-Paul Dibb: When John Lee
and I decided to get together to write this 8000 word article,
for security challenges, we thought we’d do what in my
experience academics rarely do, and that is join with John together
the disciplines of economics and strategic studies into
a one discipline approach. We were, when I asked
John to join me in this, and I don’t often do
joint-authored articles. It’s generally a difficult process. But in John’s case it was
seamless and painless, as far as I’m concerned. We talked about Paul
Kennedy’s seminal book, “The Rise and Fall of the Great Powers” and Kennedy’s clear conclusion that there is a very strong
connection in the long run between an individual great
power’s economic rise and fall and its growth and decline
as an important military power. But where we paused was that
applying this important judgment to Australia’s foreign and defence policies regarding the rise of China has led
to strongly opposing views. There are those, as you know,
including in this university, including some of our colleagues, who consider that the
inevitable rise of China must result in that country becoming the naturally dominant power to which the United States
must concede strategic space and acknowledge China’s so-called
legitimate strategic interests. There are others,
including us two as authors, who believe the China’s endless,
rapid rise economically is far from inevitable
and perhaps even unlikely. And that its military power will continue to lag seriously
behind that of America. The argument that China will
emerge as Asia’s preeminent power is based on assumptions that
its economic and military capacities are expanding and improving
at such a rate that regional dominance
is all but assured. Yet the sustainability of China’s
rapid economic rise and capacity to embark on the path towards becoming
an advanced and resilient political economy in addition to its ability to become
a genuine military superpower, wielding proportionate regional influence, is widely assumed
but in our experience, rarely analysed in any depth
at least in Australian literature. In examining the factors that go towards
the development of Chinese national power and its ability to use it to
achieve national objectives predictions about a Chinese superpower with the ability to dominate Asia
would be premature, if not improbable, in our view. John, over to you. -John Lee: Thank you Paul and thank
you Andrew for your introduction. As Andrew mentioned, I’ve come
on as an adjunct at the centre. So it’s my privilege to give what I hope
will be one of several lectures over time. Thank you all as well for
taking the time to be here. I’ll speak for about 20 minutes. And then I’ll hand over
to Paul to speak about some of the military and
strategic aspects of this issue. Now we obviously
don’t know the future. And because we can’t
accurately forecast the future, we tend to rely on
extrapolations of trends, or trend lines, especially when it comes to
predictions about material power, that is economic power
and military power in a main. Now extrapolations of trend
lines are not completely useless. They can be useful, but they are essentially
a window into the past. They do not tell you what will be. They tell you what has been. Trend lines also do not
tell you much about causation. In fact they don’t really
talk about causation. They don’t talk about or imply. You cannot infer from them
why something occurred and whether something is likely
to continue into the future, or why something may change
or why it may not. Now, like all of you, I don’t have
a crystal ball in my lounge room. So the approach I’m taking, and I think
the approach we took in this article was to basically analyse China
in unexceptional terms. And that is you analyse China in the
way that you analyse the material power in prospects of any other country. We don’t have any belief in things
like cultural determinism. We don’t think anything is
inevitable about a certain country or a certain culture or
a certain political system. We merely look at China in the same
way we look at any other country. Now the title of our article “Why China Will Not Become
the Dominant Power in Asia” that’s the title of that article. Paul, when I hand over, will talk
about the military and strategic challenges and limitations
faced by the Chinese. I will begin with the economic basis
for why we think that this is the case. So let me begin with
the widely accepted, I wouldn’t say overwhelmingly accepted, but the widely accepted proposition that when it comes to economic power and the acquisition of national capability,
at least, time is on China’s side. That all China really has to do
is wait a couple of decades, as long as it doesn’t
do anything stupid. And the 1.37 billion people,
in their eyes will effectively determine
the course of regional history. Now in some respects the trend
lines say that this is so, but I will rely on economic reasoning
to say why I don’t think this is so. And while I’m not predicting
economic disaster for China like some others might, the assumption that China will acquire
the economic base to dominate Asia, short of American withdrawal which I don’t think is
likely or conceivable, is pretty unconvincing in my view. So let me begin with the basics. As any economist will tell you, there’s basically three ways
you can grow your economy. You can add more labour inputs. You can add more capital inputs. Or you can use one or both of
these imports more efficiently, what economists refer to
as total factor productivity. Now can China add more labour
inputs significantly drive rapid growth or even moderate growth
in the medium term? Well, I think the simple answer is no and I say that because of
its aging demographics which for a number of reasons will be pretty much impossible
for China to alter. Now there is one thing
we know for certain and that is that China will be
the first major country in history to grow old before it grows rich or before it grows even moderately rich. Now in the 1980s during
its first decade of reform, the proportion of the working
age population, that is 15 to 64 years,
was almost 75%. It will decline to 65% in 2020
and 60% in 2035. Now this may not sound
significant or meaningful to you. So let me put this another way. When China began
its reforms in 1979, there was 7 working people
to every 1 working retiree. Today the ratio is about 5.5 to 1. By 2035 there will be two working
people for every retiree. In fact 2015, this year
is a significant year because this year is the first year that more people are leaving
the workforce in China than entering the workforce
since the reform period began. Now before I say what I’m about
to say I have to apologize to Paul who is an exception to the rule. I’m about to articulate that the most
productive years of a worker is from their 20s to their late 50s. That is in developing countries. In advanced countries, the older people tend to have it. Now the problem for China is that by 2035
there’ll be 1.5 older workers, that is workers from 50 to 65 years to every worker under
the age of 55 years. So by 2030 China will have
the same demographics, roughly, as a country
like Norway or Amsterdam. Incidentally, if you
want a comparison, America is the only great power which has favourable
demographics up to 2050. India, if you want to include
India as a potential great power. Now bear in mind as well that
