PETER VARGHESE. Dealing with China

China will look to play a greater role in existing institutions and to craft new institutions and arrangements which place it at the centre in a pattern perhaps reminiscent of the Middle Kingdom … We must continue to pursue policies designed to avoid invidious choices [between China and the US]. 


China is a country and a civilisation which understands power and its sense of place has been shaped by the many centuries in which it was the Middle Kingdom. That pull of history is likely to play an important role in the way in which China relates to regional states.

China’s leaders are acutely conscious of the many challenges they face. They are currently at the start of a profound transition in their economic model towards more market based and consumption driven growth with less emphasis on exports and fixed investment.

The challenges posed by this transition are huge and we underestimate them at our peril. It is a high wire act which seeks both to preserve the monopoly of power of the Chinese communist party while simultaneously allowing the market to determine the allocation of resources. There is no certainty about how this will end.

We all however have a stake in the success of that transition. Abrupt shifts in China’s strategic policies, especially flowing from an economic crisis, would be highly destabilising. No one gains if China fails.

China will ultimately define its own strategic settling point. It will not be forced into someone else’s view of what it should do or become. Nor is it realistic to expect that the US and China can negotiate some grand bargain to share power in Asia. The process of adjusting to shifting power balances in a multipolar Asia will be incremental and organic.

China’s behaviour is likely to be a mix of many elements. It will be a responsible stakeholder where its interests are served. It will not be a classic revisionist power because China has been too much a beneficiary of the existing system to want to completely overturn it. But it will also look to play a greater role in existing institutions and to craft new institutions and arrangements which place it at the centre in a pattern perhaps reminiscent of the Middle Kingdom.

I had always thought that the tensions between an economy which was opening up and a polity which was tightly controlled could be managed in the Chinese context for a very long time. That may well remain the case but it seems to me that it is becoming harder to achieve.

Much has been said of the challenges Australia will face as it manages its relationship with China and the US respectively. I do not subscribe to the view that Australia will have to make a binary choice between the US and China. But as strategic competition between the US and China sharpens, and if China continues to be dismissive of its international legal obligations in the South China Sea, it will inevitably become harder for Australia simultaneously to pursue our economic interests with China and our strategic interests with the US and in a rules based international system.

Australia has next to no capacity to influence the direction of Chinese politics. We must continue to pursue policies designed to avoid invidious choices. But we also need to have a clear eyed understanding of our core interests, both economic and strategic. We want to see China succeed in its economic reforms and to play a constructive role in the region and the world. But we also want to see a strategic system in the Indo Pacific which is anchored in the rule of law and which recognises the stability which US strategic engagement brings to the region.

We will not know for some time whether these objectives can be achieved and it would be foolhardy to conclude now that they cannot. In the meantime we need to continue to build a close and comprehensive partnership with China which will not quickly lose its position as our largest trading partner.


These are extracts from a speech by Mr Peter Varghese AO, Chancellor of the University of Queensland, to the AIIA National Conference, Canberra, 21 November 2016. Peter Varghese was formerly Secretary of the Department of Foreign Affairs and Trade.


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1 Response to PETER VARGHESE. Dealing with China

  1. I don’t think the USA’s present dominance in the region really matters to the Chinese as we think it does; it is pretty clear in the long run whom will have the stronger economy.
    Two years ago articles I wrote noted the loss of USA influence in the gold mine sectors in Mongolia and the Philippines. Two big mines; nation builders (perhaps war chests).
    The Chinese have been successful in Asia because they deliver low-tech solutions not high-tech problems.
    As example the Chinese have managed to get a train line to Kabul in Afghanistan. I imagine the Chinese giving away new phones for the opportunity to lay the tracks through tribal lands while Americans tried to land high-tech solar -powered vaccine refrigerators in Iraq only to the wires ripped out by the local insurgents (Maybe they were out of work chemists.)
    In the short run the Chinese still have plenty of peasants to get out of poverty (while in this country we are going backward in that regard). In the long-run getting 500 million or so off the land and into productive jobs in the cities would easily decide the balance of economic power.

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