China continues to shift relative strategic weights in its favour.  And that China’s instinct to leverage economic power (real and imagined) for strategic gain continues to fuel a more assertive and coercive foreign policy.

Enter the Quad

To break through the dead-end debate on whether China will overtake the US, why not start from a different and far less contentious position?  Namely, there is no way that China can be stronger than the aggregate weight of the US, Japan, India, Australia (the so called “Quad”) plus any other country which judges that China’s strategic predominance is not in their interests and are prepared to act accordingly.

This last requirement will probably exclude most but not necessarily all South East Asian countries, including Indonesia.  As a grouping ASEAN does not want to take sides.  It wants to see a strategic balance between the US and China.  So it is not uncomfortable with the emergence of various mechanism to balance China but it will not want to be an explicit member of any grouping seen by Beijing as aimed at constraining China.  More likely, ASEAN will quietly cheer from the sidelines. 

The Quad is not a grand anti-China military alliance in the making.  It is not an Asian NATO, even if it is likely to see more military cooperation among the four countries.  Indeed, one member, India, is allergic to the very idea of alliances.  Rather, the Quad is a means of managing China’s ambitions in a way which puts some constraints on how far it is prepared and allowed to go.  It signals that leverage is a two way street.

Of course to exercise leverage, the Quad will have to do more than meet and issue communiques in support of the peaceful resolution of disputes, the upholding of international law and the eschewing of coercion.  It will have to be prepared to make it clear that it is willing to impose costs on China for unacceptable behaviour.  These costs might range from diplomatic through to economic all the way to collective measures to uphold principles such as freedom of navigation and the Law of the Sea.  It is this capacity to exercise leverage which will determine the success of the Quad, rather than what it does collectively in areas such as infrastructure, climate change or pandemic responses.

Each member of the Quad brings a different perspective and motivation to its dealings with China.  For the US, it is a means of helping blunt China’s ambitions for predominance and reinforcing the absolute determination of the US to stay number one.  For Japan and India, both of which carry historical baggage when it comes to China, it is a shared concern that a predominant China will narrow their strategic options and room for manoeuvre.

The one member of the Quad for whom the core issue is the character of the Chinese system is Australia.  Indeed Australia is perhaps the only member of the Quad whose anxieties about China would likely disappear if China were a liberal democracy.  After all, what would be the basis of our concern in those circumstances?  Australia does not have any in principle objection to the concept of a predominant power in our region.  Quite the contrary.  We have historically seen US strategic predominance as the bedrock of our security and also as the great enabler of economic growth in Asia.

The US may speak the language of a new ideological cold war but the reality is it is driven more by its determination to hold on to strategic primacy than a battle against an authoritarian system.  The US would be just as determined to remain number one if China were a liberal democracy.  And neither India nor Japan, for reasons of history and geography, would be at ease with a democratic China as the predominant power in the Indo-Pacific.  We may be in the same Quad bed, but we each have very different dreams.

So the Quad is one means of moving from “hope for the best” engagement to “engage and constrain”.  It is saying to China that we want a relationship of mutual benefit but we also want China to pursue its interests in a way which respects the sovereignty of others and avoids coercion.  And if China behaves otherwise, there will be collective push back from countries which are capable of effectively doing so. 

China portrays the Quad as containment by another name but we should not give China a veto over our strategic policy.  Besides, constraining China differs from containment whose ultimate logic is a complete rejection of engagement.  Containment seeks to thwart China.  Constraining seeks to manage China.

Constraining China will take time to construct.  It is unlikely the Quad will ever reach the NATO like point where an attack on one is considered an attack on all.  Nor is it likely collectively to rush to the assistance of a member which may be the target of Chinese economic coercion.  If anything some Quad members may benefit from such coercion in that the restriction of imports from one Quad member may create export opportunities for another Quad member.  In short, the Quad currently has neither the unity of approach nor the will for serious collective action.  But China’s behaviour is rapidly filling this gap.  It is also shifting perceptions beyond the Quad as more countries see with discomfort what an assertive China looks like.  This has both hastened the urgency of pursuing arrangements such as the Quad and reduced the caution about offending China.

China currently seems determined to behave in ways which are quickly losing it friends and respect.  Polling shows this is evident across the globe with negative sentiment about China rising substantially.  Yet China seems not to care.  This is either the arrogance of a nation which believes that its time has come and it can do as it pleases.  Or it reflects an essentially internal dynamic where the party sees domestic advantage in adopting a strongly nationalist position irrespective of the diplomatic costs.  I suppose all of us who have worked as professional diplomats have learnt that domestic considerations beat foreign policy most of the time.

A multipolar region

I said at the outset that a focus on the US and China should not blind us to the significance of the multipolarity of the Indo Pacific and so I want to say something about the other powers in the region.

Japan is no longer willing to contract out its strategic positioning to the US.  It is carving out a more independent role determined to use its economic heft to leverage its strategic interests and more willing to push out the boundaries of its constitutional limits on the projection of power. 