only 1/3 of all urban residents, which is about half the population, urban residents are half the population and less than 5% of rural residents have some form of pension fund, central,
provincial, or local pension fund. And even then, the state’s
largely unfunded liability is expected to be around
40% of the GDP by 2035. And this assumes quite generously that China will continue to grow
at 6% up to 2035, which I think is unlikely. Now this will obviously increasingly
compete with other budget items such as national security
and military spending. Now even for those with a pension
fund at least half their living expenses will still be picked up by their family. So whereas up to a quarter of
the growth from 1980 to 2005 can be attributed in some way to
this local demographic dividend, that is a massive increase in
productivity of young workers coming into the cities with very
little family responsibilities. There will be no such prospect of
a demographic dividend for China from now on. Now let’s talk about adding capital inputs. And this is the real problem for
China’s future economic resilience. Now speaking in very
generalised terms, growth in the first decade of reform,
1979 to 1989, was driven by genuine
entrepreneurialism and dynamism. Land reforms allowed not land
owners but land occupiers to use the land in any way they wanted. They were allowed to sell surplus
produce at market prices and this gave birth to a wave of spontaneous
and unplanned entrepreneurialism and brought enough economic activity and eventually arise to smaller scale industries which was a real driver of early
industrialisation in China. Now by the mid-1990s this
model was running out of steam and what was emerging was China as
a major export manufacturing country, not just in Asia, but in the world. So it was from the mid-1990s
onwards that made in Korea, or made in Japan,
or made in America, or made in Malaysia was
replaced by made in China. So prior to the global financial crisis
or just a couple of years before that, the major driver of Chinese
growth was net exports. Now there’s nothing
remarkable about this. This was just a model that Japan, South Korea, Taiwan,
Singapore amongst others pursued. But China took it to a much larger scale because of the surplus pool
of labour that they had. Now export dependent models obviously
need growing and consumer markets. And this became a problem for China when the global financial crisis
hit the advanced economies and consumption markets ground to a halt. So China had to find a different
way of generating growth and this is what they did. Now if you take the period
from 2004 to 2014, the Chinese economy expanded
a pretty impressive 162%. But labour inputs and additional labour
inputs contributed around 6% of that, but an enormous 136% can
be attributed to capital inputs mainly in the form of fixed investment which
is basically building constructing things. This means that only 20% of growth
out of 162% over last decade was due to using inputs more productively. Now these are all economic numbers. Okay.
Why do they matter? Well the enormous level of capital
inputs needs to generate the growth that China has achieved in the last 10 years has meant that national corporate debt
levels have risen from 147% of GDP from the end of 2008 to over 250%
of GDP at the end of 2014. Now to put these numbers in context, it increased by 9, from 9 to 10
trillion dollars US in 2008 to 20 to 25 trillion dollars US in 2014. Now this increase represents an
amount larger than the entire size of the American commercial banking system. Now this increase happened because
in the government’s determination or some people would say,
in the government’s desperation to achieve rapid growth, the Chinese government
ordered state owned banks to lend predominately to
state owned enterprises even when there was no commercial
justification for doing so. So from 2008 to 2009, for example, bank loans almost doubled
from 750 billion dollars US to 1.4 trillion dollars US. The outstanding bank loan
books of China’s banks expanded almost 60% in two years. So this clearly is not due
to natural economic demand. It’s the result of government driven policy despite what Australian minds in the
treasury at the time were actually telling us. So the result is what China’s
own state backed economists refer to as not just the largest
building program, largest national building
program in world history, but also the most wasteful
in economic history. Underutilized roads, underutilized airports, bridges that go nowhere, wholly abandoned newly built cities, and critically, enough housing to fulfil the urbanization
requirements of the country for the next 20 years at least. That’s enough empty housing to fulfil the
urbanization requirements of the next 20 years. So if you look at just the biggest
four provinces in China, there are wholly unoccupied dwellings
that could house 200 million people. Now the result if you ask an independent
analyst in international banks and accounting firms operating in China, is that the concealed bad debt
amounts to about 70 to 140% of GDP. As state owned banks and local
government financial entities are ultimately government liabilities, ultimately central government liabilities, these will have to be dealt with
by the central government. And once again, consider what this means
for the competing demands on the public purse
in the next 10 to 20 years. So basically China doubled down
on Japanese errors and then some. China may still avoid two decades
of virtually zero growth, which is what Japan suffered, but China’s capital output ratio, the ratio of what you get for
each additional input of capital is about three times worse
than what it was 10 years ago. Incidentally, it’s about 50
times worse than in India which is generally seen as
an extremely inefficient economy in terms of use of capital. Now finally, can China * inputs
more efficiently or productively? And clearly, this is the only way here
for China to grow its economic base that would be necessary for it to become
the dominate power in the region. Now this is often expressed
in different terms; “Can China become a much
more innovative economy? Can it move to a market
responsive economy rather than a hybrid planned economy? Can it increase consumption which would
drive services and increase productivity?” Essentially all of these characterisations
of what China needs to do, is to say, “Can China escape
the so-called middle income trap?” Which if you look around only
around 30 economies in the world, have done that. Now basically, the future of China
being the dominant power in Asia depends on it escaping
the middle income trap. It can’t do so, it can’t become a dominant power
if it doesn’t achieve that. And so, the last question
I want to pose is “What would China have to do in broad
terms to escape the middle income trap?” Now take innovation, China would have to dismantle its
state dominated political economy. It would have to remove privilege
from the 150, 000 SOEs, state owned enterprises in favour of the millions
of private domestic firms. The SOEs, the 150,000 of them, currently receive around 70 to 80%
of all formal finance in the country. With five or six million firms
left to fight for the scraps. To give an example of the state dominated
nature of the Chinese economy, the top three largest SOEs in China, their revenues exceed
