Lowy Institute

Here's Business Spectator's Fergus Ryan on Clive Palmer's Monday evening TV outburst about China:

It was only after Julie Bishop apologised to the Chinese embassy that the Chinese government put out a statement saying Palmer’s attack was “full of ignorance and prejudice”, absurd and irresponsible. By getting the Chinese embassy involved over comments made by a member of another party, the government has given more oxygen to Palmer’s remarks. It’s the kind of oversensitive micromanaging of the Australia-China relationship that ends up making us look weak...

...The Chinese government knows that Australia is a democracy. Apologising to them for what happens in the rough and tumble of Australian democratic discourse encourages the Chinese government to think they can exert pressure on Australia to dampen debate.

To be fair to Bishop, it seems she did not actually 'apologise' to the Chinese Embassy for Palmer's remarks; rather, she contacted them to distance the Government from Palmer. Yet I agree with the broad sentiment here; Australia is a robust democracy, and that's an image we should actively cultivate on the international stage, not shy away from. It is one of our great soft-power strengths.

So while Bishop was telling the Chinese ambassador how disgraceful Palmer's comments were, I hope she also found time to say that this sort of thing is commonplace in a democracy, and that as a nation we not only survive it but are even strengthened by the debate it provokes. China ought to try it sometime.

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One of the policy solutions being considered by the Australian Government to deal with the expected problem of returning Australian jihadists is to preclude their return to Australia, or expel them, by revoking their Australian citizenship.

recently released report from the Independent National Security Legislation Monitor (INSLM) recommends that the Minister for Immigration and Border Protection be given the power to revoke passports on national security grounds.

This is not a new idea. Some years ago there were calls to revoke the Australian citizenship of suspected World War II war criminals in the hope that this would get them out of the country. We 'knew' they were guilty but couldn't actually prove it through a criminal justice process, so it was argued that an administrative decision under the Australian Citizenship Act would function as a work-around. The idea was never adopted, for good reason: there was no guarantee that anyone who lost their Australian citizenship in that way would actually be allowed to return to another country.

It is not clear what the expected outcome would be of the 'citizenship solution'. Revoking the Australian citizenship of someone engaged in jihadist activity would deny further access to Australia but would not stop the person from engaging in political violence elsewhere. Only prosecution, conviction and incarceration, whether overseas or in Australia, would achieve that.

Citizenship solutions are always harder in practice than they look.

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The INSLM report suggests that Australia should respect its obligations under the 1961 UN Convention on the Reduction of Statelessness, and that revocation of citizenship should only occur in relation to jihadists who are dual nationals. Unfortunately, there is nothing in the report to tell us whether in fact there is any reason to believe that the suspected jihadists (about which Australia is rightly concerned) actually have a second citizenship, and therefore whether anyone's Australian citizenship could in reality be revoked while adhering to the UN Convention. 

Then there is the question of how a decision to take away citizenship would be made. Existing Australian citizenship policy and law set a high bar for revocation. Before it can even be considered, the person must have been convicted of a serious offence (primarily, fraudulent acquisition of citizenship) committed before becoming a citizen. Offences committed after becoming a citizen are a matter for the criminal law and are not a basis for revocation of citizenship.There is no provision for loss of citizenship of an Australian-born citizen, except where the person is a dual citizen who serves in the armed forces of a country at war with Australia. For jihadists, would a conviction for some offence be required, or just suspicion? If suspicion is sufficient to take away a person's citizenship, the status of Australian citizenship would be seriously weakened.

The report moves on from the question of jihadists to make a broader condemnation of dual citizenship. INSLM 'does not see why, as a matter of public policy, an Australian citizen should also be able to be a citizen of another country' and 'by its nature, dual citizenship is deeply problematic'. It goes on to say that the granting of dual citizenship in Australia since 2002 'does not render it anything like traditional' and recommends that 'the 2002 legislated policy in favour of dual citizenship should be reconsidered'.

This analysis would probably come as a surprise to the estimated 4 million Australian citizens who enjoy dual citizenship.

Most Australian dual nationals are people who migrated to Australia and then acquired citizenship. Retention of their first citizenship is, in practice, a matter between them and their country of birth. There is not a lot the Australian Government can do about this, and it has not attempted to do anything since the establishment of Australian citizenship in 1949. The sensible policy priority, as in other migrant-receiving countries such as the US and Canada, has been to integrate migrants through encouraging the taking up of Australian citizenship, rather than to sever past linkages.

The anomaly in Australian citizenship law was that, until April 2002, an adult Australian citizen who was Australian-born lost his or her Australian citizenship if they took out the citizenship of another country. This created the ridiculous situation that an Australian-born person was in a much less favourable position than a migrant Australian citizen. 

Implementation of this restrictive policy was in practice arbitrary, as the Australian Government had no way of knowing which Australians had taken out citizenship in another country. The only people that were recorded as losing their Australian citizenship were those who were unlucky enough to reveal their acquisition of foreign citizenship, perhaps while in contact with an Australian mission abroad. For example, an Australian woman seeking to register a child born overseas as an Australian citizen might find that, not only was the child not a citizen, but that her own Australian passport had to be confiscated on the grounds that she had not been an Australian citizen for years, by virtue of acquisition of another citizenship.

This restrictive approach became completely untenable when Australian-born citizens began to live and work abroad in much larger numbers. Many Australians living overseas found that for practical reasons they needed to take out foreign citizenship, but wanted to keep their personal and family links with Australia to allow frequent travel between countries and possible return. The Australian approach to dual citizenship was also increasingly out of step with the US, Canada and the UK, which permitted their nationals to take out another citizenship without loss of their original citizenship.

