-paul dibb: when john leeand i decided to get together to write this 8000 word article,for security challenges, we thought we'd do what in myexperience academics rarely do, and that is join with john togetherthe disciplines of economics and strategic studies intoa one discipline approach. we were, when i askedjohn to join me in this, and i don't often dojoint-authored articles. it's generally a difficult process. but in john's case it wasseamless and painless,
as far as i'm concerned. we talked about paulkennedy's seminal book, "the rise and fall of the great powers" and kennedy's clear conclusion that there is a very strongconnection in the long run between an individual greatpower's economic rise and fall and its growth and declineas an important military power. but where we paused was thatapplying this important judgment to australia's foreign and defence policies
regarding the rise of china has ledto strongly opposing views. there are those, as you know,including in this university, including some of our colleagues, who consider that theinevitable rise of china must result in that country becoming the naturally dominant power to which the united statesmust concede strategic space and acknowledge china's so-calledlegitimate 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 willemerge as asia's preeminent power is based on assumptions thatits economic and military capacities are expanding and improvingat such a rate that regional dominance is all but assured. yet the sustainability of china'srapid economic rise and capacity
to embark on the path towards becomingan advanced and resilient political economy in addition to its ability to becomea genuine military superpower, wielding proportionate regional influence, is widely assumedbut in our experience, rarely analysed in any depth at least in australian literature. in examining the factors that go towardsthe development of chinese national power and its ability to use it toachieve national objectives predictions about a chinese superpower with the ability to dominate asiawould be premature,
if not improbable, in our view. john, over to you. -john lee: thank you paul and thankyou andrew for your introduction. as andrew mentioned, i've comeon as an adjunct at the centre. so it's my privilege to give what i hopewill be one of several lectures over time. thank you all as well fortaking the time to be here. i'll speak for about 20 minutes. and then i'll hand overto paul to speak about some of the military andstrategic aspects of this issue.
now we obviouslydon't know the future. and because we can'taccurately forecast the future, we tend to rely onextrapolations of trends, or trend lines, especially when it comes topredictions about material power, that is economic powerand military power in a main. now extrapolations of trendlines are not completely useless. they can be useful, but they are essentiallya window into the past.
they do not tell you what will be. they tell you what has been. trend lines also do nottell you much about causation. in fact they don't reallytalk about causation. they don't talk about or imply. you cannot infer from themwhy something occurred and whether something is likelyto continue into the future, or why something may changeor why it may not. now, like all of you, i don't havea crystal ball in my lounge room.
so the approach i'm taking, and i thinkthe approach we took in this article was to basically analyse chinain unexceptional terms. and that is you analyse china in theway that you analyse the material power in prospects of any other country. we don't have any belief in thingslike cultural determinism. we don't think anything isinevitable about a certain country or a certain culture ora certain political system. we merely look at china in the sameway we look at any other country. now the title of our article
"why china will not becomethe dominant power in asia" that's the title of that article. paul, when i hand over, will talkabout the military and strategic challenges and limitationsfaced by the chinese. i will begin with the economic basisfor why we think that this is the case. so let me begin withthe 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 dois wait a couple of decades, as long as it doesn'tdo anything stupid. and the 1.37 billion people,in their eyes will effectively determinethe course of regional history. now in some respects the trendlines say that this is so, but i will rely on economic reasoningto say why i don't think this is so. and while i'm not predictingeconomic disaster for china like some others might,
the assumption that china will acquirethe economic base to dominate asia, short of american withdrawal which i don't think islikely 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 waysyou can grow your economy. you can add more labour inputs. you can add more capital inputs.
or you can use one or both ofthese imports more efficiently, what economists refer toas total factor productivity. now can china add more labourinputs significantly drive rapid growth or even moderate growthin the medium term? well, i think the simple answer is no and i say that because ofits aging demographics which for a number of reasons will be pretty much impossiblefor china to alter. now there is one thingwe know for certain
and that is that china will bethe first major country in history to grow old before it grows rich or before it grows even moderately rich. now in the 1980s duringits first decade of reform, the proportion of the workingage population, that is 15 to 64 years,was almost 75%. it will decline to 65% in 2020and 60% in 2035. now this may not soundsignificant or meaningful to you. so let me put this another way.
when china beganits reforms in 1979, there was 7 working peopleto every 1 working retiree. today the ratio is about 5.5 to 1. by 2035 there will be two workingpeople for every retiree. in fact 2015, this yearis a significant year because this year is the first year that more people are leavingthe workforce in china than entering the workforcesince the reform period began. now before i say what i'm aboutto say i have to apologize to paul
who is an exception to the rule. i'm about to articulate that the mostproductive 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 2035there'll be 1.5 older workers, that is workers from 50 to 65 years to every worker underthe age of 55 years.
