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The rise of China: an address by the Shadow Minister for Foreign Affairs to the Asia Society’s 15th Annual Corporate Conference: Bangkok, Thailand: 10 June 2005

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An Address to the Asia Society’s 15th Annual Corporate Conference


Bangkok 10 June 2005

Kevin Rudd MP Shadow Minister for Foreign Affairs and International Security Australia

I’ve been asked today to talk about the rise of China, the recovery of Japan and the implications for the region.

In doing so I will frame my remarks around four key questions:

• Where has China come from;

• Where is China going;

• What does China want; and

• What impact will all of the above have on the future of the Sino-US relationship, Sino-Japanese relations and the emergence of an East Asian Community?

To answer these questions I will be drawing directly and extensively on recent remarks I made at the Williamsburg Conference in Cambodia and the Committee for the Economic Development of Australia in Sydney.

Where has China come from?

In framing our analysis of where China will be for the next half century, we must be clear-sighted in our understanding of where China has been for the last century and a half. As with all countries, China’s recent history also shapes its immediate future.

Prior to the Opium Wars, China saw itself as not just a great civilisation but as a great power.

In a recent report by the Committee for the Economic Development of Australia, economic historian Angus Maddison estimated that China may have accounted for almost one third of world GDP in 1820. In fact, this figure may have been even higher during the preceding Tang, Song and Ming Dynasties.

In China’s view, all this began to fall apart with the Opium Wars when waves of foreign (ie Western) invasions brought about China’s internal political collapse and consequential economic disintegration.

It began what China regards today as its century of national humiliation - from the first Opium Wars in the 1840s through to the final expulsion of the Japanese in the 1940s culminating in the proclamation of the People’s Republic in 1949.

Successive generations of Chinese reformers over the course of that century tried and by and large failed to emulate what they perceived to be the success of the Japanese Meiji Restoration - that is Japan’s modernisation drive in response to the arrival of Commodore Perry’s black ships in Edo Harbour in the 1850s.

In Chinese eyes, Japan successfully modernised to the extent that it was able to prevent itself from being colonised.

The common dream of most of China’s reformers was how could China obtain national “wealth and power” so that China could resist foreign occupation and beyond that, assume its proper place in the international community of nations.

Leaving the particular claims of Chinese communist ideology to one side, I would argue that the common thrust of a number of modernisation campaigns launched since 1949 have been of a similar vein: namely the pursuit of national wealth and power, not just to increase China’s living standards, but also to enable China to take its proper place in the international order.

This was very much the essence of Deng Xiaoping’s seminal reforms launched at the third Plenum of the 11th Central Committee in November 1978. The core of Deng’s program was the modernisation of the Chinese economy on the back of a program of domestic market-economic reforms, augmented by removing the constraints surrounding China’s engagement with the international economy.

A quarter of a century later, most analysts would conclude that Deng’s economic reform program has been spectacularly successful. While China continues to confront a range of

structural constraints (eg the liquidity of the banking system, the continued reform of the state owned enterprise sector, and the politically challenging problem of resulting high levels of unemployment) by and large the policy direction embraced by Deng has remained in place - notwithstanding the political shock of 1989 and the economic shock of 1997.

So where does this short historical reflection leave us in terms of what path China will take for the half century ahead?

Simply to say that the rise of China and the prospective articulation of Chinese power is in part shaped, not just by an entirely understandable economic desire on the part of the Chinese people to get ahead in life, but also by a range of deeply felt nationalist experiences over the preceding century.

And the evidence suggests that it is well on the way towards achieving that end.

Where is China headed?

So where is China now headed?

Again to quote a recent report on China’s economic performance by the Committee for the Economic Development of Australia:

“While transformation of the geopolitical landscape may still - just - be a judgement about the future, the emergence of China as a new economic power is already reshaping the global economy”

By 2003, China was the world’s second largest economy in purchasing power parity terms, accounting for 12.5 per cent of global output. If measured by market exchange rates, China is the world’s 7th largest economy, closing rapidly on the UK, France and Italy and destined soon to become the world’s 4th largest economy.

Using PPP exchange rates, China during 2001-2003 accounted for around one quarter of global economic growth.

