1999 PACIFIC SYMPOSIUM – CHINA
Dr Richard Rigby, Assistant Secretary, North East Asia,
Department of Foreign Affairs, Canberra
To accept the invitation to comment on the future of China would seem to be the height of foolishness, one of the few constants of China being its perpetual capacity to surprise us and confound our predictions. Let me at first begin on the relatively safe ground of the very recent past and the present, in the hope that this will at least provide some general notion of what direction events may take, and from there sail into more uncharted waters. Like the good Marxist that I am not, we had better start with the economy. First, the positives.
Some Good News…
China seems to have weathered the pressures of the regional recession and its own longer term domestic downturn with reasonable success over the past year. The disastrous floods of mid-1998 have had a more direct impact on growth in many areas of the country than the regional crisis. Officially measured (I shall come back to this) GDP growth of a little less than the 8 percent target, despite zero growth in exports and only 3 percent growth in foreign direct investment, is pretty creditable. According to official figures, China’s foreign exchange reserves have grown slightly, and now stand at some US$144 billion, worth about one year’s imports. The renminbi, largely because it is not convertible on the capital account, has held steady against the US dollar, contrary to the predictions of some analysts of a devaluation. Despite growing unemployment, episodes of unrest have been sporadic and linked to specific grievances rather than developing a 1989-style broad momentum.
At least in a number of important areas, the continued reform process endorsed at the 15th Party Congress in September 1997, and launched by Premier Zhu Rongji at the National People’s Congress in March 1998, has been moving ahead, albeit not at the speed intended before the full impact of the regional recession and the unemployment resulting from reform became clear.
State owned enterprises are being closed down, but concerns about unemployment-related unrest meant that the government will not achieve its initial intention of rationalising the medium and large SOEs and cutting free the smaller ones by 2001. Nevertheless, excess capacity is being junked, and the cooperative, shareholding, and foreign-invested sectors’ share of industrial production continue to expand at the expense of the state sector, which now accounts for less than 30 percent of output. That is good for productivity and long term growth, but in the meantime SOEs do continue to make huge losses – RMB310 billion (US$38 billion) in the first half of 1998.
1998 also saw the partial recapitalisation of banks by a long-term bond issue (worth US$33 billion), and the banks do appear to be at least trying to move towards applying commercial lending disciplines; but the political need to slow job losses led mid-year to a resumption of "policy" lending that has been pouring money into SOEs, essentially for welfare purposes. Still, more progress has been made with the reforms mandated by the National Financial Work Conference in November 1997, which are strengthening the ability of the PBOC to control a financial system that had been running wild from the early 1990s.
Welfare reform – the third major leg of China’s economic transformation – has made incremental progress. More people own their own residences, social insurance schemes are inching forward, and a new health scheme de-linked from SOE support is due to start this year. However, as of late 1998, the Government’s grand scheme of breaking the iron ricebowl decisively by beginning wholesale privatisation of state-owned housing had been postponed, ostensibly until early this year, but I suspect in practice for much longer.
The restructuring of the bureaucracy is being completed at the central government level, but in the interests of social stability, the impact of job losses will be cushioned by devices such as lengthy retraining or re-employment in related agencies. Provincial government restructuring is to start this year.
Central government agencies such as MOFTEC are getting out of business and industry, which will be a significant step towards enterprise restructuring if hard budget constraints begin to be applied. A central government committee is taking over medium and large enterprises, while small ones are being transferred to provincial governments. The PLA claims to have divested itself of its non-military business operations as of 15 December last, although in practise some of its 20,000 plus businesses may simply have been "rebadged". The police and judicial authorities are to follow.
Other supporting reforms have made useful progress, although their long-term effectiveness remains to be seen. An anti-corruption campaign has claimed some senior scalps, and an anti-smuggling campaign has helped modestly to boost revenues and restrain import-driven price deflation.
…And Some Not So Good News
The negatives come in four categories: economic indicators which may suggest that official growth figures are overstated and so conceal the true extent of the economy’s difficulties; the future implications of the growing impact of the regional economic recession; domestic economic imbalances; and the economy’s underlying structural problems.
