Lowy Institute

This is the second in a two-part series examining Saudi Arabia's ambitious plan to transform its economy. Part 1 looked at the reach of the Vision 2030 plan and labour force implications; part 2 examines which industry bets are most likely to pay off.

Vision 2030's central and stunning call is to double Saudi GDP over the next 14 years. But what kind of economy will Saudi Arabia be? McKinsey's 2015 report, 'Moving Saudi Arabia's Economy Beyond Oil', which offers some clues as to what is likely to be in Saudi Arabia's detailed plan, specifies eight industries that it claims could create nearly two-thirds of the required output growth: mining and metals, petrochemicals, manufacturing, retail and wholesale trade, tourism and hospitality, health care, finance,
and construction.

If the goal is to create jobs for Saudi nationals, it is easier say what kind of economy it won't be. It won't be based on labour-intensive manufacturing, because low-wage economies in Asia already do that far more competitively than Saudi can even think of matching with a workforce of Saudi nationals. Saudi could not do it even with high tariff protection (which one would not expect to be part of a McKinsey plan) because its economy is too small. It is about half the size of the Australian economy, which discovered a while ago there is no future in labour-intensive manufacturing (ominously, McKinsey mentions vehicle assembly as a desirable industry for Saudi). Nor will Saudi's new economy be based on capital-intensive manufacturing, because the smarter the manufacturing process, the fewer the jobs.

Certainly, there are niches in between. In this respect Bahrain, Saudi's tiny neighbour and ally, offers valuable lessons. Bahrain has long successfully staffed its aluminium and oil refining industries with Bahraini nationals. That works with high-productivity, high-wage industries. It doesn't work with low-wage, labour-intensive industries like food manufacturing, and of course it doesn't work with manufacturing processes that can be performed by robots.

Lessons from Bahrain, but not from Dubai or Abu Dhabi

More broadly, Bahrain offers lessons worth examining. It, too, has a 2030 Vision, adopted more than a decade ago. It too has its designated development sectors (including logistics, education, manufacturing, tourism and finance), its designated authorities to oversee the plan, its key performance indicators for ministries and authorities, its own Crown Prince to drive the program, its eager consultants and its colourful PowerPoint presentations.

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Though often championed in discussion of the Saudi development plan, in my opinion the Dubai and Abu Dhabi models are not relevant. Most of their success is as transport hubs, which they have leveraged into short term tourism and long term real estate developments that are in large part second homes for wealthy Arabs — often Saudis. Their manufacturing activities, high tech theme parks, university campuses and so forth are almost always highly subsidised and have had very mixed results. The UAE states have very small populations of nationals, and very big low-cost expatriate workforces. This is not the direction Saudi should go. Despite its small size, Bahrain's successes and failures offer a better model for what is likely to be the Saudi experience.

Manufacturing, construction and agriculture

I doubt manufacturing will create a large number of new jobs for Saudis. Nor are non-oil mining industries or agriculture likely to be the basis of the new Saudi private economy. Mining is usually a high tech industry, pays good wages, and encourages skills, so in those respects is attractive. McKinsey claims that non-oil mining and processing can triple its current 3% contribution to GDP and employ an additional 500,000 Saudis. But, like manufacturing, the better mining is, the fewer the people it employs. Even in Australia, a big mining country, fewer than 4% of employees are in the business. Mining accounts for 8% of Australian GDP (which is roughly twice Saudi GDP) but in total employs less than half the number of workers McKinsey says could be added to the Saudi nationals workforce engaged in non-oil mining and processing. Even throwing in some additional jobs for processing, half a million additional jobs seems to me highly unlikely.

So too for agriculture. If agriculture is going to be globally competitive, it won't employ many people. Australia is a big producer of wheat, meat and other food and fibres for the world market, but less than 1% of Australians employees work in agriculture.

Construction? It is already a very big business and with a $US4 trillion investment program it will become much bigger. As McKinsey points out, nine tenths of the jobs are filled by expatriates. The consultancy firm thinks Saudi nationals could be persuaded to take on construction work. But this is hard, hot, sometimes dangerous work, and not well paid. It is unlikely Saudi nationals will be a significant part of the construction workforce.

Petrochemicals, defence and tourism

Petrochemicals is one business at which Saudi is already successful, which also means room for expansion is limited. McKinsey says it might employ 'thousands' more Saudis, which sounds about right. It won't make a dent in overall number of jobs needed.

Defence is to be one selected industry, according to accounts of Prince Mohammed's thinking. With Saudi's huge defence spend there are probably possibilities there. They are likely to be in servicing, repair and maintenance, or perhaps in the manufacture of some parts as an offset arrangement with major American defence suppliers.

Islamic tourism is another. Saudi of course has vast Islamic tourism already through the Hadj; probably more than it really wants. Non-Islamic tourism could grow quickly from a small base, but its scale is limited by the need for female tourists to cover up, the ban on alcohol, and the want of sufficient variety in its attractions to warrant repeat visits. Bahrain is much more liberal but even so, the overwhelming majority of its tourists are actually from Saudi. McKinsey specifies that a bigger tourism sector could employ an additional 1.3 million Saudi nationals. Perhaps it could, but if the experience of Bahrain in trying to employ Bahraini nationals in low wage tourism jobs is anything to go by, it won't.

Service industries should be the focus

So that leaves other services, which is where Prince Mohammed and his advisers ought to start. Service industries are the predominant form of output and employment in all advanced economies. They are usually the fastest growing sector in developing economies and China is now the most conspicuous example. They exist across a whole spectrum of skill requirements, from easy entry-level jobs in retail and fast food, fitness and training, through to highly skilled and rewarding jobs in IT services, health, education, finance, law, accounting, and so forth. Bahrain has successfully created a regional finance industry that now rivals oil processing in its contribution to GDP.

These are jobs and industries that depend more than most on human capital; that is, education and work skills. This will be Saudi's big problem and Prince Mohammed's most difficult political task. Again, Bahrain offers some good examples with its more liberal, modern and accessible education system, though the quality remains patchy. In Bahrain it was increasingly apparent that education and training was the key to ultimate success — and that takes time.

Finally and most importantly, it was evident in Bahrain that the success of a plan requires big changes in attitudes towards work and in social rules, in the relative balance between the foreign and local elites, and between commercial and political elites. But success also depends on political stability and the ability to execute a plan over a long period.

All that said, Saudi is a very wealthy economy with many advantages compared to Bahrain.

If it is united and resolved, the ruling family can mobilise the resources necessary to transform the economy. Unlike Bahrain, it can run large fiscal deficits for a very long time. There is a reasonable chance Saudi will be a very much bigger economy in a decade, with a much higher proportion of Saudis employed in reasonably good private sector jobs, with higher workforce participation by women and higher average levels of education and training. Unlike the UAE, Saudi has a substantial population of nationals.

