Australia: The implications for Australia of the explosive growth in China and India

The Asian Century phenomenon is having huge impacts worldwide.

Corrs partner and CEO John W.H. Denton spoke at the Australia-Canada Economic Forum on issues for both countries.

TEXT VERSION

Thank you for the opportunity to participate in this panel discussion today. It's a particularly important topic for me. I have been immersed in it for the past eight months, as a member of the panel appointed by the Australian government to oversee the preparation of a White Paper into the economic, political, strategic and social implications of the Asian Century for Australia.

WHITE PAPER PROCESS

The aim of the White Paper is to guide Australia's domestic policy reforms - what Australians can do at home to maintain and increase their prosperity in the Asian Century. It's a domestic policy document set against an international backdrop. It's not primarily a foreign policy document.

To that end, the White Paper is considering how our region will change in the short, medium and long term, and what this means for Australia in terms of economic, political, strategic and social change.

The process has included consultations with experts in business, cultural and arts organisations, educators, academics and members of the public.

Hundreds of public submissions covering thousands of pages of material have been received – well thought-through arguments and suggestions from some of the biggest business and cultural organisations in the country through to individuals, schools and small businesses.

It's an open process. Almost everything is on the web site if you're interested – an issues paper, the submissions and a summary.

In short, four major themes have emerged:

• The need for Australian to boost our "Asia relevant capabilities" - the tools Australians will need to engage with Asia in the decades ahead
• People-to-people links, including in international education, cultural and artistic pursuits,
• Asia's Rise, which is a broad theme taking in issues like economic growth, resource and food security, energy and strategic power and bilateral relationships,
• And finally, Australia's competitiveness, in which issues like trade and investment policy, infrastructure, taxation ... in short Australia's domestic economic settings, are raised.

And these are issues, I'm sure, that are relevant to Canada and other countries as the Asian Century progresses because Canada may not be as close to Asia as Australia, but the reach of the Asian Century will be far.

And so will the opportunity for shared growth, because the needs of the growing middle class in China, India and other parts of Asia will be met from diverse sources.

RISKS

India faces enormous social challenges with the proportion of working age population, illiteracy and chaotic urbanisation all continuing to rise.

One risk they share is the middle income trap that happens when the low-cost labour and export-fuelled growth plateaus and stagnates at middle-income levels. Rising wages and reduce the ability to compete with the technical innovation of advanced economies, or the low labour cost economies they once resembled.

The middle-income trap doesn't have to be inevitable. Government policy has an important role to play in building growth based on high productivity and innovation, rather than market imbalances.

The economic and demographic changes that lead to phenomena like the middle income trap can also lead to rising income inequality that is perpetuated at a national level.

And this, in turn can be a source of tension that can lead to political instability or conflict in the region, which would undoubtedly have major risks for Australia.

But let's not get ahead of ourselves, we have a panel of experts here to discuss these issues as they relate specifically to various countries.

And let's not forget the relationship that brings us here today. There has long been a deep affinity between Canada and Australia in shared heritage, language, culture and, dare I say, personalities.

We are much alike in how we live our lives and approach our endeavours. I, for one, always feel at home here.

As the phenomenon of the Asian Century unfolds, the relationship between Canada and Australia may be useful.

Making the most of the Asian Century may be another thing we can share.

CHINA AND INDIA AS STRATEGIC PARTNERS

The economic rise of China and India, is accompanied by a roughly commensurate rise in their political and military weight. Although China and India confront many problems at home encouraging overwhelming preoccupation with domestic political affairs, the growing relative power of these emerging economies has caused some concern around the globe about the potential of military strategic competition. There are political leaders and strategists who argue for sharply divergent approaches toward China and India, a fashion that caught brief favour in countries like Japan and Australia a few years back.

This approach which characterised China as a 'strategic competitor' and India as a 'strategic partner' was never soundly based.

For one thing economics is actually driving India and China closer together - not further apart. China is becoming a larger and larger economic partner for India. China became India's largest trading partner in 2008, and India–China trade hit US$60 billion this year. The leaders have set a target of US$100 billion of two-way trade by 2015.

For another thing, it is not at all clear that China's and India's political and strategic interests are quite so differently aligned vis-à-vis those of the US as some might imagine or wish.

To those in Washington, Tokyo or Canberra, who incline to the so called Quad strategy (an 'alliance' of the US, Japan, India and Australia against China), not as a contingency but as some kind of in-your-face alternative to Chinese engagement, politically and militarily, it would do well to reflect upon the independent evolution and challenges of India's relationship with China. These are two powers with common borders, each with its own vulnerabilities, inexorably becoming increasingly economically complementary. As China and India grow they share interests and objectives in global governance, they need to deal with each other's growing power in their own Asian space as it grows too.

George Gilboy and Eric Heginbotham argue in their new book, 'Chinese and Indian Strategic Behavior: Growing Power' that the view of China as a competitor against whom Washington - with India as its partner - should 'hedge' is altogether too simplistic. They argue 'both China and India will present the US with sustained challenges as well as opportunities in the coming years. Washington will need nuanced, if not distinct, approaches to each' in order to manage them. There is sense here for Australian and Canada.

Gilboy and Heginbotham point out that there is no objective evidence to support the claim that the difference in domestic political systems - India's democracy versus China's one-party state - causes one or the other of them to be more or less likely to use force, build military power, seek trade advantages or pursue narrow self-interest.

Interestingly and as a matter of fact, while 'China has been involved in more militarised conflicts than India since 1949', from 1980 to 2001 both China and India have used force an equal number of times. While China also has 'more maritime disputes than India and has recently raised regional concerns by more firmly asserting its claims, China has actually moved further in negotiating territorial disputes than India'. On key issues relating to global governance, 'India is not markedly closer to the US than China. Looking at objective facts Indian and Chinese voting records in the UN General Assembly show that on issues related to Iran, Sudan, Burma, Middle East security and nuclear proliferation, China and India are often more closely aligned with each other than either is with for example the US'.

Importantly both China and India are expanding their defence budgets, China not uniquely so.

China certainly remains more open to trade and foreign investment than India. (Although to my mind and not enough!) India's foreign trade is five times smaller than that of China - and there are a equal number of trade complaints against both in the WTO.

China and India are also pursuing similar energy strategies via state firms and in developing economies.

I suppose the key point here is that care should be taken in basing expectations of international behaviour on political ideals or domestic regime differences, and that policy makers should, rather, rely on a 'nuanced, pragmatic realism' as a guide to engagement with both. In my view the best thing Australia can do in developing its India policy is to build more robust economic and diplomatic foundations for it. Similarly with China. We need Comprehensive Economic Partnerships with both similar to what we have with Japan. In our dealings with both China and India our best interest will be secured by focusing on economic opportunities and challenges from these rising powers, primarily by pursuing domestic policies within Australia (and might I suggest Canada) that maintain or strengthen its existing economic advantages.

The world of Asia's rising powers will be more complex than is often assumed, but it should be informed by objective analysis and not presumption!

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