Statistical overstatement: Most analysts agree that the official statistics probably overstate GDP growth by around two percentage points, due to a bias inherited from the command economy system. So, if the State Statistical Bureau (SSB) records growth of 8 percent, it is reasonable to assume the true figure to be around 6 percent (real growth, calculated on a year-on-year basis). However, it is convenient to use SSB figures, recognising the foregoing, and acknowledging that the major aggregates have a reasonably reliable record as indicators of trend changes.
There is disagreement, though, over the extent to which deliberate falsification of official statistics may overstate GDP growth. A full year of price deflation, and sectoral statistics like electricity consumption, imports and railway freight tonnage showing negative or very low growth, would not in most countries be consistent with China’s strong aggregate GDP figures. So, we should probably take a further percentage point off the SSB figure on account of official padding, bringing 1998 down to about 5 percent. I would not, though, go much lower than that, because: the Chinese system provides incentives, such as tax-avoidance, to under-report as well as over-report production; negative inflation does not entail negative GDP growth, especially in a half-marketised economy; sectoral figures need to be treated with care, as year-on-year figures for electricity, for example, which take out seasonal fluctuations, show consumption growing rather than, as in some press reports, declining; sectoral statistics can also be deceptive in other ways – railway freight statistics, for instance, will not show the positive growth aspects of closing down loss-making mines, washing coal at the mine, siting power stations closer to the mine, etc.; finally, some sectoral negative growth may be unelated to aggregate GDP growth – a good grain harvest can reduce the need for imports, or they can decline if SOEs are ordered to buy Chinese domestic product.
Accordingly, 4-5 percent real GDP growth should be a safe estimate for China in 1998, about 1-2 percentage points less than 1997, but still sufficient to generate enough – just enough? – jobs to create a partial employment buffer against job losses and potential unrest resulting from SOE restructuring.
The regional economic recession: China was hard hit from mid-1998. Strong negative export growth since August, peaking at minus 17 percent in October, foreshadows negative growth for 1999, and a much reduced trade surplus. Foreign direct investment (FDI) held up well, growing almost 3 percent to November, but if it turns negative as China’s leaders were predicting (luckily for them, incorrectly) throughout 1998, two major GDP growth drivers will be in reverse. That will leave a socially safe rate of job creation even more dependant on massive deficit spending that is already adding rapidly to the weight of debt on the economy.
A current account deficit could also reappear and start to erode China’s massive forex reserves – the main buffer against an as yet unrevealed pool of unauthorised foreign debt accumulated by financial market fringe players and adventurous SOEs.
Pressures on the current account are part of the scenario that leads some commentators to predict a devaluation of the renminbi against the US dollar by mid-1999. Australian colleagues who understand these things better than I do assess that such a devaluation is unlikely at this stage, but not impossible if the world economy were to worsen sharply, or the Japanese yen to fall below 150 to the US dollar for an extended period.
Underlying structural problems: China is only making slow progress in restructuring its loss-making SOEs, putting its debt-burdened financial system on a sound basis, rejuvenating an excessively regulated agricultural sector, and mobilising its extraordinarily high household savings for investment in more productive industries.
China’s asset bubble is probably as bad if not worse than those of its neighbours. The Pudong district of Shanghai, to take the worst example, has a 70 percent vacant property rate. Industrial over-capacity also matches that of China’s neighbours – a 1995 survey found almost half the firms producing 900 major products to be operating at less than 60 percent capacity. Inventories of unsaleable goods continue to accumulate, at an ever-increasing cost in eventual liquidation.
The debt-equity ratio of China’s SOEs is equivalent to that of the Korean chaebol prior to the crisis, and they continue to absorb "loans" from banks to maintain the iron ricebowl system, rather than spending the money on new technology or making good use of the equipment they already have. Their inefficiency is remarkable: they produce less than one third of industrial output, but absorb about two thirds of investment – "value subtractors" with a vengeance. Some will argue that this is not as bad as it seems, as the SOEs also pick up much of the welfare function that would be a major part of the budget in a market economy - but in practise this is often now just not happening, to a greater or lesser extent depending on the state of the enterprise itself.
Agriculture sector growth and incomes are low following decades of underinvestment, and the sector’s funding is a mess. Beijing recently discovered that the grain purchasing fund had misspent and effectively lost the equivalent of US$25 billion, which the government now has to recapitalise. Hundreds of rural credit cooperatives are insolvent.
