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Address to Asia Society Hong Kong

July 29, 2013

Check against delivery, acknowledgements omitted

I’d like to start by quoting someone familiar to you all.

Even for a Tory, Chris Patten has had a fascinating career – but he’s most famously remembered for his time here in Hong Kong.

In his 2008 book, What Next? Surviving the 21st Century, he takes the broadest of perspectives about the world we’re living in.

But he says something acutely personal about the role he played here in 1997:

As the last governor of a large British colony . . . I found myself wielding authority over mainly ethnically Chinese men and women, in an exercise of anonymous sovereignty that was recognised in quiet practice, though not in public declaration, by the future sovereign power in Beijing, a sovereign power from whose authority a large proportion of Hong Kong’s population had once fled.

There is menace in that thought.

The challenge, and fear, of a democratic government transferring sovereignty to an authoritarian power with an unknown – and unknowable – future mood.

The handover in 1997 was a powerful symbol of the great transition of our time.

The massive eastward shift in global economic and strategic gravity.

We’ve seen other symbols of that change, since then –

• The Global Financial Crisis
• China emerging as the second largest economy in the world
• China emerging as a lender to the debtors of the developed world

But – perhaps because of the long arch of history involved in the handover – Hong Kong’s return to China in 1997 seems such an intimate, human symbol of that change.

The China story is the narrative of our times – and the fate of Hong Kong is a unique, integral, distinct and symbolic part of that narrative.

This is the great story.

When I get together with other foreign ministers in Asia, what we talk about is China.

We agree on the topic.

But there is plenty of disagreement about China’s prospects and its aims and intentions.

Where is China heading?

How fast can it continue to grow?

Does it want to reshape the international system? How and to what extent?

Can it re-balance its economy?

What sort of a power will China be in twenty or thirty years’ time?

How will its society, economy and political system evolve?

Today, wisely, I won’t attempt to solve all those puzzles.


The success of Hong Kong

But what has happened in Hong Kong since 1997 gives us some cause for optimism.

I don’t want to overstate the successes.

Much work remains to be done if Hong Kong is to come to enjoy the full fruits of democratic freedom, particularly universal suffrage.

But 16 years after the handover, citizens of Hong Kong enjoy a high degree of autonomy.

Marches and demonstrations take place.

Between March 28 and early May, the long-running sit-in protest by the Union of Hong Kong Dockers was ultimately successful.

Thousands of protestors were involved, pushing for a 17 per cent pay rise – and achieved nearly 10 per cent.

On June 4, the annual Tiananmen Square vigil attracted tens of thousands of people – despite heavy rain.

The Hong Kong press remains lively, its efforts supported by legislators.

In the courts, Hong Kong retains an active and independent judiciary.

As I say – I do not want to overstate the successes.

The health of democracy in Hong Kong remains a live issue.

Australia’s social, political and economic links with Hong Kong give us a substantial stake in its continuing success under the “one country, two systems” formula.

But Hong Kong has been – and remains – an extraordinary success.

We in Australia have known Hong Kong’s importance for decades.

For us, it has been a bridge into greater China.

Australia’s sixth most important source of total foreign investment ($42 billion, 2012)

Our 15th largest market for goods exports ($2.6 billion) – and an important market for services ($1.7 billion, 2012).

Our leading business base in East Asia.

With more Australians living here than any place in the world, outside of Australia and – of course – London.

90,000 Australians live here – and nearly as many (75,000) people from Hong Kong live in Australia.

Hong Kong has built its stability and prosperity on transparency, the rule of law and a high standard of civil and political freedoms.

Australia strongly supports the democratic principles embodied in Hong Kong’s Basic Law.

We support progress towards the Basic Law’s goal of universal suffrage as soon as practicable, in accordance with the legitimate aspirations of the citizens of Hong Kong.

China has recognised Hong Kong’s importance.

Its value as a trading and financial hub.

That foreign businesses come here relying on the rule of law, even as they seek to make closer access into mainland China.

In the end, Hong Kong’s success would be imperilled by any heavy-handed approach that unwound the rule of law and freedoms on which it relies.

Likewise, China’s success depends on the leadership’s efforts to open up China’s economy and society more broadly.