The Coalition government secured the passage of legislation in 2002 to stop Australians losing their citizenship through acquisition of another. This was on the advice of a report of the Australian Citizenship Council chaired by former Governor General and Justice of the High Court Ninian Stephen. A key justification was that Australia would benefit economically and socially by retaining linkages with its expanding diaspora, even if some of them also became citizens of other countries.

That argument remains valid.

Dual citizenship is not without its problems, including in the consular realm, but the current policy settings remain in the national interest and should be left alone. Tinkering with them is unlikely to have any impact at all on the Australian jihadist problem.

 Photo by Flickr user mechanical turk.

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Earlier this week I posted a rather terrifying video about the implications of robotics for the global economy and employment. Thanks to Stephen Grenville for pointing me to this critique of the video. The piece has a couple of key arguments, the first refuting the notion that human workers will become redundant in the production process just as horses were once moved aside by the machine age:

...unlike the horses, the humans are also useful as consumers. They are the people who will value the products the robots (and other humans) produce. Think about that for a moment. For each person who is disengaged from society because of a robot, if you cut them off from consumption as well (by say not giving them any money), that is a unit of demand gone. So this pool of unemployed are left outside the system and do not interact in any way with the robot-employed economy.

If that sounds unsustainable, it is. There is a contradiction in the story. You have a person who values the product produced by robots by more than the ‘total cost’ in terms of resources to supply them with that product. You have to feel pretty ill about the prospects of capitalism to suppose that such an opportunity (certainly at scale) will go unexploited.

Also, we need to think more deeply about who will own the robots:

The presumption is always that the bourgeoisie rather than the proletariat owns the machines. But why should that be the case? The robots we are talking about these days are not industrial scale. Why would it be the case that a pure capital owner will purchase the robot rather than a displaced worker any more than it was the case that those who drove horse drawn wagons where displaced by pure car owners?

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Over at War on the Rocks, Christopher Lee (a former officer in the US Forces Korea [USFK]) and Tom Nichols (of the US Naval War College) have gotten into a useful debate on whether US forces should remain in Korea. This issue is not widely discussed, which is surprising given the end of the Cold War and the huge margin of advantage in South Korea's favour.

Although I have taught international relations in South Korea for six years, this idea is almost never mooted in academia or the media here, so I applaud War on the Rocks for broaching it. But I think Lee and Tom (full disclosure: Tom Nichols is a friend) have missed the strongest arguments for a pull-out. Specifically, I think Lee understates his case for withdrawal and Tom will have to work harder to justify his arguments for the US staying. Today, I want to lay out a more robust case for departure. In Part 2 I will outline the counter-argument. In brief, I think that the case for staying just barely clears the bar and that the tide is running against it.

Why could/should the US leave South Korea?

1. South Korea is free riding. It only 'needs' the US because it is doing less than it would otherwise

Free riding is controversial issue, one that has bedeviled all US alliances for decades. An entire literature within international relations is built around the curious dynamics, such as 'buck-passing' or 'reckless driving,' that characterise allies' efforts to shift burdens to other allies, or tie others unwittingly to their own national preferences.

The most acute free-riding problem in the US alliance structure is in Europe. NATO informally benchmarks 2% of GDP as a minimum for members' defence spending. Yet only four NATO states break that marker. This has systematically crippled NATO, forcing the US to take the lead on what ought to be European contingencies such as the Balkans wars, Libya, and the Ukraine. Japan is even worse, spending less than 1% of GDP on defence.

By contrast, South Korea spends 2.6% of GDP on defence. This sounds better, but unfortunately is far from enough given the massive garrison state of North Korea sitting right on top of it. There is no formal spending target (USFK places no such demand on Seoul) but the number I hear widely thrown around is that without the US, South Korea would need to spend two or three times as much as it does on defence now.

Every foreign security analyst I know in Korea thinks the ROK needs to spend a great deal more; South Korea has significantly under-invested in C4ISR, missile defence, and counter-insurgency tactics. It is woefully under-prepared to occupy North Korea. It does not draft women, despite a declining birthrate that is leading to a major shrinkage in the ground force. With a GDP 25 to 30 times that of North Korea and a population more than twice as large, South Korea has the room to make a far greater effort. Where Lee and Nichols spar over the small amount of money the US contributes to Southern defense, the real issue is getting South Korea to take its own defence far more seriously.

2. The US presence in Korea (and Japan) discourages Japan-South Korea rapprochement

I have written about this issue several times. In brief, the US alliance almost certainly inhibits much needed cooperation between Japan and Korea on regional issues, most obviously China and North Korea. Specifically, the US alliance permits 'moral hazard' in both: neither Tokyo nor Seoul suffer any consequences for ridiculous criticisms of the other because the US insures them both against the consequences. Hence Japan and particularly Korea focus far too much attention on each other, and not nearly enough on the real regional threats.

There is a great deal of agonising in the US over how to get these two allies to bury the hatchet and start working together, but no one wants to admit the obvious solution — a genuine threat of abandonment. Hawks will disagree, and there are indeed downsides to abandonment, but let's stop pretending that US regional alliances don't have costs such as this.

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3. USFK's presence ideologically props up North Korea

One point that neither Lee or Nichols brought up is the obvious propaganda boon to North Korea of the US peninsular presence. This is not an uncommon omission. Most researchers on the North tend to assume that its ideology is a lot of empty talk, a smokescreen over a degenerate gangster-ocracy whose real 'ideology' is living the high life and hanging onto power by any means necessary.

While the elite's emptiness and cynicism is certainly clear, I think this is too easy. My own sense (perhaps from having visited North Korea and being bombarded relentlessly there with propaganda there) is that ideology is important. North Koreans are expected to attend ideology training 'classes' at least once a week (more often for officials and higher-ups). The official Korean Central News Agency and the three newspapers of Pyongyang exert tremendous 'intellectual' effort on ideological reinforcement. The focus of that ideology, particularly since the end of the Cold War and the collapse of communism, is anti-colonial nationalism, in which the US has taken the place of the Japanese invader and South Korea is the bastardised, globalised 'Yankee Colony.'