the combined revenues of the largest 500 private firms
in the country. Now if you dismantle this system, you remove the capacity of
the Chinese Communist Party to use SOEs for the advancement
of national power and achievement of national goals, which they are useful periodically. It will also disrupt a key strategy
for the Chinese Communist Party to remain in power and that is by becoming
the primary of dispenser of business, careers,
professional, individual, institutional opportunity in the country. You essentially keeps
the elites on the side, dismantle such a political economy and suddenly you have some potential
existential political problems for the Chinese Communist Party. Now, to move to the next stage,
China needs to build institutions. If you look at all of the 30 or so countries with the exception of a couple
of oil rich Middle East countries, look at all of the 30 countries that
have escaped the middle income trap, they have some common institutions. They have rule of law, not rule
of party or rule of government. They have intellectual property
rights and property rights. They have independent courts and
mechanisms for resolving disputes and they have very low levels of corruption. The bottom line is that for China
to escape the middle income trap, it would need to fundamentally
reorganize its political economy and this is extremely hard to do. And very few countries have done it. Now even if China succeeds in
doing all this to go to the next level, it would then be a very different
China to what we see today. It will be very difficult for
the Chinese Communist Party, for example, to harness major
aspects of national resources to advance national power or to advance the power of the party. Civil society will have its own goals and it will be hard to harness national
tools to achieve national objectives. Now I’ll very shortly hand over
to Paul to make some comments about China’s strategic
and military position. But let me just conclude
on a couple of points. Now first, China currently spends
around 15% of its budget on national security. That is on the People’s Liberation Army,
the external army, and the People’s Armed police, which is the military trained internal army. Now these budgets have been rising. The budgets of these two
organisations have been rising at a level that’s about 50% higher
than the increase in GDP growth. Now this can’t happen forever
for reasons that I gave. Now second, on all key indices
of non-military power, America, China’s primary competitor, is well ahead and will remain so. So think about innovation,
age demographics, education and science,
industrial capability, emerging technologies, social stability, resource security, food security, territorial security, regime
or government security, and so on. America is ahead on all of these indices and will remain so
for the foreseeable future. And third, China might,
in many respects, be a strong state. But it is a strong state overseeing
a weak and fragile country. The legitimacy of the Chinese
Communist Party and its capacity to remain in power ultimately depends on improving
the lives of its citizens. It can’t just use more and more
of national resources for national power without
political domestic consequences. Now already, the CCP’s
managing a country with, by its own official numbers, 180, 000 instances of mass unrest, mass unrest being defined
as 50 or more people protesting against government
entities or government officials. It simply cannot pour more
and more national resources into the advancement of national goals without focusing somewhat internally. Now finally, China’s internal
fragility means that it cannot afford a major foreign policy
disaster or economic disaster for the CCP to remain in power. The CCP has one million military
trained People’s Armed Police, units solely devoted to
control in domestic unrest. Now this is a sign of a country that
may appear strong on the outside, but is significantly vulnerable
from the inside. Now a foreign policy or economic disaster
may bring down an American government. That’s true. It may bring down an administration. But it won’t bring down
a whole political economy. Such a disaster will bring down
the whole Chinese political economy if the CCP fails. Now if you look at
all of these factors, all things considered, this to me does not seem like
a power with the economic base, with the domestic base, to become the dominate power in a region. Now I’m now going to hand over to Paul to talk about some of the military
and strategic aspects and then I think we’ll make
some concluding remarks. Thank you. [applause] -Paul Dibb: And you can see now why
I was attracted to the different approach that John Lee takes to most
so-called Chinese experts in this country on the Chinese economy, who seem to bend over backwards John, to excuse all sorts of problems
that you’ve identified. I will now turn to the situation with regard to foreign policy
and also the military. And I’d like to begin, and I’m turning to, referencing now, our document. In my view, China has very few
powerful or influential friends in Asia. For a country with such a large population and the world’s second largest economy it does not have many close
bilateral relationships. In her book, China:
Fragile Superpower, Susan Shirk * describes China as strong abroad
but fragile at home. This strikes both John and I
as being incorrect: in our view, China is
certainly fragile domestically but it is also a lonely power when it
comes to acquiring real influence in Asia. A listing of China’s friendships in the region reveals
that only North Korea and Pakistan can be counted as countries with
which it has a strong relationship. But what sort of trust can
Beijing have in Pyongyang not dragging it into an unwanted
war with South Korea? And in any case we’ve witnessed of late
Beijing cozying up more to South Korea than its traditional ally North Korea. As for Pakistan, it is constantly teetering on the
edge of becoming a failed state, nuclear armed, and risks a conflict with India that certainly would not be
in China’s interests. For centuries in the past, Imperial
China was feared and respected as the dominant power in Asia, as Susan Shirk has correctly observed. But that was all a very long time ago when China faced no real competition until the arrival of European colonial
powers in the 19th century. China now operates in a highly
competitive regional environment against such major powers
as the United States, Japan and India. And of late, many Southeast Asian countries
have become increasingly concerned about China’s assertiveness
and several of them, including Vietnam and the Philippines
and indeed Singapore, have taken steps to align themselves
much closer to the United States. In my view, not even Russia can be
counted by Beijing as a long-term friend, let alone an enduring ally. And I say that for all sorts of
geopolitical and cultural reasons. When we look at the overall
state of the relationships, China’s poor relationships with
the United States, Japan, and India do not in our view augur well for its ability to shape the future regional order. Moreover Beijing’s increasing
aggressiveness and harsh attitudes towards its pre-emptive
territorial claims in the region, run the risk of miscalculation and conflict. This risk coupled with
Beijing’s inclination to challenge established