Unlike Bahrain — unlike most countries, for that matter — the Saudi ruling family has at its disposal sufficient revenues for sufficiently long to pay for the additional education and training which will be needed, and to support a share of the investment in physical infrastructure that will be required. It has sufficient revenue to continue to provide for the retirement of older Saudis while accustoming younger Saudis to a more demanding working life. It has sufficient revenues to continue to support good health services and urban services, and it can probably do so for some years without needing to impose additional taxes.

The Vision 2030 plan's targets are probably way too ambitious, but even a partial achievement would take Saudi a long way down the path it must sooner or later take if it is remain a cohesive society with claims to regional leadership, able to fulfill the ambitions and potential of its people.

Photo: Jordan Pix/ Getty Images.

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Former president Suharto's party this week ended a bitter leadership struggle and pledged its support for Jokowi's government. Meanwhile, police and military figures lashed out at a perceived resurgence of communism in Indonesia, and the Jakarta governor considered the tourism potential of the Ciliwung River, known as one of the most polluted waterways in the world.


Donald Trump with Setya Novanto in 2015. (Getty.)

Setya Novanto became the new leader of the Golkar party on Tuesday at a national congress in Bali. The extraordinary congress was called to end a crippling rift in the party between supporters of Aburizal Bakrie and Agung Laksono, who both staged their own congresses late last year and were respectively elected as party chairman by their factions. But the new party leader is not without his own set of controversies. Setya in recent months has been implicated in a raft of cases involving US miner Freeport and Donald Trump, as well as other local corruption scandals.

Setya resigned as House Speaker last year after allegations emerged that he attempted to broker a US$4 billion deal with Freeport in exchange for assurance of the company's contract extension in Indonesia. President Jokowi and his coalition strongly condemned Setya's case at the time, which became known in the media by the name Jokowi jokingly gave it, as the papa minta saham ('papa wants shares') scandal. But one of Setya's first announcements as party leader was to pledge support for Jokowi's administration, moving Golkar away from the opposition Red-and-White Coalition led by Prabowo Subianto's Gerindra party. 

If the Freeport scandal didn't recommend Setya as a party leader, perhaps it was the glowing endorsement from Donald Trump, who introduced the Indonesian lawmaker at a rally in the US last year as 'one of the most powerful of men and a great man'.

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Golkar didn't seem too impressed by the endorsement at the time, and especially not by Setya's flattered response that Trump was also highly regarded in Indonesia. An apology for Setya's behaviour issued by Golkar revealed a very different impression of Trump as 'anti-Islam' and a 'racist'.

Away from the Bali congress, police and military this week continued a campaign against a so-called leftist resurgence. Defence Minister Ryamizard Ryacudu warned of a 'rise of communism' in Indonesia, calling it a 'sign of treason'. The military in recent weeks has seized books and detained citizens alleged to be spreading communist propaganda. The basis of detention in some cases has been for wearing T-shirts featuring the hammer and sickle — in one case on a memorabilia T-shirt for local metal band KREATOR, and in another case on a T-shirt for Pecinta Kopi Indonesia,the 'Indonesian Coffee Lovers' community, whose initials mirror that of the banned Indonesian Communist Party, PKI. President Jokowi and the National Police have warned against overreaction to the perceived threat.

Paranoia seems to have sprung up about the return of communism to Indonesia following the controversial National Symposium on the 1965 Tragedy in Jakarta last month. The symposium was the first of its kind to be hosted by the Indonesian government, giving much-needed state recognition to victims of the killings and their families. The symposium team this week announced that it was ready to submit recommendations to the government regarding a reconciliation process.

But some anti-communist mass organisations have rejected the state's move toward recognition of the tragedy, promising to hold their own rival symposium in Jakarta in June. Resistance to the government's handling of the historical issue has been stoked by the military, which has been blamed in reports for orchestrating the mass killings in 1965-66.

Elsewhere in the capital, governor Ahok has been floating various ideas for revitalising the Ciliwung River, Jakarta's largest waterway and one of the most heavily polluted in the world. Choked at various points by garbage and flanked by slum settlements on its banks, the Ciliwung River could be surrounded by green spaces, populated by boats and even become a tourist destination for Jakarta, Ahok says.

The governor is continuing contested efforts to clear Ciliwung's banks of informal settlements, moving residents into government flats in other parts of the city and reclaiming land for green space and flood reduction strategies. However, after surveying the river by boat this week, the governor conceded that on reflection, water transport could be an impractical goal.

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This two part series considers Saudi Arabia's ambitious plan to transform its economy. Part 1 looks at the reach of the Vision 2030 plan and labour force implications, Part 2 will examine which industry bets are most likely to pay off.

Though he is yet to reveal the details of the plan, Saudi Arabia’s deputy crown prince Mohammed bin Salman has excited world attention with his Vision 2030 announcement for the oil-exporting giant. It is important for Saudi, and important for the rest of us. The oil giant is at the beginning of a vast economic change that must, if it is successful, also profoundly change Saudi society and politics. Even failure will bring changes, perhaps bigger ones. As Saudi changes over the next decade or so, it will change regional and then global political calculations.

This was apparent in the recent sweeping cabinet reorganisation in the Kingdom, explained as a necessary preliminary to executing the new plan under younger officials more closely aligned with Prince Mohammed. The cabinet changes are merely a portent of bigger changes to come.

Vision 2030 is ostensibly for a Saudi Arabia no longer dependent on oil, which now accounts for four fifths of its government revenue, more than a third of Saudi’s economic output — and a large part of its influence in global and regional politics. Far more importantly, however, the plan is for a new private sector economy which provides good jobs for Saudi nationals.

To realise Vision 2030, Saudi would have to become a very different society, in quite a short time. Were the plan successfully implemented, Saudi would have one of the best educated and wealthiest workforce in the Arab world, an economy equivalent to those in Western Europe in its standard of living and industry mix, the freedom to pump or conserve its oil resources as it chose, and a secure state resting confidently on the willing consensus of its people.

It is very difficult to see any of those outcomes being attained even partially without big changes to Saudi’s cultural values, way of life and political organisation.

While Prince Mohammed has not revealed many details, a report published by the McKinsey Global Institute (with input from the McKinsey Riyadh office) last year titled 'Saudi Arabia Beyond Oil' offers some clues to what is likely to be in the detailed plan. As an economist moving around the Gulf rapidly becomes aware, McKinseyism is pervasive among the regions’ planning authorities.

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By the numbers

The McKinsey plan's  central and stunning call is to double GDP over the next 14 years through a $US4 trillion investment program. That eye-popping figure is about five times Saudi’s current GDP and also about five times its current net liquid reserves. Over the 14 years, investment alone would account for around one third of Saudi GDP by expenditure. Most of the investment is expected to come from private sources, but even so, McKinsey’s plan to double GDP calculates that Saudi’s liquid reserves are wiped out. Under the plan, net government debt in 14 years would be nearly as big as net liquid assets today.