so by 2030 china will havethe same demographics, roughly, as a countrylike norway or amsterdam. incidentally, if youwant a comparison, america is the only great power which has favourabledemographics up to 2050. india, if you want to includeindia as a potential great power. now bear in mind as well thatonly 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'slargely unfunded liability is expected to be around40% of the gdp by 2035. and this assumes quite generously that china will continue to growat 6% up to 2035, which i think is unlikely. now this will obviously increasinglycompete with other budget items such as national securityand military spending.
now even for those with a pensionfund at least half their living expenses will still be picked up by their family. so whereas up to a quarter ofthe growth from 1980 to 2005 can be attributed in some way tothis local demographic dividend, that is a massive increase inproductivity of young workers coming into the cities with verylittle family responsibilities. there will be no such prospect ofa demographic dividend for china from now on. now let's talk about adding capital inputs.
and this is the real problem forchina's future economic resilience. now speaking in verygeneralised terms, growth in the first decade of reform, 1979 to 1989, was driven by genuineentrepreneurialism and dynamism. land reforms allowed not landowners but land occupiers to use the land in any way they wanted. they were allowed to sell surplusproduce at market prices and this gave birth to a wave of spontaneousand unplanned entrepreneurialism and brought enough economic activity
and eventually arise to smaller scale industries which was a real driver of earlyindustrialisation in china. now by the mid-1990s thismodel was running out of steam and what was emerging was china asa major export manufacturing country, not just in asia, but in the world. so it was from the mid-1990sonwards that made in korea, or made in japan,or made in america, or made in malaysia wasreplaced by made in china. so prior to the global financial crisisor just a couple of years before that,
the major driver of chinesegrowth was net exports. now there's nothingremarkable 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 poolof labour that they had. now export dependent models obviouslyneed growing and consumer markets. and this became a problem for china when the global financial crisishit the advanced economies
and consumption markets ground to a halt. so china had to find a differentway of generating growth and this is what they did. now if you take the periodfrom 2004 to 2014, the chinese economy expandeda pretty impressive 162%. but labour inputs and additional labourinputs contributed around 6% of that, but an enormous 136% canbe attributed to capital inputs mainly in the form of fixed investment whichis basically building constructing things. this means that only 20% of growthout 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 capitalinputs needs to generate the growth that china has achieved in the last 10 years has meant that national corporate debtlevels 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 10trillion dollars us in 2008
to 20 to 25 trillion dollars us in 2014. now this increase represents anamount larger than the entire size of the american commercial banking system. now this increase happened becausein the government's determination or some people would say,in the government's desperation to achieve rapid growth, the chinese governmentordered state owned banks to lend predominately tostate owned enterprises even when there was no commercialjustification for doing so.
so from 2008 to 2009, for example, bank loans almost doubledfrom 750 billion dollars us to 1.4 trillion dollars us. the outstanding bank loanbooks of china's banks expanded almost 60% in two years. so this clearly is not dueto natural economic demand. it's the result of government driven policy despite what australian minds in thetreasury at the time were actually telling us. so the result is what china'sown state backed economists
refer to as not just the largestbuilding program, largest national buildingprogram in world history, but also the most wastefulin 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 theurbanization requirements of the next 20 years. so if you look at just the biggestfour provinces in china, there are wholly unoccupied dwellingsthat could house 200 million people. now the result if you ask an independentanalyst in international banks and accounting firms operating in china, is that the concealed bad debtamounts to about 70 to 140% of gdp. as state owned banks and localgovernment financial entities are ultimately government liabilities,
ultimately central government liabilities, these will have to be dealt withby the central government. and once again, consider what this meansfor the competing demands on the public pursein the next 10 to 20 years. so basically china doubled downon japanese errors and then some. china may still avoid two decadesof virtually zero growth, which is what japan suffered, but china's capital output ratio,
the ratio of what you get foreach additional input of capital is about three times worsethan what it was 10 years ago. incidentally, it's about 50times worse than in india which is generally seen asan extremely inefficient economy in terms of use of capital. now finally, can china * inputsmore efficiently or productively? and clearly, this is the only way herefor china to grow its economic base that would be necessary for it to becomethe dominate power in the region. now this is often expressedin different terms;
"can china become a muchmore innovative economy? can it move to a marketresponsive economy rather than a hybrid planned economy? can it increase consumption which woulddrive services and increase productivity?" essentially all of these characterisationsof what china needs to do, is to say, "can china escapethe so-called middle income trap?" which if you look around onlyaround 30 economies in the world, have done that. now basically, the future of chinabeing the dominant power in asia
depends on it escapingthe middle income trap. it can't do so, it can't become a dominant powerif it doesn't achieve that. and so, the last questioni want to pose is "what would china have to do in broadterms to escape the middle income trap?" now take innovation, china would have to dismantle itsstate dominated political economy. it would have to remove privilegefrom the 150, 000 soes, state owned enterprises
in favour of the millionsof 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 firmsleft to fight for the scraps. to give an example of the state dominatednature of the chinese economy, the top three largest soes in china, their revenues exceedthe combined revenues of the largest 500 private firmsin the country. now if you dismantle this system,
you remove the capacity ofthe chinese communist party to use soes for the advancementof national power and achievement of national goals, which they are useful periodically. it will also disrupt a key strategyfor the chinese communist party to remain in power and that is by becomingthe primary of dispenser of business, careers,professional, individual, institutional opportunity in the country.
