China, America, and the Danger to World Order

Consider two outlying statistical extrapolations: the 2010 estimate by Nobel laureate economist Robert Fogel that, by 2040, China’s GDP will total a staggering $123 trillion and its share of gross global output 40 per cent, or twice the combined output of the USA and the EU; and projections by the US Congressional Budget Office in 2009 that public debt in America will rise from 44 per cent of GDP in 2008 to somewhere between 280 per cent and 716 per cent by 2080.

As Mark Steyn acidly observes in his feisty, apocalyptic polemic After America: “It doesn’t matter which of these figures is correct and it was a complete waste of time running the numbers … If either number is right, there isn’t going to be a 2080, not for America.” Such are the parameters of current debate. Let me make three basic points and enlarge on each of them.

First point: we should avoid getting too carried away by dramatic scenarios like this. We should concentrate chiefly on the immediate challenges we face, since the future tends almost always to be different from what we expect and is shaped by the combination of our choices and the law of unintended consequences. This was true in the 1910s, the 1930s, the 1980s and will be again in the 2010s, the 2030s and the very distant 2080s.

Second point: when we do get involved in looking out beyond the next few years, we should always bear in mind that many variables will impinge on future developments. Here and there a few analysts are looking at some of these variables, but getting an integrated and strongly predictive picture of it all is a treacherous business and we can be confident that the major institutions and governments are not likely to get it right, because they almost never do.

Third point: assuming, as the conventional wisdom would have it, that China takes a much larger place on the world stage over the next generation, it might be prudent to reshape the global order, but everything depends on what reshaping we have in mind.

Let’s get some perspective. Forty years ago, Mark Elvin authored The Pattern of the Chinese Past. In his conclusion, he wrote: 

The technological creativity of the Chinese people has deep historical roots … As it slowly awakens, we may expect it to astonish us … it almost certainly needs to enter the international market to a far greater extent than hitherto. It is capable of doing this with an effectiveness that will come as a shock, if the decision is taken to do so. The consequence, however, will be a disruption over the control of information and thought which is essential to the survival of the Chinese Communist regime. Whether this latent contradiction is potentially lethal or merely troublesome is perhaps the riddle of the longer term future of the country. Felix qui potuit rerum cognoscere causas. 

That last sentence was a citation from the great treatise On the Nature of Things by the Epicurean poet Lucretius. It means, “Happy are those who understand the causes of things.” Elvin’s words now seem prescient. Since then, China has indeed astonished us and the effectiveness with which it has re-engineered itself since Deng Xiaoping took the helm in the late 1970s has come as something of a shock. But there is too much of a tendency at present to misunderstand the causes of what is happening.

China’s three decades of double-digit growth have been remarkable, but most of what we have seen is attributable to the low base from which China started and the favourable global circumstances that have accompanied its era of reforms. Angus Maddison and others are statistically correct that, until 1800, China was the largest economy in the world; but they seldom point out that the reason for this was that it had, by a wide margin, the largest population in the world. In a pre-industrial world that was necessarily going to make it the largest economy. What it did not do was make that economy dynamic, integrated, innovative or capital-intensive. In other words, there was no mysterious Chinese virtue or accomplishment involved.

The scientific and industrial revolutions created very large differences in factor productivity, as well as in such things as navigational and weapons technologies, between the Euro-American states of the North Atlantic and the rest of the world until the late twentieth century. What China and much of the developing world have recently been doing is closing these gaps. To the extent that the productivity gap narrows, the sheer population size of any given country will once more largely determine its share of global output. No surprises there. Japan led the way; the East Asian tigers followed and the Chinese Communist Party set out belatedly to emulate them—over Mao Zedong’s dead body.

Many pundits have made the claim that China is not so much rising to a new kind of regional and even global pre-eminence as it is resuming the place it held for most of the past two millennia. This judgment is seriously misleading. For most of the past two millennia, China was a world unto itself, turned inward and in no sense dominant even in Eurasia, to say nothing of the world at large.