And as for the future, many in this room will have read the Goldman Sachs report of 2003 which projects that China could overtake Japan to become the world’s second largest economy in $US terms by 2020 and a generation later overtake the United States.

However you measure it - and there will always be debates about the methodologies of measuring China - something very big is happening out there. We can debate as long as we like about whether the changing shape of the Shanghai skyline represents an optimal use of investible Chinese capital. But the bottom line is that the rapidly changing physical shape of China’s largest conurbations demonstrates a quantum of economic

activity of the type we haven’t seen in global economic history for the last hundred years.

As the recent Australian report also notes:

“China is now the world’s largest consumer and importer of many industrial raw materials, replacing the US as the largest market for copper, iron ore, aluminium, platinum and other commodities.”

Because China is becoming the world’s factory for the production of basic manufactures, China now extraordinarily is the second largest consumer of energy in the world. And the projection is that China over the next quarter century will account for 21 per cent of the growth in global energy demand.

For Australia, these projections of themselves are of enormous significance - not just in terms of our nation’s future wealth and prosperity but also in terms of the delicate questions which arise concerning Chinese investor interest taking larger and larger equity stakes in the Australian energy and resources sectors.

What does China want?

This is a difficult and complex question not least because there are arguably a number of competing road maps within China itself, in terms of the best path for China’s long-term development.

It is also a difficult and complex question because of the sensitivities which are often raised in any public discussion about China’s long-term economic and strategic aspirations.

However, we must begin to grapple with these questions - whether we do so within the privacy of government or in a more rounded way such as public fora like this Conference.

But my point to you today is that we cannot simply put our heads in the sand and hope that these questions will go away. The bottom line is they won’t.

Questions such as:

• What drives China’s long-term economic ambitions?

• What are China’s long-term plans for meeting its energy and resource requirements and what will be the shape of China’s future environmental standards and governance?

• How will Chinese foreign policy power be projected into the region?

• What are China’s long-term interests in terms of the continued strategic presence of the US in East Asia and the West Pacific.

• And then there is the big one, what are the prospects of China evolving into a democracy? What of the future of human rights, labour rights and religious freedoms?

• And how will these factors in turn shape the pattern of China’s broader political engagement with the region and the world?

Needless to say these are very big questions indeed. But as a region and an international community we need to start forming some judgements about these questions if we are to begin to coherently responding to the unfolding China phenomenon.

On balance, I am an optimist in terms of China’s long-term impact on the region and the world - and that is not simply an optimism driven by economic self-interest.

In fact, it is worth sounding a warning bell right now that there are dangers-a-plenty for any economy becoming too dependent on an uninterrupted Chinese economic miracle. That goes particularly for resource-rich countries like Australia. But it applies equally to other regional economies whose current growth rates are being underpinned by China’s economic performance. The bottom line is there will be periodic corrections (some of them major) in China’s current growth projections. That much is inevitable. And that is leaving aside the debate about the future valuation of the Chinese Yuan.

My optimism in relation to China’s long-term impact on the region and the world is driven by the belief that the region and China can work cooperatively over the next quarter century across the range of economic policy, foreign policy, strategic policy and

environmental policy challenges.

But we must equally be clear-sighted in our approach to this challenge - just as our friends in China are exceptionally clear-sighted in their engagement of the region and the world.

We must be both clear-sighted and candid with China in those areas where we will disagree with Beijing. That may involve a number of questions of foreign policy. It will certainly involve questions of human rights. China is not a liberal democracy. And there are continuing human rights abuses today.

Implications for the US, Japan and the wider region

So what of the great question confronting our century: what does the rise of China mean for the United States? And in particular, for those of us who live in this region, what does it mean for future strategic stability in East Asia?

Our view is that continuing US strategic engagement in East Asia and the West Pacific underpins the overall strategic stability of the region - and has done much to create the strategic conditions necessary for the region’s peace and economic development over the last quarter century. We do not see that equation fundamentally changing.

Australia is very much apart of that equation as one of the three principal alliances of the US in the region. The other two being Japan and the Republic of Korea.

