Australia needs a balanced approach to China over new Silk Road

China aggressively asserts its maritime claims in the Western Pacific, while wooing the world with the vision of a new Silk Road with benefits for all who sign up.

In Adelaide this week, one of the world’s leading China analysts, Willy Lam, characterised this as a form of foreign policy “schizophrenia”, with Beijing alternating between overt displays of power and appealing multilateral initiatives designed to boost China’s ­financial credentials.

Deciding which is the dominant impulse is a dilemma for all countries, and frequently leads to political misjudgements and confused policy responses.

But China is too important a country to get wrong. So Australia needs to be clear minded about China’s strategy and desired end game.

A good starting point is the South China Sea, where the core elements of China’s increasingly nationalistic security policies are most visible and worrying.

Recent satellite photographs of China’s extensive land reclamation activities around Mischief Reef and other disputed maritime features in the South China Sea are the clearest evidence yet that Beijing is “terraforming” its way to control of the vital sea lanes that carry a large proportion of the world’s energy and traded goods, including more than half of Australia’s exports.

Unprecedented in its scale and ambition, thousands of tonnes of sand are being sucked up from the surrounding seabed by giant dredgers to form artificial islands that are being turned into support facilities for the Chinese military.

By the latest count, seven disputed islands and coral reefs in the Paracel and Spratly islands have been militarised or are in the process of being terraformed by China.

Mischief Reef is particularly contentious because of its location within the exclusive economic zone of The Philippines and its ­significance as the first island in the Spratly group targeted for ­occupation by China.

An earlier attempt by China, in 1994-95, to build shelters on Mischief Reef, which is also claimed by Vietnam and Taiwan, triggered the first regional maritime crisis of the post-Cold War era in Asia.

It prompted a backlash from the Association of Southeast Asian Nations and a flurry of diplomatic activity that resulted in China shelving its territorial ambitions in the South China Sea for the best part of two decades.

What has changed is Beijing now has the military muscle and dredging power it lacked 20 years ago to advance its territorial claims with relative impunity.

ASEAN has neither the will nor the means to challenge the ­Chinese navy or China’s equally formidable coastguard, which operates well beyond the country’s coastal waters and helps protect the dredging operations.

Of course, China is not the first country to use land reclamation for strategic purposes. Neither is it the only claimant state to have ­fortified coral reefs and maritime features in the South China Sea.

But never has a country attempted such an operation on an industrial scale, so far from its own borders and with such obvious strategic intent.

The rapidity and extent of China’s terraforming activities has come as a shock to the region, heightening tensions and exposing flaws in the 1982 UN Convention on the Law of the Sea.

The convention is the established international legal regime for delineating maritime jurisdictions. It sets out the rights and obligations of littoral states, including over islands, reefs and rocks.

However, the convention is unclear on what territorial and ­resource rights the owner of an ­artificial island can claim. An uninhabitable rock, for example, ­allows its owner to claim only a 12-nautical mile territorial zone.

But what if that rock is terra­formed into a habitable island? In theory, this could allow China to claim not just a 12-mile zone but a much larger 200-nautical mile exclusive economic zone over all its artificially created islands, including their fish, oil and gas.

Unless challenged, these reclamation activities will result in the most significant transformation of the regional maritime balance of power since 1945, allowing China eventually to control much of the South China Sea, including the strategically important eastern approaches to the Malacca Straits.

It also would also legitimise the practice of terraforming for geopolitical and territorial gain and frustrate ASEAN’s repeated attempts to resolve disputes through negotiations and the acceptance by all claimants of a long-discussed, but yet to be consummated, code of conduct for the South China Sea.

Once the facilities are complete, China could then declare air defence identification zones over the artificial islands, as it did in the East China Sea 18 months ago, which drew a diplomatic rebuke from new Foreign Minister Julie Bishop and provoked equally sharp responses from the US, Japan and South Korea.

But there are global consequences, too. If China is successful, what is to stop claimants terraforming in other parts of the world?

By the reckoning of Wilson VornDick, from the Washington-based Centre for Strategic and International Studies, there are more than 150 littoral countries that claim more than 36 per cent of the world’s maritime domain, ranging from the Caribbean and Mediterranean seas to the Persian Gulf, the Baltic, the Arctic and Oceania.

Should any of these littoral countries seek to emulate China, then terraforming for geopolitical purposes will become one more source of conflict in an already fractious world.

As a non-claimant state, the US has been careful not to criticise China overtly for its creeping assertiveness in the South China Sea.

But the comments in Canberra last month by the commander of the US Pacific Fleet, Harry Harris, suggest Washington is starting to take a harder line ­towards China’s maritime acquisitiveness. Harris castigated China for erecting “a great wall of sand” in the South China Sea.

US President Barack Obama also has become more vocal on the issue, accusing China of using “sheer size and muscle” to push around smaller nations in the South China Sea.

Stung by these criticisms, ­Beijing has hit back, contending that its reclamation and infrastructure activities are primarily for civilian purposes such as building shelters, aiding navigation, search and rescue, and providing safe harbour for its fishing fleet.

