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China’s achievement grounded in reform and openness

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In Brief

The revolution that saw the birth of the People’s Republic of China (PRC) seventy years ago has now come to define the parameters of most of the big economic and political choices in the world today. But that would never have been so had the PRC remained the convulsed, inward-looking communist state that tried to find its way without the rest of the world — including eventually its old ideological bedfellow, the Soviet Union. In its first three decades modern China had little impact on the world economy and was largely closed to global trade.


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Certainly national coherence through the founding of the communist state also made the remarkable economic and social achievements of the past four decades possible. But China’s influence and power in the world and importance to Australia and countries throughout the world today are significantly a product of its initially tentative but strategic choice to reform, adopt capitalist markets and open up to the world.

China’s choice to go market, to sanction private property and to open up was bound to embrace Australia economically more than almost any other country in the world. The deep complementary in economic structures between the two countries, like that with Japan and our other Northeast Asian partners before, made that inevitable. Even before opening up after 1979, Australia’s critical wheat and steel trade around all the diplomatic barriers was a harbinger of deep complementarity in trade.

In 1938, John Crawford, architect of Australia’s economic rapprochement with Japan after the Second World War, proclaimed that Singapore provided no defence for Australia against the threat of Japanese invasion. The future of Australia as a Pacific power would depend, he argued, on the political security that opening trade with our northern neighbours could provide through underwriting economic security in the modernisation of Japan and China.

This grand bargain, built eventually within the post war multilateral trade regime that permitted realisation of these complementarities and the huge growth of interdependence in Asian trade and economic relations, remains the core foundation of Australia’s economic and political security in Asia today.

Another foundation, of course, is the US alliance framework. Both in fact were born out of the February 1942 Mutual Aid Agreement between Canberra and Washington that secured wartime supplies in exchange for Australian sign-on to the multilateral trade regime. It is the transformation of Asia’s economy, the impact it’s had on the structure of world power, and the multilateral framework on which it was built that must be top Australian security priorities right now.

Openness to international trade and investment since 1979 has been integral to Chinese economic transformation over the past four decades. Australia’s leadership played a not-unimportant role in helping to shape that course with China’s top leadership at crucial choice-points in the past: in working through the development of China’s huge resource trade dependence in the mid-eighties and in extending unwavering political support and technical assistance along the road to WTO accession.

China’s achievement in lifting 800 million people of poverty in a relatively short time was the result of China’s profoundly changing the way it engaged with the rest of the world through these initiatives. Its reforms were propelled and deepened by the international rules that it signed on to and has substantially adhered to since accession to the WTO, the protocols of which were in fact far more demanding than those of other developing countries and even developed members at that time.

As Wang Gungwu argues in the first of this week’s lead essays, the rise of China that these reforms have enabled will not be easily turned back. ’This stems’, says Wang, ‘from the people’s belief in progress and their ability to combine the new with what was best in their past traditions. By being willing to learn so much from the modern West, China today is undergoing a totally different experience of rising again after a great fall’.

The development of domestic markets — a key element of Chinese reform that has not changed despite consolidation of the political control of the state — was entrenched by integration into international markets via trade, investment flows, technology transfers, people-to-people exchanges and the spread of knowledge. Last year 134 million Chinese travelled abroad, including the continuing stream of Chinese students who choose to study overseas.

‘Celebration of the seventieth anniversary of the PRC provides a chance’ as Yiping Huang argues in our second lead essay, ‘to reflect on its economic policy choices today. China’s experiment with the central planning system largely failed but adoption of the reform and open-door policies delivered an ‘economic miracle’ of unprecedented scale. The Chinese economy is at another important turning point. If the government can pragmatically adopt higher quality reform and open-door policies, it is highly likely that, by 2049, China’s GDP per capita would reach two-thirds of that of the United States, although its GDP growth might moderate considerable to 2.7–4.2 per cent’.

International markets presented China with opportunities greater than those available during Japan’s and South Korea’s periods of extraordinary growth. China’s seizing of these opportunities has enhanced global interdependence to a degree the world has never seen before, though that’s now under threat.

The emergence and the impact of the strategic resource trade relationship with Australia that assisted China’s successful industrialisation was one important consequence. Like Japan before it, China now has high trade shares with Australia. Australia–China goods trade topped AU$192 billion (US$130 billion) in 2018, having grown more than five times as fast as the world average in the last five years. China’s shares in total Australian trade last year at 30 per cent and for exports at 34 per cent, are running at 32 per cent and 38 per cent so far this year.

It’s properly functioning markets that have delivered these strong Australia–China trade results. Australia’s largest trade relationship is one that is interdependent with (not dependent on) China, which already draws 60 per cent of all its iron ore imports and a quarter of its imports of strategic raw materials from Australia, a proportion that continues to grow.

The impressive diversification of trade in goods and services following ChAFTA, over a five-year period of difficulty in the political relationship, is a measure of the power of international markets in continuing to shape the two countries’ bilateral economic relations.

The resilience of the Australia–China trade relationship depends fundamentally on both partners’ commitment to the international market system and the rules under which it has flourished. That system is the core of economic and political security in Asia, a system currently under threat.

Australia and China have common cause with their partners in the region in dealing with this threat. At the same time the political anxieties caused by China’s rise, partly but not wholly because of its different political system, have to be confronted frankly in Australia’s dialogue with China.

The core task is to enunciate the substantial strategic interests that both countries have come to share over the past 40 year, in a time of great change. That requires the boldness and vision that the leaderships of both countries have shown at critical turning points in the past. This task will be on-going. But the celebration of the anniversary of the establishment of the modern Chinese state might be a good time to begin.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

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