Red Flag

Waking Up To China's Challenge; Quarterly Essay 76

Peter Hartcher

• Publisher: Quarterly Essay
• Year: 2019
• Print ISBN: 9781863959704
• eBook ISBN: 9781743821220
• Topic: Politics & International Relations
• Subtopic: Geopolitics
• Index: Politics & International Relations

A gripping examination of China's intentions and strategy when it comes to Australia.

China has become a key nation for Australia's future – for our security, economy and identity. But what are China's intentions when it comes to Australia?

In this gripping account, Peter Hartcher shows how Beijing stepped up its campaign for influence, over hearts and minds, mineral and agricultural resources, media outlets and sea lanes. Reactions so far have included panic, xenophobia and all-the- way-with-the-USA, but the challenge now is to think hard about the national interest and respond with wisdom to a changed world.

This urgent, authoritative essay blends reporting and analysis, and covers the local scene as well as the larger geopolitical picture. It casts fresh light on Beijing's plans and actions, and outlines a way forward.

"Australia and China have got rich together. For Australia, that is quite enough. But China's government wants more. As much power and influence over Australia as it can possibly get, using fair means or foul. But ... what Beijing can get is limited not only by China's abilities, but also by Australia's will. In each case where Chinese officials or agents attempted to intrude, they met Australian resistance. And failed. For all its power, China is neither all-powerful nor irresistible. Australia can shape its engagement with Beijing." Peter Hartcher, Red Flag

This issue contains correspondence relating to Men at Work by Annabel Crabb from Grant Marjoribanks, Maddison Connaughton, Angela Shanahan, Marian Baird, Andrew Wear, Mark Tennant, Andrew Thackrah, and Annabel Crabb

RED FLAG	Waking up to China’s challenge
	Peter Hartcher

We hear a great deal about the power and might of the risen China and the man sometimes called its “ruler for life,” President Xi Jinping. But what does the supreme ruler of China want to do with all this power? Only knowing that can we comprehend where Australia fits into his plan.

We know some of Xi’s grand aims for his nation. And we know his big taboos, too. He has declared the pursuit of the “China Dream” to be the overarching ambition of his time. The dream, he says, is the “rejuvenation of the great Chinese nation.” Xi is clear about what his dream includes. Such as being a “moderately well-off society” by 2021. He doesn’t specify, but if you apply the informal rule of thumb that defines a middle-income country as having US$10,000 in income per head annually, China is on track to surpass this a year or two early, putting it in the same income league as Malaysia and Russia by the end of 2019. And Xi dreams of a fully rich China by 2049, the centenary of Mao Zedong’s founding of the People’s Republic. The country will be “closer to centre-stage” of world affairs, in Xi’s vision. This refers to China’s ancient name for itself – the two characters that are sometimes translated as “Middle Kingdom” can also be rendered “Central Kingdom.”

A fond fantasy? Not at all. China’s economy was the biggest in the world for at least half a millennium, until as recently as 1820. It is not inevitable that it will vault over the United States to recover that title, but it is likely, and likely by about the time today’s newborns are ready to start high school. It’s a distinction without much of a difference. China will have about the same economic heft as the US, maybe a bit more, maybe a bit less. But whichever it is, it is already well advanced towards superpower status, its economy as big as those of the entire European Union and Japan put together. Economic bulk is the base feedstock of national power. Even at today’s subdued growth rate, China’s economy is adding so much new activity that it’s “growing” another Australia every two years.

Imperial China, a world leader in technology, also pioneered the capable, modern nation-state. It took Europe almost two millennia to catch up. China is again thrusting to the forefront of technological know-how and pioneering a more effective nation-state. For instance, in less than half the time Australia has spent debating inconclusively whether to build a single fast rail line to connect its major cities, China built a network of over 20,000 kilometres of fast rail.

Its return to imperial-era greatness has many modern touches. To keep the kids connected to the spirit of nation-building, China’s gaming behemoth, Tencent, launched a new game. Patriotically titled Homeland Dream, it went live just in time for celebrations of the seventieth anniversary of the founding of the People’s Republic this year. As described by The Financial Times, the game “allows players to build virtual cities filled with Communist slogans and landmarks.” It went instantly to the top of the list of most popular games. “For China’s biggest video game company, a patriotic business strategy appears to be paying off.” Unpatriotic ones are less likely to succeed. Every new game needs the approval of the state. And for lovers of liberty who fret over China’s tech-enhanced surveillance and control – the US-based independent watchdog organisation Freedom House has dubbed the game “techno-dystopian expansionism” – China has become hyper-capable in a troubling way.