For me, Hong Kong is a symbol of what might be achieved, if China is successful in its efforts to drive reform.


China’s reform agenda

I’d like to talk about that reform – China’s economic and political reform – in my remarks today.

Australia is supportive of China’s growing prosperity and development.

We welcome its re-emergence.

It is worth reminding ourselves of this fundamental point.

China’s development and its increasing enmeshment with the international system has been an explicit aim of Australian policy since the 1970s.

And the policy of other governments, including the US.

We did not make it happen – credit lies with the Chinese people – but we have assisted, welcomed and benefitted from China’s rise.

We have got what we wanted.

We now see a more prosperous and stable China, one that is becoming more integrated into the global system, as befits China’s growing power and influence.

As this Australian Government has said and reaffirmed in successive statements, including this from the Asian Century White Paper:

We welcome China’s rise, not just because of the economic and social benefits it has brought China’s people and the region (including Australia) but because it deepens and strengthens the entire international system.

Understandably, in Australia, we focus on how the changes wrought in China affect us – Australia’s economy, our jobs, our future security and prosperity.

We are learning about engaging with and adapting to a re-emerging great power.

For China, a position of influence on and deep engagement with the outside world is not new.

I have spoken before about the re-emergence of China and India as economic powers.

Having fallen in relative stature to western industrialised nations over the last two hundred years, China, like India, continues to rise.

It has not just transformed itself but the world around it.

American scholars Nathan and Scobell in their book China’s Search for Security argue China is one of only a few countries with significant interests in all parts of the world, whose voice must be heard on every global problem.

As they say:

Great power is a vague term, but China deserves it by any measure: the extent and strategic location of its territory, the size and dynamism of its population, the value and growth rate of its economy, its massive share of global trade, the size and sophistication of its military, the reach of its diplomatic interests, and its level of cultural influence.

Before the transformation unleashed by its economic reform program, China had the size and the population of course, but not the dynamism, the economic growth, the trading interests, the cultural influence or the military sophistication.

As you know, I accompanied then Prime Minister Gillard to China in April.

The Government achieved a long-standing objective.

We created new bilateral architecture to underpin the further development of our relationship.

With China, we agreed to conduct annual leader level meetings.

To establish an annual foreign and strategic dialogue between foreign ministers.

And an annual strategic economic dialogue between the Treasurer and the Minister for Trade and Competiveness with the Chairman of China’s National Development and Reform Commission.

We want regular and structured high-level contact with China’s leaders.

So we can discuss our growing range of common interests, and deal with differences that arise.

This government-to-government framework will be important.

But it is only a part of a growing web of connections between our countries.

Like our increasing financial links – look at direct trading between our currencies, and the Australian Reserve Bank’s decision to hold 5 per cent of its reserves in Renminbi.

Businesses, students, tourists, academics, artists and others will join governments at all levels in forging the future of our relationship with China.


A society transformed

When I look at China today, even though I have visited many times, and read countless books, I am still astonished by the pace of change.

Change we’ve already seen – and change still coming.

We take for granted, it seems, the modern cities, the rapidly expanding e-commerce market, the freedom of Chinese to travel abroad in record numbers, the very fast trains, the space program and more besides.

There are other markers of change, some well-known, others less so, including the rapid ageing of China’s population.

The number of 15- to 24- year-olds, the mainstay of factories, will fall by a third by 2025, to 162 million by 2025.

Those aged 65 and over will surge 72 per cent to 196 million.

Young Chinese will be under greater pressure than ever before to support their parents and grandparents.

China will grow old before it grows rich.

China is still a developing country.

But its per capita GDP has jumped from US$202 in 1980 – to $6,076 in 2012.

Since that time, China’s economy has grown by 2,000 per cent and its per capita income has increased nearly 30-fold.

In reducing poverty and gender inequality, and improving health and education, China has made great strides.

China is one of only a few developing countries that is on track to achieve the millennium development goals.

In that time, China has moved from being peripheral to global flows of trade and investment to the central player it is today.

From a country that was largely isolated, poor and deeply suspicious of the outside world, to one that is at the heart of global commerce, increasingly wealthy and more open to outside influences than arguably it has ever been.