An imminent American invasion is the primary explanation the regime offers to its people for their privation and the permanent national security emergency. Take that justification away, and North Korea loses its raison d'etre. If South Korea is no longer 'occupied,' then why does North Korea need to exist at all?

4. USFK's persistence keeps China from cutting North Korea loose, which would accelerate Pyongyang's collapse

In the same way that USFK perversely acts as an ideological crutch for Pyongyang, so does it act as a reason for Beijing to endlessly prevaricate on North Korean bad behaviour and Korean unification. China is formally committed to Korean unification, but in practice this is a lie. Instead, the Chinese openly refer to North Korea as a 'buffer' between them and the robust democracies of South Korea, Japan, and the US.

I detest this logic. It suggests a breath-taking cynicism about the catastrophic human rights condition of North Korea. That China would callously instrumentalise a state that the UN recently likened to Nazi Germany is just appalling (and goes a long way to explaining why so few in Asia trust China). But that is the situation. However, were the US to retrench from South Korea, the Chinese fear of USFK on its doorstep would be alleviated. Indeed, South Korea could swap a USFK exit plus a promise of post-unification neutrality for a Chinese cut-off of aid to North Korea and pressure for unification.

Hawks in the US and South Korea might not like that, but alleviating the extraordinary suffering of the North Koreans should be the primary goal. If a USFK departure, tied to a major Chinese policy shift, could bring that about, it should be considered.

5. The US is not an empire. Where it can retrench, it should. Commitments should not last indefinitely.

This is an openly normative argument. If one embraces a full-throated version of US hegemony (militarised, globalised, interventionist) then this will not appeal. But post-Iraq, there is clear public desire to rein in American interventions, so the normative case for restraint, on liberal democratic grounds, is strong.

The costs of hegemony are not just financial. They also include the regular war-making and killing of foreigners; a sprawling, hugely intrusive national security state; domestic nativism; as well as torture, indefinite detention, rendition, and similar penal abuses. All this suggests that retrenchment would be good for American democracy and liberalism. Allies may not like that. They will complain of abandonment. But sacrificing America's liberal ideals at home to promote them abroad is strange brew. It is increasingly obvious that hegemony abroad is deleterious to American liberalism at home. Where allies can stand on their own, as South Korea very obviously can, US retrenchment would be domestically healthy.

Photo by Flickr user DVIDSHUB.

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  • As tensions with Russia continue to rise, the US Marine Corp is once again stockpiling heavy armour in climate-controlled Norwegian caves.
  • Bill Sweetman argues that things are looking up for the Royal Navy, with new assets and technologies coming on line. But concerns loom regarding the implications of Scotland's independence referendum.
  • Meanwhile, RUSI has a new paper on contingency options for Britain's nuclear capability should Scotland choose independence.
  • How can the US respond to the rapid erosion of its military technology edge? Ben Fitzgerald focuses on turning dual-use technologies and globalisation to America's advantage.
  • Information Dissemination has a fascinating discussion of the evolving understanding of warship survivability over time, and its contemporary ramifications.
  • Over at Small Wars Journal, Gary Anderson attempts to sketch out ISIS leader Abu Bakr al-Baghdadi's approach to warfare.
  • Arms Control Wonk has posted a podcast covering anti-satellite weapons, their proliferation, and China's recent hit-to-kill test.
  • Finally, here's evidence of the the progress being made on integrating piloted and unpiloted systems. In this video, the US Navy's X-47B testbed engages in carrier landing and recovery operations while 'sharing the pattern' with an F/A-18: 

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I argued back in April that China's 'synthetic natural gas' (syngas or SNG, which is gas made from coal) is 'bad economics, bad science and an environmental catastrophe'. I also said that 'what is striking is the ambition of Chinese plans versus the widespread scepticism of SNG worldwide and inside China itself.' Apparently, some of this scepticism is now being heard.

Datang, a syngas pioneer, has exited the business, selling its operational Keshiketeng project. The company admitted that its entire syngas business proposition was failing technically and financially; relieved investors sent Datang's stock up 23% on the day of the announcement. Meanwhile, Greenpeace published an alarming report claiming that the 50 planned Chinese syngas projects would emit 1.1 billion tonnes of CO2 annually, almost triple America's entire stated CO2 reduction target by 2020. The National Energy Administration (NEA) in Beijing has now announced certain limits on syngas projects, reportedly worried about 'an investment spree regardless of environmental and economic realities.'

But if China does dial back its syngas ambitions, will it be due to financial considerations (as in Datang's case) or because of CO2 emissions (the concerns of Greenpeace)? Syngas is such a monster that the easy answer is 'both' (and in fact a third problem, water, weighs heavily against the technology too). But the fundamental question remains: just how serious is China about climate change, and is it prepared to sacrifice growth to limit its emissions?

The Lowy Institute's Rio Tinto Fellow, Lisa Williams, has highlighted that Beijing has other priorities (diversifying its energy base, leading new technologies, reducing pollution in its cities) which happily align with climate-change objectives. This explains the paradox of a nation admired for its renewable energy commitment while its citizens live in appalling smog.

Karolina Wysoczanska at Nottingham is sceptical: China indeed sees diplomatic and commercial opportunity in the global climate change carnival, but don't it to expect it commit to any hard targets.

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Yet this very idea has been tentatively held out, both by a CASS professor suggesting a coal consumption cap at 4.5 billion tonnes in 2025, and by the Advisory Committee on Climate Change dangling a longer-term 11 billion tonne CO2-equivalent limit by 2030 (from 9.5 billion today).

