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The new world order and China’s role in it

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Thirty years ago China’s share of world trade hovered below 1% but has increased more than tenfold since. Every year since the turn of the millennium, China has provided a quarter of the international economy’s annual growth.

China’s entering the mainstream of the global economy was symbolically completed when it became a member of the World Trade Organization (WTO) in 2001. This added 800 million workers to the international labor force. China is now the biggest market and the biggest economy in the world. The West’s economy and political elite are forced to ride the shock waves caused by China’s rise. Western retailers source most of their stock from China. Millions of blue-collar workers have lost their jobs in the West as production is relocated to the Far East, and China’s huge untapped rural labor reserve will not run out in the coming decade. The entry of China and India into the global labor market reduced the global capital to labor ratio by 55 to 60%. This is the single most important ratio explaining the phenomenon we call globalization. The development of Chinese capitalism is fundamentally different from the previous British or American models though, where the technological innovations of their own inventors fuelled progress. China, on the other hand, imported ready-made solutions from the more developed parts of the world. China is also becoming an international financial power. It has become the leading holder of US Treasury debt and thus is now officially the American government’s largest foreign creditor. China has also accumulated the largest foreign currency reserves in the world.

In 1820, China and India combined accounted for about half of the world output, while Europe only accounted for 24% and the US only 2% (!). China only exported, the West – primarily Britain, the hegemonic power of the 19th century – imported. A huge global trade imbalance was accumulated to China’s advantage and China held an incredible amount of British silver. Today’s situation is surprisingly similar. In the 19th century this led to the opium wars and to the end of the once mighty Chinese empire. In 1978 China accounted for less than 1% of global GDP. What the West sees now is indeed the re-emergence of China in an incredibly fast way.

China’s middle class is expanding at an unheard of speed, and its wealthy few are becoming the wealthy many. Chinese society is undergoing rapid transformation, which alters people’s self-identity as well. A poll published by the Chicago Council on Global Affairs[1] already in 2007 indicated that the Chinese believed that, in ten years’ time, their country will be just as powerful and influential in the world as the United States. At the same time the majority of Americans, Chinese, Indians and South Koreans polled were of the opinion that China would pull ahead of the US in the global race. Clearly China is no longer just an economic power but also a political force to be reckoned with, often flexing its muscles to further increase American unease.

The turn of the new millennium saw the emergence of new centers of gravity, often in the form of non-centralized conglomerates of states with large differences among them and without a single political will. The most important such center of gravity is South-East Asia, which has a growing influence on the global economy and world politics. With the boom in the Chinese economy, the slow but steady recovery of Japan’s economy, the reinvigoration of the “small tigers” and the strengthening regional roles of India and Australia, South and East Asia looks set to become the key focal point of the next world order. But with that role and power comes increased responsibility, in particular for the region’s leading country: China. Issues that have been considered domestic in nature — such as setting the yuan’s exchange rate, the efficient organization of the textile industry, health care reforms, better and more transparent governance or curbing corruption — will have a direct global impact.

As Asia rises, so does the West’s economic, demographic, political and military significance erode. The days of the global rules and institutions established by the West are numbered. Most Chinese researchers, politicians and even the man in the street are convinced that, things will soon be back to normal as China is becoming the world’s biggest economy just as it had always been until the beginning of the 19th century. (As late as the 18th century, China was the world’s largest trading nation, conducting one third of global trade, with India as runner up boasting one sixth of global trade.)

By 2015 the era of G7/G8 – in other words: the era of absolute Western domination with US hegemony – is over. The 21st century will refashion the global political order as well as the global financial world. The hegemony of the dollar — just as of the USA — will come to an end. International institutions need to be reformed. It is just absurd for Belgium to have greater voting weight in the International Monetary Fund than India. At the moment international organizations are functioning inefficiently and are on the decline, which is not surprising, as they are institutions of the post-war West-centered world.[2] We are living in an era of G20 but this seems only an interim solution. The question is what world order follows? Suggestions are plenty.

There is Robert Haass’s vision of a non-polar world order[3], more precisely a non-polar disorder, which is inevitably unstable in the long run. G3 is more of a Chinese idea. It is a multiple variable geometry in which different G3 setups can be envisaged (China, USA, Russia; China, EU, USA; China, Japan, USA) according to the needs of and relevance to the issue in question. G2 (a Sino-American tandem) seems for the time-being to be a weird animal to the Chinese. In 2009, some began talking about a G2 in the model of the G7, G8 or G20 and envisioned an Obama-Hu Jintao duo deciding the fate of the world. China was abashed by that talk of a G2 and was quick to deny any speculations about a bipolar USA-China world order. China has at least two problems with the G2 setup: for the time-being, it does not want to expose itself as a real global power nor wants it to be drawn too close to the US.

Chinese politicians and scholars treat the West’s loss of influence as granted, but there are people in China who worry about the possibility of America’s rapid decline. The more realistic observers in Beijing believe that America’s collapse (no matter how realistic this is anyway) would have disastrous implications, because China is not yet ready to build an alternative world order. Hence the objective should be to compel the USA to show more willingness to cooperate rather than bring it down.