you essentially keepsthe elites on the side, dismantle such a political economy and suddenly you have some potentialexistential 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 coupleof oil rich middle east countries, look at all of the 30 countries thathave escaped the middle income trap, they have some common institutions.
they have rule of law, not ruleof party or rule of government. they have intellectual propertyrights and property rights. they have independent courts andmechanisms for resolving disputes and they have very low levels of corruption. the bottom line is that for chinato escape the middle income trap, it would need to fundamentallyreorganize its political economy and this is extremely hard to do. and very few countries have done it. now even if china succeeds indoing all this to go to the next level,
it would then be a very differentchina to what we see today. it will be very difficult forthe chinese communist party, for example, to harness majoraspects 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 nationaltools to achieve national objectives. now i'll very shortly hand overto paul to make some comments about china's strategicand military position.
but let me just concludeon a couple of points. now first, china currently spendsaround 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 twoorganisations have been rising at a level that's about 50% higherthan the increase in gdp growth.
now this can't happen foreverfor reasons that i gave. now second, on all key indicesof 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, regimeor 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 overseeinga weak and fragile country. the legitimacy of the chinesecommunist party and its capacity to remain in power ultimately depends on improvingthe lives of its citizens. it can't just use more and moreof national resources for national power withoutpolitical domestic consequences.
now already, the ccp'smanaging a country with, by its own official numbers, 180, 000 instances of mass unrest, mass unrest being definedas 50 or more people protesting against governmententities or government officials. it simply cannot pour moreand more national resources into the advancement of national goals without focusing somewhat internally. now finally, china's internalfragility means that
it cannot afford a major foreign policydisaster or economic disaster for the ccp to remain in power. the ccp has one million militarytrained people's armed police, units solely devoted tocontrol in domestic unrest. now this is a sign of a country thatmay appear strong on the outside, but is significantly vulnerablefrom the inside. now a foreign policy or economic disastermay bring down an american government. that's true. it may bring down an administration.
but it won't bring downa whole political economy. such a disaster will bring downthe whole chinese political economy if the ccp fails. now if you look atall of these factors, all things considered, this to me does not seem likea 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 militaryand strategic aspects and then i think we'll makesome concluding remarks. thank you. [applause] -paul dibb: and you can see now whyi was attracted to the different approach that john lee takes to mostso-called chinese experts in this country on the chinese economy, who seem to bend over backwards john, to excuse all sorts of problemsthat you've identified.
i will now turn to the situation with regard to foreign policyand also the military. and i'd like to begin, and i'm turning to, referencing now, our document. in my view, china has very fewpowerful 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 closebilateral relationships. in her book, china:fragile superpower,
susan shirk * describes china as strong abroadbut fragile at home. this strikes both john and ias being incorrect: in our view, china iscertainly fragile domestically but it is also a lonely power when itcomes 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 withwhich it has a strong relationship. but what sort of trust canbeijing have in pyongyang
not dragging it into an unwantedwar with south korea? and in any case we've witnessed of latebeijing cozying up more to south korea than its traditional ally north korea. as for pakistan, it is constantly teetering on theedge of becoming a failed state, nuclear armed, and risks a conflict with india that certainly would not bein china's interests. for centuries in the past, imperialchina 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 colonialpowers in the 19th century. china now operates in a highlycompetitive regional environment against such major powersas the united states, japan and india. and of late, many southeast asian countrieshave become increasingly concerned
about china's assertivenessand several of them, including vietnam and the philippinesand indeed singapore, have taken steps to align themselvesmuch closer to the united states. in my view, not even russia can becounted by beijing as a long-term friend, let alone an enduring ally. and i say that for all sorts ofgeopolitical and cultural reasons. when we look at the overallstate of the relationships, china's poor relationships withthe united states, japan, and india do not in our view augur well for its ability
to shape the future regional order. moreover beijing's increasingaggressiveness and harsh attitudes towards its pre-emptiveterritorial claims in the region, run the risk of miscalculation and conflict. this risk coupled withbeijing's inclination to challenge establishedinternational norms of behaviour is a suitable point to turn in a momentto china's military build-up and an examination of itsstrengths and weaknesses. but before i do that let me justrefer back to the relationships
that china has with japan. they're clearly at a level ofhigh tension if not poisonous. there are all sorts ofhistorical faults on both sides. but the way in which china is nowleaning on a newly re-assertive japan, is pushing, as i've said,japan closer to the united states. now does china really stop andreflect that if it pushes too hard, including the use of military power, in places such as thesenkaku/daioyu islands, might not that force japanalong 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 aboutto 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 increasinglyhaving a relationship with japan as indeed australia is, and an india that as i've said will notbecome an ally of the united states but is historically aligning itself, including with military weapons sources away from its traditional supplierof military weapons, russia, towards india. and how is it that china, beijing, in which the most powerfulposition 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 centralmilitary 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 someacademic commentators in the west unknown to the central leadership if you can imagine that
commits military aggression onthe dispute in the himalayas? i for one do not accept thatany military action in china is not under the direction ofthe central military commission. and then we come to the matteri've mentioned of russia. it is a relationship of convenience, particularly now that putin hashis back against the wall with regard to economic sanctionswhich are starting to bite. and of europe, and i've just comeback from both sweden and finland, which is now seeing russiaas the new re-emerging threat.
