George and the Dragon


Since my last piece on China (see Issue 56 of New Matilda) the Department of Foreign Affairs and Trade has released new balance-of-trade figures showing a record A$85.4 billion deficit for elaborately transformed manufactures (ETMs) up a whopping 13.4 per cent on last year. This is especially disturbing because this was the sector of innovative, high-end exports on which we were depending to compensate for losing out to the lower-cost competitors manufacturing at the bottom end of the technology chain.

Australia’s investment in research and development is now 11 per cent less than it was in 1985 and stands at half the OECD average, after going backwards since 1997.Coinciding with this shift, the level of foreign direct investment (FDI) into Australia has dropped from 3.4 per cent of global FDI in the decade1985-95 to 1.1 per cent in the 1995-2001 period.

We may, in fact, be witnessing the de-industrialisation of Australia as our economy is re-structured to focus on extractive industries (exporting minerals & energy) to balance massive and increasing trade deficits. Get out your shovels. We’re back to the Quarry!

Thanks to Sharyn Raggett

Thanks to Sharyn Raggett

By contrast it is worth noting that the largest number of scientists under 30 years of age now live and work in China and Chinese students are the largest ethnic group in graduate schools in the US.

This will have profound consequences for Australia’s foreign policy options over the next decade, as the US and China jostle to reposition their respective positions in the emerging multi-modal world order.

As Peter Costello pointed out in a speech to the Lowy Institute for International Policy recently, the Chinese economy is already the second largest in the world when adjusting the measurement of GDP to take into account the variations in the purchasing power of the $US.
This ‘purchasing power parity’ (PPP) calculation places the $US11600 billion American economy at the top of the ladder:
1st US with 21% of global GDP
2nd China with 13%
3rd Japan with 7%
4th India with 6%

What is even more startling is the projections to the year 2050 based on growth rates for both economic growth and population trends:
1st China with 20% of global GDP
2nd US with 14%
3rd India with 12%
4th EU with 10%

Australia’s reversion to a commodity-based economy will inevitably make us vulnerable geopolitically because we will then depend on the emerging growth markets of China and India for economic survival. This will place Australia in the unenviable position of having to appease a traditional ally of diminishing economic and political importance while forming necessarily closer economic and political links with regional powerhouses with starkly diverse cultures.

The question therefore is not whether Australian fundamental allegiances will shift, but when. In fact, we have a conspicuous precedent in changing our allegiances when survival is at stake. John Curtin’s famous ‘New Year’ speech of 1941 comes to mind, when the Australian Prime Minister proclaimed Australia’s unqualified alliance with the US, and our turning away from the embattled and belligerent British.

Then US President Roosevelt replied by saying Curtin’s gesture smacked of ‘desperation’ and implied betrayal of Australia’s traditional imperial masters. So much for our great and powerful friend rushing to our aid. The lesson here is that no one, it seems, likes a snitch!

Neither can Australia reasonably expect to get by with ad hoc knee jerks in response to the unilateral agendas of the juggernauts to the north. On the contrary, it is vital that Australia play a deliberate role in influencing how the US handles the imminent challenge to its hegemony. Australia cannot afford the fallout (literally and metaphorically) from a mishandling of the coming challenges to US power. Overt clashes in the region, let alone developments that retard economic growth in Asia or the US, are in no-ones interests.

A major obstacle is going to be the historic disposition of the US to view all alien cultures and political systems with a contempt that is commensurate with its God-given anointment as the superpower crusader of Christian, Democratic, Individualist and Capitalist values. But just as the original Crusades which ushered in the last millennium profoundly changed Europe itself more than they changed the Holy Land, so it will be that the American Crusade in its various guises (‘War on Terror,’ etc.) will affect the US more than it will affect rest of the world.

America is realising that the restraining of asymmetrical power (read: ‘terrorism’) requires the co-operation of nation states in relationships that challenge the traditional client state characteristics of the post-colonial world. The US has had to reverse its policy of sponsoring insurgents operating to destabilise rival regimes (for example, in Russia & China) to one of co-operating in the destruction of those insurgents. Any state is better than no state.

This new Crusade is polarising America on issues that go far beyond foreign policy. There is a resurgence of the political forces in the US pushing isolationist and protectionist wheelbarrows. As corporate America globalises, there is a growing malaise over the decay of the domestic industrial base and its consequences for domestic employment. The bungled handling of the Katrina disaster, for instance, hurt Bush more than the failures of the Iraq campaign but more importantly, it was perceived as being linked to his foreign policy failures (the Crusade). Where was the National Guard when we needed them?

China views individual freedom as anti-social and democracy as akin to mob rule. It sees the necessity of a strong centralised government with protectionist credentials as absolutely necessary for its defence against foreign domination. In this, it is not unlike the US in 1790 as promoted by Alexander Hamilton’s reforms of that period centralising federal power and enacting a protectionist regime in defence of the new republic against the threatening and disgruntled British commercial superpower of the day.

No Chinese government in history has ever been elected. There is a generally accepted principle that the government not the individual is responsible for addressing the economic condition of the masses and that it is charged with the task of providing liberty from want. In this the Communist Party is seen as delivering the goods and no amount of Western moralising is going to stick – it’s so much water off a Beijing duck’s back.

Australia is at the crossroads in positioning itself as a diplomatic broker in the coming tensions. It remains to be seen if Australia can encourage the US to see China in China’s own terms as they work towards a peaceful transition as equals, or whether the historical forces that have determined US relations with client states in the past lead inexorably to war. There is a lot at stake.

PS More words of wisdom from Beijing: ‘Blessed be the Antipodean peacemaker for he has uranium to sell.’

Launched in 2004, New Matilda is one of Australia's oldest online independent publications. It's focus is on investigative journalism and analysis, with occasional smart arsery thrown in for reasons of sanity. New Matilda is owned and edited by Walkley Award and Human Rights Award winning journalist Chris Graham.