The Australian

By Paul Kelly

Former senior US official and past World Bank president Bob Zoellick has warned Australians that opinion in America is hardening against China and that any moves by China to an “Asian ­hegemony” strategy will plague the region and China itself.

During his visit to Australia to celebrate the 10-year anniversary of the Australia-America Free Trade Agreement, Zoellick’s message is that the US can and must remain the insurer of Asia-Pacific security, in partnership with its allies, including Australia.

But Zoellick argues the central challenge for the US and Australia is to operate successfully in a “hybrid system” — seizing the economic potential in partnering with China while, on the security front, taking a firm stand against China’s assertiveness.

This strategy plays out against growing alarm in Washington that China now flexes its muscles by seeking, in the words of President Xi Jinping, to build “a new type of international system” — a far reaching departure from former leader Deng Xiaoping’s maxim “hide your strength, bide your time”.

Recently defending his 12-­nation Trans Pacific Partnership trade policy for the region, President Obama left nobody in doubt about the strategic rivalry with China. Obama said: “We’ve got to make sure we’re writing those trade rules in the fastest growing region of the world, the Asia-­Pacific, as opposed to having China write those rules for us, in which case American businesses will lose and American workers will lose.” An adviser to Republican Jeb Bush in the presidential race, Zoellick would be a candidate for treasury secretary or secretary of state if Bush prevailed. In an ­exclusive interview with The ­Australian on global politics, he criticised Obama’s policy for ­misjudging China.

Zoellick said Obama’s weakness had created security policy “vacuums” in the Middle East and the Asia-Pacific. But the President’s campaign against the China-sponsored Asian Infrastructure Investment Bank (AIIB) — which the Abbott ­government is joining — was “particularly mistaken” because “it signals to the Chinese that the US is unwilling to accept China’s ­initiative”.

“America is not a status quo power,” Zoellick said. “The US is comfortable with a dynamic system. Our ethos as a country is to look ahead, to reinvent and to seek a better world.” That meant a willingness to work with China on modifying global arrangements.

Zoellick said that in responding to China two axioms should be remembered. First, if China espouses “a new Asian security order that seeks to exclude the United States” then trouble and resistance in the region is guaranteed. The correct line from the US should be “a calm, deliberate, forceful but not belligerent ­approach” with China on security issues.

Second, China’s economic behaviour had to be assessed on merit. “In reality, China’s performance in the global financial crisis struck me as pretty responsible,” Zoellick said. “They had a big stimulus program. As Hank Paulson points out when the Russians approached the Chinese about trying to manipulate the crisis to hurt the US, the Chinese said ‘Hey, we’re not interested in that’.

“In my work at the World Bank, the Chinese were very co-operative. Take, the surplus, the Chinese (current account) surplus has come down, the exchange rate has gone up, Germany’s surplus is about 7½ per cent of GDP and China’s is now about 2 per cent.

“I think the reality is this: on the economy there are many win/win situations to be found with China. If they open up their ser­vices sector, it will help them, it will help us, it will help Australia.” Zoellick said it was the task of the US and Australia “to support the economic reformers” in China.

But, Zoellick argued, the issue of values was pivotal to US–China ties. It was also fundamental for Australia. The idea that a one-party state might aspire to exert hegemony over the region would constitute high risk for Australia along with other nations.

“There was a hope that economic reform would be combined with political reform,” Zoellick said. “Even with premier Wen Jiabao they had references to democratisation. But Xi Jinping has made clear that the importance of economic reform means they will clamp down on political change.

“I cannot speak for Australia, but in the US there is an increasing wariness of China. I think it’s being driven by the cyber security issue. This has got the US and our companies very troubled. What looks like China’s aggressive ­behaviour in some of the maritime disputes has added to this anxiety.

“Once these attitudes towards China were offset by a business community that felt there was a good future in China. While US companies still do a lot of business in China I think the enthusiasm has waned to a degree.” Zoellick, like his friend Kevin Rudd, who is now in the prestigious New York-based office of president of the Asia Society Policy Institute, and the nation’s top public servant, Michael Thawley, head of the Prime Minister’s Department, is confronting the ­pivotal issue: can China over time reshape the Asian order?