The spirit of the once-mighty empire that built the Great Wall and the Great Canal is taking concrete form once more with Beijing’s imperial-scale ambition for its vast intercontinental Belt and Road scheme for connecting the world through Chinese money and power. The Central Kingdom has every prospect of being much “closer to centre-stage,” just as Xi wishes.

And by the same date of 2049, he sees Beijing “recovering” the self-governing democratic island of Taiwan for the Chinese Communist Party (CCP), a prospect that troubles most of Taiwan’s 24 million people. It’s no coincidence that Hong Kong’s special autonomy under the “One Country, Two Systems” formula is due to expire in the same year.

That’s what Xi wants. A country as rich as the richest on earth, with all its territories united under the centralised rule of the CCP, in a magnificent restoration of China’s sovereign splendour before it was torn apart by British, European and Japanese forces after 1842. That was the beginning of what China calls its “century of humiliation.” Xi’s dream is to end the ignominy in glory.

Xi intends to be nothing less than a threshold figure in world history. The Soviet Communist Party collapsed because “in the end nobody was a real man,” Xi said in his first months in power. Implicitly, he was asserting that only a “real man” could hold China together. He was that man. The iron fist had announced itself. There would be no ideological wavering or political timidity. He changed China’s constitution, removing term limits for the leader, so he could rule indefinitely.

Xi has the benign appearance of a kindly uncle. One of his nicknames is Winnie the Pooh. But he is the most repressive Chinese leader since Mao. Inside China’s Great Firewall, official censors scrub the web of any such ursine reference. Not only is anything so disrespectful unacceptable, it might be used as a coded reference to circumvent the strict ban on criticism of the president. Disney’s harmless 2018 movie Christopher Robin, plainly a subversive Western attempt to undercut the power of the CCP, was banned. In truth, Xi is more grizzly bear than Pooh.

The leader went further. Not content to assert unassailable power at home, he overturned the famous maxim that had guided China’s overarching strategy for almost a quarter-century. Paramount leader Deng Xiaoping in 1990 urged restraint on a China that was beginning to pulse with the possibilities of its own rising power. Deng urged his compatriots to “hide your brightness, bide your time.” Xi declared that China was now “striving to achieve.” This is a crystallising statement of China’s transformation. It was a status quo power. It’s now an ambitious one. Barack Obama accused China under Xi of using “sheer size and muscle to force countries into subordinate positions.”

We also know what Xi doesn’t want. In a secret directive that became famous as Document No. 9 after it was exposed by a Chinese journalist, Xi laid down what have become known as the “seven taboos” or “seven unmentionables” for today’s China. It was written in the first six months of Xi’s rule and issued by the General Office of the Central Committee of the Communist Party of China, which Xi, of course, leads. It demanded “intense struggle” against seven “false trends.”

The first taboo is “Western constitutional democracy.” It is denounced as a vessel for “capitalist class concepts.” First among them is the separation of powers. This is the doctrine that puts checks on power, so that one branch of government can check another. Its purpose is to prevent the rise of a tyrant, to protect the rights of citizens.

A practical example is that, in a liberal democracy, a citizen can challenge a government decision in court. But Xi’s Document No. 9 encyclical specifically denounces “independent judiciaries.” So too multi-party systems, general elections and “nationalised armies.” What does this peculiar term mean? In normal countries, the army serves the state, regardless of which party happens to be in power. But in China it is fully owned and controlled by the Chinese Communist Party. As Mao said: “The principle is that the party commands the gun, and the gun must never be allowed to command the party.” The army and the courts are not national institutions. They are partisan. They serve the party, and only the party.

Second, the concept of “universal values” is forbidden. The first of the universal values promulgated by the United Nations is a fundamental one: that “All human beings are born free and equal in dignity and rights.” Xi rejects it. He regards it to be a challenge to the rule of the Chinese Communist Party. The party recognises collective rights – to development and security, for instance – while rejecting individual rights, such as to vote, to speak freely and to worship.

Third, civil society is taboo. That is, any community-based body or non-government organisation, like a charity, environmental group, trade union, professional group or church, is forbidden. Document No. 9 says that “advocates of civil society want to squeeze the party out of leadership of the masses at the local level” and constitute a “serious form of political opposition.” So organisations like Falun Gong, or Falun Dafa, are brutally repressed. Religions, always strictly controlled in modern China, increasingly are persecuted under Xi. The repression of China’s Uighur Muslims, with a million or more detained indefinitely in mass camps from 2017 and denied the right to practise their beliefs, is a dramatic escalation.

