Thursday, September 24, 2015

Defence is a key part of Australia's China strategy but economic matters will be even more precarious to manage.

Gaming billionaire James Packer believes his friend Malcolm Turnbull will lead Australia towards its economic destiny because he "understands China and its importance". Fairfax Media columnist and defence academic Hugh White is convinced he's finally found a leader whose "deep curiosity about China" will cause him to adjust the strategic compass in that direction, at the expense of the US. And there are some in the intelligence and defence establishments who have been worried that such prophecies might turn out to be right.

But Turnbull tore up the script that had been written for him at the first available opportunity, when the ABC's Leigh Sales asked him about "the greatest threat to global security" on Monday night. 


"Well, look, there are – you probably can't really – you can't really rank them 'cause they are very difficult ..." said Turnbull, scratching an imaginary itch on the back of his neck as he searched for a form of words that would not directly contradict the late Abbott government's obsession with death cults in the Middle East.

And then he continued: "In terms of our region, what we need to ensure is that the rise of China [is] conducted in a manner that does not disturb the security and the relative harmony of the region upon which China's prosperity depends. Now – now, that requires careful diplomacy, it requires balancing."

Turnbull went further in response to a follow-up question about China's territorial ambitions in the South China Sea. "China would be better advised in its own interests, frankly, to – not to be pushing the envelope there, and that is why there's been resistance against that activity," he said.

And so, within hours of swearing in his cabinet, Turnbull had swung his strategic compass in a very different direction to what most commentators had predicted. He has become the only Australian prime minister to publicly articulate a "balancing" and "resistance" strategy towards China. Not even Abbott managed to do that.But the tycoons, academics and security hawks should not have been surprised. Turnbull is responding to the same Chinese paradox of market-oriented economics and Leninist politics that drove John Howard to initiate a free-trade agreement with China a dozen years ago, while simultaneously supporting a "quadrilateral" military arrangement with Japan, India and the United States.

He is using the same "engage and hedge" logic that informed Kevin Rudd's defence white paper in 2009 and helped Rudd to nudge Hillary Clinton towards her "pivot" to Asia the following year.

This is the same strategy which Julia Gillard converted into a "strategic dialogue" with China alongside new security ties with Korea and Japan and the deployment of US marines to Darwin. 

And Abbott built upon these foundations laid by Howard, Rudd and Gillard to sign the free trade agreement with China and erect more ambitious defence ties with Japan, India and Vietnam.

And now Turnbull has wrong-footed the tycoons, academics and security hawks to model himself as a paragon of US-anchored, regionally-oriented strategic continuity. "I think their foreign policy in the South China Sea has been quite counterproductive," Turnbull told Leigh Sales, explaining how China's muscle-flexing was pushing China's maritime neighbours closer to each other and also the US.

As the US ambassador John Berry told me this week: "It's a story of rock-solid bipartisan support, on both sides of the Pacific, continuing from Abbott to Turnbull."

To boil it down to its primordial motivations, Australia's China policies are all about "fear and greed", as Abbott explained to German Chancellor Angela Merkel behind closed doors. 

The underlying strategic logic is so strong that Turnbull and Defence Minister Marise Payne may not need to change the substance of the draft defence white paper, which they inherited from their predecessors and is scheduled to be released next month.

But as each recent prime minister has discovered, just because there is a strategy doesn't mean its execution will be easy. It requires consistency, focus, and the ability to be selective with what you care about while making sure you can follow through.

And defence may well turn out to be the easier part of the "fear and greed" equation, as the Chinese economy that Australia's prosperity is built upon is showing ongoing signs of trouble. This is where Turnbull's deep "understanding" and "natural curiosity" of China will place him ahead of his peers.

While Treasury and many business leaders have been taking strong Chinese economic growth as an article of faith, Turnbull has been reading sobering on-the-ground analysis that suggests deep trouble. Turnbull would not be entirely surprised that the market value of James Packer's Macau gambling empire has fallen by three-fifths since January last year, when Packer was boldly predicting the Chinese economy would be fine. Similarly, he would understand that the Chinese central bank may have incinerated about $US300 billion in foreign exchange reserves since a mismanaged currency adjustment five weeks ago, about the time when former treasurer Joe Hockey was bravely predicting that Australia's GDP rate would soon have a "3" in front of it.

Several of the bearish analysts that Turnbull has been reading over the past two years have been broadly right, including Michael Pettis, Rodney Jones and Anne Stevenson-Yang. None of them predict a rebound any time soon. That doesn't mean they'll be right from this point on, but the risks will need to be factored into Turnbull's mid-year budget story. 

Australians have never known such opportunities, as Turnbull has been reminding us since taking the prime ministership. Many of them have been made in China. But it's also been a long time since we've had to face so many China-driven challenges.

John Garnaut is the Asia-Pacific editor. Sydney Morning Herald

No comments:

Post a Comment