“The rise of China is granted by nature. In the last 2,000 years China has enjoyed superpower status several times…China’s decline is a historical mistake which should be corrected” — the political scientist Yuan Xuetong wrote[4] in the Journal of Contemporary China in 2001, the year when the image of the USA’s invincibility was shattered. “Isn’t it possible that China, like all rising powers of the past, including the United States, wants to reshape the international system to suit its own purposes, commensurate with its new power?” Robert Kagan asked four years later in the pages of the Washington Post.[5]

China is preparing itself, trying to identify the weaknesses and strengths of its rivals. Its vast administration, including the army and intelligence services, is busy calculating, analyzing, generating strategies, and suggesting dos and don’ts for China’s rise. Meanwhile, the Chinese economy is growing at breakneck speed and beginning to reshape the global market. Chinese foreign policy has restricted its attention to local, or at most regional affairs, but the isolationist, policy of the nineties is inappropriate in the 21st century. It is unclear whether China’s true character is soft power or hard power. They have been undecided for centuries, even though China has been involved in wars or armed conflicts with almost all of its neighbors. Chinese political leaders seem to be uncertain at this point how to define the future role of China in the emerging world order. It is indeed a major problem for the West that it does not see where China is headed; but it is even a bigger problem for the whole world that China itself does not know either. Having said this China is reinforcing its global security focus. Chinese President Xi Jinping already announced the setting up of the Chinese National Security Commission (CNSC). The CNSC has three major tasks.

– To advise the Politburo (which oversees the Communist Party) and the highest levels of the leadership on security strategy.

-To coordinate between different departments throughout the party, the government, the military, and society.

– To conduct crisis management and risk management, for both internal and external security threats.

In July 2015, the Chinese government passed a new national security law that will strengthen its role in China’s national security policy.[6] The Chinese Security Commission decided to establish high-level communication mechanisms with the US National Security Council as security issues between China and the US already affect the entire globe, and especially the Asia-Pacific region. The hotline proposed by China between the Chinese National Security Commission and the U.S. National Security Council is meant to handle emergency situations.

The transformation of the international order, the end of a hegemonic system, the appearance of a new power has often brought disaster in history. The only exception to this rule was the changeover of power between the British Empire and the United States in the 20th century, but this was a special case for two reasons. Firstly, the two nations were closely related culturally (in the broadest sense); secondly, that changeover happened during global wars in which the two Anglo-Saxon powers fought side by side. The map of the world is being redrawn again at the beginning of the 21st century. In a Huntingtonian world the birth of a new world order and the emergence of new global powers inevitably lead to a crisis or a global conflict. Zakaria and Khanna, two well-known analysts of current times are less pessimistic,[7] they talk about a world coming to terms with a natural multipolarity by the emergence of the second and the third world.

On a historical scale, America’s rise to global power status was extremely quick: on the eve of World War II the US Army was smaller than that of the Dutch but by 1944 America’s military output was double that of the Axis powers. The USA climbed to the top of the world with unprecedented speed and stayed there for a short century. In 2000 the United States was the strongest power in history, whose global supremacy was uncontested. Its budget showed a healthy surplus, its military might was unparalleled, its economic clout colossal. However, since 2001 the US’s global position weakened. There is a lot of discussion about the end of the US supremacy and also on why has America’s global dominance come to an end and how China found its way up? One obvious explanation is the dynamics of history: it is simply impossible to stop the emergence of new powers. If a civilization, culture, country or region can improve the efficiency of its economy, if it can put human, technological and financial resources at work in a massive way, and if the external environment is favorable, it will become successful. If this happens in a big enough country, it will become a world power. Another explanation is the mistakes committed by the United States: its misguided energy policy, its immensely expensive wars have not produced any tangible results but have emptied the federal coffers, eroded America’s international image and gave China the chance to build up its economy, diplomacy and military almost unnoticed by the hegemon. In the meantime the US economy has become dependent on China (and vice versa for that matter): what China produced the USA bought, and as a result China now holds trillions of dollars in US government bonds. The arrival of the turning point has been accelerated by the profound demographic and economic changes, the pace of globalization, 9/11, America’s military failures and the economic crisis. As the Japanese prime minister said at the end of an international summit in late 2008: “History teaches us that crises create new order.” The shift of geopolitical power towards Asia coincides with the end of a golden age of the West, which brought rapid growth, low inflation and considerable improvements in the standard of living, as well as with an economic crisis unseen in 60 years.

The American intelligence community[8] predicted a fundamental reshuffle of the world as we know it in the next few decades already a decade ago. The international order, as it was created in the wake of World War II, will be unrecognizable by 2025 — they say, adding that the pace at which wealth and political power will move from West to East is unprecedented in modern history. The world will become ever more dangerous, but richer at the same time, which does not mean that the majority of the Earth’s population will not face food and water shortages. Today’s oil powers may become tomorrow’s beggars, while developing countries and regions that build their economies on hard work will see stunning growth. The rise of the non-Western world, which began in the 1950s with Japan and continued in the ’60s with the Asian tigers, became a full-blown trend with the emergence of China, India and Brazil and will continue for decades.

It remains to be seen whether China’s rise will happen peacefully in the long run. The West is instinctively wary of geopolitical changes and knows also that dictatorships do not last long. Still, China needs peace in the world to be able to strengthen its economy, annex Taiwan at some stage and build an international order in which Asia and China play a central role. For the time being, China is not aiming at global hegemony or confrontation. Since the mid-nineties, China has been claiming to be a responsible, peaceful and cooperative partner of the West. A confrontation with America is unlikely to pay any dividends and is therefore not a realistic option. However it is encoded into Chinese culture that everything must have a counterbalance. A power without a counterbalance is unnatural and dangerous. Power must be balanced internationally without encroaching upon the independence or sovereignty of nation states. After the collapse of the Soviet Union the Chinese hoped that the Cold War era would be replaced by a multipolar world order, and were disappointed to see the dawn of total American hegemony. China was shocked by the US intervention in Kosovo in 1999; bilateral relations were all but frozen, and China was afraid that the USA would use Taiwan and Japan to keep China at bay. This was the general view held by Chinese politicians and defense analysts at the turn of the millenium. But the world has changed immensely since then. Niall Ferguson talked about the end of Chimerica[9] – a marriage between the US and China in a completely intertwined economy where America consumes and China produces, China lends, America borrows, China exports, America imports. This cooperation was obviously a pretty problematic one therefore did not last for long. Both USA and China maintain strong suspicions of each other’s intentions. Accordingly, both sides are hedging their bets and securing their positions should relations deteriorate. As long as the question of Taiwan is not resolved peacefully and definitively, hostility between China and the USA remains a realistic risk. Nonetheless, as long as the USA does not pose a threat to its vital national interests, China is willing to tolerate the current global framework but with an ever-growing determination to gradually change it from inside.