As ambitious as it sounds, the McKinsey plan is not entirely daffy. The Kingdom already invests over a quarter of GDP, and has for some time. The new plan would increase investment by about a third over current levels. The targeted 4.5% rate of output growth sought in the plan is not far above the average rate over the last decade, excluding the downturn in the Global Financial Crisis. The centrepiece of what we know of the Saudi plan so far — the creation of the world’s biggest sovereign wealth fund — is entirely plausible. It can and will be achieved automatically simply by re-designating the Saudi oil producer, Aramco, to be the fund’s central asset. Depending on assumptions about the future oil price and future bond rates, it may be worth at least $US2.5 trillion; very much more than the combined total of the next two biggest sovereign wealth funds, those of Norway and Abu Dhabi.

Even so, it is still a big ask. As McKinsey points out, the investment required is about three times the investment in the Saudi economy in the ten years to 2013, which was three times investment in the previous ten years.

And even if the pace is not quite as quick as the McKinsey plan specifies, implementation on any large scale presents difficult issues for Riyadh to manage.

A new private sector economy

The goal of the plan is not just to double GDP. It is to double GDP by creating industries that employ Saudi nationals in the private sector. Today there are around eight million foreign workers in Saudi, mostly in the private sector. That is close to the size of the workforce of Saudi nationals, mostly employed in the public sector. To succeed, the plan must create a new private sector economy capable of employing most Saudis who want to work. Only a very small share of the jobs can be created by ‘Saudiisation’ of jobs now held by expatriates, because all but an insignificant fraction of those expatriates are low wage guest workers. Saudi’s don’t want and won’t work in those jobs.

The employment of millions of Saudi nationals requires a new economic structure. But first of all the physical infrastructure of that new economy has to be created. Paradoxically, the regional experience tells us this will require a huge increase in the expatriate labour force. Saudi needs to first construct the offices, warehouses, shopping malls, schools, hospitals and factories required to double output, and the telecommunications, railways, roads, water and energy utilities needed to service the new facilities. That is where a big chunk of the $US4 trillion in investment will be spent. Inevitably, much of it will find its way back to India, Pakistan and Bangladesh as employee remittances, and to the big contractors in the US, Europe, Japan and perhaps China.

Almost all of the required army of construction employees will be low-wage and largely unskilled migrant workers, as is true throughout the Gulf. This is sensible and appropriate because a construction boom is by definition temporary. Even so, the most evident and immediate result of a program to create jobs for Saudis will be to create them for non-Saudis. It is also highly likely that recorded labour productivity across the Kingdom will fall as find the labour intensive construction sector booms compared to other sectors. Saudi has got used to a large migrant labour force. In the next decade or so it will have to get used to a vastly bigger one.

Under the McKinsey proposal most of the investment would be private, and to a large extent foreign. Overall, foreign ownership would have to expand quite dramatically, bringing with many more European, Chinese, Japanese and American staff. Their presence, and that of their families, will strain the conservative rules of Saudi society.

The overall goal is to employ Saudis in the new economy. To be employable in a largely private sector economy, however, Saudis will have to be educated in ways useful to a modern economy, and they will have to be convinced that the public sector jobs their fathers' now have will not be theirs. The structure of income support will have to be change to encourage job-seeking. Women are increasingly joining the Saudi economy, and a many more will be needed in the modern, complex economy sought by the plan. At a minimum, they will need to drive cars. All these requirements will chafe against the existing social rules, the alliance between the Saud family and the clerics, and the existing community support for the ruling family.  

Photo by Jordan Pix/ Getty Images

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One Belt One Road (OBOR) is just getting started, but the superlatives are flowing. OBOR 'will benefit 4.4 billion people in 65 countries' and 'according to some estimates could be more than 12 times America's Marshall Plan to aid post-second-world-war Western Europe, in comparable money-of-the-day terms.' No wonder expectations in recipient states are high. 

Within China, one million documents have been published referencing the initiative. OBOR is going to happen and official China is mobilising for this ambitious program. Words of warning are few, and muted. But in the private sector, there is scepticism. True, Chinese firms are going to win big. But one can sense a resignation that this is going to be a costly geopolitical project rather than a commercial one.

Perhaps for this reason, the authorities strain to insist that OBOR will be 'market-based' and 'lean, clean and green.' Naturally the Chinese Communist Party's definition of 'market-based' may differ from others', but the general idea is clear: the projects are broadly meant to make financial sense. And indeed, a year ago, when yuan globalisation was still on the front burner, Chinese commercial banks were reminding clients that the US$1 trillion in potential export financing would be underwritten on international standards.

But today, such prospects have been wound back. Most OBOR lending will be issued not by commercial banks (which want to be repaid) or even multilateral institutions like AIIB (which are operationally cumbersome), but by Chinese bilateral policy banks like China Development Bank and China Exim Bank. These banks, especially CDB (aka 'China's superbank' or 'the bank that saved the world') are known for their heroic risk appetite. They have spearheaded the country's epic credit expansion since 2008, and its growing overseas role.

Still, they must be a little worried to hear from credible sources that 'Chinese officials privately admit they expect to lose 80 per cent of their investment in Pakistan, 50 per cent in Myanmar and 30 per cent in central Asia.' If true, that is extraordinarily generous of them. It means Chinese development lenders are knowingly prepared to lose tens of billions of dollars from their adventure abroad. Aid, in other words.

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Or maybe not. China's bruising negotiations with Thailand to build its bullet train have 'hit a speed bump' again. China Exim Bank demanded commercial land development rights along the railway line in order to defray its exorbitant cost. 'We are not the same as Laos', came the sniffy refusal from the Thais, who say they have plenty enough money to build lucrative real estate developments. The term of art here is 'bundling.' The Chinese want a bundled deal (common for financing railways); the Thais want to unbundle.

This reveals an expectations mismatch between donor and recipient countries. Beijing's mandarins naturally want a Chinese developmental project that pays for itself — 'geopolitics with a P&L', if you like — with an appropriate 'win-win' distribution of the collective benefits. Some Chinese analysts take umbrage at the Marshall Plan comparison and its Cold War connotations. OBOR is not a charity, they argue, because China is still an emerging country itself. Recipient countries may not see it this way. To them, China appears extravagantly well funded. So they expect concessionary financing and, apparently, don't even expect to pay all of it (or even most of it) back.

The anticipated loss rate in Pakistan is telling. The CPEC corridor is of high strategic importance to China. But, traversing bandit country as it does, CPEC promises to be a savagely uneconomic affair. The security arrangements alone will be challenging. CDB also made an all-in bet on Venezuela (which is not officially in the OBOR scheme), thinking its loans-for-oil deal would provide credit protection under Chavismo. As their client unravels, the CDB bankers are renegotiating and writing down their loans.

That is not to dismiss the impact of OBOR, nor its logic. It might just be another example of the 'infrastructure gap' paradox — why the world is awash with savers' money and yet perfectly good investment projects can't get funded (hint: because private investors don't trust the governments that regulate their deals). OBOR faces an exacerbated dilemma because costs and benefits aren't internalised with one country.