international norms of behaviour is a suitable point to turn in a moment
to China’s military build-up and an examination of its
strengths and weaknesses. But before I do that let me just
refer back to the relationships that China has with Japan. They’re clearly at a level of
high tension if not poisonous. There are all sorts of
historical faults on both sides. But the way in which China is now
leaning on a newly re-assertive Japan, is pushing, as I’ve said,
Japan closer to the United States. Now does China really stop and
reflect that if it pushes too hard, including the use of military power, in places such as the
Senkaku/Daioyu Islands, might not that force Japan
along a path that’s clearly within Japan’s very speedy capability towards an independent nuclear weapon? You wouldn’t have thought so. With regard to India, it is different. And I’m not arguing that India is about
to become an ally of the United States, but of late, again,
we’ve seen an India, by the way, unlike China, a democratic country with rule of the law, with freedom of press, an India that is increasingly
having a relationship with Japan as indeed Australia is, and an India that as I’ve said will not
become an ally of the United States but is historically aligning itself, including with military weapons sources away from its traditional supplier
of military weapons, Russia, towards India. And how is it that China, Beijing, in which the most powerful
position of the land is not President of the People’s Republic,
in my view, or General Secretary of the Party, it’s Chairman of the Central
Military Commission which is the most powerful position and when Xi Jinping holds that position, how come when he’s in India, the Chinese allegedly, according to some
academic commentators in the West unknown to the central leadership if you can imagine that commits military aggression on
the dispute in the Himalayas? I for one do not accept that
any military action in China is not under the direction of
the Central Military Commission. And then we come to the matter
I’ve mentioned of Russia. It is a relationship of convenience, particularly now that Putin has
his back against the wall with regard to economic sanctions
which are starting to bite. And of Europe, and I’ve just come
back from both Sweden and Finland, which is now seeing Russia
as the new re-emerging threat. And is it really a relationship under
the Shanghai Cooperation Agreement between China and Russia
that we see enduring? Well I’ve mentioned the geopolitics. Well resource rich, oil and energy rich, minerals rich Siberia, a part of the continent more than
double the size of Australia, shares a long common border with China. It is an increasingly sparsely
populated Russian Far East with bad demographics. And how would Australia react as a large
sparsely populated resource rich country to that sort of geopolitical challenge? As a former defence planner
I can tell you. And then we have the relationship
with the United States which we all want to see improve
and be a good relationship. But it’s not looking brilliant. And the way in which China increasingly
using military power indirectly, unlike directly, Russia at the moment, but indirectly as a force of
coercion to threaten Japan, to threaten countries in Southeast
Asia and to threaten India, does not all go well for the norms
of international behaviour and a stable and peaceful region. With regard to China’s military capabilities, again, I think, you know, we’ve had too much straight line
extrapolation in this country with regard to China. It reminds me when I was in
the intelligence game in the 1970s of the straight line
extrapolations that were made both in the intelligence communities
and in many of our academic so-called experts on the Soviet Union, that the Soviet Union was
going to grow and grow, that in the period of Western Stagflation, the Russian model of central planning, quote, was more successful, that the Soviet Union
was on a winning streak with regard to its intervention without any response worth
talking about from the West in Afghanistan in 1979. And the proclamation by our
experts on the Soviet Union, most of them, that the Soviet Union was about to outstrip
the United States in military power. That was the view of Robert Gates,
the deputy direction of CIA when I saw him in 1986. In 1986. In 1989 down went the Berlin Wall. In 1991, I can’t sing my favourite
Beatles song Back in the USSR anymore. So you know, as John has said,
whether it’s, you know, Japan in 1980, or the Soviet Union in the late 70s
and early 1980s, beware the so-called experts
who will tell you with great authority that it is inevitable that China will be the dominate
military power in the region, if not globally. The fact is that China, not now
foreseeably is not a superpower. There’s too much
casual use of that word. Let me tell you
what a superpower is. A superpower has two attributes. Number one, it has the capacity
to wreak vast nuclear destruction anywhere on the globe, anytime. There’s only two countries
now capable of doing that, America, and guess what, Russia. China does not have that capability. The second attribute
of a superpower is the capacity to decisively project
conventional military power anywhere in the world and intervene just like our American friends are
doing time after time after time, whether we agree with that or not. China does not
have that capability. Now China undoubtedly has developed
substantial military capabilities in the last twenty years or so. I’m not arguing against that. And China has taken notice of the overwhelming use of American
conventional military power in the first Gulf War in 1991. And it’s moving to a more sophisticated what it calls informationized military for fighting short notice
high intensity regional wars and it’s moved away from People’s Army. But the fact remains that as
far as China is concerned, even with its main military priority, that is, to retake Taiwan,
at the time of its choosing, according to the Pentagon, China still has substantial deficiencies in amphibious assault
in order to do that. And in addition, the latest Pentagon report on China says that the limited logistical support
remains a key obstacle for China in preventing China’s navy from
operating more extensively than beyond the immediate
East Asian surrounds and particularly in the Indian Ocean. In addition,
and I quote Pentagon report it is not clear whether China
has the capability to collect accurate targeting information and pass it to launch platforms in time for successful strikes
against targets at sea beyond the first island chain. That’s the island chain Japan,
Taiwan, the Philippines. I would argue that even
within that first island chain, even within that, China has substantial deficiencies with regard to anti-submarine
warfare, air defence, and the so-called capacity to take
out American aircraft carriers and I’ll come back to that. For those of you
who are interested, this month the Rand Corporation, a quite conservative
American corporation, John, has come out with a report
which I commend to you called China’s Incomplete
Military Transformation. And it quotes extensively
from Chinese sources and it gives other information about issues such as anti-submarine
warfare and so on. And I draw to your attention
that this report says that in China’s own journals and literature there is an acknowledgement that
the PLA’s own weaknesses revolve around a concept alternately