According to Kissinger, the United States must be aware of its supremacy but act as if global security depended on all global actors. This strategy can divide the psychological burden of responsibility and will allow the principles of freedom and democracy to dominate international politics. In other words: share power to hold on to power. Kissinger believes that China, with four thousand years of history behind it, must know something about survival, hence the West should avoid being condescending. Kissinger is convinced that China’s rise will be the greatest challenge to the West as well as to China itself. Its political mentality, institutional culture and traditions do not predestine the US to accept easily the loss of its status as the world’s number one power and become one of many global actors. Also, for the US multilateralism has a different meaning and importance than to European countries and the EU. For America multilateralism is the means of achieving its end of a stable world order with the USA as the leading power. For Europe multilateralism is the end itself.

Having said all this, in 2015 US’s global military superiority is still beyond question. The US Navy commands a fleet bigger than the next 50 largest fleets together; America spends over a billion dollars a day on defense. The US economy is world leader not only in term of output but also in the use of cutting-edge technology. America’s intellectual and cultural impact — from Harvard through Hollywood to McDonald’s — is the biggest soft power in the world. Not to mention the fact that the USA is not a status quo power, America is not afraid of change. Apart from its unwavering faith in democracy and in its own specialness, its embrace of change is one of its key distinguishing features.[10]

The rise and reinforced international profile of China and Asia poses some inconvenient but crucial questions for the West. As Asia rises and Europe stagnates, an overhaul of international organizations naturally seems inevitable, however difficult that may be. The French president suggested that India should be given a permanent seat on the UN Security Council, but when the possibility of the EU being given a single seat on the Security Council (instead of the two currently held by France and the United Kingdom), he called it very unlikely that the EU — which has trouble agreeing on much less contentious issues — could find consensus on such a sensitive and crucial question.

What guaranteed the prosperity of the West, apart from its military might, was that the world order that emerged in the wake of World War II was shaped by Western ideas, rules and values. Global politics undergo seismic shifts the global order is realigned and the global value set might also be rearranged to a certain extent. This latter is much less talked about but equally important – in the long run, certainly. We are witnessing not only the competition of economies and military capabilities but of values as well. And what we experience is a new phenomenon: the rise of alternative values and institutions in the world in parallel with a certain level of democracy fatigue even in the West.

In parallel with the global power reshuffle new social models are appearing. These new societal models are not hybrids combining elements of Western society. They tend to be forms of state capitalism or non-liberal (pseudo) democracies, where elections are held regularly but a populist elite rules the country nonetheless. Many developing countries go through this stage in their development; the question is whether they will be able to move on and turn themselves into real democracies. At the same time Western liberal democracy shows signs of ageing and becoming rickety as cowardly political elites motivated only by polls discredit democracy altogether. Postmodern politics is drifting towards dim-witted media politics.

Does China’s rise really mean that the universal expansion of the Western world and of liberal democracy have come to a halt? When China broke with dogmatic communism and opened itself up to the world, it spent three decades adopting Western principles, particularly in the areas of foreign and economic policy. China is opening a new chapter: it wants to create a new model of its own, which can become an alternative to the Western model and will surely be popular in all countries that have a dislike for the American dominated Western world order. When the “Chinese model” crystallizes it can offer the developing world (Africa, Latin America and the Middle East) an alternative to the Western liberal model. The new China does not only rebuff the West-dominated present, it also rejects eurocentric historiography and the eurocentric worldview as false and distorted, because — it claims — these advocate the global supremacy of Greco-Roman culture and underplay the world’s oldest culture (i.e. that of China).

The fact that autocracy and state capitalism seem to prevail and flourish in the biggest country in the world is a powerful signal for many countries. There are speculations that the global system might soon have a viable Third Way (as opposed to the Western and the clear cut third world dictatorship models) which could be a desirable option for many Asian and African countries in the 21st century. It is not a certainty though. But if democracy is challenged by a strong and vivid alternative model on the global scale, remilitarization and old-school power politics could come back into fashion. China will have a responsibility as regards how to tackle these developments and their consequences in the long run.

Francis Fukuyama asks[11] in 2010 whether liberal democratic principles are really universal or have been revealed not to be. His answer is that they are universal – but this is not as sure as it was a decade ago. He asks what the democratic world can do with Putin’s transformation of Russia into an ”electoral authoritarian” state, the undermining of democratic institutions by Hugo Chavez in Venezuela, and the rise of China as a successful authoritarian modernizer. Are these systems true and viable alternatives of old-fashioned democracy? They are most probably not in the long run, but liberal democracy is not the only alternative to all-out dictatorship in worldwide politics anymore. As he puts it: “The next phase of global history will be a challenging one, as America and Europe stumble to get back their economic balance. It seems doubtful that either the US or Britain will achieve the degree of growth in the next generation that they did in the previous one. But one of the great advantages of democracy is that it does not depend for its legitimacy on continuing high levels of economic growth, as the Chinese system does. As we move forward, it is important to keep in mind the simple power of the idea of a government by, for, and of the people. We need to match those high ideals with unglamorous but steady investments in institution-building if liberal democracy is to deliver on its promises.”