Last (?) but not least, the decay in the financial system is of critical concern. Non-performing loans (NPLs) in the banking system (the system that holds, inter alia, some 90 percent of household savings, which themselves represent 80 percent of all savings in China) may be as high as they were in Thailand or Korea immediately pre-crisis, or even higher. The Governor of the People’s Bank of China has said that at the end of 1997 NPLs represented 25 percent of the total (some analysts put the figure at 40 percent) and acknowledges they are increasing. Because the banking sector lacks commercial skills, it is reluctant to lend to more creditworthy borrowers in the non-state sectors, though it has to be admitted that these are scarce too.
Politics
So much for the economy. Someone with greater claims to be a Marxist than mine, however, preferred to put politics in command, so what do we see here? Despite the predictions of many (including myself) some ten years ago when he first came to power, Jiang Zemin is firmly in the saddle as head of the Party, the PLA and the state, and Zhu Rongji appears to have as much political backing as he could hope for in order to press ahead with the reform process. Jiang has backed him during potentially difficult passages, eg. in getting the PLA out of business. Zhu also benefits from a better educated and more dynamic ministry and bureaucracy than any previous Premier has enjoyed. The evidence to date indicates that he is still a leader in control. Still, in the post-Mao collegiate system that has come to be the norm in China, leadership is continually to be negotiated, and should unemployment and social unrest reach alarming levels, Zhu could be dumped unceremoniously by his Politburo colleagues. So he has to trim his sails to meet senior Party opinion.
One obstacle to making rapid progress with market reforms is that there is no leadership consensus on the final shape of the post-reform economy – the "socialist market economy" enshrined in the 1992 Constitution is still undefined. That uncertainty accords with China’s traditional incrementalist approach, and the absence of a ready-make Procrustean bed can have its advantages, but lack of a clear and shared vision must make it harder in the present, more complex phases of reform to plan coordinated change across the spectrum of industrial, financial and welfare reforms. Zhu’s re-imposition of monopoly grain purchasing, allegedly without consulting the Ministry of Agriculture or MOFTEC, and the leadership’s hesitation about state bank lending to private business, indicate that the ideologically fundamental step of widespread privatisation of industry is still some way off.
Nevertheless, Zhu’s government has shown itself willing to tackle some really big issues in the urban economy – the size of government, SOE restructuring, the financial sector and housing. This agenda carries major political risks, as urban unemployment – 15-20 percent, or more in places – and popular discontent with official corruption increases. Meanwhile in the countryside the government has to deal with discontent over slow income growth, and endemic underemployment – at least 100 million people are on the move looking for work – and, as in the cities, official corruption. The Party Plenum in October 1998, and the National Economic Work Conference in December, emphasised a focus on rural conditions, endorsed the broad thrust of the urban reform program and restated the commitment not to devalue the renminbi in 1999. This improves the prospects of the present government sticking to a reform program which its predecessors have ducked, but there remains some risk that its commitment to reform, already modified but not abandoned in the face of slowing growth in 1998, could diminish further in 1999 in the absence of economic encouragement in the form of renewed domestic and external demand.
One area of reform definitely off the agenda in the immediate future, and possibly for longer – but certainly in this year of sensitive anniversaries and serious economic and social challenge – is any further political reform beyond the risk-free experiments with extending village elections to the village group level. As recent news has shown, official tolerance of dissidents pushing the limits of political activity has ended. The leadership is concerned enough by increasing crime and protests to ensure that democratic activism does not again act as a 1989-style catalyst.
So Where is Reform Going?
Money and time are the two dimensions of China’s economic problems that will determine whether it succeeds or fails in its attempt to become the first command economy to make the transition to a market economy without a severe recession – and all the political and social problems this would bring in its wake. If China runs out of money to drive growth through deficit spending before independent growth drivers like consumer or export demand pick up, it will enter a period of slow growth which could lead to an unstoppable cycle of falling prices, weakening demand and shrinking business activity. That risks derailing the possibility of achieving reform with growth and social stability. The question as to how long can China pursue its present essentially Keynesian policies is thus a vital one – and much disputed.
