The false Pacific dilemma of choosing between U.S. and China

BEIJING, Oct. 9, 2019 — Chinese President Xi Jinping meets with Solomon Islands’ Prime Minister Manasseh Sogavare at the Diaoyutai State Guesthouse in Beijing, capital of China, Oct. 9, 2019. (Photo by Yao Dawei/Xinhua via Getty)

For some observers, the signing of the China-Solomon Islands Treaty has opened a can of geostrategic worms for the Pacific (Australia, NZ and FICs), presenting a false dilemma that FICs ought to choose who is to be their major strategic partner, the United States or China.

Australia’s Government has already chosen, as signalled by their signing up to the AUKUS Treaty and new Foreign Minister, Penny Wong’s visits to the Pacific just days after taking office.

 However these choices are not so clear, or even desirable, for Forum Island Countries (FICs) in the Pacific, who have been nonplussed—and a few delighted—by the flurry of diplomatic visits by representatives from China, U.S. and Australia, over the last month.

I suggest that it would be far more sensible for FICs to take the position that they do not need, and should not have to choose between superpowers.

This position makes enormous sense when one realises from the World Bank’s statistics presented in this article that the past superpowers are not the superpowers of today, and will definitely not be the superpowers of the future.

These graphs make clear which superpowers will have the long term financial capacity to fund FICs’ enormous needs for development aid and infrastructure projects, including those responding to counter climate change.  

The statistics here should also drive home the message that Australian Foreign Minister Penny Wong has already articulated, that Australia cannot compete in aid to the FICs. Wong might want to listen to genuine Pacific voices, as to exactly what kind of economic, political and social relationships they would like with Australia and NZ.

Unfortunately, I suspect Australian Government advisers will continue to follow the paths determined by decades of Australian aid contractors whose use of billions of Australian taxpayer funds, have abjectly failed to deliver the fealty of FIC governments or their peoples. But first, which Pacific partners will have the economic capacity to be superpowers of the future?

The position of the superpowers

There are many statistical indicators on the World Bank Database which can be used to assess the relative economic and financial strengths of the superpowers to engage in costly international development aid. These indicators may change in absolute values but the relativity of one superpower to another does not change significantly if different criteria are used.

Graph 1 shows what some economists have said for several years- that the Chinese economy is already larger than that of United States, for instance as measured by Gross National Income (Purchasing Power Parity) in international dollars (billions).

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The GNI of other superpowers (France and UK) are a mere fraction of China, with Australia being just 6% of China’s GNI. All developed countries struggle to maintain their aid budgets, especially when their own economies are in trouble, for whatever reason.

Just as important in terms of giving foreign aid are the Foreign Reserves of the superpowers.

Graph 1b shows the incredible strength that China has in its foreign reserves (including gold).

The United States has just over one quarter of China’s Foreign Reserves. Australia has a mere 2% of China’s reserves.

This relativity has existed for more than 15 years. How quickly western superpowers have forgotten that it was China and its foreign reserves that saved the west from the Global Financial Crisis.

Future Economic Strengths?

The previous two graphs indicate only the current relativities of economic strength. But what does the future hold? The trends are astonishing. I just go back to 2004, so as to have a rough linear trend (to go back further would be frightening given China’s almost exponential growth). Graph 2a shows the incredible growth path of China relative to U.S.. 

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If these growth paths are maintained by both countries, then Graph 2b shows what the two countries’ Gross National Income would be in 10, 20 and 30 years from now.

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Remember that 2050 is the ultraconservative (and futile) target year for reducing global carbon emissions to prevent catastrophic climate change. Most of today’s young voters will still be alive in 2050, unlike some of us.

The growth of the red bars (China) relative to the blue bars (U.S.) is obvious. But the margins are also growing. The black bars show the percentage gap that China will have over US in ten, 20 and 30 years from now. While the margin is currently 13%, by 2050, the Chinese economy will be 50% bigger than the U.S., with all the extra resources that entails for distributing around the world as strategic aid and investment.

Readers might well ask, what guarantee is there that these trends will continue over the next 30 years? Of course, there are none.  Disasters can happen to any economy. But one indicator that economists can use is the percentage of national income that a country saves and invests for the future. 

I remind readers that any household that saves more and invests more, will normally lead to higher incomes in the future. Consumerist households that consume more of their income and save less, are not likely to grow their incomes as fast into the future.

So Graph 2c gives national savings as a percentage of GDP and investment (Gross Capital Formation) as a percentage of GDP, for not just China but also the other Superpowers.

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China is in a class of its own, with 44% saved and 43% invested. The others are much lower with Australia and NZ below 25%, while U.S. saves only 19% and invests 21%.

With Chinese technology and research and development advancing by leaps and bounds in all spheres of human endeavour (including digital technology, space and ocean research) the writing is surely on the wall.

But internal pressures on China?

Readers should not be too misled by the graphs on national economic strengths in this article.  What of the lives of the average Chinese citizen?  It would be remiss of me not to point out the enormous pressure there is on Chinese governments to improve the standards of living of the Chinese masses.