Robert Kagan says that ideology still matters in geopolitics, and one should add perception as well to ideology. China’s strength comes partly from the fact that the world sees it as strong, the future great power. At the same time, part of America’s weakness stems from the fact that it sees itself as a declining power[12]. A change in these perceptions could cause significant shifts in times of uncertainty and global transition. Is China potentially an even bigger a power than we imagine or – as Ari Van Assche puts it – does the West only make a dragon out of a dragonfly[13]?

China is changing geopolitics, surely. Is China going to change the rules of the game? It is doubtful, but this is still a puzzle to the Chinese themselves. China might as well be much less powerful as it seems, based on a shaky “Leninist corporatism” whose development is completely based on stealing know-how and institutions from the West as Will Hutton points out.[14]   But there is a high probability that reality will prove otherwise.


[1]Chicago Council on Global Affairs: World Public opinion, 2007.

[2]Zhao Kejin concludes that “today it seems that EU states are taking a case-by-case approach toward China’s initiatives to constructively reform the Bretton Woods system. They tend to support reform of the international monetary order, thus accepting RMB’s inclusion in the SDR, yet they are not committed to sharing governance of the old institutions, as this would limit European influence and prestige.” In: China’s National Security Commission. Carnegie-Tsinghua Center for Global Policy. July 14, 2015.

[3]Robert N. Haass: The age of non-polarity – What will follow US dominance. Foreign Affairs. May/June, 2008.

[4]Yan Xuetong: The rise of China in the Chinese eyes, Journal of Contemporary China, 2001, Vol. 10.

[5]Kagan, Robert: The Illusion of managing China. Washington Post, 15 May 2005,.

[6]Kejin, Zhao: China’s National Security Commission. Carnegie-Tsinghua Center for Global Policy. July 14, 2015.

[7]See more in Khanna, Parag: The second world – empires and influence in the new global order. Random House, New York, 2008. and in: Zakaria, Fareed: The post-American world. W. W. Norton & Co, New York, 2008.

[8]According to the Global Trends 2025 report.

[9]Ferguson, Niall – Schularick, Moritz: “Chimerica and global asset markets”. 2007. and “The end of Chimerica”. 2009. Harvard Business School. Working Paper 10-037.

[10]A small note: things in the balance of the international order can change unnoticed and sometimes scholars and politicians got carried away by perceptions of visible trends while obviously disregarding the ones less obvious. One good example is the surprise at the collapse of the Soviet Union. In his book (My Country, My People) published in the US in 1935 Lin Yutang described China as a tired old man (in comparison with the dynamic, youthful West.) Some seventy years later my book on the future of Europe bore the subtitle: “The Old Lady and the Bull” (a reference to ancient Greek mythology) describing Europe as an old lady instead of the young girl who she used to be when she had been taken by Zeus disguised as a bull. Probably both of us were right at a certain moment in time, but the lifespan of truths in geopolitics seems to get shorter and shorter.

[11]Is the Age of Democracy Over? Spectator. February 10, 2010.

[12]An example: According to a 2009 survey by Penn, Schoen and Berland Associates, 81% of Chinese think the USA will stay ahead of China in innovation, while 41% of Americans think so. (in Newsweek, 28 November 2009.)

[13]Van Assche, Ari: Are We Making a Dragon out of a Dragonfly? – Understanding China’s Role in Global Production Networks. Burgundy Report, CIRANO Network, 2009RB – 03. January 2009.

[14]Hutton, Will: The Writing on the Wall: Why We Must Embrace China as a Partner or Face it as an Enemy. Free Press/Little, Brown.

Hungarian economist, PhD in international relations. Based in Brussels for fourteen years as diplomat and member of EU commissioners’ cabinets. Two times visiting fellow of Wilson Center in Washington DC. University professor and author of books on EU affairs and geopolitics. Head of department, National University of Public Administration, Budapest.

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East Asia

A brief history of Sino-Australian political relations from 1949 to 2020

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Former prime minister Malcolm Turnbull and Mr Xi met for a bilateral talk during the G20 Forum in Hangzhou.(Supplied: Twitter)

To understand what is happening now requires an understanding of history. The recent Sino-Australian relations have been like a roller coaster ride, which needs to date back to history at least from 1949.

There are several characteristics worth mentioning in Sino-Australian relations. First, there have been diplomatic ups-and-downs between the two governments due to the divergence of the two countries’ political systems and ideology. Second, by comparison, bilateral ties have generally been improving for decades due to the reciprocal economic complementarities and cooperation despite the recent trade disputes. Third, Sino-Australian relations “has become more unequal with the passage of time” due to China’s rise. Fourth, the influence of the US on the foreign policy of Australia cannot be underestimated. In terms of structure, this part will be divided into four periods, posited on the founding of the People’s Republic of China in 1949, the establishment of diplomatic relations in 1972, the outbreak of Tiananmen Incident in 1989 and the recent decline of bilateral relations starting from 2015 with additional illustration of the influence of the US in Australian foreign policy.

The Pre-recognition politicial relations from 1949 to 1971

Graeme Dobell argues, “China has always loomed in the Australian consciousness”, possibly because Australia is geographically located in the Asia Pacific and surrounded by Asian countries with a significant number of ethnic Chinese. Historically, China was viewed in Australia as a threat, namely, “Yellow Peril”. The notion is a color-metaphor, full of racism. East Asians, especially the ethnic Chinese, are an existential hazard to other countries as immigrants.  Professor Gina Marchetti argues that

the rooted in medieval fears of Genghis Khan and Mongolian invasions of Europe, the yellow peril combines racist terrors of alien cultures, sexual anxieties, and the belief that the West will be overpowered and enveloped by the irresistible, dark, occult forces of the east.