referred to as “two incompatibles” I don’t speak Chinese or two gaps. And these two incompatibles or
gaps acknowledged by the PLA are the modernization levels
of China’s armed forces, particularly problems in the human area, and I’ll come back to that, and the actual military capabilities
of the armed forces to live up to this concept of fighting
high intensity informationised warfare. So what are the problems identified
with the first incompatible, that is the modernization problem? The available literature
according to Rand denotes, in China, denotes several areas
abroad and endemic to the People’s Liberation Army
in the realms of training, organization, human capital, force development, and logistics. It is well known that a lot of the training
is unrealistic and artificial. It is well known that the amount of
time that officers in the PLA have to spend on studying,
believe it or not, Marxism and Leninism can
take 20 to 25% of their time. Good luck. Let them do more of that. Then waste their time. There’s problems of the constant
interference of the Party with the military. And with the military, unlike our militaries, the role of the People’s Liberation Army
and the oath of allegiance they take they take is not to the
People’s Republic of China. It is to the Communist Party of China. And Bob, I’m going to
ask you to contradict me, even in the Soviet Union, the Soviet Red Army did not have
the role and influence in the Party the way that the People’s
Liberation Army has. In the Soviet Union, the worst thing you could be
accused of was Bonapartism. That’s why Zhukov, the conqueror
of Berlin was sent into exile for boasting about how he won
the Second World War. That is not the case in China. When Deng Xiaoping sent
the tanks into Tiananmen Square, I was in CIA headquarters
when that happened and the evidence is impeccable. The evidence is impeccable that it was a direct order
from Deng Xiaoping whose position was no longer President, no longer General Secretary. Guess what he was. Chairman of the Central Military Commission. I rest my case. So I commend the Rand report to you. Time is moving on I just want
to take a couple of examples of some of the military deficiencies. And the first one I want to address
is anti-submarine warfare. And the second one is air defence. I mentioned both of them earlier. Again let me commend to you one
of the best reports in the public domain is by Aaron Friedberg,
Professor of Politics at Princeton. It came out late last year. Unlike many commentators he’s not inclined to exaggerate
China’s military capabilities. For example he cites a survey by the United
States Office of Naval Intelligence describing China’s capabilities in
the acquisition of targeting information essential for anti-submarine warfare as, and I quote, marginal. China’s navy, of course, has begun
to invest in the underwater sensors dedicated fixed wing aircraft,
helicopters, and surface vessels necessary to locate and track
enemy submarines. But it has yet to address
its shortcomings in ASW. This is an important deficiency
given America’s big advantage in terms of tracking other submarines and the difficulty all other countries have
of detecting American submarines. China’s conventional submarines
are relatively easy to detect and its nuclear boats possess little
ASW capability and are still noisy. Even its latest ballistic missile firing
submarine, SSBN, the Jin class, according to one American report, makes more noise than a Delta Four
submarine of the Soviet Union in the 1980s. If that is true,
they’ve got a problem. They have a serious problem. China’s military would be hard-pressed to prevent hostile submarines and
unmanned underwater vehicles which are the new thing, as James Goldric will tell us,
in anti-submarine warfare. It would be hard-pressed to prevent
them from operating close to its shores and destroying its surface fleet. It also remains unclear how
capable of joint coordination China’s different services
are in operations over water. Integrated operations
between a highly regimented and rigidly structured Chinese Air Force and an immature and sea-based Navy would require technological and
service-culture innovations, as well as exercises less carefully
scripted than has been usual, to develop the requisite interoperability
and inter- service coordination. As I’ve said earlier, in promoting
officers and selecting leaders, the Chinese prize loyalty to the
Communist Party and reliability over independence and innovation. In the meantime, the United States is pressing ahead
with technological game changers, such as unmanned undersea vehicles for reconnaissance,
surveillance and strike that could radically change
undersea warfare to China’s huge strategic disadvantage. There are similar gaping deficiencies
in China’s air defence capabilities against any technologically
advanced enemy. As Friedberg points out, China’s ability to detect and
intercept ballistic missiles or stealthy aircraft and cruise missiles appears to be limited. Moreover, the United States is
working on technological advantages that will make China’s task
of air defence even harder — they include a new low
observable penetrating bomber and long-range precision strike with
very high-speed hypersonic vehicles as well as what’s called prompt
global conventional strike with conventional warheads on ICBMs. Such developments would
greatly increase the expenditure that Beijing would have to devote to both active and passive
defence measures. And you’ve heard John Lee say that the trade-offs in future because
of demographics and economics, the trade-offs in future between endless investment in the military and these other demanding things
in the Chinese economy is no longer a free good. Is no longer a free good. None of this is to underrate the potential
challenge to regional stability from China’s military modernisation. But neither is it to succumb
to the current fashion of exaggerating China’s military capabilities. Despite its many achievements, China is still a weak state and as Andrew Shearer points out, its transition to exercising
influence as a sea power has provoked region wide
balancing behaviours. In other words the reactions of Japan
and Vietnam and the Philippines. As time goes on, neighbours around China’s
periphery may also feel compelled to field similar capabilities to China in order to address the growth
in long-term Chinese strike assets. And I’m thinking of Japan here. Ongoing requirements of
China’s naval and air forces to secure Chinese near-seas priorities make it highly unlikely
that a force that is still modest in size will be able to sustain
a robust top-end footprint in the distant far seas, no matter how much
its capabilities improve. Finally before I hand over to John
for some initial conclusions, in our paper I quote a particular
academic Robert Ross in America who makes a very good point, that China is continental power. It is not a natural maritime power. Continental powers often
have insecure borders. China has the longest most
diverse borders in the world in addition to the potential that John Lee
has pointed out for internal instability. Maritime countries including
the United States, Britain, Australia, New Zealand, don’t have those internal security problems. When you look at the history
of continental countries that have aspired to being
