Mr Peter Varghese AO, recently retired Department of Foreign Affairs head, has laid out his vision of a possible new regional order.  The order aims to limit China’s regional strategic predominance when the US – intentionally or unintentionally – vacates this position. Achieving this is seen as requiring a novel form of a balance of power, a proposal sharply at odds with the Australian government vision of a rules-based order albeit not explicitly stated.  In differing to official orthodoxy, the proposal is worth carefully examining.

The China challenge for Peter is that the country seeks to place itself in the commanding centre of regional strategic arrangements “in a pattern reminiscent of the Middle Kingdom.” This ambition is steadily being achieved across Southeast Asia mainly through the workings of Chinese economic statecraft. This offers countries almost-irresistibly attractive economic and financial incentives, even though regional nations appreciate accepting these will progressively constrain their strategic options.  ASEAN states are being steadily drawn into China’s sphere of influence where China will determine regional institutional arrangements, effectively exercising veto power over individual country’s’ strategic choices.

The counter to China’s creeping sphere of influence is seen as a adopting a balance of power order. Given that China uses economic statecraft, this balance of power is not the classic military balance type International Relations theorists have long studied. Instead, this is a combination of economic and military power with the economic more important.  Moreover, this balance should “not [be] an orchestrated arrangement” but rather be ‘organic’ and gradually develop around the key players of the US, Japan and India. Peter declares that: “Australia can contribute…by strengthening its strategic engagement with …the Asian democracies, with priority given to Japan, India and Indonesia.”

The big question is whether such a grand strategy would succeed? In partly addressing this, two interrelated issues might be considered.

Firstly, there is a good understanding of how the threat, or application, of military power is used in a traditional balance of power strategy to constrain the state being balanced against. Less apparent is how economic power might be used in such a manner. The presumption is the approach is more sophisticated than a simple summing of GDPs. Today such a summation is greater than China’s (even using PPPs) and yet China’s sphere of influence aspiration is clearly advancing. A more elaborate approach appears necessary.

Reading between the lines, the notion implies that the US, Japan and India and others will seek to counter Chinese economic statecraft through building greater economic and financial linkages between themselves and presumably into threatened nations. These new linkages might then dislodge China as regional economic hegemon and make the states involved more economically robust in the face of Chinese strategic pressure.

Chinese statecraft however has an advantage in such machinations in that many major companies are effectively branches of the Communist Party and receptive to state direction. Comparable enterprises in the balancing nations are driven more by commercial factors and would need some well-considered market-based incentives to focus their activities as implementing the strategy requires. Moreover, while being ‘organic’ is stressed, the balancing nations do not have a combined economic heft sufficiently large to allow a duplication of effort with its inherent  ‘waste’.  Using economic and financial power to achieve the greatest impact across the various countries envisaged would require carefully coordination – not a hands off, hope-for-the-best approach.

Secondly, as may already be apparent the proposed strategy plays to China’s strengths. It is already the largest economy on a PPP basis and is steadily growing; its large population base gives it an internal market of considerable depth.  Moreover, the proposed strategy fixates on only one aspect of Chinese national power.

Chinese thinking has long incorporated a notion of comprehensive power where diplomatic, informational, military and economic power are combined and employed as an integrated package. China today uses comprehensive strategic partnerships to engage individual ASEAN states across a broad front. Countering China’s influence may require more than simple economic might – particularly when China is strongest in that area.  A comprehensive power strategy of our own might be more efficacious.

Indeed, China unsurprisingly has weaknesses in some areas.  For example, its diplomacy often appears ham-fisted apparently seeking regional anxiety rather than harmony.  This may be because the Party (and its media organs) play to the internal audience in a bid to create a strident, somewhat xenophobic, nationalism.  Even so, when China’s diplomacy is more restrained, it seems unwilling to accommodate others’ concerns – as the recent China-compliant Code of Conduct negotiations suggest.  On the other hand, for the Chinese Communist Party, the country’s Achilles’ heel is perceived as internal social instability. The Party’s legitimacy remains a persistent worry requiring constant vigilance and a focussed repression that sharply undercuts its soft power.

China’s sphere of influence is steadily growing. Peter’s vision implies that ASEAN is already lost except perhaps for Indonesia. This is a grim assessment with significant strategic implications for Australia (others think similarly). He is undoubtedly correct that “we…need a sophisticated strategy for dealing honestly with the strategic uncertainties which lie ahead.”

Dr Peter Layton is a Visiting Fellow at the Griffith Asia Institute, Griffith University.