Fogel remarked that “while Europe was fumbling in the Dark Ages and fighting disastrous religious wars, China cultivated the highest standards of living in the world”. It is true that China, under the T’ang and Song dynasties, between about 700 and 1100, had a wealthier and more refined civilisation than Europe; but disastrous religious wars? The wars to which Fogel is presumably referring did not take place in the Dark Ages, but during the Renaissance and in the seventeenth-century scientific revolution. At that point, Europeans had already technologically overtaken China and conquered the Americas. China itself, under the Ming, had turned away from maritime trade and innovation, had begun stagnating technically and culturally, and was on course for being conquered by the non-Chinese Manchus in the 1640s; in between Galileo and Newton, as it were. We should not, therefore, get carried away by what I call the “Middle Kingdom mystique”. China’s past did not and does not make its ascent in our time natural.

Even at its apogee, China was far from being the great hegemonic power that its starry-eyed admirers or more hawkish strategists imagine. Its T’ang armies were defeated in the eighth century by the Tibetans, by the Koreans and by the Arabs. In the tenth century, the Song dynasty was hemmed in north and west, by powers such as the Khitan or Liao, the Tangut and the Tibetan kingdom of Nanzhao, to which they often actually paid tribute and certainly did not dominate. In the early twelfth century, the Song dynasty was pushed to the south of the Yangtze when the Jin overran north China. In the late thirteenth century, the whole of Song China was conquered by the barbarian Mongols.

The Ming dynasty restored Chinese independence in 1368, but it never ruled Manchuria, Tibet, Central Asia or Mongolia, inner or outer. No Chinese dynasty had ever ruled Taiwan and the Ming didn’t either. Despite a number of famous naval expeditions in the early fifteenth century, it never became a maritime power of consequence and certainly did not take an interest in new worlds beyond its shores. Early on, it probably escaped a new Mongol conquest by a hair’s breadth when the great conqueror Tamerlane died on his way to invade the new empire at the head of 20,000 Mongol horsemen. The Ming built the famous Great Wall to keep the northern barbarians out, but it had not long been completed when it failed. It was breached in 1644 and China was conquered by the northern barbarian Manchus, who then ruled until 1911. So the notion that “China” was somehow the pre-eminent power in the world or even in Asia for most of the past two millennia is an illusion.

What is transforming China now is the fact that the old culture has begun to open itself up to modern trade, science and technology; to import huge amounts of foreign direct investment and to export huge volumes of cheap manufactures into a vast global marketplace which it had done nothing to create. Whether China can or will rise to greater standing again in the coming half-century will depend overwhelmingly on the way in which it adjusts to these forces and will have very little to do with daydreams about its historical glories, real or imagined. Once we have a more realistic idea of China’s historical past, we might form a correspondingly more realistic sense of how to relate to it in the decades ahead. 

The current fiscal and political disarray in the United States, the European Union and Japan tends to reinforce confused imaginings of China’s ascent. Niall Ferguson, the talented but increasingly populist historian of finance and empires, argues that the collapse of America could be imminent and sudden. Mark Steyn, even more than Ferguson, has registered the financial mess in the United States. He argues that for many decades successive US governments, Democrat and Republican alike, whether at federal, state or municipal level, have been handing out future entitlements and not funding them, to the point where unfunded entitlements in America are now calculated, by one estimate, at around $105 trillion—about 700 per cent of GDP. Other estimates are less extreme, but still in the tens of trillions.

The real fiscal problem in the United States, in other words, is not defence expenditure, or insufficient taxation, but welfare profligacy—the very same disease that is destroying the European Union from within. From whatever point of view you enter the debate there is no passage in Steyn darker or more significant than the following: 

The real problem is that over the last three quarters of a century the United States has adopted a form of government all but impervious to reality. Come alternate Novembers, the American people have a choice between a fellow running on fluffy abstract nouns—“hope”, “change”, “generic gaseous uplift”—and a fellow promising small government. That’s a best-case scenario, by the way. Sometimes, as in 2008, you find yourself choosing between a candidate promising to guarantee the mortgages of people who “bought” houses they and their banks knew they couldn’t afford and a candidate promising to give “tax cuts” to millions of people who pay no taxes. But, assuming you did get a genuine choice, what is the net result of these two starkly different platforms?

