When the economist Jane Golley joined the federal Treasury in 1994, she was assigned to a single-person desk overseeing China, Hong Kong, Taiwan and Korea.
It was only a few years after the collapse of the Soviet empire. The US was at the apex of its power and influence. Francis Fukuyama, a noted American scholar, confidently predicted the ”end of history” – a scenario where the entire world would embrace America’s brand of liberal democracy and capitalism.
Fast forward 18 years and the global financial crisis has humbled the once mighty US. China is within striking distance of overtaking it as the largest economy in the world and Americans are awake to the reality that China – as Hillary Clinton famously put to Kevin Rudd – is their largest banker, by virtue of the central government’s multi-trillion dollar holdings in US treasuries.
It was not very long ago that China was at the receiving end of American lectures about the virtues of the Washington model.
Instead, Chinese undergraduates at Peking University mocked the US Treasury Secretary, Timothy Geithner, earlier this year when he told his audience China’s assets were ”very safe”.
In Canberra, the single-person desk overseeing China at Treasury has now swelled into a fully-fledged unit of about 10 analysts, and still there are not enough people to keep up with the incessant demands from the office of the Treasurer, Wayne Swan. There is also an Asian policy unit watching over other economic heavyweights in the neighbourhood, including Japan, Indonesia and India. By comparison, there is just the one analyst, usually a fresh graduate, responsible for the US. Economic imperatives have forced the paradigm shift at Treasury.
With the release of the Asian century white paper as early as this month, the Prime Minister, Julia Gillard, is hoping the change in mindset will spread further.
THE delayed release of the white paper (it was originally slated for the middle of this year) has collided with one of the more volatile periods in commodity markets.
When Gillard announced the decision to commission the Asian century white paper on September 28 last year, iron ore was trading near record highs of $US172.60
A year on, Australia’s most important export earner is now trading at $US115.80 a tonne, having fallen to as low as $US86.70 last month, highlighting the potential pitfalls of the nation’s role as an important resources supplier to Asia’s industrialisation.
Serious questions are being asked of the sustainability of Chinese economic growth, and the impact a slowdown would have on our economy.
But while on the face of it the Asian century white paper might appear to be about understanding our neighbours better, it is as much – if not more – about introspection.
What does Australia need to do to take full advantage of the Asian century, or brace for the volatility that comes with it?
A crucial plank of the white paper is to implement a national reform agenda to lift this country’s productivity.
Or as one government adviser involved in the drafting of the white paper put it, it was about getting ”our own house in order”.
The appointment of Ken Henry as the head of the white paper taskforce highlights the domestic focus of the exercise. Henry, while a former Treasury boss and a leading tax expert, is not particularly noted for his foreign policy expertise.
”The easing – or one may even say collapsing – terms of trade has made the task of domestic reform more urgent,” said the government adviser, speaking to Weekend Business on condition of anonymity. ”We need to resolve the issues of infrastructure bottlenecks, more effective co-ordination between federal and state governments, entrench key macro-economic settings such as flexible ex-
But a tug of war between competing interests within government over politically difficult reform risks grinding decision-making to a halt.
Henry himself has expressed reservations over whether there is a coherent vision of Australia’s place in the Asian century at the highest level of politics.
”I think it starts with initiative at the very high level, the articulation of a shared vision, that is actually very important,” he said last month. ”I don’t know whether we have got it, I suspect we do, [but] that is going to be tested over the next few months.”
The idea that Australia has been profoundly shaped by Asia is not a new one.
But what has changed, Henry said, has been the ”extraordinary speed and scale” of its current rise, and a rapidly emerging realisation that Asia is not just important for Australia, but that ”it is going to be the main game” – not just in economic terms, but in ”almost any sense of national significance”.
”We are witnessing nothing less than a global transformation – in commercial, social and strategic terms,” he said.
Fitting hand in glove with the national reform agenda is what is expected to be a central pillar of the white paper – the development of so-called ”Asia-relevant capabilities”.
Much of the public discussion has equated that to mean focusing on mastering Asian languages, particularly Mandarin.
But more than 150 submissions from businesses, the education sector and community groups to the Henry taskforce touched on the need for Australians not only to be more proficient in talking the talk, but also acquiring broader ”Asia literacy” beyond language skills.
In a national strategy paper released last month, Asialink listed language proficiency as just one of 11 ”critical capabilities” linked to business success in and with Asia.
Others included the ability to adapt behaviour to Asian contexts, work with governments, gain work experience and form relationships.
It might sound basic, but Australian companies are yet to cotton on. Large groups, including ANZ, Rio Tinto and Leighton Holdings, describe attracting and retaining ”Asia-capable talent”
as their ”single most pressing challenge”.
And while the lack of true Asia-focused talent has long been lamented, less attention has been afforded to the scarcity of depth in Asia-capability within the Australian public service, which is at the forefront of this country’s Asian engagement and policy implementation.
”Australia’s public service needs to lift its game in this respect,” Henry said.
It is a view echoed by Andrew MacIntyre, an Asia-Pacific expert at the Australian National University, who said more people were interested in Asia but a smaller proportion had deep knowledge.
”We are fortunate to have a number of people high up in the public service who have got really good Asia expertise,” he said. ”The trouble is, there are not many of them, and it is not clear what is coming through the ranks behind them.”
While our private sector and to an extent our state governments are able to seek opportunities within Asia unencumbered by strategic considerations, it is a different story for the federal government.