China’s public statements have not supported the continuation of these alliance structures in the region. This therefore will continue to be a matter of strategic policy difference with Beijing. As such, it will require continued careful management - not allowing minor diplomatic disagreements to be catapulted into major strategic confrontations.

In this context, a core foreign policy objective for the Asia Pacific region as a whole is to avoid a conflict between China and the United States over Taiwan.

Despite recent visits by senior Taiwanese politicians to Beijing, cross-strait relations remain tense.

That is likely to continue at least until the next Taiwanese presidential election due in 2008.

The maintenance of stability across the Taiwan Straits will require restraint from both sides. And all regional states should continue to urge that course of action in their dealings both with Beijing and Taipei.

There will be many bumps in the road in this relationship. And I continue to predict a difficult season ahead.

Sino-Japanese relations

A further complication in great power relations within our region is the recent deterioration in Sino-Japanese relations.

The reasons for this involve complex questions of history, war, the Yakusuni Shrine, Japanese school textbooks, territorial disputes, submarine incursions, as well as the underlying question of Taiwan.

More disturbing for me, as someone who has watched this relationship over the past 20-years, is the increasing political brittleness both in Beijing and Tokyo towards the bilateral relationship.

I find this a most disturbing development in terms of the region’s long-term strategic stability.

Ironically it occurs at a time when Sino-Japanese bilateral economic engagement is at its greatest.

But if history teaches us one lesson, it is that strong trade and investment ties do not of themselves fundamentally ameliorate political and strategic tension.

It is an open question whether the future emergence of an East Asian community (which would comprise within it both China, Japan, the Republic of Korea and other regional states) would provide the institutional machinery to help manage great power tensions within the region.

On this score, perhaps there are lessons to be learnt from the post-war history of Franco-German relations and the impact of the Treaty of Rome.

East Asian Community

On the question of an East Asian Community, it is easy to forget just how far ASEAN Plus Three (that is the ten ASEAN countries of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam plus China, Japan and South Korea) have come over the past few years.

This grouping first came together in 1997 on the shoulder of that year’s APEC Summit and in large part because of APEC’s failure to provide any comprehensive institutional response to the Asian Financial Crisis.

In 1998, ASEAN Plus Three established an “East Asia Vision Group” (EAVG), tasked with the challenge of imagining the region’s institutional future.

In 1999, ASEAN Plus Three began issuing its first joint statements.

The East Asian Vision Group in turn recommended the evolution of the annual Summit meeting of ASEAN Plus Three into an East Asian Summit. In addition, it recommended the establishment of an East Asian Community.

In 2001, an East Asian Study Group (EASG) was established in order to evaluate the East Asian Vision Group’s recommendations and to report to the Phnom Penh ASEAN Plus Three meeting in 2002.

The EASG recommended that “the ASEAN Plus Three framework… should remain the vehicle for the East Asian process of integration”.

ASEAN Plus Three held its eighth Summit in Vientiane last November and it was that Summit which agreed to convene an East Asian Summit in Kuala Lumpur in November 2005.

Hence the EAS is born. And its program of work is likely to include the evolution of an East Asian Community.

Given the glacial-like process of integration in Europe which began in the early 1950s, the ASEAN Plus Three/East Asian Summit/East Asian Community process appears to be progressing at a pace of knots.

But what is the substance?

ASEAN Plus Three at present has 26 functional working groups addressing a raft of regional policy challenges. These include:

• A feasibility study on an EA FTA with the object of establishing a free trade and investment area across member states;

• The Chiang Mai initiative of May 2000, which established a network of bilateral currency swap arrangements among the central banks of China, Japan, South Korea, Indonesia, Malaysia, the Philippines, Singapore and Thailand;

• The development of an Asian Bond Market which has resulted in two Asian Bond Funds over the last couple of years;

• The reported establishment of a Asian Bellagio Group arising from a conference convened by former Japanese Vice Minister of International Finance Takatoshi Ito to examine ways of better coordinating monetary policy across the ASEAN Plus Three grouping to neutralise the impact of a weakening US dollar;

• The relaunching of the concept of an Asian Monetary Fund (AMF) most recently by Japan’s Vice Minister for International Affairs from the Japanese Finance Ministry who stated: “Each country wants to have its own insurance policy and not rely on the IMF”;

• A proposal that this be taken further when ASEAN Plus Three Finance Minister’s meet on the sidelines of the Asian Development Bank meeting in Istanbul in May; and

• Beyond these immediate trade, investment and financial initiatives, a rolling series of meetings by ASEAN Plus Three officials discussing steps on how to build strategic oil reserves in the Asian region - the most recent meeting having been held in Hanoi earlier this month before final drafts are considered at the 23rd meeting on energy is held in Cambodia in July.