and is it really a relationship underthe shanghai cooperation agreement between china and russiathat 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 thandouble the size of australia, shares a long common border with china. it is an increasingly sparselypopulated russian far east with bad demographics.
and how would australia react as a largesparsely populated resource rich country to that sort of geopolitical challenge? as a former defence planneri can tell you. and then we have the relationshipwith the united states which we all want to see improveand be a good relationship. but it's not looking brilliant. and the way in which china increasinglyusing military power indirectly, unlike directly, russia at the moment, but indirectly as a force ofcoercion to threaten japan,
to threaten countries in southeastasia and to threaten india, does not all go well for the normsof 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 lineextrapolation in this country with regard to china. it reminds me when i was inthe intelligence game in the 1970s of the straight lineextrapolations that were made
both in the intelligence communitiesand in many of our academic so-called experts on the soviet union, that the soviet union wasgoing to grow and grow, that in the period of western stagflation, the russian model of central planning, quote, was more successful, that the soviet unionwas on a winning streak with regard to its intervention without any response worthtalking about from the west
in afghanistan in 1979. and the proclamation by ourexperts on the soviet union, most of them, that the soviet union was about to outstripthe 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 favouritebeatles 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 70sand early 1980s, beware the so-called expertswho will tell you with great authority that it is inevitable that china will be the dominatemilitary power in the region, if not globally. the fact is that china, not nowforeseeably is not a superpower. there's too muchcasual use of that word.
let me tell youwhat a superpower is. a superpower has two attributes. number one, it has the capacityto wreak vast nuclear destruction anywhere on the globe, anytime. there's only two countriesnow capable of doing that, america, and guess what, russia. china does not have that capability. the second attributeof a superpower is the capacity to decisively projectconventional military power
anywhere in the world and intervene just like our american friends aredoing time after time after time, whether we agree with that or not. china does nothave that capability. now china undoubtedly has developedsubstantial 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 americanconventional 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 noticehigh intensity regional wars and it's moved away from people's army. but the fact remains that asfar 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 assaultin order to do that. and in addition, the latest pentagon report on china says that the limited logistical supportremains a key obstacle for china in preventing china's navy fromoperating more extensively than beyond the immediateeast asian surrounds and particularly in the indian ocean. in addition, and i quote pentagon report
it is not clear whether chinahas the capability to collect accurate targeting information and pass it to launch platforms in time for successful strikesagainst targets at sea beyond the first island chain. that's the island chain japan,taiwan, the philippines. i would argue that evenwithin that first island chain, even within that, china has substantial deficiencies
with regard to anti-submarinewarfare, air defence, and the so-called capacity to takeout american aircraft carriers and i'll come back to that. for those of youwho are interested, this month the rand corporation, a quite conservativeamerican corporation, john, has come out with a reportwhich i commend to you called china's incompletemilitary transformation. and it quotes extensivelyfrom chinese sources
and it gives other information about issues such as anti-submarinewarfare and so on. and i draw to your attentionthat this report says that in china's own journals and literature there is an acknowledgement thatthe pla's own weaknesses revolve around a concept alternatelyreferred to as "two incompatibles" i don't speak chinese or two gaps. and these two incompatibles orgaps acknowledged by the pla
are the modernization levelsof china's armed forces, particularly problems in the human area, and i'll come back to that, and the actual military capabilitiesof the armed forces to live up to this concept of fightinghigh intensity informationised warfare. so what are the problems identifiedwith the first incompatible, that is the modernization problem? the available literatureaccording to rand denotes, in china, denotes several areasabroad and endemic
to the people's liberation armyin the realms of training, organization, human capital, force development, and logistics. it is well known that a lot of the trainingis unrealistic and artificial. it is well known that the amount oftime that officers in the pla have to spend on studying,believe it or not, marxism and leninism cantake 20 to 25% of their time. good luck. let them do more of that.