But these were not official statements, and they were quickly disowned as such. Furthermore, there are a number of reasons to be cautious about any future 'breakthrough' on emissions caps.

China already mines 3.8 billion tonnes of coal every year, and Chinese coal alone accounts for 20% of all global CO2 emissions. On present coal use patterns, China is on track to belch almost half of the entire world's recommended maximum 'CO2 budget' of 32 billion tonnes of CO2 by 2030.

It would therefore take a wrenching change in China's economy to suddenly alter its trajectory of rapidly growing coal use. Goldman Sachs estimates that, in addition to the 3.8 billion tonnes mined this year, another 1 billion tonnes of new mine capacity is already under construction. Coal has become so abundant in China that prices are the lowest in six years. UBS sees almost 50GW (to put in context, a really big power station is 1GW) of coal-fired power capacity added each year for the foreseeable future: 'the reality is that no other technology — wind, solar, gas, hydro and nuclear — represent a viable alternative.' 

China is struggling to find conventional oil and gas deposits offshore and in shale gas. Renewable energy is attractive from a pollution-control perspective but needs expensive thermal power backup. As syngas illustrates, China will be tempted to use its super-cheap coal to substitute other energy sources where it can.

Most fundamentally, it is unlikely Beijing will act more cooperatively in the diplomatic sphere. China is sincere in perceiving itself as a developing country with a short industrial history. Collective action to protect the global commons is devilishly difficult. The Kyoto Protocol had little impact. Australia repealed a carbon tax as a business burden. The former Soviet Union is emitting well below its 1990 reference level but this is merely because its economy collapsed. America's shale gas revolution occurred not out of environmental concern but because it was profitable.

The Chinese syngas projects have almost certainly been slowed due to unsound economics, not because of concern over CO2. Notably, Beijing's NEA has banned only small 'sub-scale' syngas projects, not large ones. Maybe this is still good news, but it is premature to celebrate a shift in Chinese climate policy.

Photo by Flickr user World Bank Photo Collection.

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CENTCOM released this statement yesterday:

TAMPA, Fla., Aug. 18, 2014 — U.S. military forces continued to attack ISIL terrorists in Iraq Monday, using a mix of fighter, bomber, and remotely piloted aircraft to successfully conduct 15 airstrikes near the Mosul Dam.

The strikes damaged or destroyed nine ISIL fighting positions; an ISIL checkpoint; six ISIL armed vehicles; an ISIL light armored vehicle; an ISIL vehicle-mounted anti-aircraft artillery gun, and an IED emplacement belt. All aircraft exited the strike areas safely.

Since Aug. 8, U.S. Central Command has conducted a total of 68 airstrikes in Iraq.  Of those 68 strikes, 35 have been in support of Iraqi forces near the Mosul Dam.  These strikes were conducted under authority to support Iraqi security forces and Kurdish defense forces as they work together to combat ISIL, as well as to protect critical infrastructure, U.S. personnel and facilities, and support humanitarian efforts.

If that sounds like 'mission creep' for an operation sold as an effort to protect Iraqi civilians and Americans in Iraq, then consider President Obama's justification:

In a letter released Sunday notifying Congress of the action, Obama said the militants’ control of the dam posed a threat to the U.S. Embassy 200 miles away in Baghdad, which could be inundated if the dam were breached. “The failure of the Mosul Dam could threaten the lives of large numbers of civilians, endanger U.S. personnel and facilities, including the U.S. Embassy in Baghdad, and prevent the Iraqi government from providing critical services to the Iraqi populace,” he wrote.

Obama had signaled in a statement last week that protecting “critical infrastructure” would be part of what officials have described as a limited military intervention.

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Hugh White graciously flags my assessment of Japan as he tries to make sense of Chinese policy toward Tokyo. He is right: my 'analysis does lend support to the idea that Japan would accept a subordinate status in a Chinese-led Asia.'

I wouldn't reach that conclusion, however.

Nor for that matter do I think Japan will rally to any call from Abe to (in Hugh's words) 're-establish itself as a great power in Asia, with nuclear weapons and all.' As I weigh the options, Japan's best bet is the status quo: alliance with the US. A nuclear-armed Japan is possible, but it would be shorn of great power ambitions – and this is a much inferior second-best alternative. Only in the end (and it would not be a choice so much as a fait accompli) would Japan play number two to China, unless China were to radically transform itself.

The rhetoric out of Tokyo in recent years (even before Shinzo Abe returned to the Kantei) has been increasingly hardline toward China. Beijing is seen as a direct threat to Japanese national interests, a destabilising force in regional affairs, and a challenger to the norms and institutions that have underwritten regional order in Asia. The most recent Defense White Paper, issued just last month, was explicit: 'Japan has great concerns over such Chinese military activities, etc, together with the lack of transparency in its military affairs and security issues, and needs to pay utmost attention to them. These activities also raise security concerns for the region and the international community.'

A darkening assessment of Chinese aims and ambitions has driven Japan's defence policy. Focus has shifted from the frigid Northwest to the Southwest Islands, and security planners are shoring up the maritime approaches and sea lines of communication. The Abe Cabinet's reinterpretation of the exercise of the right of collective self-defence is part of this transition, even if this change is far less than meets the eye. Also notable are the creation of a National Security Council, the articulation of a National Security Strategy, the passage of the National Secrets Law, and changes in rules regarding Overseas Development Assistance and export controls.

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All of this (and the list is not complete) is also part of an alliance modernisation process that aims to strengthen the US-Japan security partnership to deal with new political, economic and security realities. While Prime Minister Abe may chafe about Japan's place in the post-war order, his rhetoric frames the changes in Japan's security policy as being in service of the alliance. Abe wants to reassert Japan's status as a 'first-tier nation', but this is also so that it can be a better partner to the US.