In Australia, as a Western country located away from the West,  its Immigration Restriction Act of 1901, infamous as the White Australia Policy, was designed to prohibit Chinese settlers. “Fear of China and hostility to the Chinese immigrants were factors” that supported the Federation of Australia, and both factors existed for decades. The federating of Australia was the process by which the sixBritish colonies consented to unite and become the Commonwealth of Australia. Liberal Prime Minister Harold Holt formally abolished the White Australia Policy in 1966 with the introduction of the Migration Act 1966. By legislating legal equality among European and non-European migrants, this new Act has opened a new immigration history era. It has been the most crucial step in forminga multicultural society in Australia.

However, Australia’s unique geographic location and huge disparity of population between Australia and China have decided that the natural insecurity of Australia as a nation, for that linguistically, historically and intellectually, Australian ancestry originates from Europe, and its vital economic partner and most crucial military ally is the United States, both far away from Australia. Furthermore, Gyngell argues there is always “fear of abandonment” in Australian foreign policy. Likewise, former Australian Minister for Foreign Affairs Gareth Evans and former Australian diplomat Bruce Grant confirm that

the evolution of Australian foreign policy needs to be assessed against a background in Australian politics of persistent anxiety about a threat from Asia: sometimes vague and undifferentiated, sometimes specific, but always there.

In this period, China was viewed in Australia as a threat, namely, the aforementioned “Yellow Peril” and “Red Menace”. Arguably, the Red Menace has always existed in the Australian society and the government until now,which is a term applied during the Cold War for describing a nation that faces the increasing authoritarian threat of communism. This term was used to refer to the Soviet Union, while nowadays, it has been employed to mean Communist China. Besides, the difference of scare only reflects the extent to which the Australian government fears the Chinese Communist Party. From 1949 to 1972, especially when Australian and Chinese troops participated in the Korean War as rivals and later the Cultural Revolution was launched in China, Sino-Australian relations were hostile to each other due to the fact they were both subordinated to different political and ideological camps: USSR-led communism and the United Stated-led capitalism.

The steady development of Sino-Australian political relations from 1972 to 1989

During this period, Sino-Australian relations encountered the most drastic ups and downs the bilateral ties have ever experienced. In 1972, the Whitlam Labor government’s election marked the most radical turning point in Sino-Australian history by establishing diplomatic relations with China in December of the same year. Despite the endeavor, Whitlam made, this new chapter of the bilateral relations is mainly dependent on the change of  China Policy from the strongest ally of Australia, the United States. More concretely, in the early 1970s, the American army was withdrawn from Vietnam, indirectly ending the military collisions with the People’s Liberation Army.At the beginning of 1972, Nixon has his dramatic visit to Beijing and Shanghai.

From 1972 to 1989, the bilateral relations were at the stage of steady development. Partly, the positive Sino-Australian relations can be attributed to the same view of opposing the Soviet threat, which facilitated the Sino-Australian cooperation. More specifically, in July 1973, the first Sino-Australian trade agreement was signed by the Chinese government and the Whitlam government. The visit of Whitlam to Beijing in late 1973 culminated in a joint communique, concurring with the promotion of views exchanges among the Sino-Australian officials. In 1976, during the period of the Coalition-led Fraser government, “the Australian Parliament even stood in silence in the honor” of Mao Zedong, when Mao passed away. In 1978, the Australia-China Council was built by the Coalition-led Fraser government to facilitate bilateral relations.

Furthermore, in the 1980s, with the economic reform of Deng Xiaoping and the incrementally frequent visits of Sino-Australian senior leaders, the Australian government saw the economic opportunities China may bring, and the Chinese government also realized the Chinese modernization might benefit from the support of Australia. Mackerras argues that “the mid-1980s saw the relationship reach a peak”. In 1984, the ALP-led Hawke government launched the China Action Plan, “an overall economic program towards China”, aiming to deepen bilateral economic cooperation. In 1985, Hawke told the Australian parliament that a ‘special relationship’ between the two countries was forming.

The realistic Sino-Australian political relations from 1990 to 2015

The outbreak of the Tiananmen Incident in 1989 was a devastating turnaround in Sino-Australian relations, bringing the vigorous relations to a sudden stop. To some extent, Deng’s economic reform gave Australia and the Western world an illusion that China tried to become more Western. Contrariwise, the Incident shattered misapprehension of the special relationship between the two countries and has pushed human rights to one of the central issues that needs to be addressed in the bilateral agenda until now. It is noteworthy that the negative influence of the Tiananmen Incident was in all domains. Antagonized by the Australian broadcasting of violence in Beijing, the Australian people, including politicians, business people, scholars and religious figures, unanimously condemned Beijing. All aspects of Sino-Australian relations were affected at varying levels.

Arguably, after the Tiananmen Incident, the attitudes of the Australian government has changed to be more pragmatic and national-interest-driven. Wang argues that  the reassessment of Sino-Australian relations “did not lead to a fundamental policy shift” in Canberra “and human rights were not emphasized to the detriment of Australia’s economic interests”. In 1993, as the first Australian Prime Minister after the Incident, Keating visited China, breaking the diplomatic ice, partly because he needed to push wool exports to China.

Noticeably, from 1989 to 2015, China and the comparison of world powers experienced earthshaking changes. The hazards of the Asian Financial Crisis in 1998 and the Global Financial Crisis in 2008 lead to the economic meltdown of some Southeastern countries and the relative decline of the West. Bearing the two Crises, China has benefited enormously, even the most, from joining the WTO and other regional and global economic organizations as a member of economic globalization. At the end of 2010, China surpassed Japan and has become the second-biggest global economy, indicating that the global economic center has gradually transferred to East Asia. During this period, Hong Kong and Macao were subsequently handed over to China, enhancing China’s confidence. There is no doubt that bilateral relations have been increasingly asymmetrical during this time, leading to the concept of equal partners less possible.