The fact that China can seemingly defy infrastructure financing constraints domestically simply underscores how challenging OBOR will be. At home, Beijing's policy banks can rely on 'markets' that are rigged in their favour. And anyway, they will get bailed out if things go bad. Overseas they will not be treated so kindly, and more astute Chinese lenders know it.

Photo Getty Images

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In light of the news that Chinese fighters conducted what the Pentagon calls an 'unsafe intercept' of one of its reconnaissance aircraft flying over the South China Sea on Tuesday (according to the US, the Chinese jets flew within 50 ft of the the American plane, forcing it to descend), it is worth revisiting an Interpreter piece by eminent American security analyst Bonnie Glaser from September last year on the then-newly agreed US-China accord on 'Rules of Behavior for Safety of Air-to-Air Encounters.'

It was an agreement which was supposed to put a stop to these kinds of incidents. Here's one interesting extract from Glaser's piece:

Especially noteworthy is the section that establishes responsibilities for aircraft when an intercept takes place. According to the agreement, the aircraft commander initiating the intercept should maintain safe separation while the operator of the aircraft being intercepted should avoid reckless maneuvers. The distance between aircraft that constitutes safe separation is not spelled out; rather it is dependent on circumstances. While this is sensible, it leaves split-second decisions up to the discretion of Chinese fighter pilots, who often lack experience.

It's important to note that we so far only have the American version of what occurred on this occasion. The Chinese statement will no doubt differ.

Speaking of aerial shows of strength, the Pentagon has just released more footage of Russian fighter-bombers and helicopters buzzing a US Navy destroyer in the Baltic Sea on 11 and 12 April. (H/t Alert 5.)

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China has its first big opportunity to demonstrate global economic leadership when it hosts this year’s G20 meetings. The G20 leaders’ summit will be held in Hangzhou on 4 and 5 September. So far, China looks to be taking the job seriously.

When I was in Beijing in March, I was assured that that the G20 is a top priority for China. Beijing is keen to build on the existing G20 agenda and keep a strong economic focus. Australian and US officials have commented that China’s meetings have been well organised, and Chinese officials are developing their soft power skills by seeking compromises. 

Global growth continues to be slow and the G20 has been talking a lot about structural reforms over the last few years. The problem is that each country has their own set of problems and structural reforms are difficult to sell at home

China has the chance to set an example by showing it has the willingness to undertake difficult (but necessary) economic reforms and encouraging other countries to do the same. In our G20 Monitor published today, 'New Considerations for China’s G20 Presidency', David Dollar makes the case for why reforming its service sector is the best thing that China can do for the global economy.

In my own article in the Monitor, I argue that the G20 should to go back to basics and focus on cooperation and communication, even if there is no headline-stealing outcome. The G20 has already set three ambitious targets: an intention to lift global GDP by 2% by 2018, a goal to reduce the gap in labour participation between men and women in G20 countries by 25% by 2025 and a commitment to reduce the share of young people most at risk of being permanently left behind in the labour market by 15% by 2025. 

China would do well to highlight these growth and employment targets, and put them back on track. This would reinforce the legacy of the Australian G20 presidency in 2014 and — more importantly — help to address the credibility problem of the G20’s ‘empty promises’. 

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Nicolas Véron also looks at an ongoing G20 issue in the Monitor: financial regulation. The G20's work on financial regulation after the Global Financial Crisis is accepted as one of the forum’s biggest successes. However, Véron points out that this agenda needs to continue to evolve. For example, he suggests the G20 could empower a global body with relevant membership and a clear mandate to issue standards for the global derivatives markets.

Despite China’s conventional approach to the G20, there have been a few curveballs in 2016. China has put innovation on the agenda, although there has been some kerfuffle about which Chinese ministries will be managing this work stream. Another new addition to the G20 agenda is the topic of green finance

In the Monitor, Tristram Sainsbury talks about the remarkable success of the People’s Bank of China, Bank of England and United Nations Environment Programme in getting a Green Finance Study Group established as part of the G20 Finance Track. However, he wonders about the future prospects of the Group and whether it will be upgraded to a more permanent G20 discussion.

It is only three months until the Hangzhou Summit where China will be judged for how it has handled the G20. So far, so good. Chinese officials will need to keep preparing the ground for the summit and building consensus around the commitments that will be made in September. 

The next step is for China to work on its narrative and communicate how it is progressing the G20 agenda. They could start by working on their unwieldy website.

Photo courtesy of Flickr user David Almeida.

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The victory of President-elect Rodrigo Duterte in the recently concluded Philippine election is nothing short of astonishing. The election itself, a far cry from others in recent memory, is worth celebrating.

It had the highest voter turnout recorded, and has been widely acclaimed as the most credible and peaceful presidential election in the country's history. After an incendiary campaign laced with profanity and foul–mouthed, controversial rants, the firebrand figure who captured the votes of the masses with his anti–establishment battle cry to eradicate crime, drugs and corruption, will soon be sworn in as the 16th President of the Republic of the Philippines.

The Duterte phenomenon

The rise of the brusque Duterte, the 71–year–old lawyer who was for more than two decades mayor of Davao in southern Mindanao, was not anticipated, almost unbelievable, in a country where the political system is dominated by rich, powerful dynastic families.

The Philippine electorate, afflicted with grievance politics and thirsty for change, overwhelmingly supported Duterte whose appeal crossed age groups, social class and demographics. On election day, he enjoyed a massive lead of over five million votes compared to the administration-supported candidate Manuel Roxas.  Duterte won despite having no coherent or practical national economic plan. His campaign platform offered no solid, long-term foreign policy plans. In contrast, he boasted he had two wives and several girlfriends, made a necrophiliac joke about a murdered Australian missionary, and vowed to extra-judicially kill criminals. Not suprisingly, the prospect of a Duterte presidency elicited anxiety in the business community and sent shock waves overseas. 

The Duterte presidency 

The election fever in Manila now seems to be dying down and life will soon go back to normal across the archipelago. Even Duterte's electoral victory has been magnanimously received and largely uncontested by his rivals; a rare occurence in Philippine electoral contests.

But we are yet to see if the President–elect has what it takes to run the country. What is Duterte's position on the various challenging diplomatic and foreign policy issues that confront the Philippines? Where does he stand on the issue of the South China Sea?

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The plethora of issues that await the President–elect as chief architect of Philippine foreign policy could be daunting. The series of diplomatic faux pas that peppered the Duterte campaign trail made it obvious that he is not a foreign policy maestro. His innocuous blustering statements provoked gasps — if not outrage — in various capitals across the globe.

Duterte's position on the South China Sea

The issue of the South China Sea is definitely among the most intricate foreign policy challenges facing the incoming President. Of course, his position on this issue will be predicated on his views about China. Restoring the Philippine's currently precarious bilateral relationship with China while maintaining robust security and defense relations with the US will require a delicate balancing act.