None. In America, federal spending (in inflation-adjusted 2007 dollars) went from $600 billion in 1965 to $3 trillion in 2008. Regardless. The Heritage Foundation put it in a handy cut-out-and-weep graph: until the Democrats accelerated up to Obamacrous Speed in 2009, it’s a near perfect straight line across four decades, up, up, up. Doesn’t make any difference who controls Congress, who’s in the White House—Democrat, Republican, bit of both. The government just grows and grows, remorselessly. A president of one party and a Congress of the other? Up and up it goes … 

It is all too easy to assume that the gigantic American economy will absorb the financial crisis of the last few years and recover. What is far more troubling to contemplate is the idea that American liberal democracy has become bogged down in so much hidden and irresponsible public and private debt that its political and social future has been seriously undermined. That is Steyn’s message and he is not alone or deluded.

The grim numbers are not a right-wing fantasy. Meredith Whitney, a close professional student of American debt and finance, told Michael Lewis last year that profligacy and insolvency go right down to the municipal level across America. The scariest state in terms of both economic and political bankruptcy, she declared, is California, the “Golden State”, the eighth-largest economy in the world. The financial data on California are truly shocking; but the worst of it is that the state’s democratic institutions have failed utterly to deal with the problem. Indeed, they have caused it. And this is also true at the federal level. Not only has the Obama administration enormously increased official public debt; it has not even acknowledged the yawning problem of unfunded liabilities. As Steyn quips, Obama has spoken of the USA having got itself into a big hole which it is digging itself out of; whereas the first law of holes is: when you find yourself in one, stop digging. 

But the USA has no more stopped digging than has the EU or Japan. They are all virtually bankrupt and politically rudderless. But from a global order and security point of view, the United States is the crucial state. The possibility is perfectly real, therefore, that we could see a seriously hobbled United States and West more generally quite soon—regardless of who wins the 2012 US presidential election; because no candidate currently exhibits any grasp of the gravity of the situation. However, the danger is less a Chinese takeover than the breakdown of the US-led international world order. That the United States might fade and China step into its place sounds disconcerting enough from a Western cultural, liberal-capitalist and democratic point of view. That the United States might lurch into disarray at a time when no one and nothing can take its place is an even more daunting prospect.

China, it’s important to understand, is very far from ready to step up and replace the United States, financially, culturally, diplomatically or militarily. The yuan is far from ready to take over from the dollar or the euro as an international reserve currency and China’s domestic financial institutions are in a far from sound condition. Frustrated by the current and potential costs of dollar hegemony, a number of pundits in China have raised the possibility of the yuan becoming the new international reserve currency as early as 2020. However, China faces dilemmas with currency and financial reform which it is not well-placed to resolve, economically or politically. China is at a political and economic crossroad of its own; as was rather starkly acknowledged by Premier Wen Jiabao in a press conference on March 14.

We need to be clear what the stakes are here. Deepak Lal has described the modern world in terms of the first (British) and second (American) Liberal International Economic Orders. The first flourished throughout the nineteenth century and foundered with the beginning of the First World War. The second was inaugurated thirty years later at Bretton Woods. That order has seen astonishing expansion of global trade and has evolved over the decades to meet the challenges of that expansion. But it is now in jeopardy. Each liberal international economic order has required a dominant state and currency to hold things together and each of the two such states has been Anglophone. If we are about to see the downfall of an American capacity to play that role, then the single biggest variable in play is the role of liberal economic hegemon. Right now, there are no takers. Many eyes are looking at China. But a shift from America to China, from English to Mandarin, from the dollar to the yuan, would be a huge and profoundly problematic one.

Aaron Friedberg, in his new book A Contest for Supremacy, relates that a decade thinking about China: 

left me deeply troubled about where China was headed and about the future direction of relations between that country and my own. I also found myself puzzled and frustrated by what struck me as a wilful, blinkered optimism on these matters prevalent at the time in the academic and business communities and across significant portions of the US government. Most of the China experts whom I encountered seemed to believe that a Sino-American rivalry was either highly unlikely, too terrifying to contemplate, or (presumably because talking about it might increase the odds that it would occur) too dangerous to discuss. Whatever the reason, it was not something that serious people spoke about in polite company. Not being a card-carrying member of the China-watching fraternity freed me from most of these inhibitions. 