great maritime powers, they’ve failed; France, Germany, the Soviet Union. And it remains to be seen whether
China can make that transition. I’m of the view that China is not
capable of challenging US dominance, of regional sea lanes or the security
of America’s strategic partners in maritime Southeast Asia. And further, we point out in
our article that in our view, China is 20 years behind the United States in high-technology weapons
and sensor development. It is not a military superpower
and will not become one until it develops the capability to project decisive military power
anywhere in the globe. Presently, China is only a regional
military power entirely without any modern combat
experience whatsoever and with major deficiencies in
doctrine, human capital and training particularly the complexity
and realism of joint operations. China’s ability to develop a powerful
military is also seriously constrained by the fact that its own technological
defence industry levels remain relatively low and that its only source
of foreign arms is Russia. And China, to give you one example, has been trying for 35 years to develop a high performance
military jet engine, not an easy technology. And it has not succeeded. And where does it get them from? Russia. And are they highly reliable jet engines? No. I leave you with that example. -John Lee: It may seem unoriginal but I’m just going to read a couple
of paragraphs from the article because I think provides
a very good summary, particularly of my contribution
to the article and the talk itself. Now in our view, China may be approaching
the zenith of its power as its economy encounters
serious structural impediments and demographic barriers to growth. This will also have important
implications for the opportunity costs forgone of ever-increasing
defence expenditure in a technological arms race
with the United States, which Beijing cannot hope to win. Our analysis portrays a China in
which worsening domestic problems will remain the leadership’s highest priority and addressing such concerns will take up an increasing share of
economic resources and national wealth. Just by the way, as China
has gotten richer as a country, domestic problems have
gotten worse, not better. So economic growth, per se, is not
solving China’s domestic problems, but actually worsening them. The Communist Party
leadership will struggle to keep a lid on growing popular discontent, which may have implications
for its very survival under certain circumstances. We have also described a lonely power
that has very few friends in Asia. Although China’s world view of itself is shaped by strong historical
impulses of a hierarchic order with itself at the apex, very few countries in the region
appear willing to concede to China the status of the dominant power. Indeed, it is much more likely that countries such as the United States,
Japan and India will concert together either directly or indirectly against an increasingly assertive China. In military terms, China’s Achilles heel is that it lags at
least 20 years behind the United States in key technology areas. The fact that China has no experience
whatsoever of modern warfare and its military hierarchy depends
crucially on loyalty to the Party means that China’s actual warfighting
capability must be in serious doubt. Moreover, China’s military buildup
is causing a classical response in kind as countries such as Japan, India
and many Southeast Asian countries acquire advanced maritime military
forces in order to check China. They may not be able to
balance against China, the Southeast Asian countries, but they can complicate matters
significantly for the Chinese military. In summary, as The Economist observes: China needs Western markets, its neighbours are unwilling
to accept its regional writ, and for many more years the United
States will be strong enough militarily and diplomatically to block it. Now I’m now going to hand over to
Paul to make some final comments. -Paul Dibb: Thanks John. What does all this mean for Australia’s
national security planning and the forthcoming Defence White Paper? First, the most important point to make is that any suggestion the United States
should move to one side in Asia to make strategic space for China
should be rejected. China is not now or foreseeably
a strategic peer of America’s and any move by Washington to concede
China’s so-called legitimate strategic interests would smack of appeasement; and offered unnecessarily
and for little conceivable gain. So, when Beijing proclaims that
the entire South China Sea is a core strategic interest, a term traditionally reserved for
Chinese claims over Taiwan and Tibet, China’s maritime expansionist
ambitions should be firmly resisted. Second, Australia does not need to structure
its Defence Force for war with China. Beijing is not developing
the conventional forces with which to invade or directly
attack Australia. But we should develop the
high-technology naval and air assets, including submarines, necessary to contribute to any
Allied conflict in the region, including in Northeast Asia, where we might need
to make a contribution or where Australia needs to help
resist Chinese military adventurism. Developing these capabilities
will further complicate the strategic and operational
environment for a still isolated China, which in turn will place
further constraints on, and likely encourage
greater caution from Beijing. In Northeast Asia, this would suggest,
for Australia, niche contributions from us in such
areas as submarines and air power. Our Army cannot make a difference
to conflict outcomes in Northeast Asia. Closer to home, however, we could make a much more
substantial contribution by having the capability to block
the straits of Southeast Asia in the event of a serious war
in Northeast Asia involving the United States. Third, short of military conflict Australia must be able to
resist Chinese coercion whether by military or other pressures with regard to our own
direct security interests, including if necessary
our economic security. We also need to be capable of
countering coercion in our region of primary strategic interest particularly Southeast Asia. It is in Australia’s crucial strategic
interests for Southeast Asia to avoid being dominated
by China geopolitically or becoming a Chinese security domain. Southeast Asia forms a strategic shield to Australia’s vulnerable
northern approaches and Canberra needs to place high priority on strengthening its relations
with Southeast Asian countries, particularly in the defence arena, and to help them resist Chinese coercion. Thank you. -male #1: We have about
15 to 20 minutes for questions so if you could please introduce
yourself and speak loudly so the cameras can pick you up. -Tom Mooney: Thank you
for a really informative lecture. My name’s Tom Mooney. I’m with the SDSC here
in the ANU student. The topic tonight was “Why China Will Not
Become the Dominate Power in Asia.” And tonight we’ve heard about the contemporary capabilities
of China’s military. But isn’t it true that in order to
become a dominate regional power, all that China needs to do is to
make a cost so high to the US that the US won’t interfere in what
China perceives as its region of influence? Which can be done through
the asymmetrical capabilities not necessarily how to bridge
the gap between the US. -Paul Dibb: You want to have a go? -John Lee: Yes. Well yes.