The outgoing Aquino Administration has consistently maintained a hard–line policy towards Beijing over the South China Sea dispute, and warm relations and deepening security ties with Washington and Tokyo. In the Southeast Asia, if not the whole of Asia, Manila has emerged as the most outspoken opponent of China's provocative actions, including a tense standoff over Scarborough Shoal in 2012 and the more recent occupation and development of features in the South China Sea. The former incident brought the bilateral relationship between the two countries to its lowest level since the 1995 Mischief Reef incident, prompting Manila to file an international legal case in 2013 against Beijing over its controversial nine-dash line. The highly anticipated ruling of the tribunal is expected very soon, and most analysts expect it will be unfavourable to China. 

While Duterte has indulged the public with spur of the moment histrionics, including a pledge to plant a Philippine flag via jet ski on Chinese-occupied artificial islands, his position on China otherwise appears to have been conciliatory and amicable. Election pronouncements of Duterte on China and his views on the South China Sea disputes appear to be diametrically at odds with the current design and trajectory of Philippine foreign policy on these important issues.

Duterte favours directly negotiating with China and is willing to shelve the contentious issue of sovereignty in exchange for Chinese economic concessions. He is opposed to the idea of going to war with China and does not advocate the use of legal avenues to enforce the Philippine claim. Rather, he prefers a multilateral approach that will bring rival claimants and even extra-regional powers to the negotiating table. These views, albeit not necessarily novel, do seem to signal a radical shift in Philippine-China relations. 

A pivot in Philippine-China relations

The paucity of any solid, long-term and categorical statement from the president-elect on the South China Sea — or on foreign policy in general — under his administration makes gazing at the crystal ball particularly difficult.

At best, Duterte's rhetoric suggests a more amicable and conciliatory diplomatic stance between Manila and Beijing. This could be a good thing. The two countries could focus their energy and resources on infrastructure and economic activities that are mutually beneficial. On the other hand, the softening of Manila's stance against an increasingly aggressive and expansionist China could expose cracks in the unstable regional security architecture, and further weaken concerted efforts of extra-regional powers such as the US and Japan to counterbalance China's provocative military posturing. Manila's actions could also subvert ASEAN initiatives to rally behind a unified position. A rapid shift in regional defence postures could also increase the risk of miscalculations and provocations on the ground, and undermine longstanding efforts to reinforce a rules-based approach to resolving South China Sea disputes.

It is always difficult to predict how incoming leaders will act. The unpredictable and volatile nature of this Pesident–elect makes it even harder to calculate such positions.

The tribunal is expected to make a ruling before Duterte is inaugurated on June 30. This is likely to provide the first litmus test of where the populist strongman stands on this matter. The Chinese Government has repeatedly confirmed that it will disregard the tribunal ruling. 

Next year the Philippines assumes chairmanship of ASEAN, providing another occasion on the not–too–distant horizon to test Duterte's position on the South China Sea.

The competing claims on the South China Sea have made its waters rather turbulent in recent times. But hope always remains buoyant. And the man of the hour is incoming Philippine President Rodrigo Duterte.

Photo by Dondi Tawatao/Getty Images

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By Alastair Davis, an intern in the Lowy Institute's Melanesia Program.

  • Police are patrolling the two main campuses of the University of Papua New Guinea in Port Moresby following a two week protest by students calling for the resignation of Prime Minister Peter O’Neill.
  • The Lowy Institute is hosting our first GE Papua New Guinea Emerging Leaders Dialogue Fellow, Jessica Siriosi, who will be writing for The Interpreter on Bougainville in the coming week. 
  • Devpolicy ran an analysis of the Australian Senate inquiry into Australia’s bilateral aid program in Papua New Guinea, which can be found in full here.
  • The Fiji Times has launched a legal challenge against the decision by the Fijian Government to award an exclusive contract for the publishing of government notices to the other major Fijian newspaper, the Fiji Sun.
  • Biman Prasad, the leader of the National Federation Party, the smaller of the Fijian opposition parties, has been removed as the chair of the Public Accounts Committee and replaced by government whip Ashneel Sudhakar.
  • The postponed Melanesian Spearhead Group Leaders Summit will take place in Papua New Guinea next month, not Vanuatu as was originally planned. Filling the vacant role of director general of the secretariat is likely to be addressed at the summit.
  • The first group of countries to ratify the Paris Climate Agreement are all small island nations. The Pacific Islands Forum Secretariat is developing a regional strategy to manage climate change and human mobility in the Pacific.
  • This piece from Devpolicy explores the growth of temporary labour migration from the Pacific to New Zealand.
  • Bal Kama also wrote for The Interpreter on the student protests in PNG protests, explaining the context of student activism in Papua New Guinea and the potential outcomes of the current situation. A news report from NBC PNG also provides an excellent overview below:

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Election Interpreter 2016

Fairfax's Daniel Flitton today identifies four important areas of foreign policy difference between Labor and the Coalition: the East Timor boundary dispute, nuclear abolition, freedom-of-navigation exercises in the South China Sea, and Israel-Palestine.

I  wonder if we saw a fifth factor open up yesterday with Opposition Leader Bill Shorten's criticisms of Donald Trump: 'I have to say that if I was in America I'd be voting for Hillary Clinton...Whoever America elects we'll deal with, but there is no doubt in my mind that Trump would be very difficult, I think, to deal with.'

Foreign Minister Julie Bishop responded in what struck me as rather unwise terms, by putting herself in the position of seeming to defend Trump: 'Mr Shorten should explain the precise areas of difficulty that he believes would arise from a Trump presidency.'

I suppose Shorten could start with Trump's comments on Japanese nuclear weapons. But really, the point is not so much policy as it is character, temperament and basic suitability for high office. Australians have made it clear through Lowy Institute polling that they share these doubts about Trump, with 45% saying 'Australia should distance itself from the United States if it elects a president like Donald Trump', so Shorten is on pretty solid ground (unlike John Howard, who was pulling against the prevailing mood when he criticised then-Senator Obama in 2007).

The US-Australia alliance has always been more than a practical arrangement for common security; it is also based on deep cultural affinities and historical ties. But as I've argued previously, in Australia in recent years it seems to have evolved (or perhaps calcified) into an ideology, a political totem before which anyone with pretensions to being politically mainstream must genuflect.

Yesterday we hosted Greens leader Richard Di Natale, who made made some stinging criticisms of the alliance. I have a number of reservations about the Greens' foreign policy ideas (I mentioned one in my question to Di Natale yesterday; listen from listen from 37:23), but the unhinged reaction to Di Natale's remarks from sections of the media, and Bishop's response to Bill Shorten's comments, reinforce the point about the totemic status of the alliance.

If there is a silver lining to the Trump phenomenon for Australia, it may be that this ideology will be subjected to some overdue scrutiny.