Friedberg is not apocalyptic like Steyn, but he does conclude: “if current trends continue, we are on track to lose our geopolitical contest with China”. He does not, I think, appreciate the difficulties that are about to beset China.

Indeed, sober-minded though he is, Friedberg does not appear to appreciate the seriousness of the challenge ahead for the United States or world order. He argues both that the United States needs to “stay in the game” over the next couple of decades, and that regime change in China will be indispensable sooner or later. He believes that only a liberal democratic regime in China will prove consistent with a peaceful and sustainable adjustment of the global order. Consequently, he believes that the United States needs to induce a transition to a liberal democratic order in China—and still maintain its overall primacy. This would all be difficult in itself, but there is an elephant in the room. The liberal democratic model is itself in trouble. It is floundering in the USA, the EU and Japan in grappling with the demands of globalised economics.

Regime change in China may be necessary; but there is a broader constitutional crisis around the world which puts such change in quite a different perspective. After all, why would China right now want to emulate the American system of government, with its insolvency and gridlock? To say nothing of the European Union or Japan. What we can see happening, I suggest, is that the Keynesian welfare states of the West and Japan, all variations on liberal democratic capitalism, are faced with a need for rethinking and reframing their economic and even constitutional orders quite as much as are the former communist states. Throughout the twentieth century, the nation-state, whether liberal democratic, fascist or communist, was committed to industrialisation and mass welfare within well-defined national borders. Globalisation has changed that. Governments everywhere are trying to come to terms with the consequences.

There is loose talk at present about China creating a modern welfare state in order to encourage its citizens to spend more and save less; but China cannot afford to go down the US or European path with pension and healthcare entitlements; cannot afford to cling to its export-led growth model; cannot shift to a domestic consumption-led growth model without quite fundamental institutional reforms and might quite reasonably look at the present problems of the liberal democracies and see no very impressive model to emulate. What has happened over the past generation or so, with globalisation and the revolution in information technology and capital markets, is that the Keynesian model has become almost as non-viable as the communist model of command economics did a generation ago. It now has to be deleveraged and reformed. 

The revitalisation of the Western economies and Japan will depend on finding ways to step away from the egregious entitlements systems of the late Keynesian era and devising new ways to provide opportunities and incentives for their citizens to participate competitively in the global economic order. This will entail political reforms, also, to make liberal democracies more responsible and accountable. China faces the challenge of liberalising its financial order and freeing up the formation of domestic private capital and consumption with the same end in view. In short, if we are to create a third Liberal International Economic Order, it will have to be one in which this evolution is taking place across the board.

This is what Philip Bobbitt has described as the challenge of moving from the constitutional order of nation-states to that of a new constitutional order of market states. If we use Bobbitt’s frame of reference for looking afresh at what is unfolding before our eyes, we will see that constitutional evolution is at centre frame and that there can be a number of mutant forms of market state, just as there were a number of forms of nation-state in the twentieth century. The nation-state forms clashed violently and the market state forms might do likewise. But the chances of conflict will be much greater than otherwise if we do not understand the institutional and economic logic within which these states are operating. For some considerable time now, there has been a great deal of confusion about this, because the conventional ways of looking at it, liberal or Marxist, are rooted in the old nation-state frame of reference.

In the conclusion to Bobbitt’s forthcoming book about Machiavelli and the origins of the modern theory of the state, My Robes of State, he writes concerning the historical position in which we find ourselves: 

At the beginning of the twenty-first century, we still live in nation-states and their legitimating mission—to better our material well-being—still defines the contemporary state. Yet this mission is becoming harder and harder to fulfil, and publics know this. Few contemporary national groups, except those such as the Palestinians, Tamils, Basques, who are without states, seek their fulfilment in a relationship between their nation and the nation-state. It is increasingly difficult for the nation-state to execute its functions … not simply the maintenance of an industrial war machine of immense cost that is able to assure the physical security of its citizens, but also the preservation of civil order by means of bargaining among constituencies, the administration of juridical norms that embody a single national moral tradition, the control of the economy of the society in order to provide a continuous improvement in the material conditions of life for all classes—a control that has passed to markets—and an ever widening scope of material benefits through government entitlements that is proving more difficult to fund as national populations age. 

