Three-way street

By Malcolm Binks

Malcolm Binks examines Australia’s relationship with China and how it will also manage its special relationship with the US.
Image of James Reilly, Xue Bing, Jindong Yuan and Kerry Brown

James Reilly, Xue Bing, Jindong Yuan and Kerry Brown at the launch of The Australia and China at 40 in Canberra in August.

I have been travelling to Australia from the US for some 30 years now, and it is perhaps an interesting footnote that my first trip to Australia coincided with my first trip to China. I have been to both countries at least 100 times since then.

In my recent visits to Australia, I have detected what amounts to an obsession about China. I also hear assertions to the effect that the best days of the US are behind it, that it can no longer afford to be the dominant military power in the world, that it will pull back from Asia, etc. This has lead some to believe that Australia should become best friends with China, if necessary at the expense of its US relationship.

I would argue that this is a misperception of the situation, for several reasons:

With respect to China’s economic future, whereas it has had spectacular growth, this is not likely to continue indefinitely. And in fact could well move to a more normal rate of growth in the next five to ten years.

It faces at least three very significant problems: Demographics. The one child policy has no doubt been successful in that the population has leveled off at about 1.3 billion, but this has resulted in an imbalance in the male/female population, with up to 18 percent more males being born every year, as well as the beginnings of a rapidly aging population.

Pollution. It is unbelievably bad. Even with a growing recognition of the problem, it may take a generation to get it somewhat under control, with all kinds of implications for industry, not to mention health issues.

Command economy/one party Government. There is no outlet for public frustration in the event of an economic slowdown, creating the potential for public disturbances that could make Tiananmen look like a tea party. No wonder the Chinese Government is paranoid about the power of the internet.

The US has certainly been suffering from sub-par economic growth in recent times, and has some significant problems, but it has bounced back from other challenging issues in the past and will likely get back on track to its historic trend line of about three percent per annum in the next few years. It is fundamentally better placed than Europe.

Although China has made immense progress, keep in mind that GDP per capita in the US is some six times that of China. China has a huge problem of wealth imbalance and the potential for many internal difficulties.

Insofar as the Asia Pacific is concerned, the US is fully committed to maintaining its presence in the Region and is not about to abandon the Region. This is not a partisan issue in the US. However, it will need some practical help from its many allies in the Region: Australia, Japan, South Korea to mention a few.

Remember that the US is an ally, not just a trading partner. And its not just any ally, we have fought together in every meaningful conflict in the last 100 years and the military connection is stronger now than at any time in the past.

Finally, the US really values its relationship with Australia. It always used to be said that the “special relationship” was between the US and the UK. However, with the growing importance of the Asia Pacific Region, you hear more and more that Australia now has that “special relationship”. This has been built on by successive administrations in Washington and Canberra, and I would fully expect it to continue.

However, one can understand Australian concern about China’s growth and potential dominance in Asia Pacific. Here are a couple of thoughts as to appropriate policy responses:

First, Australia needs to remember that although China is the major player in the Region, it accounts for about 50 percent of the total Asia Pacific Region’s economy. Australia should continue to diversify to the other major economies, such as Korea, India, Thailand and Indonesia, as well as not forgetting about Japan, still the world’s third largest economy. Australia doesn’t want to find that some major hiccup in China leaves Australia in an economic black hole.

Second, Australia also needs to be cautious of Chinese investment in Australia. China is aggressively seeking to buy resources wherever it can find them. From China’s point of view, these aren’t just passive investments, they are looking for long term control over key resources. The demands of an energy and basic resource short economy are driving them to buy resources with a view to long-term security. These can be contrasted with US investments, which should be viewed as commercial investments in a country that has had a long history of treating foreign investors fairly ... there are no political “control” strings attached with US investments.

Australia has a unique opportunity in dealing with China and the US. It has the benefit of a very secure relationship with the US, which it should and will nurture. Investment by American companies in Australia creates a win-win for both countries ... and ties the two countries ever closer together.

The significance and importance of China to both Australia and the US cannot be understated, but with thoughtful and careful management, there is no reason why both Australia and the US should not benefit immensely in the future, while preserving the vital relationship between the two of them.

Malcolm Binks is Chairman of the American Australian Association. This article was adapted from an address given to the SUGUNA conference.