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The concept of "Indo-Pacific" region and the "Belt and Road" Initiative

Remarks to the 7th World Peace Forum Panel, Tsinghua University, Beijing, 15 July 2018

The Indo-Pacific

While not yet universally accepted, the description ‘Indo-Pacific’ is perfectly suited to describe the region that is going to be at the centre of the action globally, both economically and strategically, for the rest of this century – particularly if it is understood as not just a maritime concept but a continental one, embracing the whole Asian landmass from West Asia to North East Asia.

We in Australia were the first to use this term in official statements, in a Defence White Paper five years ago, and we obviously like it because it includes the two oceans that surround us; because it reflects the reality that we have always looked geographically west as well as north and east; and because – at least on the map – it makes us, along with South East Asia, look like we are close to the centre of things!

Indonesia likes it for similar reasons, although ASEAN as a whole remains nervous that it might work to displace the idea of ASEAN ‘centrality’ which has run through the institutions like APEC created under the ‘Asia-Pacific’ brand. India likes it because it reflects the reality of its own vital role in the future of the region, and gives weight to the maritime realm where it feels strongest.

Japan likes the idea of being part of it because of its interest under Prime Minister Abe in playing a greater role in Asia and ensuring that it – and not just China – has a major role in developing infrastructure networks across Asia to Africa.

From the other side of the world, President Macron likes the terminology because France has both territories and a military presence in both oceans: liking anything which helps portray France as a global and not just a European power, he has talked in Australia recently of developing a trilateral strategy for the region with us and India.

For the United States, which has come late but enthusiastically to the Indo-Pacific label, one suspects that its main attraction for President Trump was that the term was not initiated or used by Barack Obama. But it is understandable that the US should embrace it, because it reflects the reality that it has long been an Indian Ocean as well as Pacific power, and is consistent with its aspiration to harness India (as well as Japan and Australia – and I will come back shortly to the issue of the ‘Quad’) into the role of counterweight to a rising and more assertive China.

One important difference between Australia and the US in talking about a ‘free and open’ Indo-Pacific is that for the US under its present administration, as made clear in its National Security Strategy paper last year, ‘free and open’ seems to have a primarily a political or ideological meaning, with the paper describing a ‘geopolitical competition between free and repressive visions of world order’ taking place there. But for Australia, as explained in last year’s Foreign Policy White Paper, our approach is to support a ‘free and open’ region in every sense of that term: we emphasise the crucial importance of trade and investment openness, and the direct connection between economic prosperity and strategic stability, looking to avoid strategic rivalry rather than fuel it.

So what is China’s response be to the ‘Indo-Pacific’ terminology? China has until now been much more reluctant to embrace the label, traditionally preferring to describe its neighbourhood simply as ‘Asia’ – understandably enough given its status until now as essentially a land-based, continental power. Just as it took some time to accept ‘Asia-Pacific’ terminology because of the way this brought the US into the picture, China might be forgiven for thinking that now bringing India into the equation is just another way of diminishing its centrality.

But the reality is that China is hugely dependent on the Indian Ocean and its littoral for its energy needs and a large proportion of its other trade; has huge aspirations both economically and geo-strategically for its Belt and Road initiative, extending west across the Asian land-mass to Iran and beyond, and south-west across the ocean to the Gulf and Africa; and is fully conscious that the rapidly accelerating economic and security connections between the Western Pacific and Indian Ocean are creating a single strategic system. On any view, China is an absolutely central player in the Indo-Pacific, and – provided the label is understood, as it should be, as referring not just to the two oceans but the landmass in between – there seems no strong reason for Beijing to resist its general adoption.

The Belt and Road Initiative

BRI is an infrastructure initiative of unprecedentedly ambitious size and scale, involving hundreds of projects co-funded and mostly built by China in nearly 70 countries who have so far signed collaboration memoranda of understanding, between them containing more than 60 per cent of the world’s population, and currently responsible for around one-third of the world’s output, with the BRI itself likely to increase that share in the future.

There is no shortage of Western scepticism about the BRI, most of it along the lines that China is using it to make developing countries more dependent on China, and in particular using debt in uncreditworthy countries to compromise their political independence, on the principle that the only free cheese is in the mousetrap. There is a particular concern that in return for debt forgiveness China will ask for port and other strategic infrastructure acquisitions which will give it new power projection capability. Another widespread criticism is that with inadequate transparency in their negotiation, graft is endemic in a number of the projects, and that BRI is being used to capture elites without much benefit to the broader population in a number of countries.