There will be those who will want to contest various aspects of this, but the core claim here, the one bearing most directly on the question of China’s future and that of Sino-American relations, is that we are not looking at anything nearly so simple as just transforming China into a Western-style Keynesian liberal democratic welfare state. Would that it were so simple; monumentally challenging though even that task actually would be. The challenge before China and before all of us is much greater.

Leaving aside for the moment the challenge to the liberal democracies, what lies ahead for China will not be a mere extrapolation of recent trends. Even for China’s current surge of growth to continue would require that the world could continue to absorb Chinese exports at the colossal rate of the past decade. It cannot; certainly not without quite fundamental adjustments in the USA, Japan and the EU. And let’s bear in mind that, for all the astounding economic growth since the shackles of Maoism were loosened thirty or so years ago, China’s GDP per capita is still about the same as that of the Dominican Republic. You’d never think that if you visited Beijing or Shanghai and then visited Santo Domingo. But that only proves that China is a very large place. Demographically, ecologically, socially, institutionally, that very large place is about to enter an era of profound challenges.

So far, as Dali Yang and others have written, China has exhibited a notable capacity to adjust its institutions to the demands of growth. Yang’s book Transforming the Chinese Leviathan is particularly thoughtful in this respect. Nor should we lightly underestimate China’s capacity to keep doing this over the next thirty years. But in many ways it has picked the low-hanging fruit under highly favourable conditions over the past three decades. The next set of challenges is more demanding. And we can see from the dysfunctional conditions of so many major institutions in the USA, the EU and Japan—the most advanced states in the world economically, socially and technologically—that stagnation and gridlock can set in when almost no one expects them, and can prove frustratingly intractable. Watch that space in China. 

Let me, against that background, make a few remarks about the military security aspect of the picture. It is a commonplace that the United States spends more on its military budget than the next seventeen countries combined and far more than China. Let’s put those figures into perspective. American military expenditure is anomalously large. Fundamentally the reason is that the USA is the global guarantor of order, much as Britain was in the nineteenth century; and the cost of this role is enormous—possibly it is now unsustainable for any state. It is swollen in America’s case because many of its allies have for decades chosen to more-or-less freeload on American military expenditure. Australia has; Japan has; the Europeans have, especially Germany. If all those allies paid the full costs of their own security, the net military expenditure of the USA and its allies might well be greater than it presently is. The likelihood of conflict would also be greater.

China, by contrast, protects no one but itself and declares that its intentions are peaceful. Yet its military expenditure has been increasing at a rate faster than its GDP for many years now. If you take China’s defence budget at face value and in current exchange rate terms, it has just passed US$100 billion, or about one eighth of the US figure. If you compute defence expenditure in China by the same criteria as it is computed in the United States, while still expressing it in current exchange rate terms, it would total more like US$200 billion. If you convert that figure into purchasing power parity terms, it approaches US$400 billion, or about half the US figure. Let me repeat, China is protecting no one’s borders or concerns other than its own. What it is doing is pouring resources into a comprehensive, across-the-board development of state-of-the-art military capabilities—land, sea, air, space, cyber. The trend in this respect is fairly clear. The question is what to make of it, or do about it.

There is no simple, sensible way to answer that question. Let me address it indirectly by telling an anecdote and drawing an historical analogy. Twenty years ago, the American sinologist and strategic affairs analyst Allen Whiting visited Canberra. He gave a paper at the ANU, in the course of which he remarked that China’s strategic thinkers seemed to have what he called the “paranoid” view that America was the greatest strategic threat to China. This was just after the Gulf War and it struck me as rather odd that Whiting would see Chinese concerns in such a light. So I asked him the following question: 

The US has military forces of one kind or another positioned right along China’s eastern littoral and Taiwan is a client state. It dominates space and the world’s oceans; it rules the air and has the world’s most mobile and formidable land forces, which have just demonstrated a capacity to demolish a large foreign army halfway around the world in very short order. It has the world’s largest nuclear arsenal and a GDP about twenty times that of China. Do you think, Professor Whiting, that, if China had the world’s largest nuclear arsenal, a GDP twenty times that of the United States, an army able to move around the world and demolish those of other states; if China dominated space, the air and the oceans; if China had military forces stationed in Canada, Mexico, the Bahamas and, by proxy, in a self-governing Hawaii; that anyone in the United States would be in the slightest doubt that China constituted the greatest strategic threat to America? 