In an outspoken intervention this week Thawley dismissed China’s ability to exercise global leadership. “The answer is no,” he said bluntly of this question in a revealing insight into a powerful strand of Abbott government thinking. For Thawley, this is just a statement of the obvious. He said Australia’s priorities were to encourage US leadership and ­restore its own economy. Zoellick is more qualified. He says it is false to assume China’s leadership has a grand strategic plan despite the remarks of President Xi. He says that while some Chinese “cannot just accept” the post-World War II architecture designed by the US they are unsure “what a successor system should look like”.

Zoellick believes that “when China comes up with reasonable ideas we shouldn’t say no” and suggests that China is yet to finalise its historic choice: whether or not to challenge the US-led security framework. For Australia, there are few more vital questions for its future.

In his recent report on US–China relations, Rudd warns of “bifurcation” — an economic Asia centred on China and a ­security Asia predominately ­centred on the US.

He says: “On the regional economic order, China’s dominance over the US in every bilateral trading relationship in Asia, its deployment of the AIIB and the Silk Road Investment Fund, together with the normal operation of its sovereign wealth funds, are creating a new regional economic reality of which most in the Washington political elite remain blissfully unaware.” Rudd offers a chilling summary of the dangers in the region. He says America has decided “that China is seeking to weaken and destroy its regional military alliances” and create a Chinese sphere of influence. China, on the other hand, believes the US seeks to “undermine and ultimately sabotage China from within” with Beijing convinced the US “will never willingly surrender its long-held position of regional and global pre-eminence”.

Given these attitudes, assuming Rudd is correct, the risk of conflict cannot be dismissed. The deepest private concern within Australia’s strategic establishment — like many nations in the region — relates to US willpower in the region. Obama is leaving in his wake distinct doubts about US authority and commitment, a reality Zoellick acknowledges.

His message is that the US must be selective. It cannot be “the policeman and force everywhere”. But it must play a firm leadership role. In relation to maritime disputes involving China, Zoellick says: “In my experience with China you don’t have to play games and sound overtly belligerent. The message I would send on the South China Sea is to say: ‘You know those maritime lanes are critical to China, to Korea, to Japan, and if those routes are threatened that’s going to be destabilising.’ “I don’t believe the US should get drawn into disputes about which islands belong to whom. But we should make clear to all parties that we will work to defend freedom of navigation and freedom of flights and that parties should resolve disputes in a way that avoids confrontation.” It was Zoellick who in 2005 as deputy secretary of state devised the “responsible stakeholder” thesis in relation to China, an idea now widely seen in Beijing as patronising. It was a device to encourage China to become a good global citizen within the rules ­devised by America.

In the interview he defended the concept as a valid aspiration and said it didn’t rule out positive US responses to constructive initiatives from Beijing. “The real issue is the extent to which countries like the US and Australia can work with China in areas of common interest and adapt the rules- based system,” Zoellick said.

But this outlook is anchored in the belief the US will remain the paramount power and that the cult of US decline is false. Rejecting this proposition, Zoellick pointed to US dynamism: the trends in innovation, entrepreneurship, demography, energy self-sufficiency and immigration.

His most important remark is that the US is not a status quo power. That recognises the inevitability of changing power ­relationships in the Asia–Pacific and offers a framework for US flexibility.

Celebrating the decade-old FTA between Australia and the US, John Howard paid tribute this week to three figures: Thawley as our US ambassador at the time, Zoellick in his then capacity as US trade representative and former trade minister Mark Vaile, who negotiated the deal with Zoellick.The FTA’s real purpose was to tie the business cultures closer together by greater investment, access, innovation and integration. It remains a powerful idea whose potential is far from realised. Howard put the deal in a wider perspective: it was part of Australia’s enduring strategy to ensure our ties with China and the US are such that we “never have to make a choice”.

This article was originally published at The Australian