Here, Hugh and I part ways. Abe may hanker for great-power status, but most Japanese do not. My study of Japan after the triple disaster of 11 March 2011 reveals a country fatigued by such ambitions. Japanese are tired of competing, and see little reward from the struggle to catch up or keep up. Japanese are comfortable with their place in the world and profoundly sceptical about the changes required for them to re-energise their economy, the essential first step in the process of (re)assuming a higher international profile.

These attitudinal constraints to a renewed and re-vitalised Japan are the most compelling and least understood, but they are only part of the problem Abe and fellow internationalists face. Japan's demographic profile and its growing debt also profoundly constrict Japanese choices. Most acutely, an aging population is unlikely to choose to devote increasingly scarce resources to the military, a prerequisite to the claim of 'great power status.'

Given this context, Japan's choices become:

  1. The status quo, or alliance with the US: this allows Japan to balance psychological and structural constraints and maintain maximum freedom of maneuver. In truth, however, even this could push the Japanese public to the edge of its comfort zone.
  2. A nuclear power, without great power ambitions: this would be a practically impossible choice, given anti-nuclear sentiment in Japan. Pursuit of the nuclear option would isolate Japan and offer little security, which its strategic planners acknowledge. The public would never stomach an offensive posture, so any nuclear stance would be a poison pill, purely defensive in nature. (If I wanted to be as provocative as possible, I'd call this the 'North Korean option.') This undercuts Hugh's thesis of a nuclear-armed Japan striving to become a great power (add the cost of such a policy and the likelihood plunges even further).
  3. A junior partner to China: Japanese may not want to compete with China but they are too proud and too unsettled by China to accept subordinate status either. Even junior partner status within the alliance can be irritating, but the US uses the right language when discussing Japan to relieve that pressure. Japan could only accept a subordinate status to China when China is so transformed that it is no longer a threat to Japan (about the same time that Taiwan would vote to reunite with the mainland) and when Beijing offers a relationship that affords Japan the status it demands.

My article argues that Japan could pursue a fourth alternative, one that eschews great power status to become 'a problem solving country.' This is a radical option that I teased out of interviews even though no one I talked to explicitly endorsed it. It is Soeya Yoshihide’s 'middle power diplomacy' on steroids, a concept that Lowy has done some fine work on. It would likely exist within the alliance framework, so it could just be a variant on the first choice.

I've got my money on number one, although there are nuances to be teased out. As always, though, we owe Hugh a thanks for forcing us to think hard about these questions.

Photo by Flickr user federica Intorcia.

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Military personnel from China, Russia, Kazakhstan, Kyrgyzstan and Tajikistan are gathering for the fifth Shanghai Cooperation Organization (SCO) 'Peace Mission' drill in North China this week.

Seven thousand personnel  (around 5000 are Chinese while Russia is sending the second-biggest cohort of 900) are arriving in Zhurihe, Inner Mongolia, for the 24-29 August drill. Kazakhstan is bringing along transport planes it bought from Airbus, while Kyrgyzstan's soldiers are from special forces units trained by the US.  

This year's exercise has added importance, as Russia seeks to boost the standing of the SCO while it sheds friends in the West, and as China wakes up to the threat radical Islam poses to its rule in the Xinjiang Uyghur Autonomous Region. The focus of the exercise is combating terrorism and boosting intelligence sharing, according to Xinhua. 

The degree of emphasis the SCO places on security issues is open to debate. Back when the last such drill was held in 2010, the Brookings Institute's Julie Boland wrote: 'Since the SCO was created in 2001, some commentators have assessed that China's primary focus in the SCO is on expanding its economic opportunities in Central Asia, while Russia's is on security-related issues. This is clearly in error.'

But then no drill was held for four years and China proceeded to sign billions of dollars of energy deals with SCO member-states. This year's exercises will be the biggest since 2004; it remains to be seen whether the members will use it to breathe new life into the security aspect of the bloc. 

Both Russia and China may see an incentive to do so.

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Russian commentators have long touted the SCO as a kind of eastern NATO, though officials have stopped short of committing the SCO to Central Asia's most obvious candidate for future security engagements — Afghanistan. This month, Russian state news outlet Ria Novosti ran a piece calling the SCO 'a new alternative to the West.' The author noted that 'a much more powerful answer (to sanctions) is the formation of a multi-polar world, the foundation of which should be blocs like the BRICS and the SCO.'

Unlike the BRICS, the SCO provides a handy framework for Russia to increase its show of military cooperation with non-Western actors. That's something even its shiny new Eurasian Economic Union doesn't provide for — Kazakhstani representatives at this year's signing ceremony explicitly rejected a military dimension to the union. 

Any attempt by Russia to usurp the SCO's security agenda for political point-scoring against the West would likely be met with unease in Beijing. That said, China may not be above expanding cooperation in Central Asia as it comes to terms with the threats posed by jihadist groups to Xinjiang, its northwest autonomous region with a sizeable Uyghur Muslim population. 

In mid-August, an article by Hong Kong-based Phoenix Weekly detailed revenge threats made by the Islamic State (IS) against China for 'seizing Muslim rights.' The piece went viral on the mainland. China already has an Islamist network bent on Xinjiang independence on its doorstep in Pakistan. If greater number of jihadists respond to the IS call, the SCO may find itself with a very real military purpose.  

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Perhaps the most fundamental change in international trade in recent decades has been the development of multinational 'supply chains'. The production process has been 'unbundled', with different stages of production taking place in different countries. An iPad is assembled in China, but only $10 of the total production costs takes place in China; most of the total cost comes from inputs made in other countries, including the intellectual property and design input from Apple in California.  

In conventional trade statistics, exports are counted in gross terms, so the cost of the assembled iPad (including those elements imported into China) is counted in China's export figures. Over recent years, the misleading implications of the gross trade figures have been more fully recognised. Since 2012, an alternative value-add data set has been available.  