From 1989 to 2015, facing China’s economic rise, on the one hand, the Australian government and business took advantage of the historical opportunities and have been more engaged in the Chinese economy. For instance, the Coalition-led Howard government was a firm“ supporter for China’s accession to the WTO” to share better Chinese economic growth. In 2014, the Coalition-led Abbott government and the Chinese government started to portray the bilateral relations as a “comprehensive strategic partnership” due to the incremental and robust trade relations and more frequent communication between top leaders of the two sides. On the other hand, due to the different political ideologies and systems, and the gradually widening disparity of the two countries, there have been strong concerns in the Australian government that China may leverage trade over Australia. Foot  indicates the sense of uncertainty and insecurity in Canberra that

Has Beijing worked to support the dominant norms of the international order, or has it striven to overturn them? Has it ever deserved to be called “responsible power”, a term defined by the dominant states, or has it acted irresponsibly? To place these questions more explicitly within an international relations framework, has China shown itself since 1949, and more especially during the period of reform and opening since 1979, as capable of be socialized into supporting global norms? Or, as realists would predict, have there been signs that its rising power over the past two decades has generated new tensions in the international system? Looking more to the future, what kind challenge does its enhanced capabilities pose to the status quo?

Despite the dilemma that the Australian government has to face and the political ups and downs between the two countries during this period, “the growing sense of independence in formulating Australia’s policy towards China, as well as the increasing saliency of trade considerations in implementing such policy, has transcended political and inter-administration divides”. Thus, to some extent, although there were still ups and downs during this period from the ALP-led Hawke government to the Coalition-led Abbott government in 2015, the bilateral relations “appears to have become less uncertain” and matured. Arguably, the Australian government started to view China either without unjustified fear as they had before 1972, or super optimism as they had before 1989.

In fact, the differences may only exist in the style of how different administrations approach China. For instance, the first Mandarin-speaking Prime Minister Kevin Rudd introduced a concept called “Zhengyou in Chinese that means to voice different opinions to benefit the Chinese leadership. By comparison, another Prime Minister John Howard preferred to deal with China on more practical issues.

The increasingly strained bilateral political relations from 2016 to 2020

Bilateral relations have deteriorated since the exacerbation of territorial disputes in the South China Sea in 2016. The Australian government criticized China for not abiding by the South China Sea Arbitration, a joint statement with Japan and the US. In response, the Chinese government expressed its strong displeasure through its state-owned media the Global Times, denouncing Australia as a “paper cat”. Currently, the Australian government is concerned that Chinese activity in the South China Sea may threaten Asia pacific security, thus influencing Australian sovereignty and security.

More importantly, Australia’s closest and strongest ally, the US, initiated a trade war with China at the beginning of 2018.  Since Australia often follows American foreign policy, the increasingly intense Sino-American relations have negatively affected Sino-Australian relations. In the same year, Sino-Australian ties soured further when Australia became the first country to officially ban China’s Huawei from its 5G network. A similar prohibition on Huawei was later executed in the US in 2019.

In terms of domestic politics, there are continuously more negative speeches about China.Australian politician Andrew Hastie urges urged the Australian government and public to realistically recognize the unprecedented democratic conviction and security threat from China. He even goes “as far as to compare the Western tolerance of China’s rise with the appeasement of Nazi Germany”. Hamilton argues Chinese infiltration in Australia is a “silent invasion”. The Minister for Home Affairs Peter Dutton, one of most senior officers in the Liberal-Coalition-led Morrison administration, condemned China’s interference and cyber hacks in Australia and claimed that the policies of the CCP are incompatible with Australian values.

2020 may have been the most turbulent year for Sino-Australian relations so far. Facing the once-a-century Covid-19 pandemic, Beijing has taken trade actions against a series of Australian goods such as barley, cattle, wine, cotton and coal after the Morrison administration advocated an independent Covid-19 inquiry without consulting Beijing first.

The tension also extended to people-to-people exchange. Canberra has warned its residents against arbitrary arrest in China. In contrast, Beijing has cautioned against studying and visiting Australia due to purportedly increasing racism and discrimination against people of Chinese and Asian descent. At the end of 2020, Morrison reacted furiously and demanded an apology from Beijing to an image tweeted by a Chinese diplomat showing an Australian soldier holding a knife to an Afghan child’s throat, which has further shadowed current and future relations.

Meanwhile, despite the global pandemic, there is increasing scrutiny in Australian media, including of the Hong Kong anti-extradition bill, the Xinjiang re-education camp, and China’s political donation to Australian political parties, Chinese spy students, the fight between Hong Kong and Chinese students in Australia, the defection of Wang Liqiang, Huawei backdoor suspicion and the detention of Cheng Lei and Yang Hengjun. According to the Lowy Institute poll in 2019, Australians’s trust in China to ‘act responsibly’ has dropped to 32 %, a 20-point decline from 2018. In 2020, trust in China has deteriorated to 23%, the lowest point in the Poll’s history.

Whatever, if any, evidence underpins these narratives or not, they seem to point out one reality: the plummeting state of Sino-Australian relations. Geoff Raby, former Australian Ambassador to China, even argues that Sino-Australian relations are at their lowest ebb since 1972.It may be controversial to argue that the current bilateral relations are worse than the relations in 1989, but it is appropriate to point out the reality that the Sino-Australian relations have been incrementally damaged. The Australian government’s dilemma is the overreliance of the Australian trade upon China and the exacerbated political disagreement. Jonathan Pearlman argues that “security and economics are tugging Canberra in different directions, as are its values and its interests”.

