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A Pacific strategy for the Maritime Silk Road?

Speech to the China Studies Centre at the University of Sydney, February 18, 2016

The Silk Road conjures up images of camel trains transporting spices, precious jewels and artifacts along the ancient trade routes across Eurasia.

So when the strongest leader in China for decades, Xi Jinping, outlined his vision of a New Silk Road, much of the subsequent commentary focused on the grand strategy to build modern infrastructure, logistics and transport connections to develop the slew of under-developed countries to China’s west, bringing them into closer connection with the giant Chinese market and ultimately connecting China with Europe via vast energy, goods and services pipelines.

That’s a very northern hemisphere, Eurasia-centric view.  We in the South Pacific are used to northern hemisphere, Eurasia-centric views.

But there is another belt of activity that forms an integral part of Xi’s – and therefore China’s – vision.  There is, indeed, more than a road, it is One Belt and One Road that China is building.

An important component of the One Belt and One Road is what China calls the 21st Century Maritime Silk Road.  The Maritime extension reaches, potentially, all the way to the South Pacific.  You can be sure every Chinese business looking to the South Pacific is thinking long and hard about how their business fits into this grand strategy of the Maritime Silk Road.

If this is not top of mind for the businesses of our region looking to engage with China in trade, by attracting investment or tourists, then we are missing the long game.   And China plays the long game.

Let’s rewind a bit before we look at future scenarios.

Let’s look at what China has learned from the lessons of history.

First, the age of empires – long glorified in the European-American traditions – was a period of shame and humiliation for China.  After defeat of the Japanese Empire, China’s national consolidation and its re-emergence as a great and centrally-controlled power are of fundamental importance in understanding how Chinese see the world today and in the future.

It’s a big player and it’s not going to be pushed around.

Second, national isolation – still practiced in North Korea alone in the world with catastrophic consequences for its people – was proved in China to be a disaster.  Never again is China likely to turn its back on the global market.  Its entry into the global trading system, marked most importantly by its entry to the World Trade Organisation, has delivered for its people a prosperity denied in previous decades and a global reach for its businesses.

It’s locked into globalization and increasingly driving it.

Third, the developing world can be developed.  Across North East and South East Asia, the post-war decades saw the combination of capital investment, low cost labour, education, exports and industry strategy could yield rapid growth.  Since 1979, the application of these lessons adapted to the Chinese situation have led to arguably the greatest advance in human history, lifting hundreds of millions of people from poverty to relative affluence in one generation.

China applies lessons learned and it’s got a model to show the rest.

Finally, in recent years China learned another important lesson, not to count on the Western markets for its goods or monopoly suppliers for its energy and resource requirements.  In 2008, following the financial crisis that triggered recessions in the United States and Europe, China’s export markets on which it had built its growth model collapsed.  At the same time, its suppliers of raw materials for its massive growth engine such as Australian exporters of iron ore and coal were – in Chinese eyes – gouging high prices that were never going to be sustainable.

Markets rise and fall but better to have multiple markets and multiple suppliers.

So this brings me to the One Belt One Road.  It’s a snappy title but actually refers to multiple belts, multiple roads to extend China’s trade, investment and tourism links to the world.

It reinforces China’s centrality in the global economy, as new trading links and the freight corridors are developed, along with the capacity of markets along the route to supply inputs and buy outputs.

It builds a more integrated global economy in regions that have capacity for much greater development, including resource rich parts of the world that have been poorly served with infrastructure, capital and capacity.

Indeed, the One Belt One Road offers a shorthand concept for China to fuel development, much as its own integration into the global economy did, and to offer up a Chinese model for such development but utilizing Chinese capital, Chinese trade and Chinese know-how.

So what does all this mean for the Pacific?

The South Pacific, too, has known all about the age of empires.  Peoples across the Pacific have suffered much from invading outside powers that sought to exploit, change and in some cases completely disregard and devastate local cultures.  As someone who grew up in the island of Tasmania, I am all too well aware of the devastating impact of colonialism on the indigenous people of the Pacific.

But many have learned the lessons of history and the strong and enduring cultures across the Pacific are evidence that even the smallest of nations can survive outside conquest and colonial treatment, and build upon the positive legacies such as the rule of law and principles of good governance that have taken root across most of the region.  The process of restoring and renewing cultural pride, social cohesion and independence has given the current generation much greater opportunities to re-think the Pacific as a place to chart our own destiny and not just to be subject to others.

But is China just the next great power that will, again, transform the lives of people in the South Pacific?  And how much say will the people of the South Pacific have in how their lives are transformed?

Well, the answer is not clear but we are arguably far better placed than ever before to make ourselves informed, empowered and ready to do business for the benefit of both China and the South Pacific.  If we want to.

Of course, we will be better placed to take a strategic approach and to pursue the interests of the Pacific if we work together as a region rather than one by one, given the huge imbalance in size between most nations of the Pacific and China.

The Framework for Pacific Regionalism adopted by the sixteen leaders of the Pacific Islands Forum provides the following key principles:

Sustainable DevelopmentEconomic GrowthStrengthened governance, legal, financial & administrative systemsSecurity that ensures stable and safe human, environmental and political conditions for all

Those principles apply to the region’s engagement with the rest of the world as much as how we engage in our own communities.