The Reserve Bank of Australia has built on this data to provide new insights into Australia's international trade, particularly on trade-partner shares. The diagram below, from the RBA, illustrates the issue. If Australia exports $100 of iron ore to China, which is then used as the input for products which China exports to the US worth $110, conventional statistics would record this as $100 of Australian exports and $110 of Chinese exports. But China has, in this exaggerated example, only added $10 of value.

Comparison of gross trade and value added trade

Focusing on 'value-add' statistics changes the picture of Australia's export partners.

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In this example, the destination of $100 of iron ore exported by Australia is no longer China, but, in final product form, America. Comparing the two measures of Australia's export destinations, we get the following table: 

These value-added statistics also provide a very different perspective on the importance of the services sector to Australia's exports. In gross terms, services make up only 22% of exports, but services form an important input into other exports (especially manufactures). Recalculating exports according to value-added model takes the services component to over 40% of Australia's exports (a bit bigger than resources). This different perspective fits Australia's comparative advantage: our export future doesn't lie in manufactures, but in commodities and services.

These value-add statistics don't replace the conventional gross statistics, which are available more quickly and don't rely on so many assumptions. Nor are they the last word in the ongoing process of refining statics to reflect a changing world. But they provide a valuable alternative perspective, sometimes with policy implications. At the very least, they are a reminder of the complexity of international trade: our exports will depend not only on what is happening in China, but on what is happening in China's export destinations as well.

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  • Thailand's National Legislative Assembly accepted (in principle) the 2015 budget bill. The Junta's first budget since coming to power includes spending increases in education and (you guessed it) defence. When quizzed by reporters, the head of the Thai Junta said: 'If we don't increase the budget and purchase new weapons, then nobody will fear us'.
  • Is Myanmar moving toward a new kind of authoritarianism? An ISEAS paper explores the state of Myanmar's democratic transition.
  • US Secretary of State Kerry threw his support behind Myanmar's reforms and played down concern of stalled reforms during his visit. He later noted  Myanmar's 'extraordinary transformation'. By contrast, he said Washington was 'very disturbed by the setback to democracy' in Thailand. A full transcript of Kerry's address at the East-West Center on the US Vision for Asia-Pacific Engagement can be found here.
  • Can Indonesia save the Six-Party Talks?
  • Malaysia looked into banning Facebook this week and then back-pedaled quickly.
  • Indonesia's draft budget includes a debilitating rise (not the hoped-for eradication) in energy subsidies, and may hamper Jokowi's chance to boost growth.
  • Progress or despair in new moves to unearth Myanmar's phantom World War II Spitfires?
  • A long running debate in Myanmar on the adoption of proportional representation hit the streets earlier this month and continues to consume column inches. Those against PR say its being pushed by the ruling USDP party to enhance its election chances ahead of the popular Suu Kyi-led NLD (other views can be found here, here and here).
  • The NY Times' interesting take on US Joint Chiefs of Staff Chairman Dempsey's visit to Vietnam  (mine here).
  • If you missed this year's Shangri-La Dialogue, IISS has a great round-up of events in a new publication replete with videos.  
  • The BBC goes to Mong La, a  Chinese gambling town in Myanmar:

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Michael Fullilove began our series on great speeches about Australia's place in the world with a selection of ten speeches, here and here. Graeme Dobell's first pick in this series was Bob Hawke's APEC speech. His second choice was John Howard's speech on the US alliance and Australia's response to the 9/11 attacks, and his final choice is Kevin Rudd on China.

Kevin Rudd is a masterly communicator and a superb campaigner with a steely will to power. The controversy and the contest in the Rudd legacy are over his ability to govern and his role within the Labor Party. The commentariat is being elbowed aside by Rudd's former colleagues, eager to offer detailed accounts of his flaws. See the new effort by the former Treasurer, Wayne Swan, on The Kevin's abrasive style, policy gridlock and drift, vindictive and juvenile humiliation of people, unprofessional and unproductive behaviour and...and...and...

Enough! In Canberra, as in any capital, the saints are to be found in church, your dog is your best friend, and to locate the politicians look for the steam from the giant egos and the smoke from the eternal battles to decide and deliver.

Step by that spectacle to this column in praise of Rudd's ability to make a great speech. Note that Rudd is one of those rare Australian politicians who fought his way to two goes at being prime minister. Thus, he stands close to such giants as Deakin and Menzies – and to Billy Hughes, who headed both Labor and non-Labor governments.

Mentioning Hughes is a reminder of the line that with Billy in the party ranks, an MP never had to look to the other side of the House for the most dangerous plots and darkest treachery. Bastardry is no bar to being a top pol; judge 'em by what they deliver and...Enough, I say! On to Rudd's eloquence.

Michael Fullilove rightly lists Rudd's apology to Aborigines and the Stolen Generations in February 2008 as one of Australia's greatest modern speeches. That speech captured the spirit of one of the finest days I've seen in the parliament, expressing the emotion of thousands of people who flocked there to be part of it, in the chamber and the grounds outside.

The Rudd effort nominated as a great foreign policy speech took place only two months later in an address to students at Peking University. Rudd spoke truth to the new great power, and the fine words generated heat as well as light. He delivered it in Mandarin, and both the Mandarin and English versions can be found here.

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Mark the Peking University speech as a key moment when China's ruling dynasty began to realise that Australia's new prime minister would not be their Manchurian candidate. Instead, his intimate knowledge of China gave Lu Kewen an ability to say dangerous things; that he was saying them in Mandarin doubled the menace.

Rudd was speaking as China prepared for its great international coming-of-age party – hosting the Olympics – and as Beijing cracked down hard on any attempt by Tibet to catch the Olympic limelight. Rudd put his hand right onto that scorching subject.