China has a variety of answers to these concerns, above all that deploying its capital, technology and engineering capacity will help millions escape poverty, just as it has at home, and that no deals are imposed on anybody. Other points made, on or off the record, are that to the extent that some countries do have political systems and behaviours that perpetuate high levels of corruption and equality, then economic development will over time alleviate these problems; that Western institutions’ lending practices are so risk averse that necessary projects are not being built and need China’s help to get off the ground; that China’s policy lending banks have already lost a great deal of money supporting economically unviable infrastructure projects around the world, and their tolerance for new nonperforming debt is not limitless; and that so-called ‘debt trap diplomacy’ can in fact be a counterproductive way of building influence internationally, a good example being Sri Lanka where, with local agencies mired in debt from some $8 billion of unviable projects, this has generated a substantial political backlash.

Although a number of these points are well made, it is clear that there are some improvements that could be made to BRI governance. In a recent article by Stanford scholars in Foreign Affairs the point was made that “Often it is unclear what the terms and requirements of the loans actually are –and most important whether they come with sovereign guarantees or are ‘non-recourse’, which would mean the loan is secured only by the project itself, and the lender would be on the hook if it defaults. This ambiguity renders it difficult for host nations to even quantify the extent of their indebtedness and possibly for China’s policy banks to accurately assess their risk-weighted liabilities.”

My own view is that the rest of the world should recognize the essential legitimacy of the scale and ambition of the BRI, welcome its potentially huge positive economic impact, be a little less anxious about its security implications, but nonetheless work to improve its governance, emphasising the importance of projects embracing international standards, accountability and best practice, including social and environmental impact.

That is essentially the position of the Australian government, which while not signing on to the BRI has not opposed it, and has signed an MOU on cooperation in investment and infrastructure in third countries, which can include Belt and Road projects.

While there were reports early this year that Australia was discussing with the US, India and Japan the establishment of a joint regional infrastructure scheme to rival the BRI, in an attempt to counter Beijing’s spreading influence, no details of any such scheme have emerged, and given the scale of the commitment that would be involved in even beginning to match China’s ambition it seems unlikely that it will, although it is the case that Japan in particular will want to go on being a major infrastructure investment player.

The Quad

These reports of discussions on the BRI between the Japan, India, the US and Australia have reinforced some Chinese anxiety that it is seeing the birth, or rebirth, of the ‘Quad’ as a polarising alliance dedicated to China’s containment. The idea of close military cooperation between these four countries was in fact born in a humanitarian context – our joint effort in response to the catastrophic 2004 Indian Ocean tsunami. It is true that, after a false start in this direction in 2007, the idea is being reborn as a more overtly strategic response to China’s new assertiveness in the Indo-Pacific, and in particular the South China Sea. But it has not yet developed further than four-way talks between each country’s admirals, with India remaining reluctant to have Australia join its annual Malabar naval exercise with the US and Japan.

My own view is that China’s actions in the South China Sea – in rejecting the Hague Court determination, and taking significant steps toward militarising the reefs and rocks on which it has built significant installations – has, more than any other of its international actions, involved unfortunate overreach; that if that overreach continues it has to expect that to be met by some pushback from other players within the region; and the re-emergence of the Quad, even in its current very modest form, is sending a legitimate message of that kind.

That said, it is in absolutely no-one’s interest for tensions in the Indo-Pacific region to escalate, and not at all helpful for perceptions to grow that the Quad is any kind of major new containment enterprise. In my view the Quad should be seen – and characterised by its participants – not as a grand new strategic alliance, but rather simply as a mechanism for greater working level foreign and security policy dialogue and military-to-military interaction in a newly uncertain environment (and a mechanism for which the particular attraction for Australia is closer engagement with India and Japan, not just relying on the US).

It can hardly be denied that the strategic environment in the Indo-Pacific is uncertain, and likely to remain so for the indefinitely foreseeable future. The task for all of us is to firmly embed a mindset throughout the region that it is only through international cooperation – not endless rivalry and confrontation that can all too easily end in tears – that we can ensure a stable, secure and prosperous future for all our peoples.