Spot fires flare and are hastily extinguished, but some still simmer below the surface.
The government’s decision to block the state-owned enterprise Chinalco from increasing its stake in Rio Tinto in 2009 is often cited as a low point in bilateral relations.
There have been numerous other lowlights since, including a perception of our continued focus on Chinese investment in resources and agriculture, and the move to block the telecoms giant Huawei from bidding on national broadband network contracts.
The exclusion highlights the potential dilemma of Australia’s engagement with China – the backlash from Huawei came even though evidence mounts that the security risk from the Communist Party is substantial. Just this week, an influential US congressional committee slammed Huawei (and fellow telco ZTE), as a threat to national security and urged American businesses not to deal with them.
Perhaps most contentious, from a Chinese perspective, has been the Gillard government’s decision to allow US marines to maintain a presence in Darwin – seen by some Chinese strategists as an American ploy to contain China’s rise in the Asia-Pacific.
”America’s misjudgments over Iraq a decade ago should have reminded Australians that we cannot always rely on it to get these things right, and that the role of a good ally can sometimes require more of us than agreeing with whatever Washington decides,” the strategy and defence expert Hugh White said in his recent book The China Choice. ”Still, the assumption has persisted that America knows what it’s doing with China, and will do what’s best.”
The director of the Australia India Institute, Professor Amitabh Mattoo, said it was wise for Australia not to have ”all its eggs in one basket”.
”While both India and Australia will not necessarily want to contain, confront or challenge China, it’s always good to hedge our bets,” he said. ”It’s prudent to try and develop a relationship which has a military dimension in case China’s rise is not as peaceful and benign as we hoped for.”
Professor Tony Milner, one of the country’s most distinguished authorities on Indonesia, said the discussion around the white paper was a positive development but to change the Australian habit and way of thinking was a formidable challenge.
He cited a litany of blunders committed by the government when dealing with Australia’s Asian neighbours, including the botched refugee exchange agreement with Malaysia and the way Canberra handled Asian investment in Australia.
”When the Singaporeans wanted to take over the Australian Securities Exchange, we could [have said] no politely. But a number of our key politicians were absolutely insulting regarding Singapore. And Singapore is a good friend to Australia,” Milner said.
”If we can’t easily deal with Singapore, how much are we really adapting to an Asian century?”
Mattoo also echoed the growing concern that despite our common bridges of language, democracy and cricket, Australia was neglecting its relationship with India by focusing too much on China. ”This could be a much more robust relationship than it is,” he said.
Often mentioned in the same breath as China in terms of a rising power, Mattoo acknowledged India was a considerable way behind but that now was the time for Australia to engage.
”It’s not a question of engaging with India when it’s risen,” he said. ”The potential is now. India is a huge growing market with 500 million young people under the age of 25.
”If Australia is not decisive enough, it could lose an opportunity here.”
IT MAY not end up explicitly outlined as a recommendation in the white paper, but for Henry, the transition to the Asian century is fundamentally about a change of mindset in how Australians view their neighbours.
”It does have to start at kindergarten or the first year of school,” he said. ”It has to go all the way through. It has got to be in the workplace. I think it is a massive challenge for us. It does require a mindset change.”
In his provocative best-seller, When China Rules the World, the British author Martin Jacques made the bold if not entirely original prediction that China would become the world’s largest economy by the end of the decade and that Beijing would displace New York as the world’s global cultural and economic capital by mid-century.
He said the Western world had overwhelmingly been trying to understand China through its own prism of views. But he said this was a ”fallacious” approach and he urged Australians to abandon their ingrained prejudices and think of China ”in its own terms”.
”The reason Westerners approach it like this is because we have been so dominant for the last 200 years, we think everything should basically be conformed to our way of thinking,” he said. ”You just can’t make sense of China in that way.”
But China itself has shed some of its unbridled optimism of the past, and people in and outside of the ruling party have expressed concerns over the country’s future.
Deng Yuwen, an editor of the Study Times, a journal of the Communist Party’s central party school, delivered a damning account of problems China faced in an essay published two months ago.
If these pressing concerns were allowed to fester unchecked, he said, they could threaten the rule of the party.
The Secretary of the Department of the Prime Minister and Cabinet, Dr Ian Watt, also sounded a note of caution in July about the optimism surrounding the Asian century.
”It is important that we have a clear-eyed view of what lies ahead, and don’t get carried away by the rhetoric,” Watt said. ”Bold predictions have been made before and come unstuck.
”Many of us remember the projects for Japan in the late 1980s and 1990s that came dramatically unstuck.”
It is not the only comparison made with Japan, whose ”lost decade” of near-zero growth has already stretched into its 20th year.
Observers despairing of the xenophobic overtones often present in the foreign investment debate point out the fear of Chinese investment mirrors that of the 1980s when the Japanese began investing in Australia in a big way.
But history has a habit of repeating itself and this is probably not the last time Australia will need to take stock of its place in the world.
”We must accelerate progress in domestic economic reform, to build a flexible, internationally-oriented economy that is capable of grasping the opportunities that will emerge in the decades ahead,” the former ambassador to China and Asian expert Ross Garnaut said, referring to the rise of China and north-east Asia in the last comprehensive review of Australia’s place in the region.
It might sound as applicable today as it was when he penned those words – in 1989.
– Peter Cai, Philip Wen