The Influence of the United States in Australian foreign policy

Undoubtedly, the Australian foreign policy has been influenced by the American government, as Australia has been called the “fifty-first state” of the US. Australia and the US have the same language background, similar European ancestry, similar political systems and strong economic ties. More importantly, in 1951, Canberra and Washington agreed on the Australia, New Zealand and United States Security Treaty (ANZUS), regulating that “an attack on either country’s armed forces or territory in the Pacific area” means “common danger” for the three countries. Since the US abolished its responsibilities to New Zealand due to the disputes of nuclear-armed ships, the ANZUS has become a bilateral treaty between Australia and the US and, separately, between Australia and New Zealand.

Given the American economic and military power around the world and the substantial disparity of Australia-American strengths, it is easy to argue that the ANZUS is the cornerstone of Australian security, and the US is the most important ally of Australia. In fact, Australia followed the US’s leadership through the UN, in the Korean War in 1950, the Vietnam War in 1962, the Afghanistan War in 2001 and the Iraq War in 2003 and recognized the PRC after the Nixon government had changed its China policy. To underpin the above view, Tow and Albinski affirm that the “ANZUS alliance remains Australia’s primary security relationship”. The former Australian diplomat Dr.Alison Broinowski argue that

Australia uncritically and voluntarily imitates its major ally (the United States) and its minor ally (the United Kingdom) in most things, yet lacks the capacity to do them well and the independence to do them differently. Having taken the drug of dependence from birth, Australia seems allied and addicted to it.

Thus, it is easy to question how independent Australia’s foreign policy is, especially its China policy, and argue that Australia does generally imitate the US’s foreign policy. As for the recent downturn of bilateral relations, Geoff Raby, an insider of Australia politics, believes that Canberra has developed policies to push back China’s rise in that the US started regarding China as a strategic competitor.

However, there is some policy flexibility in the Australian government, mainly economic-interests-motivated. To cite an instance, despite the opposition of the US, Australia participated in the China-led Asian Infrastructure Investment Bank in 2015 and leased the Port of Darwin to a Chinese company in the same year. Australia took the position as an outsider in terms of the Sino-American trade war, suggesting the two sides to end the fight to avoid the risks of collateral damage to Australia. Even in the 1950s and 1960s, when the Australian government adopted a hostile attitude towards China, the wheat trade between China and Australia“reached a significant level”.

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East Asia

The Economic Revival of Japan

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Photo: Jezael Melgoza/ Unsplash

Amidst the uncertainty weaved by the pandemic, the stock markets around the world have shunned the preconceived notions associated to their functionality over the past year. While some sophisticated economies are suffering turmoil at the ensue of new Covid variants, deviant vaccination drives, and resumption of state-wide lockdowns, some of the countries are outright negating the educated forecasts made by seasoned financial experts all over the globe. China stands as a flag-bearer of such reality-defying markets: bagging GDP growth unlike any in the world whilst simultaneously controlling the virus strain in Beijing. Recent to the tally, however, is the quaint nation of Japan that despite being head-to-head with another gruesome wave of Coronavirus, still manages to consistently outperform the hailed champions of the global financial markets.

The 3rd biggest economy in the world astonished the financial gurus when Nikkei 225, Japan’s core stock market Index, soared up steadily over the last few weeks. With a 1.9% hike at the week’s opening on Monday, 15th February, Nikkei 225 Index surpassed the coveted 30000-point threshold after more than three decades. The economic rebound is associated to the export sector picking up the pace after a sluggish performance last year. The country still wrestles with the throttle of the pandemic; confirming over 1000 Covid-positive patients since November 16th and adding the cumulative death toll of 7056; surpassing the 7000 deaths mark in just under two weeks.

The positive effect, however, dawns since the daily confirmed cases are showing a steady drop; below 1000 daily-confirmed cases in over 4 months. This occurrence is in tandem to the global fall in the Covid cases. Moreover, Japan’s approval of the Covid vaccine produced by Pfizer Inc. is reflecting the recovery in the health condition of the country, especially a lucrative news amidst the second health emergency recently imposed in Tokyo.

Standing at the 30393.13-point mark, Nikkei 225 is expected to follow the bullish trend heavily over the following week as well. According to the measured forecasts, the bourse is optimally headed to strike the 33000-point mark after crossing the milestone of triple decades. This is due to the positive economic outlook in tandem to the rebooting of the global economy which would ultimately enable the export-reliant country. With Japan announcing a 12.7% GDP growth trailing from the recovery of the last quarter of 2020, followed by a hefty government stimulus to prompt domestic consumption, the Japanese bourse is expected to inflate by up to 30% by the end of the first quarter of 2021 in March, presumably speculating a record surge to bypass the highest ever figure of 38915.87-point, posted by Nikkei 225 back in 1989 before being subsequently floored by the notorious price bubble crash.

However, the economic recovery much less a record shattering surge in the market is heavily dependent on some of the core facets. The debacle of the nationalisation of vaccines is evident in Europe and ironically is the crisis posing more of a serious threat than the pandemic itself. Japan’s economic stability would only be possible given the vaccinations are administered effectively and timely with minimal resistance. As Japan still finds it hard to evade the emergency measures introduced in multiple regions, a vaccine crisis could intensify the emergency precautions and lockdowns may even gear into effect. This could seriously undermine the production capabilities of the country which ultimately could carry forward as an element hampering the blooming investor confidence in Japan.

Much to the global conformity of economic peril last year, Japan’s economy also contracted by 4.8% in 2020. The steep contraction, despite being of a greater extent relative to the 3.5% annualised shrinkage in the US economy, was still much controlled than the forecasted 5.3% fall projected by the International Monetary Fund (IMF). However, unlike some of the regional economies, the pandemic-induced decline lasted only for a short span of time before Japan waded through and rallied. Posting a 3% growth in the 4th quarter of 2020, when major economies like Germany and US grappled with recession, Japan steadily made surface.