But the same rule applies to China. I mean clearly China is pursuing
an asymmetric strategy that is to impose, as you say, prohibitive costs to lower the political
will of Washington to intervene. If it does that, as I think you’re implying, it lowers the credibility
of the alliance system. And so on and so on. But the same thing applies to China. I mean, in a sense,
when I say all you have to do, I’m not it’s easy,
but all you have to do is impose prohibitive costs on
the Chinese of assertive behaviour that is unacceptable. Now it’s pretty clear that
America has that capability. In a sense, the political
tolerance or threshold of what the Chinese Communist
Party can accept is much lower than I think for Washington. I mean we have to look at history. When Washington enters wars,
they enter wars to win. You know, I do fear that the Chinese are making a huge political
and strategic miscalculation here. I agree with you. That is prime strategy
to inflict prohibitive costs. But think about what is prohibitive
for the Chinese Communist Party If you consider both
their military vulnerabilities and your domestic weaknesses, they have less room to move, I think, than most people realise. -male #2: Taiwan has
come up several times and of course you have the situation
with Taiwan and China’s economies have become integrated in many ways and you have the One China Policy which the Communists Party adheres to
and the [inaudible] favour because they want
to be the one ruling China, but in Taiwan, I understand that there’s growing sentiment
for independence from China. Now if you get in a situation where
there’s an independence movement and say, a referendum is won to say, to renounce the One China Policy
and Taiwan’s an independent country, this leads quite a quandary
I would think for the Chinese because they do have
the economic integrations which they would lose in a conflict. A conflict would be very costly in terms of getting masses
of troops across the straights. What is likely to be the effect on China
if Taiwan does move towards independence? -Paul Dibb: Yeah. We’ve got a Taiwanese
representative actually here and I was in Taiwan for the first time
with an ANU group in September and I’d never been there before because when I was an official
I was not allowed to be there although I was allowed
to go to communist China. What is impressive about Taiwan, and I say this very seriously, it is a vibrant democracy, a vibrant democracy. And I think it was last May
when under the Sunflower Movement, the students occupied
the Parliament over allegations that President Ma that that government
was moving economically too close to China. Isn’t it interesting that students would
do that over that over that issue? It is true as you say that
the economic relationship and the tourism relationship
is very profound. My memory is,
William you can correct me, there’s 800 flights a week
between China and Taiwan. It is good for the mainlanders
to go to Taiwan and switch on the TV in their hotels
and watch parliament, watch talk back TV, go to a book shop where
you can buy any book, hmm? So, you know, there is that creeping
short of culturalisation of the mainland. I think on the issue of
the independence movement, I’m not an expert on Taiwan. I doubt very much, and the Americans would not want
a declaration of independence. And as long as China faces
very substantial military costs, which it still does, an amphibious assault, as some of the military here know, is amongst the most difficult and
challenging of any capability to develop, particularly if you’ve got a dug in
and capable enemy. So, you know, the issue of Taiwan, is one of those hypothetical contingencies that when foreign ministers of
Australia are asked the question, they should but don’t always say, “It’s a hypothetical.
I won’t answer it.” [laughter] -male #2: I have my answer. -male #3: I’ve got some assessments. Paul, when you gave
your last part of the talk and started talking
about the policy implications, it seemed a bit disconnected
from everything you’d said before. You could almost
have begun by saying, “Okay, we’ve covered all that, whether China would become
the dominant power is actually a straw man and a red herring. China s a problem and we’ve got to do a lot to counter it.” Do you agree? -Paul Dibb: Yes, but I mean,
that doesn’t mean to say that because I think China is a problem. It’s got weaknesses, that if China is stupid enough
and provocative enough, as it may well be over Senkaku/Daioyu
Islands, to do something, that we could afford to sit there and say we’re going to do nothing
and we have no military capability. I’m under no illusions that projecting
power up into Northeast Asia is extremely difficult and challenging. And we won’t be able
to make a difference. It would be a niche contribution. But I think closer to home, as I’ve said, the capacity to blockade
the straights of Southeast Asia, we’re talking about
high-level conflict war here, is within our capacity. And I think our American friends would
expect us to have that sort of capability. And I think in any case,
by the way, as Rick Armitage, a friend of yours
and mine would say if he was here, “If American Marines are dying
on the Senkaku/Daioyu Islands, we expect you Australians to bleed for it. -male #4: [inaudible] As you’ve said, one of China’s issues
is diplomatic explanation especially after those few years we can start seeing China
taking a different path now. You can probably kind of see it with the proclamation of the Shanghai
Cooperation Organization, but now the formation of the Asian
infrastructure and investment bank, do you kind of see China
taking a different path to kind of be more conciliatory role? What difficulties do you think
that you might have with that? -Paul Dibb: That’s yours John. -John Lee: You mean
what difficulties will they have in trying to take a much
more conciliatory role? -male #4: Yeah. -John Lee: You know,
put in simple terms, I think they’ve blown trust. I mean there were certain pockets
within various countries in the region who were always suspicious of China but on the whole, there was a wide
degree of good faith, I think, and desire to want to see
a responsible stake holder, if you want to use that term, emerge. Now, for whatever reason, you can speculate about as you say
China’s become more assertive. Even if China successfully
implements all of these initiatives, and some of them are quite good, for example, the Infrastructure Bank, I’m quite supportive of, the strategic viewpoint
of China won’t change. I mean will China give up its claims
to much of South China Sea? No. Will China wind down military
spending or acquire capabilities that may help it seize those claims? No. You know, will China have a different
policy to the Senkaku/Daioyu Islands, a fundamental strategic policy? No. So it can do all these other things. But I think that trust that was
there maybe 5, 10 years ago, I think is broken. -male #5: Hi Paul.