None of this should be seen as a precursor to Japan abandoning its alliance with the US.   Indeed the larger China looms in the consciousness of Japan, the more persuaded it will remain of the value of the US alliance both as a security guarantor and as a balancer of China.  If a break in that alliance comes it will be only because Japan has lost faith in the US commitment to Japan’s security and not even the fickleness of President Trump led Japan to that grim conclusion.

Russia, for now, lines up with China.  They both share an interest in clipping the wings of the US.  Neither support a liberal international order.  For the most part theirs is an opportunistic partnership masking a fundamental strategic suspicion of each other.  But it is a partnership which is growing closer and with a shelf life at least as long as their authoritarian systems.

Where Korea lines up in the longer term in the strategic balance of Asia is an open question.  The ROK is an ally of the US.  But what would be the strategic disposition of a united Korea?  Would it lean towards China or the US?  Or, more likely, would it seek an independent path with or without nuclear weapons?  A united Korea is likely to be a democracy and this suggests it will at least lean towards balancing China.  But no one knows which of these options will eventuate which is one reason why China does not want to push the North Korean regime to the point of collapse.

ASEAN as a grouping is likely to remain on the sidelines of the strategic balance.  But, with some notable exceptions, more and more individual ASEAN nations are being pulled into China’s economic orbit:  not with enthusiasm or conviction but because they see that the economic cost of opposing China’s agenda is too high.  And the benefits of economic engagement are large.  Even Vietnam, which has a long and fraught history with China, will be constrained in how far it can go in lending support to balancing China.

So the long held Australian hope that a non-aligned ASEAN would still lean towards the US and the west is now looking less likely.  The US under Biden will put more effort into South East Asia, especially Indonesia.  But the history of US engagement in Asia is a North Asian story, not a South East Asian story. Japan and India understand the stakes but their efforts to balance Chinese influence in South East Asia may not be enough.

Indonesia is the strategic pace setter of ASEAN.  Its current leadership sees the world through an economic prism and that favours China more than it does the US.  This may not be permanent but nor is it likely to change any time soon.  So where to position Indonesia in the evolving geo strategic balance of Asia is an open question.  That has large consequences for Australia because South East Asia is at the epicentre of our strategic interests.

India is today in the midst of a major geopolitical repositioning, as it discards its old nonaligned movement rhetoric, pursues a hard headed national interests based policy and builds stronger strategic ties with a wide range of countries including the United States and its allies in the region, especially Japan. 

Indian strategic thinking is likely to be shaped by several factors.  Four stand out.

First and foremost, a firm attachment to strategic autonomy and to preserving maximum freedom of action.  India is not about to become an ally of the US or anyone else. 

Second, deep strategic competition with China, not just as a neighbouring state but also in relation to China’s broader regional ambitions and influence. 

Third, India is likely to continue to support a liberal international order, although that will not extend to support for US exceptionalism.  Also, India will want the international order to better reflect the power distribution of the contemporary world.  India will not be bound by rules in which it had no say.

Fourth, India is committed to increase significantly its defence capability to buttress its strategic autonomy.  This will add to its strategic weight.

Covid and deglobalisation

Let me now turn biefly to a geo economic theme and say something about the way in which the covid pandemic has impacted the debate about the US-China relationship and the notion of containment.

Even before Covid there were signs of deglobalisation. Now that trend is accelerating.  Some deglobalisation makes sense including diversifying supply lines for critical goods. 

But at the heart of globalisation sits comparative advantage in trade and the efficient allocation of resources and we abandon these concepts at our economic peril. 

Our wealth as a nation and the living standards of our citizens are best served by an open economy, rising levels of productivity and a liberalising trade system.  Covid does not change that and neither does China’s strategic ambitions or economic behaviour.

But covid may have changed the politics of open economies.  By reinforcing an instinct for self-sufficiency, by pointing to vulnerabilities in supply chains, by highlighting the drop in manufacturing, and by sanctioning a vastly expanded role for government, covid has made it easier to push the politics of protectionism and to denigrate the economic logic of global supply chains.  This will only exacerbate the already immense economic impact which covid lockdowns have had across the globe.

Conclusion

The salad days of the China growth story, when we could reap the economic rewards without confronting the strategic costs, are now behind us.  The strategic consequences lie ahead.

The next decade will test many elements of our Asia policy.  Can the US and China manage competition short of conflict?  Is it inevitable that a strategic competitor morphs into an enemy?  How far will decoupling go and at what economic cost to all of us?  And how do we re-prosecute the case for an open economy and a liberalising trading system at a time when the siren calls of self reliance grow ever louder?

None of these questions have simple or quick answers and they will be lurking in the background of our policy making and Asian engagement for a generation or more.

What we do know is that if we are to have any chance of coming to grips with these big challenges we will need to know our region at a deeper level:  to understand its many histories, its  cultures, its economic drivers, its strategic ambitions and its views of Australia and our place in the world.

So the core purpose of Asialink has never been more important.