Now as the pessimism looms in Europe and the political divide worsens in US, Investors are pouring confidence in Japanese equities which provide a solid foundation to the already surging Japanese Indices. This shift in perspective could be gauged by the purview of global stock positions taken by the active equity investors throughout the globe; pouring investments unlike the sceptical position adopted since January. The increasing investor confidence coupled by the improving economic and social health of Japan has proved monumental on the financial charts; despite being in the highs of a heavy stimulus, S&P 500 continues to be outperformed by Nikkei 225, sometimes even falling short by colossal margins to the returns added by the Japanese Index.

Which way the markets would turn and how Japan could sustain the whelming economic recovery depends largely on how Japan deals with Covid and how efficiently it regulates the vaccination drives. Moreover, Japan’s success may be upped the ante by any new misery that might befall on US or Europe that could ultimately drive more confidence and flare to the 3rdlargest economy of the world.

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East Asia

Mongolia-World Bank Group Partnership: Three Decades of Partnering for Prosperity

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It all began exactly thirty years ago. On February 14, 1991, the eve of Tsagaan Sar, Mongolia joined the World Bank Group[1]. This was the period when the country had just gotten on the path of democracy, free market, and openness to the outside world.  Mongolia rightly took pride in this transition but, at the same time, it presented enormous challenges, including a sharp economic contraction. Following the cut of external aid, the hardship was felt by Mongolians every day. Long lines were visible on every street corner for rationed food.

The World Bank’s support was quick to arrive. By the end of 1991, the first project of $30 million was already signed to help rehabilitate production in key sectors such as agriculture, energy and transport. The World Bank also carried out a comprehensive macroeconomic analysis, zooming in on the immediate challenges of runaway inflation and falling output.

Since these early days three decades ago, the World Bank Group (WBG) has accompanied Mongolia’s strong recovery and development, culminating in the country’s graduation from the International Development Association (IDA) – the WBG’s lending window for low income countries – last year. Mongolia’s economy has expanded significantly over this period, with GDP per capita rising more than fourfold from $1,072 in 1991 to $4,339 in 2019. But growth has been volatile. Like many other resource-rich countries in the world, Mongolia experienced persistent boom-and-bust cycles. Economic diversification remains critical to generate productive jobs, especially for the young. People’s living standards have improved, but growth did not not generate shared prosperity for all. Mongolian citizens expect their government to deliver quality education and health services, and provide for a clean and safe living environment. Their aspirations have not yet been fully realized.

Through good and difficult times, the WBG has remained a steadfast partner of Mongolia. Our budget support operations helped Mongolia restore macroeconomic stability and lay the foundations for inclusive growth. Our investments contributed to economic development in both mining and non-mining sectors, improving people’s livelihoods, and addressing environment and climate challenges. A total of $1.28 billion World Bank financing has been committed to Mongolia for these years. The WBG’s private sector arms—the International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA)—have also been active in supporting private investments.

The investments have helped improve people’s livelihoods across the country. In the energy sector, we supported electricity access to over 100,000 rural and herder families providing them with portable solar panels in the 2000s. In the early 2000s, the World Bank telecommunications project helped all 360 soums in Mongolia gain access to modern phone and internet services. To help herders mitigate natural disaster risks, we supported the world’s first index-based livestock insurance system in Mongolia. To improve governance, we helped revamp the statistical system in Mongolia to match international standards to inform decision making, and empowered citizens to make their voice heard on public expenditure allocations at local levels. IFC financed Mongolia’s first utility-scale windfarm for the country and supported reforms to increase access to finance for SMEs through enabling movable collateral.   

Most recently, in the face of the COVID-19 pandemic, the WBG quickly mobilized over $60 million to support the relief and stimulus measures for saving lives, protecting the poor and vulnerable, and ensuring sustainability of businesses and jobs. These resources are being invested for the most essential medical and diagnostic equipment in three tertiary hospitals, nine district hospitals of the capital city and 21 aimags, personal protective equipment for frontline health workers, and training for medical staff. A new project, which would finance the vaccination of about 60 percent of Mongolians has just been approved. The Bank is also financing the temporary relief of social insurance contribution for over 120,000 self-employed workers including 72,000 women and around 150,000 workers employed by 18,000 firms affected by COVID-19. Bank support has also benefited approximately 1.19 million children through the top-up payments to the government’s Child Money Program.

After thirty years of partnership with the World Bank Group, Mongolia has become a lower-middle-income country and its vision is to become by 2050 a high-income country with high levels of human development, better quality of life, a diversified economy, and good governance. This is an aspiration we will continue to support. To turn it into reality will be challenging. The first step will be to gradually phase out short-term relief measures and return to the important agenda of structural reforms which are needed to rekindle growth and make it sustainable and inclusive. Over the medium-term, Mongolia will have to contend with the growing risks associated with climate change, and the challenges this will bring to the structure of its economy. And it will need to offer its youth the perspective of productive, well-paying jobs, to retain the country’s talents at home.

The WBG is honored to have been Mongolia’s trusted partner over the past thirty years. We are confident that our partnership will continue and further strengthen in the decades ahead, rain or shine.

 [1] Mongolia joined the International Bank for Reconstruction and Development (IBRD), International Development Association (IDA), the International Finance Corporation (IFC), and International Centre for Settlement of Investment Disputes (ICSID) in 1991; and Multilateral Investment Guarantee Agency (MIGA) in 1999.  All these organizations together known as the World Bank Group.

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