The official Chinese position is that domestic debt levels are relatively comfortable, and the external position is sound. The PBOC admits, as we have noted, that the banking sector is unhealthy, but very strong household savings give the banks a comfortable loan-to-deposit ratio that would be the envy of many. This picture would suggest that China can continue its gradualist approach to reform.
Unfortunately, reality is less rosy, and it seems reasonable to judge that unless China has started to turn around growth in its debt ratios within the next two years, it will be facing far less favourable conditions. Rather than the official budget deficit to GDP ratio of 2.2 percent, we should be looking at 4-5 percent; short term foreign debt (including unauthorised debt) of US$35-45 billion rather than US$18 billion; NPLs as high as 40 percent rather than 25 and rising; and a debt (including unauthorised debt) service ratio of perhaps 15 instead of 10 percent.
What is more, most of the trends are unfavourable: government debt to GDP ratio has jumped some 6 percentage points over the past year, the government relies on loans for 20 percent of its budget but is struggling to increase tax revenue; growth in bank lending (16 percent) has been catching up to growth in savings (17 percent); rising SOE losses, and thus NPLs, are outpacing recapitalisation efforts; and experience suggests that the more the PBOC works to straighten out unofficial financial institutions and the SOEs, the more it will uncover hidden debt. At the same time, the regional economic crisis is contributing to rising NPLs, and by reducing exports, a worsening debt-service ratio.
This does not necessarily mean the banking system faces an imminent crisis. Even the less rosy figures just referred to would give China a few years to reform the banks and SOEs. Ordinary citizens are still putting their savings in the banks, reassured by the government’s record of covering the losses of individual depositors in failed fringe-institutions. Moreover, because the banks are arms of the state, and the renminbi is not convertible on the current account, any crisis would take the form of a fiscal rather than a financial crisis. A sudden meltdown of the IMF3 type is therefore unlikely. There could, though, be a run on the banks (localised instances of which have already occurred over the past year, as Zhu Rongji has admitted) if depositors eventually did lose confidence, following say a rise in state indebtedness sufficient over time to force a severe growth slow down – and this could happen if the government made little effort to wean the SOEs off policy lending, and if it persisted in heavy deficit spending much beyond 1999.
Indicators to watch in the coming year include: exports and imports, both for GDP growth and the trend in the external account; foreign direct investment; ratio of foreign debt to foreign exchange reserves, and the debt service ratio; ratios of government debt to GDP and budget dependency on borrowing; progress on reform of financial institutions, notably the non-bank sector; NPLs and industrial inventories, as a measure of the overall debt burden on the economy; unemployment and associated unrest; and commitment to hard budget constraints by SOEs and commercial lending disciplines by banks, as a measure of the will to tackle the debt problem in time.
The bottom line of all this is that while we can be reasonably confident that in the short term China should continue to develop along fairly familiar lines, there do remain some serious questions about the longer term outlook. Precisely how the economy develops and the government performs in the course of 1999 should leave us at least a little better placed to comment more confidently on this. The one thing we should be certain of, based both on Chinese history and the recent financial crisis, is that straight line extrapolations are bound to be wrong, and that as Hans Binnendijk and Ronald Montaperto have written, it will be essential to hedge against a range of possibilities, some of which are negative, rather than assuming continual forward progress. The Chinese government will be doing no less.
One point, though: in our concern about where China may be going, we should never lose sight of where it has come from. Whatever the current difficulties and future challenges, we should not forget the enormity of the task that has already been accomplished in the era of reform. As we compare aspects of China, or indeed China as whole, with the developed industrial democracies, we should also pause to compare it with the China of 20-30 years ago, or with other countries that have achieved less, sometimes much less, against less formidable odds. While I should be the last person to underrate the dangers and challenges that lie ahead, and conscious as I am of all the mistakes, and worse, committed in the name of the Communist Party of China, I do have to confess to having become, over some 30 years of looking at China, just a little sceptical of China scepticism, of which every stage of the reform process has produced a new wave, generally disproved over time by unfolding events.