then waste their time. there's problems of the constantinterference of the party with the military. and with the military, unlike our militaries, the role of the people's liberation armyand the oath of allegiance they take they take is not to thepeople's republic of china. it is to the communist party of china. and bob, i'm going toask you to contradict me, even in the soviet union,
the soviet red army did not havethe role and influence in the party the way that the people'sliberation army has. in the soviet union, the worst thing you could beaccused of was bonapartism. that's why zhukov, the conquerorof berlin was sent into exile for boasting about how he wonthe second world war. that is not the case in china. when deng xiaoping sentthe tanks into tiananmen square, i was in cia headquarterswhen that happened
and the evidence is impeccable. the evidence is impeccable that it was a direct orderfrom 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 wantto take a couple of examples of some of the military deficiencies. and the first one i want to addressis anti-submarine warfare. and the second one is air defence. i mentioned both of them earlier. again let me commend to you oneof 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 exaggeratechina's military capabilities. for example he cites a survey by the unitedstates office of naval intelligence describing china's capabilities inthe acquisition of targeting information essential for anti-submarine warfare as, and i quote, marginal. china's navy, of course, has begunto invest in the underwater sensors dedicated fixed wing aircraft,helicopters, and surface vessels necessary to locate and trackenemy submarines. but it has yet to addressits shortcomings in asw.
this is an important deficiencygiven america's big advantage in terms of tracking other submarines and the difficulty all other countries haveof detecting american submarines. china's conventional submarinesare relatively easy to detect and its nuclear boats possess littleasw capability and are still noisy. even its latest ballistic missile firingsubmarine, ssbn, the jin class, according to one american report, makes more noise than a delta foursubmarine 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 andunmanned underwater vehicles which are the new thing, as james goldric will tell us,in anti-submarine warfare. it would be hard-pressed to preventthem from operating close to its shores and destroying its surface fleet. it also remains unclear howcapable of joint coordination china's different servicesare in operations over water.
integrated operationsbetween a highly regimented and rigidly structured chinese air force and an immature and sea-based navy would require technological andservice-culture innovations, as well as exercises less carefullyscripted than has been usual, to develop the requisite interoperabilityand inter- service coordination. as i've said earlier, in promotingofficers and selecting leaders, the chinese prize loyalty to thecommunist party and reliability over independence and innovation.
in the meantime, the united states is pressing aheadwith technological game changers, such as unmanned undersea vehicles for reconnaissance,surveillance and strike that could radically changeundersea warfare to china's huge strategic disadvantage. there are similar gaping deficienciesin china's air defence capabilities against any technologicallyadvanced enemy. as friedberg points out,
china's ability to detect andintercept ballistic missiles or stealthy aircraft and cruise missiles appears to be limited. moreover, the united states isworking on technological advantages that will make china's taskof air defence even harder -- they include a new lowobservable penetrating bomber and long-range precision strike withvery high-speed hypersonic vehicles as well as what's called promptglobal conventional strike with conventional warheads on icbms.
such developments wouldgreatly increase the expenditure that beijing would have to devote to both active and passivedefence measures. and you've heard john lee say that the trade-offs in future becauseof demographics and economics, the trade-offs in future between endless investment in the military and these other demanding thingsin the chinese economy is no longer a free good.
is no longer a free good. none of this is to underrate the potentialchallenge to regional stability from china's military modernisation. but neither is it to succumbto 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 exercisinginfluence as a sea power
has provoked region widebalancing behaviours. in other words the reactions of japanand vietnam and the philippines. as time goes on, neighbours around china'speriphery may also feel compelled to field similar capabilities to china in order to address the growthin long-term chinese strike assets. and i'm thinking of japan here. ongoing requirements ofchina's naval and air forces to secure chinese near-seas priorities
make it highly unlikelythat 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 muchits capabilities improve. finally before i hand over to johnfor some initial conclusions, in our paper i quote a particularacademic robert ross in america who makes a very good point, that china is continental power. it is not a natural maritime power.