However, the photographic evidence suggests otherwise. Much of the infrastructure appears designed for military purposes, and is likely to include airstrips and deep draft channels capable of taking military aircraft and ships, hardened facilities, troop accommodation and air-­defence systems.

All this raises troubling questions for Australia about China’s future behaviour and intentions as well as how we ought to respond.

If the militarisation of artificial islands in the South China Sea shows China at its insensitive and expansionist worst, the well-timed proposal for an Asian Infrastructure Investment Bank and the accompanying grand vision of a new Silk Road connecting China with the rest of Asia and Europe shows China at its marketing best, underscoring the centrifugal pull of its economy.

Business and economic portfolio managers naturally want to capitalise on the obvious benefits of China’s stellar economic growth. Foreign policy and ­defence communities, on the other hand, increasingly see China’s rise as a threat rather than an opportunity.

The tensions between these two competing visions of China have been clearly visible in the response of the Abbott government to the AIIB.

Economic ministers were always in favour of joining early. However, security sceptics in the national security committee of cabinet urged caution, concerned that Beijing might exploit our membership of the AIIB to ­weaken our commitment to the US alliance.

It is illusory to believe, as some do, that the apparent dissonance between China’s economic and ­security approaches reflects policy incoherence or a deep cleavage ­between liberal doves and ­conservative hawks.

The truth is that China is both a status quo and revisionist power. When Beijing thinks it can ­advance the national interest through existing mechanisms and institutions it will do so.

Increasingly, however, China sees greater advantage in ­challenging the status quo.

Since the foundations of the present international order are economic and financial as well as geopolitical, it is not surprising that China’s alternative vision is a composite of all three.

Far from being a manifestation of a bifurcated China, or policy incoherence, President Xi Jinping’s evolving grand strategy is remarkably focused and outward looking in contrast to a largely distracted and more inward-looking West.

The Silk Road concept is indicative. Although still light on detail, Xi’s Silk Road invokes the fabled Silk Road of the early Han dynasty. It is sweeping in scope and strategic in its vision.

If successful, the Silk Road could transform Eurasia and the Indo-Pacific economically.

Its intent and likely repercussions are as much geopolitical as geo-economic, in line with Xi’s view that economics and politics must form complementary sides of a single, integrated strategy for ­returning China to its former greatness.

The Silk Road initiative has two elements, the first a so-called belt that consists of three parallel land corridors from China across Central Asia to Europe, following ancient trading routes made famous in the West by Venetian trader and explorer Marco Polo in the 13th century. The other part of the road is maritime. It has two branches: one running through the western ­Pacific, the northern Indian Ocean and the Suez Canal to ­Europe; the other forking north of The Philippines and terminating in the South Pacific.

The overarching idea is to open up the vast, relatively untapped potential of Central Asia by deploying China’s vast reserves of capital to seed partnerships with member states focusing on the development of trade zones and industrial parks on land, and international ports along the Indo-Pacific maritime rim.

Most analysis of the Silk Road has focused on its development and economic potential, which is considerable.

But the Silk Road also aims to make China, once again, the pre-eminent power in the Eurasian heartland and along the great maritime trading routes it once dominated.

This is clearly the aim of the game-changing $US46 billion ($57.5bn) economic deal signed with Islamabad last week that will make Pakistan the hinge of the western Silk Road and underlines China’s claims to global leadership.

Xi has taken to heart two lessons from the collapse of the Soviet Union and the West’s ultimately unsustainable exploitation of its former colonies.

The first is that truly great powers must be complete powers, strong economically as well as militarily. The second lesson is that linking friends and potential adversaries in an interdependent economic and financial web, with China at the centre, is a more effective way of entrenching Beijing’s leadership and insulating it from the hostility and local resentment that colonialism brought in its wake.

Xi’s Silk Road, running west and south, is a direct challenge to Obama’s pivot to Asia and par­ticularly the Trans-Pacific Partnership, just as the Chinese President’s associated plans for the AIIB and a new development bank are, in part, a reaction to the US and Japan’s domination of the International Monetary Fund and the Asian ­Development Bank respectively. Frozen out of a serious decision-making role in key multilateral institutions conceived and led by the West, China instead has opted to develop its own, capitalising on the historic shift of economic and ­financial power to Asia and the ­Pacific and harnessing the appeal of an emerging pan-Asianism that includes Central and South Asia as well as East Asia.

China’s pitch for the hearts, minds and wallets of Central and South Asia serves several important Chinese security and foreign policy objectives, both domestic and international.

Domestically, Beijing hopes that closer economic ties with Pakistan and the Muslim nations of Central Asia will help counter the appeal of a growing Islamic ­insurgency in Xinjiang.

This strategically located northwestern province shares borders with Kazakhstan and several other Central Asian states, and is home to the Uighur people, who are ethnically, culturally and religiously distinct from the majority Han population and increasingly alienated from them.

Central Asia is rich in much-needed oil and gas. Diversifying away from China’s heavy reliance on seaborne energy from the Middle East is an attractive proposition for a leadership that daily frets about its imagined Malacca dilemma — the belief that the US could strangle China economically by blockading the Malacca Straits in the event of a conflict with China.