China and the Region
The implications of what has been and is happening in China for the region have been enormous. For some, the revival of China has been perceived to be accompanied by the grinding of the tectonic plates of history, as China gradually resumes its rightful place as the dominant power of North and South East Asia. Depending on where or who one is, the sound can be heard as sweet music or as a frightening portent of a more troubled and insecure world. According to this view, Japan’s pre-eminence in the region for much of this century has been no more than a historical anomaly, and now things are beginning to return to normal. The high-tide of Western Imperialism happened, unfortunately, to coincide with China’s going through one of its cyclical periods of dynastic decline and chaos, leaving it unable to cope with the new challenge. Whatever the failings of the Tokugawa Shogunate, Japan was in better shape to undertake the necessary adjustments, which it did to great effect with the Meiji Restoration. Even more remarkably, following the disasters – for Japan and everybody else – brought about by the move to militarism and aggression, war on the continent and in the Pacific – it was given a second chance, thanks in large part to the Korean war, to rebuild even more effectively; this at a time when China was subject to boycott and isolation, not to mention the series of its own domestic dramas and upheavals. Now, however, with the unfolding of China’s program of reform and the apparent realisation, at least incipient, of a century’s dreams of wealth and power – against a background marked by the ending of the Cold War and clear signs that the Japanese miracle had in fact been something less than miraculous - things can begin to return to "normal". That is, China as number one.
Now, leaving aside China’s own domestic problems, as well as the frequently remarkable development of other East Asian nations, there are two major elements that will ensure things can never return to this traditional model of reality. One is Japan, just mentioned, and the other is the United States – to which I shall return. Please note at this point that I am not seeking in any way to deny the obvious, that is, the fact that China has already, and on the balance of probabilities will continue, to play an increasingly significant, active and involved role in the region and indeed globally – as it has been doing for some years, frequently in quite positive fashion (eg supporting the CTBT, its role in APEC and the ARF, and, up to a point and as far as one can tell, in the Korean 4-Party talks). I am simply questioning one current view of the inevitable rise and rise of China to the position of the dominant power in the region, rather than that of a very significant player. I am certainly not questioning the fact that China’s growing importance is bringing about precisely that period of adjustment, both on the part of the country concerned, and of its neighbours, that Kissinger has observed is an essential accompaniment to the emergence of any country of such potential.
Despite all its very real current economic difficulties, Japan is a major and vital presence on the international scene, and while it has not been so before this century, it is not going to stop being one now. All the other economies of the region pale in comparison with it – second only in size to the United States. The intensity of international concern that Japan overcome its current problems itself bears witness to Japan’s fundamental importance. Japan will also continue to play a more active part in the international political arena in its own right, moving at times surprisingly tentatively for a country so economically powerful, but moving nonetheless. Moreover, Japan has huge military potential based on its economic wealth, industrial base and advanced technology. It will develop formidable capabilities for its own defence, and the recent DPRK missile launch has given a significant boost to the acquisition of TMD (to the discomfiture of China, although this probably has more to do with Taiwan than Japan itself). We should expect to see Japan with the most modern conventional military forces in the region. Further, the role it plays with its security relationship with the United States – of which more below - is itself a major contribution to regional and global peace and stability, and the significance of the alliance is emphasised still more by this assessment of Japan’s own capabilities.
China knows this, and this lends a particular piquancy to the relationship, already overburdened by the weight of history. Japan and China both understand the importance of good relations. Over the almost 27 years since diplomatic relations were established, much effort has been built into building a bilateral relationship underpinned by strong economic links. The Japanese private sector has an enormous stake in trade and investment ties with China, which now ranks as Japan’s second largest trading partner, while Japan is China’s largest. Japan has worked hard to help integrate China into regional and international affairs (eg. former Prime Minister Hashimoto’s concern to overcome the deadlock over China’s accession to the WTO).
President Jiang Zemin’s visit to Japan late November last was the culmination of substantial efforts on the part of both countries to further improve the relationship, and built on the success of Hashimoto’s visit to China in September 1997. The visit resulted in a number of solid gains, not least in agreement for stronger bilateral economic cooperation, including Japan’s agreement to maintain ODA at the same level as for the past three years, and a 390 billion loan over two years. And yet…while both sides publicly declare the visit to have been a success, it fell embarrassingly flat in public relations terms over the question of an apology for its wartime atrocities by Japan, and the constant stress laid on this theme by Jiang. Strong differences of understanding of this aspect between China and Japan, at both the popular and official levels will continue to resonate and cast their shadow. Other issues of actual or potential disagreement were and are Taiwan, TMD, and the revised US – Japan Defence Cooperation Guidelines.