How are you? My interest is Indonesia. But my question relates to that. Have you factored in at
all the environmental costs of the massive [inaudible]
of the environment in China? What impact might that have on
their economic and their ability to develop the economy
and to fund the military? And the political factors involved? -John Lee: Yeah, I mean there’s
a political and economic pull. They’re political and economic
factors as you are suggesting. The political factors are that those instances of mass unrest I mentioned. A large proportion,
not a dominant proportion, but a large number of them
are protests against things like polluted rivers and not necessarily polluted air
but instances of party corruption, SOE corruption where their own regulations have
been broken for corrupt reasons and where these have spurned protests. So there’s a political dimension there. And hence the last meeting of the CCP, National People’s Council, environmental factors was
one of the major things that President Z actually mentioned
for that reason. The economic factors, much of it feeds
into things like water, you know. I can’t remember the statistic in my head, but something like half of all of the
drinking water in China is polluted. The agricultural water or the bull
water is getting worse and worse. Yeah, I mean, China, in a sense
has had from a growth perspective, because China has ignored
every other consideration that most countries take into account, has been able to achieve
to some degree, the growth that
it’s been able to achieve. Now suddenly it has to deal
with the opportunity cost that every other country
has to deal with domestically and these will grow greater. So yeah, obviously it’s difficult to quantify, but it is a significant inhibitor of the increase of national warfare
capability model that they’ve had, what, for the last 20, 25 years. -John Murray: Okay, thank you,
John Murray. I’ve been riding high to preserve
the South Pacific Islands for the last 12 to 13 years. * Many of whom have been recipients
of impressive Chinese economic aid and soft loans. Some of their spokesmen
have expressed concern that the loans will eventually be called
in by China requesting port facilities and that they will add to
China’s so-called string of pearls. According to [inaudible] Navy. But from what you’ve said of the defence
facilities and capacities of China, it could not even become
a dominant power in the South Pacific, let alone Asia. -Paul Dibb: No, but it could
like the former Soviet Union when it was messing around
in the South Pacific with its so-called hydrographich
and fishing vessels as cover for intelligence and other operations, it can cause, you know, severe
concern and consternation about, these are very, as you know
better than me, very vulnerable potentially
unstable small countries. We would be seriously concerned, any Australian government
would be seriously concerned, if China was looking
to develop port facilities that were a cover for military facilities. There is no evidence of that so far, unless Doug King contradicts me. And China traditionally at this stage has not sought to develop significant
military facilities overseas or then places like Sri Lanka and so on. It is sniffing around. I was two years ago in Timor to observe
the democratic elections there and I couldn’t help but notice that the following buildings had been
built by the Chinese: the foreign ministry, the defence ministry,
and the Presidential Palace. Now look, every country has
the right to do that sort of thing. But its’ something we need to
scrutinise extremely closely. -male #6: Well this might seem
to be an unrealistic scenario. If push came to shove and
rather than a military action, China were to contest were to
contest America economically, and possibly in partnership with Russia, what do think of the possibility that they might consider concocting
some sort of bear raid type scenario on the US economy
using the foreign reserves and what might such a possibility
mean for US action to then reach? -John Lee: Let’s quickly address that. The foreign reserves, everyone
talks about this treasure chest or this weapon that China has. What people don’t realise is that
most of the foreign reserves has really resulted from the surpluses
that China has had with America or Europe and it has to keep
the money outside China because of its currency policy. Why that’s important is because
there are actually liabilities against those foreign reserves, that is what is owed to the export
manufacturers inside the country. I mean, in short, China can’t just
deploy those foreign reserves because there are actually
liabilities against that and it would completely ruin
their financial system. Just on the other economic, potential economic weapons
that China has, I think there’s a misunderstanding that
China is a driver of global growth. If you look at interactions
China has with advanced economies, most of the interaction is making things
for the advanced economies to consume. So ultimately what that means is that the Western consumer or
the advanced economy consumer is still much much more important
to not just China, but Asia, than the Chinese domestic
consumption market. Just to give you
one more indication, the Chinese domestic consumption
market is about 3 trillion dollars US. And about half of that
you can’t actually access. The American and European
domestic consumption markets are about 12 trillion dollars US each. And if you want evidence,
during the global financial crisis, trade between China and the rest
of the region actually declined when the Western economies
went into recession. What that tells you is that the trade is
being driven by the Western consumer. All that’s happening mainly is that it’s a vast production chain to make products for American
and European consumers. So I’m not saying
China is completely impotent, but it doesn’t have those economic
weapons that people assume it has. -Paul Dibb: Yeah and
I think, you know, John, that unlike the former Soviet Union which and aunotarchy, self-sufficient,
non-trading, non-investing country, China is fundamentally
involved in the Western world, global trading system. By the way, and that gives
it certain vulnerabilities. It’s not just the West sea lines of
communication that are vulnerable. I mean China currently
imports 80% of its oil through the straights of the Senkaku
and Southeast Asia. And that means it too is vulnerable. And as John is saying, when it comes to global supply chains, China is intricately
involved in that isn’t it? So if global supply chains
get cut off because of war, the impact of the conflict, the impact on the Chinese economy, is going to be very substantial, yes? There’s one thing that
we haven’t raised that I’ll just mention and I’ll get
John to talk about it a bit. There was quite recently
while I’ve been away in Scandinavia, an article I understand
by David Shambaugh who you know very well, a very
prominent American expert on China who, as I read it in the press overseas, is talking about
the vulnerability and fragility of the Communist Party ruling China. Do you have a view on that John? -John Lee: Yeah, I mean, David Shambaugh’s
article was essentially saying that the CCP, is this the beginning
of the end for the CCP because of various things
like slowing economic growth, lack of morale, lack of
autological conviction, etc.? I agree with David’s
analysis of the problems. I don’t agree with his endpoint. The reason why I don’t’ think that
the Chinese Communist Party under David’s line of
reasoning is at its end is because if you look at modern
industrialising societies, regimes fall because of
revolutions in cities. They don’t fall because of
revolutions in the countryside. Now the basic strategy of
the Chinese Communist Party has been for want for better term, to try to co-opt urban elites and it’s done that by as I mentioned being
a primary dispenser of career opportunity, wealth, etc. We look at a middle classes in China and the upper classes in China, they’re fairly closely tied to
the Chinese Communist Party. So it’s actually not in the interests
of urban elites right now in China to want a different political setup. Now of course if there’re some economic
disaster then the rules change but assuming
no economic disaster, I think David’s pointing out
of the problems are correct, but I don’t necessarily agree with what he says about where it’s heading to.

Why China Will Not Become the Dominant Power in Asia

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