continental powers oftenhave insecure borders. china has the longest mostdiverse borders in the world in addition to the potential that john leehas pointed out for internal instability. maritime countries includingthe united states, britain, australia, new zealand, don't have those internal security problems. when you look at the historyof continental countries that have aspired to beinggreat maritime powers, they've failed;
france, germany, the soviet union. and it remains to be seen whetherchina can make that transition. i'm of the view that china is notcapable of challenging us dominance, of regional sea lanes or the securityof america's strategic partners in maritime southeast asia. and further, we point out inour article that in our view, china is 20 years behind the united states in high-technology weaponsand sensor development. it is not a military superpower and will not become one
until it develops the capability to project decisive military poweranywhere in the globe. presently, china is only a regionalmilitary power entirely without any modern combatexperience whatsoever and with major deficiencies indoctrine, human capital and training particularly the complexityand realism of joint operations. china's ability to develop a powerfulmilitary is also seriously constrained by the fact that its own technologicaldefence industry levels remain relatively low
and that its only sourceof foreign arms is russia. and china, to give you one example, has been trying for 35 years to develop a high performancemilitary 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 contributionto the article and the talk itself. now in our view, china may be approachingthe zenith of its power as its economy encountersserious structural impediments
and demographic barriers to growth. this will also have importantimplications for the opportunity costs forgone of ever-increasingdefence expenditure in a technological arms racewith the united states, which beijing cannot hope to win. our analysis portrays a china inwhich worsening domestic problems will remain the leadership's highest priority and addressing such concerns will take up an increasing share ofeconomic resources and national wealth.
just by the way, as chinahas gotten richer as a country, domestic problems havegotten worse, not better. so economic growth, per se, is notsolving china's domestic problems, but actually worsening them. the communist partyleadership will struggle to keep a lid on growing popular discontent, which may have implicationsfor its very survival under certain circumstances. we have also described a lonely powerthat has very few friends in asia.
although china's world view of itself is shaped by strong historicalimpulses of a hierarchic order with itself at the apex, very few countries in the regionappear 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 atleast 20 years behind the united states in key technology areas. the fact that china has no experiencewhatsoever of modern warfare and its military hierarchy dependscrucially on loyalty to the party means that china's actual warfightingcapability must be in serious doubt. moreover, china's military buildupis causing a classical response in kind as countries such as japan, indiaand many southeast asian countries
acquire advanced maritime militaryforces in order to check china. they may not be able tobalance against china, the southeast asian countries, but they can complicate matterssignificantly for the chinese military. in summary, as the economist observes: china needs western markets, its neighbours are unwillingto accept its regional writ, and for many more years the unitedstates will be strong enough militarily and diplomatically to block it.
now i'm now going to hand over topaul to make some final comments. -paul dibb: thanks john. what does all this mean for australia'snational security planning and the forthcoming defence white paper? first, the most important point to make is that any suggestion the united statesshould move to one side in asia to make strategic space for chinashould be rejected. china is not now or foreseeablya strategic peer of america's and any move by washington to concedechina's so-called legitimate strategic interests
would smack of appeasement; and offered unnecessarilyand for little conceivable gain. so, when beijing proclaims thatthe entire south china sea is a core strategic interest, a term traditionally reserved forchinese claims over taiwan and tibet, china's maritime expansionistambitions should be firmly resisted. second, australia does not need to structureits defence force for war with china. beijing is not developingthe conventional forces with which to invade or directlyattack australia.
but we should develop thehigh-technology naval and air assets, including submarines, necessary to contribute to any allied conflict in the region, including in northeast asia, where we might needto make a contribution or where australia needs to helpresist chinese military adventurism. developing these capabilitieswill further complicate the strategic and operationalenvironment for a still isolated china, which in turn will placefurther constraints on,
and likely encouragegreater caution from beijing. in northeast asia, this would suggest,for australia, niche contributions from us in suchareas as submarines and air power. our army cannot make a differenceto conflict outcomes in northeast asia. closer to home, however, we could make a much moresubstantial contribution by having the capability to blockthe straits of southeast asia in the event of a serious warin northeast asia involving the united states.
third, short of military conflict australia must be able toresist chinese coercion whether by military or other pressures with regard to our owndirect security interests, including if necessaryour economic security. we also need to be capable ofcountering coercion in our region of primary strategic interest particularly southeast asia. it is in australia's crucial strategicinterests for southeast asia
to avoid being dominatedby china geopolitically or becoming a chinese security domain. southeast asia forms a strategic shield to australia's vulnerablenorthern approaches and canberra needs to place high priority on strengthening its relationswith southeast asian countries, particularly in the defence arena, and to help them resist chinese coercion. -male #1: we have about15 to 20 minutes for questions
so if you could please introduceyourself and speak loudly so the cameras can pick you up. -tom mooney: thank youfor a really informative lecture. my name's tom mooney. i'm with the sdsc herein the anu student. the topic tonight was "why china will notbecome the dominate power in asia." and tonight we've heard about the contemporary capabilitiesof china's military. but isn't it true that in order tobecome a dominate regional power,
all that china needs to do is tomake a cost so high to the us that the us won't interfere in whatchina perceives as its region of influence? which can be done throughthe asymmetrical capabilities not necessarily how to bridgethe 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 pursuingan asymmetric strategy that is to impose, as you say,
prohibitive costs to lower the politicalwill of washington to intervene. if it does that, as i think you're implying, it lowers the credibilityof 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 onthe chinese of assertive behaviour
that is unacceptable. now it's pretty clear thatamerica has that capability. in a sense, the politicaltolerance or threshold of what the chinese communistparty 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 politicaland strategic miscalculation here.