In short, what should be - and in many ways is - a positive relationship, will nevertheless continue to be bedevilled by both the past and the future – a future in which competition for regional influence will never be far from the surface, a competition fuelled by a latent sense of wariness and mistrust that are likely to continue to characterise the relationship. I would observe at this point that competition between China and Japan without the United States holding the balance could be highly destabilising.
The Korean Peninsula is a region where China has long had strong and legitimate security interests, for obvious reasons. The Japanese have also had a long and on occasion most unhappy history of involvement, although thanks to the present governments of Japan and the ROK, it seems that both sides are now prepared to put the past definitively behind them (significantly not the case with China and Japan). And, as in Japan, so in Korea, the United States involvement is massive and crucial – and thus a major element in China’s own Korea policies.
China pursues a strategic environment on the Peninsula which is stable and keeps the United States military at least one remove from its borders. For the present it sees its strategic interests as best served by continued division of the Peninsula, and wishes to maintain and enhance its influence on Peninsula issues.
While there may still be some residual sense of commitment to the DPRK dating back to the Korean War (China’s involvement in which has provided one of the foundation myths for the PRC), particularly within the higher echelons of the PLA, ideological ties between the DPRK and China are rapidly eroding with China’s embrace of economic reform and an increasingly pragmatic spectrum of policies. Beijing is increasingly finding the DPRK a burden, and there seems to be little warmth between the top leaders of the two countries. China is concerned about the DPRK’s continuing disregard of its advice, especially on the need for economic reform, and growing links with Taiwan. The effect of last year’s DPRK missile test in accelerating consideration of TMD in the region is also strongly negative from China’s point of view. China’s continued economic aid to the DPRK (debt support and direct grants of crude oil and grain amounted to about US$400 million in 1998) has been critical, but is insufficient to reverse the economic slide. However, as long as China sees the survival of the DPRK as in its interests, it will continue current levels of support, although probably not at any price. Despite Pyongyang’s apparent disregard for Beijing, reports persist that Kim Jong Il will go to China for a Summit with Jiang Zemin this year: watch this space.
China seeks to balance its relations with the two Koreas, but it has been increasingly engaged with the ROK since the establishment of diplomatic relations in 1992. Bilateral trade increased 84 percent from 1994 to 1997, and the ROK is now China’s fourth largest trading partner (China is the ROK’s third). ROK economic conditions will have an impact on the economic relationship (another reason for welcoming the signs of recovery), but both China and the ROK retain significant interests in further developing ties. An outcome of Kim Dae-Jung’s visit to China last November was the elevation of the relationship to that of a "Cooperative Partnership for the 21st Century". China has welcomed President Kim’s policies of positive engagement towards the North, and Hyundai’s Mt Kumgang tourist project.
As a consequence of these policies, China appears to have been playing a positive role on the Peninsula, including in encouraging North-South dialogue and in the forum of the Four Party Talks, while it consistently stresses that there are very strict limits as to its influence over the DPRK. That said, China is one of the few countries that the North does not consider to be hostile, and that can talk seriously to it and try to explain international realities.
The common element running through the preceding discussion of China, Japan and Korea is precisely that non-traditional player in the East Asian region referred to above, namely the United States. I shall now try to address, briefly but I hope not dismissively, the final questions the organisers have asked me to consider, namely, "Can the U.S. help/influence? If so, in what respects, where and how? If not, why not?"
I would hope that by this point I have left sufficient clues to indicate my view – and indeed the view of the Australian Government – that the United States has an absolutely vital role to play, and that within that overall role, the U.S.- Japan alliance occupies a crucial position. In saying this, I take it as a given that for the foreseeable future – the next 10-15 years at least – the United States is going to remain the single most powerful country in the world, with the largest economy, the most advanced technology, and by a large margin, the most advanced armed forces.