Photo by Ricky Carioti/The Washington Post via Getty Images

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India’s connection with the South Pacific Islands has traditionally been fairly limited, despite a sizeable ethnic Indian population in Fiji. However, the relationship is gaining momentum under Prime Minister Modi’s government, and not just with Fiji but across  the South Pacific. The region has long figured in India's ‘Look East’ (now ‘Act East’ ) foreign policy, which dates back to the early 1990s, but the emphasis has increased.

Indian President Pranab Mukherjee on his first-ever state visits to PNG and New Zealand  (Photo: Getty Images)

At first blush, the fast-changing maritime domain in Asia — where an increase in geo-political competition is binding the Pacific Islands and Indian Ocean into a single theatre — is the obvious trigger for India’s relatively new interest in these islands. However, there are few pressing reasons for Delhi to engage with the Pacific Islands from a defence point of view. While India carries out training with and for Fiji’s defence staff and engages occasionally in  naval exercises, there is nothing that is institutionalised or regular about this defence cooperation.

So, what really does India stand to gain by engaging with the South Pacific islands and vice-versa? The perceived advantages are concentrated in two areas: India’s grand ambition and positioning at international forums. Read More



The first of these relates to India’s desire to expand its footprint. Under Modi, India is rolling out an extensive plan to be a truly global player. Changing geo–politics have increased the region's focus on India and New Delhi is cashing in on the opportunities available. Strategic competition in the Indo–Pacific makes collaboration with India an attractive option. India wants to be more present and visible in world politics and this ambition requires New Delhi to look beyond its traditional friends and partners. It also means that the Indian Navy will have to increase its presence beyond the Indian Ocean. Engaging with the far away Pacific Islands helps demonstrate its willingness to collaborate with the region in a constructive manner.

The Modi government is not only realising the need to re-connect with the South Pacific but also making an effort to set up personal links. President Mukherjee's visit to Papua New Guinea last month, for example, was a first for an Indian President. Modi's visit to Fiji in 2014 was another milestone, one that led to the inaugural Forum for India Pacific Islands Cooperation (FIPIC). India hosted the second FPIC summit in August last year.. Apart from economic and political engagements, India and Fiji have also been able to expand the relationship to space technology (in 2014 Fiji hosted Indian scientists involved in India’s mission to Mars), a growing area of interest for India and one that offers the opportunity for collaboration with other South Pacific Nations.

When it comes to humanitarian aid and disaster relief, the Indian Navy's reputation as a fast responder in the Indian Ocean is now gaining currency further afield, as evidenced by its supply of aid to Fiji earlier this year in the wake of Cyclone Winston.

Second, India stands to gain support at international forums through its Pacific Islands engagement. The South Pacific islands may be small in population with comparatively under–developed economies and limited resources, but they are sovereign nations recognised by the UN. Closer links and collaboration with these islands can mean 14 more votes at the UN and other international organisations on issues of interest to Delhi, such as  reform of the UN Security Council (UNSC). India discussed UNSC reform at FIPIC and issued statements citing support from the island groups.

Such support is a strong incentive for India but South Pacific nations also stand to gain from closer engagement, As the impact of climate change becomes increasingly visible, some of these islands are literally scrambling to stay afloat and  India has promised to support and voice their concerns at international forums.

India is not the only power courting these nations. China and, more recently, Russia are also placing a great deal of importance on these islands, China’s work with the South Pacific islands has been impressive; however, India has some advantages as an engagement option. Unlike China, India does not have any aggressive claims or disputes in the maritime domain and, through its adherence to UN arbitration, has demonstrated its respect for international rules and norms. China, in contrast, is viewed as aggressive and expansionist especially in the maritime domain. Pacific nations engaging with China run the risk of being dragged into unresolved — and high–profile — disputes. This was apparent recently when China released a statement citing Fiji’s support in the South China Sea. Fiji was forced to issue a clarification, advising it did not hold such a view. 

There is plenty of room to expand on India's links to this region. Trade between India and the Pacific Islands, for example, is modest and the pace of growth is slow. Co-operative efforts in climate change and education and training could also boost India’s relationship with the islands. However, the pace of progress will depend on the extent to which it is prioritised by all of those concerned.

For now, engaging with Pacific Islands is seen by Delhi as leading to constructive cooperation without controversy. This dovetails nicely with India's favoured approach to foreign policy overall. 

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Election Interpreter 2016

Yesterday Senator Richard Di Natale, the leader of the Australia Greens, addressed the Lowy Institute on foreign policy issues ranging from the impacts of climate change, the US alliance, submarines, the Australia-East Timor maritime border dispute, and Australia's asylum seeker policy.

Di Natale's speech prompted a wealth of (in some cases fierce) responses from the Australian commentariat.

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In The Australian, Greg Sheridan argued that the content of Di Natale's address rendered the idea of a Liberal-Greens 'loose arrangement' (as suggested by president of the Victorian Liberals Michael Kroger) laughable:

Di Natale’s extremist speech to the Lowy Institute yesterday makes a bad joke of Kroger’s earlier justification for his tawdry preferences proposal: that under their new leader the Greens were not as extreme or marginal as previously.

The Greens now oppose the US alliance outright, labelling US foreign policy as a force with “horrific consequences”.

Di Natale demonised the US alliance, calling it dangerous and expensive and blaming it for global conflict, inequality and radicalisation. He also wants to scrap Australia’s plans to build 12 new powerful submarines.

And the Greens support dismantling the strong borders policy that has stopped the flow of illegal immigrants arriving by boat. These are all positions that repudiate bipartisan bedrock policy and values the Liberal Party claims to hold dear.

The Australian's editorial page espoused similar sentiments:

In the unfortunate event Australians found the Greens in a power-sharing alliance with Labor after July 2, nobody, including party leader Richard Di Natale, could surely expect their absurd proposal to back away from the US alliance, the bedrock of Australia’s strategic policy for 75 years, would ever see the light of day. The views set out by Senator Di Natale to the Lowy Institute yesterday would better suit a fringe protest group than a professional party.

Over at The Conversation, UWA Professor Mark Beeson argued that the address was a Greens policy milestone:

Richard Di Natale’s address to the Lowy Institute was something of a landmark in the evolution of the Australian Greens’ policy agenda. For too long the Greens have been preoccupied with the touchy-feely end of the policy spectrum, and unwilling to dirty their hands in the polluted waters of traditional security issues.

The position outlined by Di Natale on foreign policy and defence may not have been entirely unproblematic, but it compares favourably with anything on offer from the major parties. The central message from his talk – that Australia needs a serious and extensive debate on the rationale for, and basis of, defence policy – looks irrefutable, even if it’s unlikely to be acted on.

However, Beeson did identify that Di Natale's lacklustre answer to question from The Interpreter's Sam Roggeveen on the South China Sea (at 37 minutes and 23 seconds into the event audio) indicated there was perhaps some policy development still to go: 

Predictably – and rightly – Di Natale was pressed on some suitably hot-button defence issues. What do we do about an increasingly aggressive China, came the inevitable question. The answer was not entirely convincing. Pointing out that nobody else has a good answer either was not an unreasonable observation, but one that will undoubtedly be taken out of context.

