-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.