Because of the uncertainties and rivalries – open or potential – in the region (I have only referred to a few, hardly mentioning Taiwan, one of the most sensitive and troublesome issues on the agenda for all of us), an Asia without a very substantial United States presence and engagement, anchored in and symbolised by the alliance with Japan, would be a far more unpredictable and dangerous place. That the United States is the single most important player in ensuring the maintenance of the strategic equilibrium is generally recognised throughout Asia, with the exception of the DPRK, and more significantly, of China. Indeed, the additional uncertainties generated by the economic crisis have underlined for many Asia-Pacific countries the desirability of continued US strategic engagement in the region. It should be the responsibility of all those friends and allies of the United States who are concerned to see the peace and stability of the region maintained, that they encourage the United States to develop creative new policies conducive to strategic engagement and multilateral partnership in the evolving Asia-Pacific environment.
Integral to this, however, is that such policies should allow due space to China. Policies of containment would be seen as threatening, a continuation of what China, not always without reason, has seen as a century or more of Western denial of its legitimate rights as an important, sovereign power. This could only be counter-productive, leading to the opposite of what we should wish tosee.
Reverting to the point made above about the need to avoid dangerous competition between China and Japan, damaging not only to themselves but to other regional states as well, it will be important to demonstrate to China the benefits that it can and indeed does still derive from the U.S.–Japan Alliance, which as Paul Dibb has argued convincingly remains the key strategic alignment in the region.
It is equally important that other countries in the region are also able to maintain their confidence in this relationship. In this context too it will be important to remember that the Alliance was based not only on the Soviet threat, but also represented a commitment to ensure that Japan did not re-arm or engage in military expansionism. As the Alliance is modernised and Japan is given, quite properly, a more active and responsible role, measures should be taken to ensure that this is done in such a way that other countries are not alarmed.
Concomitant to this, though, is that Japan itself must feel comfortable with the relationship, confident that its security will be assured. It should neither be allowed to, or forced to, go it alone. While in the post-Cold War era the United States does not readily subordinate its commercial to its security interests, bilateral economic disputes should not be allowed to affect Japan’s confidence in the strength of the Alliance and U.S. commitment to its fundamental security.
Another way of putting this is that in the less ideologically driven post-Cold War era, it is all the more important that United States decision makers are in a position to make policy based on a good understanding of the specific situations with which they will be dealing, an understanding sensitively informed by a knowledge of the historical and cultural sensitivities of other players, as well as of the interests of the United States.
In the light of the foregoing, I am pleased to be able to say that from an Australian point of view, the assessments and strategies articulated in the latest US Department of Defense’s East Asian Strategy Report (EASR98) are positive, confirming as they do continuing U.S. engagement in the Asia-Pacific region, and a commitment to engage constructively and comprehensively with key players, including Japan, China, the ROK and Russia. Significantly, the complexity and uniqueness of the regional strategic situation is acknowledged, as is the inappropriateness of many external models.
Finally, while not part of my brief, I would like to conclude by also noting with pleasure that the importance of the U.S.-Australia alliance is also acknowledged appropriately.
About the author: Dr. Rigby is Assistant Secretary, North East Asia Branch, Department of Foreign Affairs and Trade. He was assigned as Consul General Shanghai prior to his current position. He joined APS (Foreign Affairs Trainee) in 1975. In 1976, Dr. Rigby became Third Secretary Tokyo and later became Second Secretary and served in that position until 1980 when he was attached to the Australian Information Service, Canberra. In 1981, he was assigned as First Secretary (Information) Beijing and served there until 1984 when he was reinstated to the Department of Foreign Affairs and Trade. Dr. Rigby was reinstated to the Department of Foreign Affairs and Trade (Canberra), FAO3 Policy Planning Unit in 1984. In 1985, he became Acting Deputy Chief, Current Intelligence, ONA and later held the position of First Secretary London (Cabinet Office Liaison) until 1988. He returned to Department of Foreign Affairs and Trade, Canberra in 1988. In 1989 he served as Counseller (Political) Beijing. Dr. Rigby became Director Indochina at the Department of Foreign Affairs and Trade and served in that position until 1993 when he was promoted to SES Band One, Assistant Secretary South/Southeast Asia. Dr. Rigby earned a BA Hons (First) and a Ph.D. - Far Eastern History at the Australian National University.