In his opening remarks, Di Natale contended that global warming represented a much bigger threat to national security than terrorism, and condemned its relative absence in this year's Defence White Paper. On the ABC's The Drum, former Liberal Senator Amanda Vanstone and the Sydney Morning Herald's national affairs editor Tom Allard disagreed over the merits of Di Natale's prioritising:

Click here to listen to Di Natale's full address.

Photo: Peter Morris

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So often we hear calls for sensible and balanced debate on international migration, and so often we are let down by leaders and officials who deliver polarised, one-sided and sometimes toxic views. We know it doesn’t have to be this way and yet all too often the discussion and debate falls far short of reasonable expectations.

Occasionally we witness moments of how migration should be discussed: in moderate tones, drawing on accurate data and acknowledging both the positive and negative aspects. And sometimes we stumble across people who deliver reasoned and rational views of migration in the most unlikely places and on the most unlikely topics. 

A seminar last week at the Graduate Institute on the Economic Impact of Syrian Refugees in Lebanon was one such event. Raed Charafeddine, Vice-Governor of Lebanon’s Central bank, delivered a sober account of the toll the mass displacement of Syrian refugees has had on his country, and yet he also acknowledged the small but significant benefits it has brought. Most importantly, he painted a realistic picture of what the future could look like for Lebanon, and the 1.5 million Syrian refugees who have sought refuge there, with the assistance of the international community, if only that community could get over its 'donor fatigue'.

In terms of the devastating toll, Mr Charafeddine recounted the World Bank’s assessment of the impact the crisis has had on Lebanon, where  displaced Syrians now make up around one-quarter of the Lebanese population. The Lebanese economy has suffered a 2.9% decline in GDP; government expenditure has surged by $US1.1 billion due to increased demand for services; 170,000 Lebanese nationals have been plunged into poverty; unemployment has doubled to hit 20%; health costs have significantly increased and access to drugs has reduced (Syrians account for 40% of all primary health care visits); pollution and water-borne diseases are on the rise; the cost of electricity has jumped massively. These are just some of the impacts.

Even more grim were details of the manifestations of 'donor fatigue'. There are massive funding gaps and the international community is also disregarding calls for greater resettlement of refugees out of Lebanon. Between 2011 and 2016, Charafeddine estimated that a funding shortfall of $US3.7 billion has occurred. This is for a country with a GDP of $US50 billion, a total debt of around $US70 billion, and which is hosting the most refugees in the world on a per capita basis. Pledges toward the Lebanon Crisis Response Plan have been forthcoming but donors’ honoring of pledges more problematic. Worse still, Charafeddine admitted that traditional donors and supporters of Lebanon, particularly GCC (Gulf Cooperation Council) states such as Saudi Arabia, have not assisted at all. Commentators are concerned that an already weak Lebanon is being further squeezed as part of ongoing sectarian rivalry in the region, particularly between Iran and Saudi Arabia.

But, importantly, Mr Charafeddine also pointed some benefits. In terms of the economy, these include labour costs, given Syrians are prepared to accept lower wages, and rental incomes. Just over 80% of Syrian refugees currently pay rent, including for sub–standard accommodation. He also cited consumer spending, the growth in small and medium enterprises started by Syrians (such as bakeries, bistros, retail outlets and trades), and the subsidiary benefits of the expenditure of donor funding and consumer spending of UN and NGO workers.

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The challenges, however, remain considerable, particularly given the political instability that has occurred alongside the displacement crisis. The focus now is on funding and implementing the Lebanon Crisis Response Plan 2015-16, with its dual priorities of supporting the ongoing humanitarian response and developing Lebanon’s crumbling public infrastructure, particularly in relation to education, health and water services.

In addition to a well-practiced call for donor funding and assistance, Mr Charafeddine ended with a cautionary note for the immediate region as well as Europe. He suggested that failure to assist Lebanon support Syrian refugees and overcome its current fragility may result in the next wave of asylum and refugee migration coming from Lebanon. The large flows to Europe in 2015 should be warning enough but parts of the international community are sometimes oddly selective about what they wish to acknowledge, let alone act upon. Lebanon, clearly, cannot be left to struggle on.

Photo by Ratib Al Safadi/Anadolu Agency/Getty Images

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US presidential race 2016

Nothing like a good Twitter war to attract attention. For most of this year Senator Elizabeth Warren has been taking pot shots at Donald Trump. Since he became the presumptive Republican nominee, she has upped the ante, telling Trump 'Your policies are dangerous. Your words are reckless. Your record is embarrassing. And your free ride is over'.  And that's just one in an unrelenting series.

Long a favourite of progressives who still hope she will make a run for president one day, Senator Warren is figuring in lists of likely running mates for Hillary Clinton. On Slate, Michelle Goldberg was among the many hoping the speculation will become fact.

Choosing Warren would be an uncharacteristically bold and thrilling move for the cautious Clinton, one that would help unite Sanders supporters behind her candidacy while throwing its feminist promise into high relief. Clinton is already playing the woman card; now, to belabor a metaphor, she should double down.

Washington Post blogger Paul Waldman reckons it's a non-starter.

My dear liberal friends, I can feel your excitement already. But while Warren will be a great anti-Trump surrogate for Clinton — maybe the best Clinton will have — she’s not going to be on the ticket. Sorry to deliver the bad news.

There are a few reasons for this. The first is that Clinton and Warren aren’t close or even particularly friendly, and personal rapport is a key part of an effective working relationship between the president and vice president, as Clinton surely understands. Warren would come to the office with her own agenda on economic affairs — an agenda more aggressively liberal than Clinton’s, particularly when it comes to how the government should deal with Wall Street. Warren would also bring her own constituency, which could make her an unwanted headache for Clinton, who like all presidents would want a vice president who has no goal other than advancing the president’s goals.

This view suits many Warren supporters — who think the prospect of losing her from the Senate is too big a price to pay for the VP slot — just fine. But one fan,  Markos 'Kos' Moulitsas,  founder and publisher of the Daily Kos  today came around to thinking it would be worth it. Just.

In a perfect world, Clinton would hand Warren the Wall Street portfolio and fight for Warren’s recommendations. But it’s not a perfect world, and Warren would not be in a place to publicly criticize Clinton if she strayed on Wall Street. We’d lose our strongest ally in the Senate to a hazy situation inside a White House that could end up hostile to Warren, sidelining her and rendering her impotent.

The reward could be huge, especially during campaign season. But after campaign season we’d be rolling the dice. Is the risk worth it for the potential reward?

On the other hand, Warren’s popularity and credibility with the base would theoretically make it harder for Clinton’s people to muzzle her. Not impossible, but if Clinton’s people want to harness the energy she brings to the base and to the party, that carries risks for them as well—they have to respect her influence and power.

Ultimately, this isn’t an easy call one way or the other. It’s perfectly reasonable to advocate for Senator Elizabeth Warren, rather than Vice President Elizabeth Warren.