Fourth, neoliberalism is a no-no. The doctrine of unrestrained market forces is the US-led Western world’s attempt to “change China’s basic economic system … under the guise of globalisation” and “weaken the government’s control of the national economy.” It should be noted that, since Document No. 9 was first drawn up, the United States under Donald Trump has ceased to advocate neoliberalism, which now stands friendless in the world.

Fifth, the West’s idea of journalism is unmentionable. Why? Because it is “challenging China’s principle that the media and publishing system should be subject to party discipline.” Freedom of the press is a “pretext” for challenging the Marxist definition of news. The media is not “society’s public instrument” but should be “infused with the spirit of the party.”

Sixth, historical nihilism is banned. The document says that historical nihilism is “trying to undermine the history of the Chinese Communist Party and of New China.” “In the guise of ‘reassessing history’,” says the encyclical, historical nihilism is “tantamount to denying the legitimacy of the Chinese Communist Party’s long-term political dominance.”

Finally, questioning reform and opening and the socialist nature of “socialism with Chinese characteristics” is forbidden. “The discussion of reform has been unceasing,” says the paper. “Some views clearly deviate from socialism with Chinese characteristics.” Decoded, this simply means that further major economic reform is off-limits and should not be discussed.

So Document No. 9, or, more formally, the Communiqué on the Current State of the Ideological Sphere, has three striking characteristics. First, its unwavering theme is the imperative of party control above all else. Second, its psychological stance is defensive, even paranoid. Each of the central principles of Western civilisation is dismissed as “pretext” or a “guise” or a “political tool” for undermining the Chinese Communist Party. Third, it is a directive to all party cadres to snuff out the fundamental values and liberties at the heart of liberal democracy. It is hostile to the essence and the governing principles of societies such as Australia’s. It defines the party’s ideological sphere as directly opposed to the West’s.

How do we know that Document No. 9 is authentic? One indication is that, while it was not publicised, it was posted on some Chinese government websites. Another is that the journalist who first published the document outside officialdom, Gao Yu, was arrested for publishing state secrets, forced to make a televised “confession,” and jailed, initially for seven years, later amended to house arrest with a reduced sentence of five years due to her poor health. Gao is seventy-five years old. Her treatment suggests that the party is not proud of its declaration of the seven perils. China puts great effort into projecting a positive image to the world. Its public pronouncements gush about peace, humanity and the boast that “China always attaches great importance to human rights,” as it claimed in its declaration to the United Nations General Assembly in September. A third indication is that its precepts have since been disseminated in compulsory study sessions, some of which have been documented on the internet. Corporate managers, university administrators and other officials have been instructed in the seven taboos. Finally, Document No. 9 has been enforced, the ultimate validation of its authenticity.

This is the China of Xi’s dreams, in his own words. Rich, more central in world affairs, united under one unchallengeable party, vigilantly stamping out any freedom, justice or human right that might crimp the power of the party. It is to be, in other words, an authoritarian superpower. Can Australia live with it? Can Australia live without it?

WHAT DOES THE PARTY WANT?

Standing to give the toast at a lunch in the chandeliered ballroom of a Sydney hotel, China’s First Vice Premier raised his glass of wine to the hundreds of businesspeople before him. “Let’s all get rich together!” exclaimed Zhu Rongji with a broad grin, to the delight of his audience. It was 1997, and it was not only the wine that was intoxicating.

Zhu was about to become premier of China, and China was about to become a full member of the global market system through admission to the World Trade Organization. The Soviet Union was a memory. It was difficult to reconcile Zhu’s unabashed capitalist gloating with the name of the political group pursuing it, the Chinese Communist Party. Communism seemed such an anachronism. It was almost embarrassing to say the word. Zhu wore not a Mao suit but a business suit, talked more like Gordon Gekko than Karl Marx. The country’s growth had been impressive. It was about to become explosive.

At the moment that the businesspeople in the room laughed and clinked glasses at the sheer audacity of Zhu’s toast, China’s economy was roughly twice the size of Australia’s. Just as it had been when Australia first extended diplomatic recognition to Beijing in 1972. The ratio – two to one – had not changed in a quarter-century. But by 2018, China’s economy was nearly ten times the size of Australia’s.

China’s take-off was not unprecedented in its speed. Japan grew at similarly breakneck rates in its early decades after World War II. Nor was China’s growth unprecedented in its duration. Japan’s post-war boom ran about as long. What set China apart was sheer scale. With 1.4 billion people, China contains almost a fifth of humanity. Taken together, the speed, duration and scale of the transformation was truly one of the wonders of the modern world.

