Commentary on Political Economy

Sunday, 23 August 2020


Australia, US 'unprepared for China upheaval'

Michael Smith

Shanghai | The United States and its Western allies, including Australia, are unprepared for strategic and economic changes in China over the next 15 years and need to plan for major upheavals in the Indo Pacific, an analysis by an independent Washington-based think tank warns.

Ross Babbage, a former senior Australian government official, was one of the authors of the report by the Centre for Strategic and Budgetary Assessments, which lays out several different scenarios for China's political, economic and military future.

Ross Babbage has called for a "more nimble and agile approach". US Naval War College

The report, Which Way the Dragon?, says the strategic assessment systems that the US, Australia and other allies inherited from the 20th century are "inadequate" to deal with an increasingly unpredictable China. China is also unlikely to maintain the rapid rate of economic growth it has enjoyed over the past three decades.

"While it is possible that China will continue on its current trajectory towards 2035, it is more likely that there will be significant departures," the report, to be released on Monday, says.

"The United States and its close allies need to be prepared for major changes and to have thought through how best to manage such situations well in advance."

Dr Babbage, the well-known Australian strategist who held senior Defence roles and is chief executive of the Strategic Forum, said security forces need to plan for multiple scenarios that account for the speed and unpredictability of change in China.

"We now need a more nimble and agile approach to supersede reliance on occasional defence strategy reports, white papers and national defence guidelines," he said.

"That approach, inherited from the much more stable and predictable Cold War, is not fit-for-purpose for current allied security and defence planning."

This release of the report comes as the Trump administration pushes back against China's increasingly assertive foreign policies under President Xi Jinping since the coronavirus outbreak. Australia and other members of the Five Eyes intelligence network have stepped up efforts to tackle foreign interference and cyberattacks, and place restrictions on Chinese tech giants such as Huawei.

In June, the Morrison government announced a $270 billion build-up of the Defence Force over the next decade to counter China's rising influence in the Indo Pacific.

While the US report outlines different scenarios for China's development, it concludes that the world's second-largest economy will continue to slow. After decades of double-digit growth, China's GDP has halved since 2007 and fell 6.8 per cent in the first quarter of this year because of the coronavirus outbreak.

Productivity falling

It notes that China's productivity levels are falling, along with international competitiveness in many sectors. National debt is high and the budgetary burdens of a rapidly ageing population are increasing. The Reserve Bank of Australia in December predicted China's growth rate will be about 3 per cent by 2030.

“The Chinese economy may be approaching the size of the US economy but it now has serious structural and operational problems and its future trajectory is very uncertain.” one of the report's co-authors, Julian Snelder, wrote.

The report also questions whether the Chinese Communist Party can retain its monopoly on political power up to 2035, but notes that the likelihood of short-term upheaval is unlikely.

At some point, a breakdown in cohesion could lead in many different directions, including to coups, civil wars, and mass revolts.

— Centre for Strategic and Budgetary Assessments report

It questions whether Mr Xi, who is showing no signs of preparing to step down when his second term as president ends in 2022, will double down on controls or whether there could be liberalising reforms in the economy and politics.

It outlines four alternative futures for China and the region over the next 15 years where Mr Xi either fufils all of his ambitions for China; a "muddling through" scenario where the Chinese regime survives but faces a series of economic and political setbacks and sporadic outbursts of political dissent; or a future where Beijing adopts a Singapore-style approach with major economic and social reforms and friendlier foreign policies.

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