The Prime Minister recounted his own journey to discover China, the history of Australia's relationship with China, and then started to move on to dangerous ground by talking about the many difficulties facing China – 'problems of poverty, problems of uneven development, problems of pollution, problems of broader human rights' – and the great impact China was having on the rest of the world. And then he started to offer suggestions and criticisms.

First, on how the students of Peking University and China's coming generation should change their country:

I think that you – the young people of China, the generation that will see China's full integration into global society, the global economy and the overall global order – have an important role to play in the life of the world. The global community looks forward to China fully participating in all the institutions of the global rules-based order, including in security, in the economy, in human rights, in the environment. And we look forward to China making active contributions to the enhancement of that order in the future. It is a necessary task of responsible global citizenship. It is a big responsibility you have. You are the product of China today. And you are the representatives of China's tomorrow. You will be the ones who define how the world sees China. “Harmony” was the dream and hope of that great Chinese thinker and activist Kang Youwei. The Hundred Days reform movement, like Peking University, also marks its 110th anniversary this year. Kang proposed a utopian world free of political boundaries. China has variously articulated its approach to development as one of “peaceful rise”, “peaceful development” or more recently that of a “harmonious world”. In 2005 the then US Deputy Secretary of State Bob Zoellick spoke for his part of his concept that China would and could become a responsible global stakeholder. As I said last week in a speech to the Brookings Institution in Washington, it is worthwhile thinking about how to encourage a synthesis of these concepts of a “harmonious world” and the “responsible stakeholder”. The idea of a “harmonious world” depends on China being a participant in the world order and, along with others, acting in accordance with the rules of that order. Failing this, “harmony” is impossible to achieve. “Responsible stakeholder” contains the same idea at its core – China working to maintain and develop the global and regional rules-based order.

Tibet and the Olympics:

This year, as China hosts the Olympics, the eyes of the world will be on you and the city of Beijing. It will be a chance for China to engage directly with the world, both on the sports field and on the streets of Beijing. Some have called for a boycott of the Beijing Olympics because of recent problems in Tibet. As I said in London on Sunday, I do not agree. I believe the Olympics are important for China's continuing engagement with the world. Australia like most other countries recognises China's sovereignty over Tibet. But we also believe it is necessary to recognise there are significant human rights problem in Tibet. The current situation in Tibet is of concern to Australians. We recognise the need for all parties to avoid violence and find a solution through dialogue. As a long-standing friend of China I intend to have a straightforward discussion with China's leaders on this. We wish to see the year 2008 as one of harmony, and celebration – not one of conflict and contention.

A true friend offers unflinching advice:

A strong relationship, and a true friendship, are built on the ability to engage in direct, frank and ongoing dialogue about our fundamental interests and future vision. In the modern, globalised world, we are all connected; connected not only by politics and economics, but also in the air we breathe. A true friend is one who can be a “zhengyou”, that is a partner who sees beyond immediate benefit to the broader and firm basis for continuing, profound and sincere friendship. In other words, a true friendship which “offers unflinching advice and counsels restraint” to engage in principled dialogue about matters of contention. It is the kind of friendship that I know is treasured in China's political tradition. It is the kind of friendship that I also offer China today.

Beijing did not want a Kevin Rudd who offered unflinching advice. China eventually hammered Rudd and Australia to make the true friend shut up and get back in line. China's diplomatic version of the death of a thousand cuts was brought to an end with a 'ceasefire' agreement in October 2009. Here is the text of that deal and the translation I offered at the time.

In all the things that Australia and China will do together in the future, there will be a lot more diplomatic exchanges about respect and mutual interests. Much rarer will be the Australian leader who stands up and speaks as directly as Kevin Rudd did at Peking University. For all the pain it caused, it is a great speech.

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It is a truth universally acknowledged that a rising China, in possession of a modernising military, must be in want of a non-militarised Japan. So is Beijing being foolish by acting assertively in the East China Sea, thereby helping to fuel Japan's evolution into a full-fledged military rival? 

Perhaps not, says Hugh White. Based on analyses by Amy King and Brad Glosserman, he argues that either China doesn't believe that Japan can become a 'normal' military power (in which case Tokyo would have little choice but to accept a subordinate role to Beijing in Asia), or China calculates that its assertiveness and Japan's militaristic response will drive a permanent wedge in the US-Japan alliance, to China's benefit.

The possibilities Hugh raises are certainly compelling. China's coercive behaviour has so far elicited a relatively ambivalent response from America. Although Washington talks a tough game in Asia, and has continued apace with military exercises with other powers in the region that share its concerns about China's military modernisation, other aspects of its behaviour are cause for concern. Washington still felt the need to send two very different messages about its intentions to audiences in the US and in Asia (a point the Lowy Institute's Michael Fullilove recently raised with US Secretary of Defense Chuck Hagel in Singapore). Attempts at emphasising the non-military dimensions of Washington's 'pivot to Asia,' the mixed response to China's extension of an air defence identification zone in the East China Sea, and budgetary considerations all point to waning enthusiasm in Washington for confronting Beijing.

There's also good reason to suspect Japan's long-term political appetite for a strategic rivalry with China.

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Prime ministers have short life-spans in Japan (even the charismatic Junichiro Koizumi lasted only five years) and incumbent Shinzo Abe's position on reinterpreting Japan's constitution is not necessarily shared by some within his own party, let alone the wider Japanese political and bureaucratic establishment. The sharp decline in Abe's approval ratings to below 50% raise further questions about his political longevity and, with it, Japan's future as a normal military power.

The ambivalence of America and the possible unsustainability of Japan's response to China's provocations are mirrored in other regional powers. Vietnam is of two minds about confronting China, with the wing of its Communist Party's Politburo that favours accommodating Beijing reportedly ascendant. Even in India, where anti-Chinese sentiment is incredibly high, there's a continuing desire to diversify relations with all major powers, which means deepening ties with China even as it hedges against Chinese assertiveness. This tendency was recently underscored by rumours that India may join the Shanghai Cooperation Organization as a full member later this year.