I also know that this transformation is incomplete and has brought with it new problems and challenges, as China’s leaders are at pains to point out.

China is well on the way to becoming an urban society.

13 million people each year, nearly half our national population, move from country to city.

Two-thirds of Chinese – up from half – will live in cities by 2030.

We all know that this process of change will rely, in part, on the resources and energy which Australia will continue reliably to supply.

But it goes beyond resources.

As the then Australian Prime Minister said in Beijing in April:

I want China to find in Australia a welcome friend rich in the skills and knowledge which underpin civic life: from regulatory and legal standards for urban planning and construction, to health and welfare services, to complex infrastructure like water management and sanitation.

Chinese society is renowned for the importance it attaches to education.

The effort expended in acquiring knowledge, remains it seems to me a sign of virtue.

It’s not just how much you know, but how hard you work and the sacrifices you make that matter.

Chinese society is now debating whether its current methods and its current examination system will give it the sort of graduates it needs in the future.

How to foster creativity and critical thinking.

However this develops, I think we can be sure that the Chinese we deal with in the future will be better educated than ever before.

6.8 million Chinese graduated from university in 2012; it was just 926,000 in 1995.

China produced nearly 49,000 PhDs in 2010 up from just over 14,000 in 2002, and 90 per cent of these doctorates were in science and engineering.

China won’t eclipse the United States as a generator of ideas and scientific research, but it will catch up fast.

By 2030, China is expected to have up to 200 million college graduates, more than the entire workforce of the United States.

More significantly, China is now second only to the US in terms of academic papers published, and could take first place by 2020.

That progress is reflected in China’s scientific and technological prowess.

The return of the three-person crew of Shenzhou (shen – joe) 10 from Earth orbit, with a spectacular landing in the Gobi Desert.

This was the fifth Chinese crew to orbit Earth and the second to dock with China’s space station.

Only three countries have human spaceflight programs: the US, Russia and China.

Today, China is the only country with a lunar human spaceflight program.

Mission by mission, China is building the technical capacity and flight experience to make it a leading space-faring nation.

It appears likely that the next words spoken on the moon will be in Mandarin.

And at home, the massive Chinese retail market is changing.

Half a billion Chinese are online.

On current trends, in 5 years, one in six people on the internet will be Chinese.

China is set to overtake USA as the biggest online retail market by 2015, exceeding US$335 billion, and the biggest overall retail market by 2016.

By 2022, China will probably account for almost one quarter of global retail sales.

And already, there are more tourists from China than any other country.

Chinese overtook Americans and Germans in 2012 as the world’s top international tourism spenders, with 83 million people spending a record US$102 billion.

By 2015, 100 million Chinese will travel abroad, according to the UN.

Its people are engaging with the world, making contacts globally and influencing the outside just as they have in turn been influenced.

As President Nixon said in 1967, five years before his historic visit to China: there is no place on this small planet for a billion of its potentially most able people to live in angry isolation.

Well, these able people are now shaping the world around them.

And there’s no going back.


Reform challenge for the new leadership

But as its own leaders freely admit, China faces immense economic, social and environmental challenges:

How to tackle corruption.

How to sustain economic growth while rebalancing the economy towards a more sustainable growth path.

How to reduce the dominance of state owned enterprises in key sectors of the economy.

How to deal with the environmental damage caused by breakneck development.

The urgency of reform has been a constant refrain from China’s leaders.

On the economic front, the signals and indications are positive.

But the reform task now has a complexity that Deng and others did not face.

Greater internal and external scrutiny, higher public expectations and a wider array of vested interests.

Over decades, China has built a legal system.

Now, Premier Li has made deregulation a prominent goal of his administration.

He has said: we must leave to the market what the market can handle, and entrust to the society what society can do.

I won’t predict how successful this economic reform will be.

In recent weeks The Wall St Journal sounded a pessimistic note.

The Journal argued the old economic model – export and investment-led – was starting to run out of steam.

That the financial straitjackets imposed by the state – and cheap loans to manufacturers – were depressing, rather than supporting, consumer spending.

That household consumption as a proportion of GDP was actually shrinking.

As I say, I won’t predict how successful China’s economic reform will be.