i agree with you. that is prime strategyto inflict prohibitive costs. but think about what is prohibitivefor the chinese communist party if you consider boththeir military vulnerabilities and your domestic weaknesses, they have less room to move, i think, than most people realise. -male #2: taiwan hascome up several times and of course you have the situationwith taiwan and china's economies
have become integrated in many ways and you have the one china policy which the communists party adheres toand the [inaudible] favour because they wantto be the one ruling china, but in taiwan, i understand that there's growing sentimentfor independence from china. now if you get in a situation wherethere's an independence movement and say, a referendum is won to say, to renounce the one china policyand taiwan's an independent country,
this leads quite a quandary i would think for the chinese because they do havethe economic integrations which they would lose in a conflict. a conflict would be very costly in terms of getting massesof troops across the straights. what is likely to be the effect on chinaif taiwan does move towards independence? -paul dibb: yeah. we've got a taiwaneserepresentative actually here and i was in taiwan for the first timewith an anu group in september
and i'd never been there before because when i was an officiali was not allowed to be there although i was allowedto 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 maywhen under the sunflower movement, the students occupied the parliament over allegations
that president ma that that governmentwas moving economically too close to china. isn't it interesting that students woulddo that over that over that issue? it is true as you say thatthe economic relationship and the tourism relationshipis very profound. my memory is, william you can correct me, there's 800 flights a weekbetween china and taiwan. it is good for the mainlandersto go to taiwan and switch on the tv in their hotelsand watch parliament, watch talk back tv,
go to a book shop whereyou can buy any book, hmm? so, you know, there is that creepingshort of culturalisation of the mainland. i think on the issue ofthe independence movement, i'm not an expert on taiwan. i doubt very much, and the americans would not wanta declaration of independence. and as long as china facesvery substantial military costs, which it still does, an amphibious assault,
as some of the military here know, is amongst the most difficult andchallenging of any capability to develop, particularly if you've got a dug inand capable enemy. so, you know, the issue of taiwan, is one of those hypothetical contingencies that when foreign ministers ofaustralia 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 gaveyour last part of the talk and started talking about the policy implications, it seemed a bit disconnectedfrom everything you'd said before. you could almosthave begun by saying, "okay, we've covered all that, whether china would becomethe 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 enoughand provocative enough, as it may well be over senkaku/daioyuislands, to do something, that we could afford to sit there
and say we're going to do nothingand we have no military capability. i'm under no illusions that projectingpower up into northeast asia is extremely difficult and challenging. and we won't be ableto make a difference. it would be a niche contribution. but i think closer to home, as i've said, the capacity to blockadethe straights of southeast asia, we're talking abouthigh-level conflict war here, is within our capacity.
and i think our american friends wouldexpect us to have that sort of capability. and i think in any case,by the way, as rick armitage, a friend of yoursand mine would say if he was here, "if american marines are dyingon the senkaku/daioyu islands, we expect you australians to bleed for it. -male #4: [inaudible] as you've said, one of china's issuesis diplomatic explanation especially after those few years we can start seeing chinataking a different path now.
you can probably kind of see it with the proclamation of the shanghaicooperation organization, but now the formation of the asianinfrastructure and investment bank, do you kind of see chinataking a different path to kind of be more conciliatory role? what difficulties do you thinkthat you might have with that? -paul dibb: that's yours john. -john lee: you meanwhat difficulties will they have in trying to take a muchmore conciliatory role?
-male #4: yeah. -john lee: you know,put in simple terms, i think they've blown trust. i mean there were certain pocketswithin various countries in the region who were always suspicious of china but on the whole, there was a widedegree 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 saychina's become more assertive. even if china successfullyimplements all of these initiatives, and some of them are quite good, for example, the infrastructure bank, i'm quite supportive of, the strategic viewpointof china won't change. i mean will china give up its claimsto much of south china sea? will china wind down militaryspending or acquire capabilities that may help it seize those claims?