But while all these developments might suggest that Beijing is playing its cards shrewdly (staking its claims and asserting its dominant regional position without risking a significant backlash), White's argument falls short on a simple but important point. He presents a binary choice for China in the Indo-Pacific: either it will confront the US, supported by a self-constrained, pacified Japan; or it will face a remilitarised Japan that lacks the full backing of the US-Japan alliance.

Yet there's a third possibility that White has overlooked, one that is much more troublesome from Beijing's standpoint. That is the evolution of a strategic, security, and technological compact among resident Asian powers that serves to balance China. Chief among these balancers would be Japan and India, but Vietnam, Australia, and others could all conceivably play crucial roles. Indeed, Rory Medcalf and C Raja Mohan have recently raised this very possibility: the emergence of middle-power coalitions in the Indo-Pacific.

The one that has Beijing most worried, judging by the rushed visit of Chinese foreign minister Wang Yi to New Delhi in June, is the emerging strategic relationship between India and Japan. Security ties between these two countries are, at present, at risk of being both wildly oversold and under-explored. But there is no discounting the potential. As I've written elsewhere, India and Japan share similar concerns about Chinese intentions (both are locked in territorial disputes with China) and have doubts about Washington's commitment to the region. They also have complementary strengths, with Japan's financial resources and technological sophistication a natural foil for India's manpower-heavy and battle-hardened military. 

A security partnership with India offers Japan at least two other benefits, both of which, if carried through, could undermine Beijing's plans for regional hegemony. Japan's military-to-military contacts with India enable it to prepare for out-of-area contingencies, particularly in the maritime realm, which represents a key step in Japan's path to becoming a normal military power. More significantly, the possibility of joint production of the US-2 aircraft with India, and its potential export to third countries, could mark a major development as part of Japan's reversal of its self-imposed ban on defence exports.

There is a tendency in some quarters to downplay Beijing's ability to make mistakes. Even its handling of public relations — not exactly China's strong suit — can somehow be re-interpreted as an act of brilliance and sophistication. While White rightly raises two scenarios in which China's assertiveness towards Japan reaps dividends, it's hard to completely discount the possibility that Beijing is being short-sighted. China's leaders might relish the thought of unquestioned Asian dominance or a revanchist campaign against an isolated Japan. But the emergence of a balancing coalition led by Japan and India (and possibly including others) presents a much more daunting prospect.

Photo by Flickr user generalising.

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Almost a year since the Coalition took the reins of government and introduced its policy of 'economic diplomacy', a term which was probably foreign to many Australians at the time, Foreign Minister Julie Bishop and Trade and Investment Minister Andrew Robb launched the Government's Economic Diplomacy policy today at the Lowy Institute. Since the election, it's a term the Foreign Minister has used frequently, along with the 'open for business' mantra and its emphasis on promoting the economic interests of Australia and Australian businesses internationally.

The ministers must have received a considerable amount of feedback about the policy, including questions about what 'economic diplomacy' actually means, because both today went to considerable lengths to explain it. The complexity of the task is illustrated by the length of the ministers' speeches: almost an hour, taken together, and followed by a short Q&A session.

In the Foreign Minister's parlance, 'economic diplomacy' means:

harnessing broader aspects of our international diplomatic work to promote trade, encourage economic growth, attract investment and support business.

To do this, Australia's global network of 95 ambassadors, high commissioners and consuls general, together with 72 trade commissioners, will make economic diplomacy their guiding principle: 'promoting our national reputation as an open export-oriented free market economy (and as a country which is) a great place to invest and with which to do business.' Several times in her speech, Ms Bishop underscored the role of the private sector, particularly small and medium enterprises; she also included players in the broader Australian community: NGOs, think tanks, the arts and sporting people and organisations.

In the increasingly globalised international environment Australia now faces, this economic diplomacy agenda will be a complex one to prosecute: it implies a far greater role for non-government entities, particularly the private sector, and means a much greater involvement for the Australia's Department of Foreign Affairs and Trade in formulating and facilitating the Australian Government's approach to international trade and foreign investment.

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Because economic diplomacy requires domestic policy settings which reduce barriers to trade, economic growth and investment, DFAT, along with its two ministers, will need to lead a whole-of-government, whole-of-society effort to achieve positive economic outcomes through diplomacy. As Ms Bishop described, the strength and uniqueness of this policy is that it aligns all Australia's international efforts – foreign policy, trade, tourism, investment and development – so that they are 'pulling in the same direction.'

As pointed out by one of the participants in the workshop which followed the Ministers' speeches, this means Australian diplomacy is no longer an 'elite sport' played only by diplomats and government officials. Because it will involve Australians and all kinds of Australian business, economic diplomacy will bring the business of Australia's international engagement much closer to home.

But it also makes Australia's diplomacy much more complex, at a time when DFAT, our principal agency for international engagement, has been resource-strapped for decades. And there are risks in making Australian business and industry the spearheads of our international engagement; the AWB scandal and Indian students' crisis are two examples of aggressive economic 'diplomacy' gone awry. These risks will require careful management by skilled diplomats abroad, and appropriate domestic policy-making and regulation by government at home.   

Australia is no outpost in prioritising economic diplomacy: Canada, the UK, and the Netherlands are examples of significant and like-minded nations pursuing similar goals to those outlined today by Bishop and Robb.  The key to success will be making sure that the policy doesn't become, in Bishop's words, 'the pursuit of Australia's naked self-interest to the potential detriment of others', but balances Australia's economic ambitions with broader and less self-centred aspirations for prosperity and peace in the region.

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