The Silk Road builds on the considerable investment that China has already made in Central Asia and complements a raft of earlier initiatives and arrangements, notably the Shanghai Cooperation Organisation, which brings together all the main ­Central Asian states, including Russia, in a developing economic and security partnership.

Its six full members account for 60 per cent of Eurasia’s land mass and about half the world’s population if affiliated members such as India are included.

The configuration of the Silk Road clearly indicates that China regards itself as a leading maritime nation, as well as a land power, 600 years after the fleets of famed eunuch ­admiral Zheng He last sailed the waters of the Indo-­Pacific in pursuit of trade, treasure and ­influence.

But a modernising China cannot replicate Zheng’s legendary feats without access to deepwater ports and the associated infrastructure needed for the envisaged expansion in trade and commerce or the projection of China’s naval power into the Indian Ocean.

That is why Pakistan is so important. Its deepwater port at Gwadar offers China an overland route to the Indian Ocean and an alternative to the Malacca Straits.

An accompanying deal to sell eight conventional submarines to Pakistan suggests that Beijing also sees Pakistan as an essential counter to India’s own maritime ambitions and New Delhi’s burgeoning strategic partnerships with Washington and Tokyo.

At the other end of the Silk Road is Europe. It is instructive to watch how Chinese leaders are tempting their European counterparts by holding out the promise of a favoured position in a new China-­centric order with ­privileged access to China’s vast markets and capital holdings.

Americans are worried about the way in which European nations have lined up to become foundation members of the AIIB and to get on board the Chinese silk train before it pulls out of the station.

Daniel Twining, once a member of the US secretary of state’s policy planning staff, contends that some US officials fear “the ­allure of the China market risks converting European allies into proponents of the kind of Ost­politik that Cold War-era US ­leaders feared could tear apart the Western alliance by turning ­Europeans into middlemen horse-trading for advantage between rival superpowers”.

Although such fears are overblown, they illustrate how China is using its economic strength to chip away at the once unassailable American position in Europe.

However, China’s strategy is not without its internal flaws and contradictions. Paradoxically, these could prove to be more of a problem than China’s success.

Chief among them is the gulf between what China says and what it does.

A terraforming China riding roughshod over the legitimate interests of smaller, less powerful neighbours hardly inspires confidence that a China-centric world would be fairer, or more enduring, than the one it hopes to replace.

The strategic hedging already evident throughout Asia will be replicated in other parts of the world if China continues to pursue its own national interests at the expense of others and ignores established rules and conventions for settling territorial disputes.

Grand in concept but light on detail, the Silk Road idea is brilliant marketing.

But the action plan released last month failed to provide crucial details on timelines and estimated total investments.

Ultimately, the Silk Road’s economic success will depend on the financial viability of hundreds of separate projects, most of which will have to be financed in partnership with developing countries where corruption is endemic and transparency rare.

How many of these projects will actually see the light of day is a moot point, with negotiations ­likely to be complex and lengthy. ­Effective implementation will be the key to success.

So while the potential is great, the risks are high. Since Beijing is unlikely to countenance major losses on more than a handful of strategically important projects, there is limited scope for state sponsored bailouts if Silk Road projects founder commercially.

Governance also may be an issue, especially for China’s ­mooted development bank. Concern about the opaque governance arrangements was a key reason for the Abbott government’s initial caution about joining the AIIB as a foundation member. It is not clear that these concerns have been fully addressed.

Finally, there is the unanswered question of whether these China-led institutions will complement the existing financial archi­tecture in positive ways or further dilute and fragment them.

For Australia, responding to these latest developments in Chinese strategy and behaviour will require clear minds, a singular focus and matching strategies from government and business.

We need to find a nuanced stance between the exaggerated threat inflation of hardline China critics in the security community, and the equally false expectations of pro-China hyper-optimists in business who cannot see past their bottom lines.

China is not about to attack Australia. Nor will it rule the world or inevitably supplant the US as the preponderant economic and military power.

Our approach to China should be driven by hard-headed assessments of the risks and benefits of individual projects, initiatives and partnerships underpinned by three core principles.

China should be judged by what it does and not what it says; when it demonstrably undermines established norms, rules and conventions we should not be afraid to say so; and we ought to be open to China having a more prominent decision-making role institutionally consonant with its demographic, economic and financial weight.

Applying these principles to the South China Sea, the government should take a firmer stance against China’s terraforming activities because they are broadly destabilising and serve only to exacerbate and complicate the resolution of territorial disputes at sea.

They are also counterproductive to China’s long-term interests, tarnishing the carefully constructed international image of a country that purports to believe in “win-win” solutions.

Conversely, provided lingering concerns about governance are addressed, the AIIB deserves Australian support as an example of constructive Chinese leadership that could benefit the whole ­region.

For the same reason, the Silk Road concept is a welcome ­development that should find favour with both government and business.

However, it will be important to carefully weigh the likely return on investment and understand fully the geopolitical implications, for they cannot be separated from the geo-economic, as Xi well understands and we should too.

Alan Dupont is Professor of International Security at UNSW and a non-resident fellow at the Lowy Institute.

This opinion piece was first published in The Australian.