Two specifics can help us appreciate the abstract. First, China used more cement between 2011 and 2013 than the United States used in the entire twentieth century. “It’s a statistic so mind-blowing that it stunned Bill Gates and inspired haiku,” wrote a Washington Post reporter. Second, China’s growth lifted 850 million people out of absolute poverty in the four decades to 2013. That was the population of planet Earth until the nineteenth century. The World Bank observes that, of all the people in the world who managed to escape poverty in the last four decades, seven of every ten were Chinese. It describes this as “unprecedented in scope and scale.” Or, in the words of China’s government, “a miracle in the development of mankind.”

Zhu’s toast was no delusion. Along the way, Australia and China did get rich together. China displaced all other trading partners to become Australia’s biggest export market. China buys a third of everything that Australia sells to the world. That’s double the share of the next biggest market, Japan. The last time Australia was so dependent on one country for its income was in the 1950s, when it was a client state of Britain.

For a sense of China’s preponderance, consider this: Chinese tourists spend about $ 11 billion a year in Australia. Australia earns about the same, $11 billion a year, by attracting Chinese students to its universities and colleges. Either one of these individual lines of business with China is more valuable than the entirety of Australia’s exports to the United Kingdom. China is the biggest overseas buyer for both Australian industries.

Still, as valuable as those services trades are to Australia, they pale in comparison to the resources business. The sale of rocks accounts for 53 cents in every dollar of total Australian sales to China. That’s mostly iron ore, but includes coal, bauxite and other ores. Add other raw materials, such as gas and wool and beef and barley and lobsters, and almost three-quarters of Australia’s total exports to China are raw products, feeding the Chinese industrial machine as well as its banquet tables and households.

China’s appetites are so voracious that it doesn’t just wait to see what Australian exporters might offer to sell. An industry of citizen exporters sprang up to satisfy its needs, filling their shopping trolleys with Australian baby formula, vitamins and skincare products and then mailing them to increasingly discerning retail customers in China. This trade is operated by around 150,000 Chinese students and tourists and other residents in Australia, known as daigou, a term that translates as “buy on behalf of.” Its estimated sales are $2.5 billion a year, according to a company that helps service the daigou, AuMake. Sales that corporate Australia was too slow or too complacent to pursue are made by enterprising individual Chinese. Even sailors with the Chinese navy joined the rush. The crews of three Chinese naval ships on a port visit to Sydney in June 2019 were photographed carting vanloads of baby formula onto their warships to take home.

“China remains the key growth opportunity for many Australian companies despite a slowing economy and more regulatory risk,” Stewart Oldfield of market intelligence firm Field Research writes in The Australian Financial Review. “Australia–China trade has continued to grow strongly over the past two years despite tensions. Two-way goods trade expanded by 17.5 per cent in 2018, five times faster than global trade growth, topping $192 billion. Australian-listed company exposure to China goes well beyond its traditional strengths in iron ore and coal and these days includes infant formula, education and employment services, pharmaceuticals, fruit, wine and tourism.”

There are many tales of woe, but a company or industry that successfully catches the China market updraft feels like it’s gone from climbing the stairs to zooming skywards in a high-speed elevator. Wine, for instance. A decade ago Australia sold 3 million cases to China a year, worth $120 million. Today it’s gone to 17 million cases, fetching $1.1 billion and displacing the French wine industry as the biggest supplier to China.

The Reserve Bank of Australia has “more staff looking at China than any other single overseas economy,” according to its governor, Philip Lowe, even though the United States is still by far the larger of the two. So why devote more resources to studying China? Partly because of the opportunities. Casting ahead to 2030, the Australian Treasury forecasts that the total size of the US economy will be US$24 trillion. Which sounds impressive until you see that it projects China’s to be US$42 trillion, 175 per cent the size of America’s.

Of course, it is merely a forecast. Many over the past twenty years did falsely predict a collapse of China’s economy, but have been so worn down by being so wrong for so long that most have given up. That does not mean a Chinese economic shock is impossible. As he prepared to retire in 2017, China’s then central bank chief, Zhou Xiaochuan, stunned markets with the bluntness of a warning that “we should particularly defend against” a “sharp correction, what we call a ‘Minsky moment.’” A sudden collapse in asset prices like real estate and shares, in other words. China has not repealed the laws of economics, but has managed to navigate them successfully for far longer than most Western analysts would have credited. And this is another reason that Australia’s Reserve Bank devotes more resources to China-watching – because of the risks. “Among the largest economic risks that Australia faces is so...

Table of contents

• Cover Page
• Title Page
• Copyright
• Contents
• Red Flag
• Correspondence
• Contributors
• Back Cover