He seemed irritated by the question, but he needn’t have been. My point was not to suggest that the United States had any immediate hostile intentions towards China in 1991. It didn’t. Nor does it now. My point was only that all the capability to enact hostile intentions, should they be conceived, was pretty much on the one side.

China has set out since 1991 to alter that state of affairs and it is succeeding. It is still some considerable way behind, but it is gaining at an accelerating rate. It is patiently and purposefully pursuing a strategic policy of developing the military capacity to deter and deny, more than to assault and defeat, the US carrier battle fleet in the Western Pacific; and the economic and diplomatic end of pushing the United States out of the role it has played in East Asia and even in South-East Asia since 1945. These things are not big secrets. When Chinese government spokespeople declare that China intends to rise peacefully, they do not mean that China intends to accept American primacy and turn swords into ploughshares. They mean that they intend to assume primacy in Asia and perhaps even more widely without fighting America, providing that America and the rest of us step back and accept this.

Some of the more hawkish Chinese officers talk these days of precipitating things, but for the time being they don’t hold sway. They may never do so. The question, nonetheless, is what should be our attitude to this rising tide of Chinese ambition? Let me offer an historical analogy. Just over a century ago, while Britain was still the primary guarantor of world order in Deepak Lal’s sense, but America was fast rising as a commercial and industrial power, President Theodore Roosevelt sent a fleet of sixteen battleships around the world as a demonstration of American naval power. He had no hostile intent in doing this. But the significance of the gesture was universally noted. The United States wanted to be taken seriously as a naval power. It was Roosevelt who famously used the expression that the USA should “speak softly but carry a big stick”.

No naval expedition comparable to this has departed China’s shores since the 1420s. But imagine the symbolism of a fleet of sixteen major surface combatants sailing out of port in the Bohai Gulf to circumnavigate the world. The American fleet took two years (1907–09) to make its voyage around the world. Even as the sixteen battleships sailed, Roosevelt won Congressional approval for four more battleships and a naval base at Pearl Harbor. Roosevelt’s United States was at a point in its economic ascent roughly comparable to what we see in the case of China right now. Just dwell on the analogy for a moment.

The First World War was still some years off in 1907 and Roosevelt did not anticipate it. The Second World War, in scale and horror, was unimaginable. However, Roosevelt sat one summer night in 1908, with his military aide Archie Butt, and declared that war with Japan, though he did not think it would come soon, was sure to come one day. The surest way to postpone it, he added, was to prepare for it and to demonstrate a resolve to fight should the need arise. The war he feared did not come until thirty-three years later. But nothing done in the meantime deterred the Japanese from attacking. That is a sobering thought. And I offer it here not because I predict Sino-American war at some point in the next thirty-three years, but because this anecdote illustrates how difficult it is to fend off such fatal developments.           

Let me now turn to what it would be prudent for Australia to do in the years ahead. In his quarterly essay Power Shift, Hugh White urged that Australia actively encourage the United States to accept the rise of Chinese power in East Asia and not oppose but accommodate it. He wrote, “A Chinese challenge to American power in Asia is no longer a future possibility, but a current reality.” Australia began to accommodate the Chinese challenge even in the late 1990s, he argued: 

The shift towards China was obscured by Howard’s strong support for Bush after 9/11, especially on Iraq. Yet Howard accepted China’s growing leadership role in Asia, declined to criticise its military build-up, sought eagerly to join the East Asia Summit (EAS) without US involvement and, until his last year in office, steered clear of American and Japanese efforts to draw Australia into a coalition of democracies designed to resist the Chinese challenge to American primacy. 