China works very constructively with the Pacific Islands Forum and, I am pleased to say, provides us with funding so that my office in China can work to build capacity with Pacific Island Countries for sustainable investment that will drive development, exports to China and tourism from China to the Pacific.

Just before the Chinese New Year holiday, Vice Minister for Foreign Affairs Zheng Zeguang told me how China valued its relationship with the Forum, as with the nations with which it has diplomatic relations.

Together we are important to China and together we are an important natural extension of the 21st Century Maritime Silk Road.

In the territorial waters of the nations of the Pacific are vast fisheries that, if well managed, can feed huge markets into the future.  China has a highly sophisticated taste for the entire diversity of seafood from the region.  While Chinese fishing boats pay licence fees to Pacific Island Countries to go fishing, there are opportunities for more value adding in the region and sustainable aquaculture.

Beneath the sea bed there are significant resources only discovered in recent decades and only now able to be accessed with new technology.  China Minmetals Group was the first Chinese firm to obtain rights from the International Seabed Authority to explore the seabed for minerals over a 73,000km2 area of the Eastern Pacific.  Like the fishery resource, the sea bed environment will need to be carefully managed, but this is a major opportunity for economic development for Pacific Island Countries from Papua New Guinea to Tonga.

Speaking of Papua New Guinea, it – like Australia – has energy and resources that will find a ready market in China as it continues to grow, albeit at a slower and more sustainable pace than in recent years.  There is very strong Chinese interest in supporting the building of infrastructure and developing the capacity of Papua New Guinea to supply China into the future.  I will be accompanying a delegation of major Chinese corporations to PNG next week looking to invest in energy, infrastructure and other sectors.

Then there is the services growth industry that can, at appropriate scale, link each and every Pacific nation over time, building our understanding and providing employment in hospitality, local production of food, handicrafts and other products.   That industry is tourism.  China is now exporting well in excess of 100 million tourists a year, who spend more than tourists from any other country, and as that number grows and as the interests of frequent travellers diversify, there is a niche here for every Pacific nation, no matter how small.

China is investing in its links to the South Pacific, just as it is building bridges to other parts of the developing world.  China provides scholarships for students from across the Pacific and trains officials in agriculture, fisheries and other important areas of economic development.  The Chinese Government has a generous aid program, much loved by the governments of the Pacific because China’s aid comes without strings attached, unlike that from Australia.

China has a longstanding policy of “non-interference” in internal matters in foreign countries.  So when Australia and others isolated Fiji after its 2006 coup, for instance, China happily filled the breach.  China-Fiji relations are warm and this extends beyond aid to the business environment, where Chinese firms feel welcome to do business.  Bilateral trade and investment and tourism are all booming.

The Chinese Government talks a lot about the One Belt One Road being “win win”.  The jury is, of course, still out.  Some believe it is more like “they win and they win again” because the infrastructure being built along the belt and road is being built by Chinese firms with Chinese labour and assets are being picked up by Chinese firms and many of the benefits are flowing in one direction.  We’ll see.

National governments taking advantage of Chinese loans to develop infrastructure certainly need to be wary of taking on too much debt and need to ensure that the infrastructure is designed and delivered for the public good.  These matters are in the hands of governments.

The signs so far are that China wants to engage in practical projects that will aid the development of those Pacific Islands with which it has diplomatic relations.

When China’s President Xi Jinping visited Fiji following the G20 in Brisbane just over a year ago, he met with eight Pacific leaders and pledged $2 billion worth of support mainly in the form of soft loans but including other assistance and access for Pacific exports to the China market.

Not only was more aid pledged, but China made a commitment to helping the small nations of the Pacific deal with the threat and reality of climate change, a noticeable difference from the approach to this crucial issue by the Australian Government.

Fiji received a Chinese Cultural Centre, a sports complex and visa-on-arrival processing for Fiji passport holders.

China pledged to support Samoa’s transition to 100% clean energy .

In PNG, China is helping to fund a national broadband roll-out and water and sewage projects.

China will help Tonga, FSM, Vanuatu, Niue and the Cook Islands with various projects for infrastructure construction and training

China is carving out a place in the Pacific as a great power would be expected to do.

One thing is certain, the balance in the world is shifting.  Just as the weather patterns shift around the world when the El Nino begins in the Pacific Ocean, the rise of a new economic superpower will impact us all, including the most remote members of our regional community.

As a result of its stellar growth over three and a half decades, China has in recent times become the world’s largest exporter and also the world’s largest market for almost every product imaginable.  By some measures, China has now eclipsed the United States as the largest economy in the world.  Of course it still has a long way to go to catch up in the per capita wealth stakes, but China will – barring some unforeseen calamity – keep growing.

Most who know China well believe it is likely to grow now at a more sustainable rate of around 6.5-7% per annum over the next decade.  That means in ten years time, the Chinese economy will be about double the size it is today.  About double the size of the United States economy.  That is worth pausing over and considering.

It’s worth us taking stock as a region of what our competitive strengths are and how we can make sure China’s reach into our region is truly win win.  I believe it can be.  This big change in the world does not have to be a repeat of the old colonial days when one empire replaced another.  Our generation has the ability to create something new, that works for us all.

China has its strategy, now we need to develop ours.  It’s up to us to navigate how we build links to China, firstly, as sovereign nations that are part of the global system and, secondly, as a region that has so much that China needs and so much that is precious – not least our unique environment and cultures – that we know we must preserve and strengthen.

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