For my part, I’m now on team 'vice president'—but not without acknowledging the real risks.

Photo: Flickr user Senate Democrats

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It has been (arguably) 50 years since the start of one of the greatest, but least well understood, social upheavals of modern history. The Chinese Cultural Revolution, overseen by Mao Zedong, has been in the news in the West and in China both because of this anniversary, and because of controversy surrounding a recent concert in Beijing that featured 'red' songs from the period.

These, along with observations that President Xi Jinping is creating his own personality cult, not unlike Mao's, are causing some to speculate that another Cultural Revolution could be possible. However, the likelihood of another descent into such chaos in contemporary China is low. This is not because of newfound access to information via the internet, or nascent stirrings of political liberalism but, rather, because today's leadership know that to unleash that kind of havoc would be the end of the Communist Party, the last thing Xi wants to see.

While Xi is widely accepted to be consolidating power in a manner not seen since Mao, he is not likely to be the driving force behind a second Cultural Revolution. 

It is generally accepted that 16 May 1966 marked the onset of the decade of turmoil and turbulence overseen by then Party Chairman Mao Zedong, a period of disorder that most of Australia could not even imagine. It only ended when he died in September 1976. During that time Mao instructed the people to question authority, criticise the Party and, ultimately, overturn his enemies. Chinese society imploded, friends and families turned on each other, trust among people was deliberately destroyed and replaced, by force if necessary, with loyalty to the Party–state.

'Thought remolding' to reinvent social structures with the Party–state at the centre, as Hu Ping describes in his disturbing and enlightening book, was sophisticated and effective. There is no doubt that the impacts are still felt today, despite the extraordinary fact that many young people know very little, if anything, about what happened. Hu Ping notes that while 'thought remolding' was removed from the official Chinese lexicon in the early 1980s, this 'was not at all equivalent to achieving the freedom of thought'. History in China, much the same as anywhere else, is a political tool to create and reinforce the unquestionable normality of contemporary reality, and the Cultural Revolution has not been open for discussion. Read More

 

In the last few days there has been some discussion in China about the place of the Cultural Revolution in contemporary China. According to reports, a concert held recently in the Great Hall of the People in Beijing featured 'red' Communist songs from the Cultural Revolution era. However, we should not hastily conclude that the concert signified a resurgence of revolutionary fervour. Red songs to most Chinese people are not the still-glowing embers of revolt. Elderly people singing, playing and dancing with fans or swords to red songs is a common sight in Beijing parks and on street corners. Strange as it may seem, red songs are equated just as much with nostalgic, though perhaps partial, memories of youth as they are with revolution.

The comparison of Xi to Mao — as in a number of recent publications such as The Economist, with a picture of Xi in a pose reminiscent of Mao, and Time, featuring a cover picture of Xi being peeled back to reveal the former Chairman — is also arguably overblown. As Dingding Chen argues, Xi is certainly a strong leader, but this does not equate to a personality cult like Mao's (more good discussion is here). Likewise, Xi's consolidation of power and crackdown on corruption do not herald a second Cultural Revolution.

There are several factors that make a second Cultural Revolution under Xi highly unlikely.

The first is Xi himself. Does he have the will or the ability? Whether he has the will is hard to say, for Chinese or external commentators alike. I believe it is unlikely given the purpose of the Cultural Revolution was to rip apart and reinvent the Party, and Xi seems to be committed to the preservation of the Party above almost all else. Also his memories of what the Cultural Revolution did to his own family must surely resonate. 

Whether he has the ability depends of course on his hold on power, and the degree of loyalty and fear he inspires in those around him. Certainly, regardless of Xi's consolidation, the structures of power and the nature of society now are very different from those in Mao's time. 

We must also of course not overlook the role of the Chinese people. A second Cultural Revolution would require their complicity and support. This is highly unlikely, but not because the Chinese populace is embracing a more small–'L' liberal politics (they're not) that would make such a thing almost unthinkable. 

First, it is unlikely because for the Chinese people maintaining social stability is key to Communist Party legitimacy, and for the CCP, its own continued legitimacy is its raison d'être. While the Cultural Revolution is not actively discussed, it is certainly not forgotten among those who lived through it, and those memories form the foundation of a deep and visceral desire to live a peaceful life (noting that memories of historical events exist within a certain political context). After the Tiananmen protests in 1989, the Party-state's continued legitimacy became reliant on an unwritten social contract in which people's political activism was exchanged for, among other things, government-assured prosperity. Therefore, if Xi looked as if he was sponsoring a policy that undermined social stability, the foundation for the CCP's continued rule would be irrevocably shaken. 

Secondly, it is unlikely because while some elite Chinese are dissatisfied with the state, and many everyday Chinese people may grumble about certain aspects of the Party-state from time to time, its existence is largely viewed as an infallible and unquestionable truth. Many Chinese still believe (again remembering that any beliefs always exist within a certain context) that while their Party–state system may be imperfect, it is immutable. It is 'China.' In addition to the social contract in which people gave up their interest in political life, including any interest in trying to change or overcome the status quo, it is widely understood that even if you did want to, the Party is not a 'problem' that can be 'overcome'. The result is that most Chinese have neither the interest in trying to change the system, nor the belief they could prevail even if they tried. 

For a second Cultural Revolution in which people were to question and challenge authority, the Party–state would somehow need to be shown to be fallible. In Mao's time, Mao declared it to be fallible to pursue his own personal power. Xi is unlikely to do the same, as his commitment to the Party–state seems to be paramount (although conceivably as a vehicle for his own power). Cracks do exist that could develop into fissures allowing people to question the inevitability of the Party-state, such as the environment and the economy. However the leadership is supremely aware of these vulnerabilities, and will be managing them closely. Success is not guaranteed.

While there is little likelihood of a second Cultural Revolution occurring in the foreseeable future in China, and while it does not take up much space in the public discourse — or most people's private discourse — it is still highly relevant for understanding Chinese politics today. This is true both for understanding what is happening, and also what is not happening. It is to some extent the proverbial elephant in the room; its absence in discussion as much as its presence hangs over Chinese politics and society as the ultimate undesirable.

The Party does not want it because it wants to preserve its own power and legitimacy, not begin a ruthless self-examination; and because it knows the people want stability, not a repeat of the decade of violence and turbulence. Xi is certainly consolidating power in noteworthy ways, but equating him with Mao is an oversimplification that ultimately results in a fundamental misreading of contemporary Chinese politics.

(Photo by China Photos/Getty Images)

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Election Interpreter 2016

The leader of the Australian Greens Senator Richard Di Natale argues it's time to review the Australian US alliance and believes climate change is the biggest threat to national security. As the second week of the Federal election campaign rolls on,  Di Natale sought to trigger debate on the merits of a 'more independent' foreign policy in a speech at the Lowy Institute in Sydney today. He said the 'unquestioning consensus' that spans the two major parties on most areas of foreign policy and defence 'does not serve us well'.  You can listen to the address in full here:

 

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