But my dealings with China’s new leaders tell me that they are determined, confident and pragmatic, important attributes given the difficulty of the reform challenge they confront.

The economic transformation that China is undertaking will have profound consequences.

Changing patterns of trade, investment and consumption in China suggest greater, but also different, opportunities for Australia.

More opportunities for agricultural exporters as Chinese consume more meat and dairy products.

More opportunities for services exporters, including in aged care, insurance, financial services and urban design.

Continuing demand for a stable supply of energy and natural resources.

A re-balanced Chinese economy might mean, however, lower levels of growth.

Though we are optimistic about China’s economic trajectory, we are not naïve.

Much will depend on the reforms being debated in China at present.

These will need to include greater access for foreign companies in key sectors, including in services.

And a more stable and transparent regulatory environment, with better protections for intellectual property, as investors everywhere demand.


Political reform

Political reform is another vital question – and an unavoidable dilemma for China’s leaders.

Clearly, what China’s leaders mean by political reform and how the term is understood in countries such as Australia are very different.

President Xi has made tackling corruption a major theme, saying that “power should be reined in within the cage of regulations”.

Premier Li has spoken of the prospects for reforming the re-education through labour system.

There has also been much discussion within China and internationally about President Xi’s ‘China dream’.

How will this dream balance the aspirations and rights of individuals with China’s national goals?

In Australia, we believe that a China that better respects and protects human rights, that fully adheres to its human rights commitments, will be a stronger China.

The rights of individuals and their protection under law will not weaken the Chinese nation but strengthen it.

We can see the pressure for change on key issues, such as air pollution and food safety.

Chinese citizens want improvements in their daily lives and hold government officials to account.

China’s transformed society has growing demands and an expectation that it can debate issues freely and openly.

This is now the context in which further debate about reform will take place.


China’s engagement with the world

Which brings me to China’s engagement with the world.

At present, we are seeing a concerted charm offensive.

Witness the array of world leaders travelling to Beijing since the transition.

The competition for China’s time, attention and cooperation is intense.

Australia’s new bilateral architecture will give us the sort of regular high-level interaction we need to manage our growing range of interests with China, just as the demands on the Chinese system intensify.

What we were able to achieve was the sort of mechanism we have not had before and very few other nations have to enable systematic, high-level discussions.

We have much more than bilateral issues to discuss.

We are working with China in the United Nations Security Council on issues such as North Korea.

Next year Australia hosts the G20, in which we cooperate closely with China.

Next year, too, China will host APEC, a forum that has always been important to Australian diplomacy.

Looking ahead, our engagement on foreign and strategic issues will be more intense and cover a wide array of subjects.

We want to continue discussions with all key countries in the region about common challenges, including those of a strategic nature.

Even on issues that cause tension, such as maritime disputes, there are important principles that ought to be discussed at regional forums, such as the East Asia Summit.

We don’t take a position on competing maritime claims in the South or East China seas.

But we do rely on freedom of navigation in this region for our security and prosperity.

We continue to call on all parties, including but not only China, to resolve their differences through peaceful means, in accordance with international law.

Australia’s Defence White Paper sets out clearly our view that the US – China relationship is the most important determinant of our strategic outlook.

We know there will be competition between these two great countries.

But we also know that the level of cooperation, economic integration and engagement is significant and growing.

David Shambaugh, recently wrote in The New York Times:

China’s most important relationship (with the United States) … is now a combination of tight interdependence, occasional cooperation, growing competition and deepening distrust.

I don’t think the picture is quite that bleak.

My discussions with key figures in Beijing and Washington make it clear that both sides are profoundly aware that they have a stake in the other.

Both sides are looking to increase, not limit, their cooperation.

And they are both looking at building a stronger relationship at the political level.

We focus naturally on China’s impact on the outside world.

But it is the internal challenges that preoccupy China’s leaders.

Even as China’s global influence grows, the leadership will be internally-focused.

Consumed with the challenge of development, economic transformation and meeting the demands and aspirations of a better educated and more globally connected population.

China is already a major power and one whose influence will increase.

We are preparing for a future in which China is more prosperous and more influential.

China’s development as a constructive regional and global player is something we welcome and believe will be to the great benefit of our country and people.

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