White evidently did not check with John Howard himself. At the conclusion to his memoir, Lazarus Rising, Howard wrote: 

The United States will remain the most powerful nation in the world for many reasons, not least of which is that she is a conspicuous exemplar of liberal democracy. Just as predictions 20 to 30 years ago that Japan would surpass America proved wrong, so it will be proven in the case of claims that China will outpace the United States. The growth of China has been good for China and good for the world, not least Australia, but she has challenges of demography and limitations on property rights which will bulk as ever larger problems in the future. China will grow old before she grows rich. Beyond this lies the ultimate Chinese denouement, between her economic liberalism and political authoritarianism. 

It isn’t clear that either White or Howard is correct in his prognosis. What is clear is that we should be thinking of a number of possible scenarios and seeking to ensure, to the best of our ability, that we are resilient in any one of them. That is far more demanding an intellectual and practical policy challenge than assuming that we know what the future will bring and setting our sights accordingly.

White went on to argue that the imperative in the coming decade is for America to recognise China as an equal and to agree that its own primacy in Asia is no longer acceptable. America, he suggested, should make way for China “as Britain made way for America in the late nineteenth century”. It didn’t, of course. What Britain did in the late nineteenth century was invest in America, but its own empire remained pre-eminent right through to the First World War and even beyond. It was the costs of the First World War, but even more of the Second, that made it necessary for Britain to give way to America. Right now, America has been investing in China, but its empire, if we agree to call it that, similarly remains pre-eminent. The question is, what happens next?

White states that optimists and pessimists alike in the United States agree that America should respond to China’s rise by “hedging”; by which they mean that it should “accept and accommodate China’s growing power so long as China does not challenge US primacy; otherwise, America must and will do whatever it takes to defend and maintain its position.” But it is time now, he declares, “to rethink the hedging strategy”, because in sober fact Chinese power is not going to fit comfortably into the Pax Americana, the second Liberal International Economic Order.

In place of hedging, he argues for a “Concert of Asia”, modelled on the nineteenth-century Concert of Europe, in which the great powers share primacy and America shares power with China. But the Concert of Europe was an alliance of conservative states intended to prevent radical revolutions like the French Revolution. It worked until 1917. Britain was content with this arrangement, since its primary objective was to prevent a single power like Napoleonic France from dominating the continent. But in the case of Asia in the years to come, China would be the dominant continental power and the objective of the Concert would be quite unclear. Other Asian states, already feeling the need for a counter-balance against Chinese power, are urging the United States not to pull back.

White’s argument breaks down as he spells out the implications of America treating China as an equal: 

America would have to abandon its residual doubts about the legitimacy of China’s political system and become much more circumspect about criticising its internal affairs. That means no more lecturing China about dissidents, Tibet or religious freedom. It would have to accept that China’s international interests will legitimately differ from America’s, and be prepared to compromise to settle those differences amicably. That means no more lecturing China about its failures to meet US expectations on matters such as Iran, Sudan and North Korea. And America would have to accept that China has a right to build armed forces as large and capable as America’s in order to defend its interests. That means no more lecturing China about excessive defence spending or lack of transparency about its military plans.  

This is a formidable list of concessions and appears to set no reciprocal requirements for China.

White states that, in order to avoid the costs of confrontation with China, we should be prepared to appease it. He writes that appeasement has had a bad press since the Allied powers abandoned Czechoslovakia to Hitler at Munich in 1938; but that: 

Perhaps Chamberlain’s mistake was not that he accommodated Hitler over Czechoslovakia. He was, after all, right to fear war with Germany and to want to avoid it if possible. His mistake was that he did not prevent the even bigger war that broke out twelve months later, by making it absolutely clear that there would be no accommodation over Poland. Had he done that, World War II could quite possibly have been avoided. 

He is in error at every point. Hitler was far weaker militarily and politically in 1938 than in 1939 and, had the Allies stood up to him at Munich and called his bluff, he had far more to fear than they did. Second, Chamberlain did make absolutely clear that there would be no accommodation over Poland; it’s just that Hitler didn’t believe him. In the interim, because the Allies had caved in at Munich, Stalin had cut his own deal with Hitler, which was the decisive blow to peace and guaranteed that Hitler would go to war.