you know, will china have a differentpolicy to the senkaku/daioyu islands, a fundamental strategic policy? so it can do all these other things. but i think that trust that wasthere 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 atall the environmental costs
of the massive [inaudible]of the environment in china? what impact might that have ontheir economic and their ability to develop the economyand to fund the military? and the political factors involved? -john lee: yeah, i mean there'sa political and economic pull. they're political and economicfactors 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 themare protests against things like polluted rivers and not necessarily polluted airbut instances of party corruption, soe corruption where their own regulations havebeen 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 wasone of the major things that president z actually mentionedfor that reason. the economic factors, much of it feedsinto things like water, you know. i can't remember the statistic in my head, but something like half of all of thedrinking water in china is polluted. the agricultural water or the bullwater is getting worse and worse. yeah, i mean, china, in a sensehas had from a growth perspective, because china has ignoredevery other consideration that most countries take into account,
has been able to achieveto some degree, the growth thatit's been able to achieve. now suddenly it has to dealwith the opportunity cost that every other countryhas 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 warfarecapability 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 preservethe south pacific islands for the last 12 to 13 years. * many of whom have been recipientsof impressive chinese economic aid and soft loans. some of their spokesmenhave expressed concern that the loans will eventually be calledin by china requesting port facilities and that they will add tochina's so-called string of pearls.
according to [inaudible] navy. but from what you've said of the defencefacilities and capacities of china, it could not even becomea dominant power in the south pacific, let alone asia. -paul dibb: no, but it couldlike the former soviet union when it was messing aroundin the south pacific with its so-called hydrographichand fishing vessels as cover for intelligence and other operations, it can cause, you know, severeconcern and consternation about,
these are very, as you knowbetter than me, very vulnerable potentiallyunstable small countries. we would be seriously concerned, any australian governmentwould be seriously concerned, if china was lookingto 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 significantmilitary facilities overseas or then places like sri lanka and so on. it is sniffing around. i was two years ago in timor to observethe democratic elections there and i couldn't help but notice that the following buildings had beenbuilt by the chinese: the foreign ministry, the defence ministry,and the presidential palace. now look, every country hasthe right to do that sort of thing. but its' something we need toscrutinise extremely closely.
-male #6: well this might seemto be an unrealistic scenario. if push came to shove andrather than a military action, china were to contest were tocontest america economically, and possibly in partnership with russia, what do think of the possibility that they might consider concoctingsome sort of bear raid type scenario on the us economyusing the foreign reserves and what might such a possibilitymean for us action to then reach? -john lee: let's quickly address that.
the foreign reserves, everyonetalks about this treasure chest or this weapon that china has. what people don't realise is thatmost of the foreign reserves has really resulted from the surplusesthat china has had with america or europe and it has to keepthe money outside china because of its currency policy. why that's important is becausethere are actually liabilities against those foreign reserves, that is what is owed to the exportmanufacturers inside the country.
i mean, in short, china can't justdeploy those foreign reserves because there are actuallyliabilities against that and it would completely ruintheir financial system. just on the other economic, potential economic weaponsthat china has, i think there's a misunderstanding thatchina is a driver of global growth. if you look at interactionschina has with advanced economies, most of the interaction is making thingsfor the advanced economies to consume. so ultimately what that means is that
the western consumer orthe advanced economy consumer is still much much more importantto not just china, but asia, than the chinese domesticconsumption market. just to give youone more indication, the chinese domestic consumptionmarket is about 3 trillion dollars us. and about half of thatyou can't actually access. the american and europeandomestic consumption markets are about 12 trillion dollars us each. and if you want evidence,during the global financial crisis,
trade between china and the restof the region actually declined when the western economieswent into recession. what that tells you is that the trade isbeing driven by the western consumer. all that's happening mainly is that it's a vast production chain to make products for americanand european consumers. so i'm not saying china is completely impotent, but it doesn't have those economicweapons that people assume it has. -paul dibb: yeah andi think, you know,
john, that unlike the former soviet union which and aunotarchy, self-sufficient,non-trading, non-investing country, china is fundamentallyinvolved in the western world, global trading system. by the way, and that givesit certain vulnerabilities. it's not just the west sea lines ofcommunication that are vulnerable. i mean china currentlyimports 80% of its oil through the straights of the senkakuand southeast asia. and that means it too is vulnerable.
and as john is saying, when it comes to global supply chains, china is intricatelyinvolved in that isn't it? so if global supply chainsget 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 thatwe haven't raised that i'll just mention and i'll getjohn to talk about it a bit.
there was quite recently while i've been away in scandinavia, an article i understandby david shambaugh who you know very well, a veryprominent 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'sarticle was essentially saying that the ccp, is this the beginningof the end for the ccp
because of various thingslike slowing economic growth, lack of morale, lack ofautological conviction, etc.? i agree with david'sanalysis of the problems. i don't agree with his endpoint. the reason why i don't' think thatthe chinese communist party under david's line ofreasoning is at its end is because if you look at modernindustrialising societies, regimes fall because ofrevolutions in cities. they don't fall because ofrevolutions in the countryside.
now the basic strategy ofthe 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 beinga 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 tothe chinese communist party.
so it's actually not in the interestsof urban elites right now in china to want a different political setup. now of course if there're some economicdisaster then the rules change but assumingno economic disaster, i think david's pointing outof the problems are correct, but i don't necessarily agree with what he says about where it's heading to.
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