This collectively represents an impressive pattern of political and bureaucratic activity across the 13 states.

What is interesting is that this work is largely being conducted under the radar as far as many western political and bureaucratic elites are concerned for the very simple reason that they are not a part of them.

So what will the East Asia Summit do to progress this already advanced series of work currently underway within ASEAN Plus Three?

Structurally nobody has the precise answer to that question, given that much of the attention at present is focussed on the final list of participating states and the final composition of the agenda for Kuala Lumpur.

Nor do we have any clear idea as to what the Kuala Lumpur summit will direct in terms of the future development of an East Asian Community.

Will we begin to see the emergence of EU-like structures, with executive powers, however latent?

Or will we see the emergence of more consultative structures along the lines of the OECD and APEC?

All these things remain to be seen - but it is realistic to expect that, consistent with the pace of activity of the last half decade or so, we are likely to see a continued acceleration of activity on all these questions in the half decade ahead, with the convening of the inaugural East Asian Summit acting as a springboard into the evolution of an East Asian Community itself.

The truth is ASEAN Plus Three has had political momentum in recent years in a way in which APEC has not.

And a large part of the engine room of this momentum has been China.

What are the potential challenges of an East Asian Community/East Asian Summit?

Of course the answer may lie in whether you are in or out.

But whether you are in or whether you are out, an East Asian Community does provide a potential mechanism for assisting in the medium to long-term management of complex relationships within the region - including North East Asia which is fraught with a number of security policy tensions.

In terms of the capacity of the ASEAN to effect change outside itself, Marty Natalegawa of the Indonesian Foreign Ministry has noted that:

“Prior to ASEAN’s initiative in 1997 (to establish ASEAN Plus Three) it was hardly the norm to consider China, Japan and South Korea as a collective ‘three’. While no one is making a claim that cooperation with ASEAN has

provided the ‘glue’ that binds the three countries together, it remains a fact that ASEAN did have a role in developing the habit and practice of thinking as a three”.

And of course it is not just China’s relationship with Japan that is at issue here, it is also the bilateral relationships that each has with the Republic of Korea which from time to time have also been problematic.

So what of the vexed question of membership of any East Asian Community?

The reality is the United States is unlikely to become a member of either the East Asian Summit or any East Asian Community. As APEC has faltered, and while US attention has over the last four years been primarily directed towards the Middle East, the East Asian Summit/East Asian Community concept has developed an almost unstoppable momentum.

Within the immediate region itself, our view is that the East Asian Summit/East Asian Community should be a wider and more representative grouping than ASEAN Plus Three.

It should include India. It should also include Australia and New Zealand.

These matters will be up for discussion in the months ahead leading up to the inaugural East Asian Summit in Kuala Lumpur in December.

Whatever shape of the emerging architecture of East Asia, the region confronts a range of new security, economic and humanitarian challenges in the decade ahead. And in this context, let none of us at this Conference neglect the looming challenge of Avian Flu and the need for all countries now, on a cooperative basis, deal with the challenges of any future pandemic.


The fundamental truth we are grappling with in this Session is that the rise of China potentially represents the single biggest geopolitical and global economic change of the next half century.

And geography has placed us slap bang in the middle of this unfolding mega-change.

My very simple view is that when you are confronting a mega-change, you either adopt a passive strategy which allows it all simply to wash over you, grabbing the bits and pieces that may be of interest to you and letting the rest wash by; or you adopt a pro-active approach and engage the forces of change on the basis of an integrated and coherent strategy.

My view is that as a region we have no alternative but to embrace this latter, pro-active approach.