White compounds his errors by writing that: 

The best way to manage China’s ambitions is both to offer it enough to be reasonably satisfied and to make absolutely clear that further demands will meet determined resistance from a regional coalition, one prepared to use force if necessary to prevent any Chinese attempt to use its power aggressively. 

Where, however, does this leave the proposed Concert of Asia? What coalition of states does he have in mind? One led by the United States, presumably; but from what base areas and with what alliance structures? And if too much appeasement has already occurred and the USA has been prevailed upon to pull back too far, surely the danger is that any possible coalition will be fatally compromised by the fact that some key state—say, Japan—will have already thrown in its lot with China, as the Soviet Union did with Hitler.

What is missing from White’s argument is the key idea of an international order based on a set of constitutional premises and upheld by a hegemonic power; the Deepak Lal paradigm. For three hundred years, with some cataclysmic disruptions, the world has developed under the auspices of economically and politically liberal hegemonic powers. China is neither economically nor politically liberal; it is a mercantilist state without a tradition of liberal political institutions. It is not fit to preside over anything like the international order that has been—very imperfectly—put together by the British Empire and held together by the American Republic. That and not merely some American arrogance or sense of exceptionalism is actually the reason why pressure is still being put on China on what are at the end of the day matters of liberal principle.

It is, therefore, vital that we understand matters of principle and not see the situation merely as one of a competition for power. White concluded: 

Because China’s values are different from ours, we tend to see any compromise with Beijing as a sacrifice of our values on the altar of expediency. We will have to think our way through this, because we cannot learn to live with a powerful China if we regard every accommodation as a betrayal of principle. 

On the contrary, we have had a great dialogue with China now for thirty or forty years about it abandoning communism and becoming part of the global international economic order. That accommodation has been based on a series of principled agreements. Now we need more such agreements, otherwise there is bound to be trouble. And Washington has been hinting at this for some time by suggesting a G-2, which surely demonstrates an inclination to “share power” with China. The uncertainty in this equation is whether China will accommodate the necessary principles.

Towards the end of his monograph, White states: 

We can hardly imagine what it would be like to live in an Asia which is not led by the US. All our history and instincts therefore incline us to push the US to contest China’s challenge and maintain the status quo for as long as possible. Yet our interests and our future should incline us to push the other way. We will need to sort this out among ourselves before we start talking to others about what to do. That means the first step in Australia’s strategic diplomacy is for our leaders to start explaining and debating the issues and options and solutions here at home. No one is doing that. 

We should, indeed, have such a debate. But its premise cannot be that we appease and step back before a mercantilist and ambitious China. That would be a recipe for serious trouble. 

Let me conclude by reiterating the fundamental points I have made.

Fogel and Steyn provide outlying projections of disturbing trends. Short of these two extremes there is a great deal of ground. The task before us is not to take such linear extrapolations as a given and plan accordingly, but to try to get the uncertainties and potential discontinuities into focus. The first requirement in such a process is to put possible future developments into a judicious historical perspective. As regards China, things look different; more complex and more pregnant with various possibilities if we do this, rather than simply seeing it as resuming a natural primacy that it has supposedly held for most of the past two millennia. The second requirement is to factor into our calculations the fullest possible range of variables that might affect how the future emerges. We must think in terms of various possible scenarios and not assume that, if only we are astute enough, we can predict just what is going to occur decades hence.

We are on the cusp of a mutation in the international order which goes well beyond the rise of China as a raw power. The whole constitutional order of nation-states is becoming problematic on a number of fronts. This poses quite profound questions about how best to revitalise the liberal democracies, not just how to encourage liberal democracy in China. The work of Philip Bobbitt is a preliminary guide here. His description of the transition we are undergoing, from an order of nation-states to an order of market states, is a very insightful point of departure for seeing all this in a deeper perspective.

As for what it would be prudent for Australia to do in the years ahead, our strategic premise has to be that China is not well placed to take over from America in the near future. The role required of a dominant power upholding and defending a liberal international economic order is one China is far from ready for. Our greatest task is urging it to accept the principles that render it fitter for a leading role in the global order. If it will not do so, appeasement is most unlikely to keep the peace.