Many development economists have marvelled at the economic miracle that China has performed in the last 30 years, in raising more than 400 million people out of abject poverty. India has come nowhere near this incredible performance. But the bulk of the ordinary Chinese citizens are still poor. Graph 3 shows that the U.S. GDP per capita (a rough indicator of incomes and living standards) is a massive six times (US$65 thousand) hat of China (US$10 thousand). 

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Even these are of course national averages. In China, there are vast numbers of rural Chinese families who are still living in abject poverty and whose needs the Chinese political leadership must keep in mind if they are to hold China together as a nation.

China also faces many fundamental challenges such as its rapidly aging population, the very natural desire of couples to have more than one child (now accepted by the political leadership) and the demographic reality that the proportions of persons of working age (who can support the elderly and the young) will keep falling because of the “one child policy” of fifty years ago.

To maintain their high economic growth rates and with China being well and truly integrated into the global economy for both inputs and outputs, there is every pressure on the Chinese political leadership to improve its international economic co-operation especially with developing countries in Asia, Africa and the Pacific.

Of course, essential objectives are to secure supplies of raw materials (from land and oceans) and other crucial goods and services, while maintaining free access to markets for Chinese goods and services. 

All other superpowers have done that over the last two centuries including Britain, France, United States and Japan. Some have had the ‘pleasure’ of captive colonies and neo-colonies, often gained through warfare. China has not had the ‘pleasure’ of enjoying colonies and far from waging wars abroad, has itself been a humiliated victim of aggression by other superpowers.

Why would any superpower or FIC begrudge China’s attempt to get FICs to sign a Treaty which will put their relationships on a common formal footing, instead of having to negotiate with each and every small FIC?

Let us remember that U.S. also has its agreements with the former Trust Territories, France totally controls New Caledonia and French Polynesia, and Australia and NZ have their official networks through organisations like Forum Secretariat and Pacific Community.

And it was not too long ago that Western attempts to box in Japan contributed to Japan entering WWII alongside Germany.

Might Machiavellian attempts to “box in” an even more powerful China also lead to less than peaceful outcomes? Heaven forbid.

What poor FICs need

Discussions about FICs signing treaties with each other or being part of the Australian “vuvale” (family) might imagine that these are perhaps roughly “equal partners”. 

But most IB readers will know that some of these FICs are “poor” and that their political leaders, after decades of political independence, are still struggling to improve the ordinary people’s standard of living.

Yet few international IB readers will know how abjectly poor they are, relative to the superpowers who attempt to manipulate their geopolitics such as U.S..

Take Timor Leste, with a per capita GDP of a mere $1,584.  Who would blame its President, Jose Ramos Horta, of wanting to develop stronger ties with China to facilitate more development aid.  They have not forgotten the less than honest negotiations with Australia over the sharing of gas royalties in the Timor Sea. 

Or take Solomon Islands with an average GDP per capita of US$2,344 which hides massive regional inequalities (such as much worse poverty in Malaita) which have resulted in civil unrest for decades. Who would blame Prime Minister Sogavare if he sees China as a new source of inflows of foreign aid and investment that might take Solomon Islanders out of their poverty trap.

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All these FICs have had extremely poor growth paths over the last 30 years, even the resource rich Melanesian countries (like PNG, Solomon Islands and Vanuatu) whose natural resources (land and sea) have been plundered without any domestic value adding.

What they need from good donors are not dollars flying in and out, but investment in infrastructure and natural resource value-adding, which could lead to sustainable high rates of growth over the next three decades.

Simultaneously, they need all the employment opportunities in Australia (and NZ) that have been put on the table by the new Government.  They also need the wide social integration through sports, arts and the media, that can really bind the Pacific people to Australia and NZ.

None of this means that China should be excluded from similar relations with FICs.

A “Pacific” Solution

Many historians believe that the changes of the strengths of global empires are to be first seen not in the “centres” like Rome or London or Paris or New York, but in their peripheries. Without any doubt, the Pacific is such a periphery where one can observe the changes in the relative strengths of superpowers, however they might deny that the process or resist the change.

Some ten years ago at a donor dialogue meeting driven by U.S., I asked why the organisers had not included China, also then an emerging Donor.  The replies by the organisers talked about difficulties with “visas” (Islands Business March 2011).  Today, just ten years later, Chinese officials apparently have no difficulty in entering any FIC and several FICs have signed Treaties to guarantee that, and probably much more.

In the recent media debates about the China-Solomon Islands Treaty, many observers in the Australian media have accused Chinese officials of using “brown paper bag” diplomacy to attain their objectives. No one has asked why China has not been invited into all the regional donor organisations or even a new one created, so that all aid flows are transparent and on the table.

The Pacific has some solid political leaders like Samoa’s Fiame Naomi Mata’afa, who could try to encourage FICs to broker some kind of peace between the US and China, and the Pacific mini-Powers like Australia and NZ. Perhaps the Pacific periphery can be a location of new “Pacific” relations between the superpowers.

Professor Wadan Narsey is a Former Professor of Economics at USP and Adjunct Professor, James Cook University, Queensland.