With a projected cost of more than US$1 trillion, it may be the most ambitious infrastructure project undertaken in human history. The country hopes it will all be completed by 2049, the 100th anniversary of the founding of the People’s Republic of China. My research in international economics with particular reference to China shows that Beijing has both economic and political plans for how these investments will pay off.
A rapidly growing China needs reliable access to energy. The Belt and Road Initiative includes pipeline construction and other building projects in oil- and gas-rich central Asia.
As these countries get more closely tied to the Chinese economy, they also shift into the range of its political efforts, sparking several concerns about the country’s motivations. Navy analysts have called China’s growing control of ports in Asia – including Hambantota, Sri Lanka; and Gwadar, Pakistan – an effort to assemble a “string of pearls” with which it can dominate much of Asia.
Recent reports suggest that Chinese investment in the Belt and Road Initiative – and international interest in Chinese funding – is slowing. In part that may be because, predictions and analysis aside, nobody knows for certain what China is aiming for – except to boost its own side in its rivalry with the U.S.
Looking at the state of policy on energy and climate change in Australia, it’s tempting to give in to despair. At the national level, following the abandonment of the National Energy Guarantee last year, we have no coherent energy policy and no serious policy to address climate change.
In this context, the announcement of two separate inquiries into the feasibility of nuclear power (by the New South Wales and federal parliaments) could reasonably give rise to cynicism. The only possible case for considering nuclear power, in my view, is that it might provide a way to decarbonise our electricity supply industry.
The submission was picked up by the national media, which largely focused on my proposal to lift the state ban on nuclear power and implement a carbon price.
The reception from commentators on the right, who want the ban lifted, and from renewables advocates, who want a price on carbon, suggests a middle ground on nuclear power may be achievable.
The three big problems with nuclear power
Three fundamental problems arise immediately when considering the prospect of nuclear power in Australia. First, the technology is expensive: more expensive than new fossil-fuelled power stations, and far too expensive to compete with existing fossil fuel generators under current market conditions.
Second, given the time lags involved, any substantial contribution from nuclear power in Australia won’t be available until well beyond 2030.
Third, given the strong public opposition to nuclear power, particularly from the environmental movement, any attempt to promote nuclear power at the expense of renewables would never get broad support. In these circumstances, any investor in nuclear power would face the prospect of losing their money the moment the balance of political power shifted.
On the first point, we have some evidence from the contract agreed by the UK government in for the construction of the Hinkley C nuclear power plant. This was the first new nuclear construction project to be approved in an OECD country for a number of years.
The agreement to construct Hinkley was based on a guaranteed “strike price” of £92.50/ megawatt hours (MWh), in 2012 prices, to be adjusted in line with the consumer price index during the construction period and over the subsequent 35-year tariff period. At current exchange rates, this price corresponds to approximately A$165.
Prices in Australia’s National Electricity Market have generally averaged around A$90/MWh. This implies that, if new nuclear power is to compete with existing fossil fuel generators, a carbon price must impose a cost of A$75/MWh on fossil fuel generation.
Assuming emission rates of 1.3 tonnes/MWh for brown coal, 1 tonne/MWh for black and 0.5 tonnes for gas, the implied carbon price ranges from A$50/tonne (to displace brown coal) to $150/tonne (to displace gas). On the basis that nuclear power is most plausible as a competitor for baseload generation from brown coal, I considered a price of A$50/tonne.
A blueprint for reform
The central recommendations of my submission were as follows:
Recommendation 1: A carbon price of A$25/tonne should be introduced immediately, and increased at a real rate of 5% a year, reaching A$50/tonne by 2035.
Recommendation 3: The parliament should pass a motion:
affirming its confidence in mainstream climate science and its acceptance of the key conclusions of the United Nations’ Intergovernmental Panel on Climate Change;
legislating a commitment to emissions reductions;
removing the existing ban on nuclear power.
Let’s all meet in the middle
Rather to my surprise, this proposal received a favourable reception from a number of centre-right commentators.
Reaction from renewables proponents, on social media at least, was cautious. But it did not indicate the reflexive hostility that might be expected, given the polarised nature of the debate.
There are immediate political implications of my proposal at both the state and federal level. It will be more difficult for the Coalition-dominated committees running the two inquiries to bring down a report favourable to nuclear power without addressing the necessary conditions – including a carbon price. If the government’s hostility to carbon pricing is such that a serious proposal for nuclear power cannot be considered, it will at least be clear that this option can be abandoned for good.
In the admittedly unlikely event that the Coalition government shows itself open to new thinking, the focus turns to Labor and the Greens.
Given the urgency of addressing climate change – a task that is best addressed through a carbon price – it makes no sense to reject action now on the basis that it opens up the possibility of nuclear power sometime in the 2030s. And, if renewables and storage perform as well as most environmentalists expect, nuclear power will be unable to compete even then.
It’s been two years since the government announced it would establish a Home Affairs portfolio, and just over 18 months since it came into being. Since then, the department, and its high-profile minister and secretary, have attracted much controversy, discussion and criticism.
The latest debate centres on concerns that Home Affairs Minister Peter Dutton is further consolidating power with legislation that would prevent foreign fighters from returning home for up to two years and the recent decision to move refugee services into his department.
There’s also been criticism that the portfolio is cloaked in secrecy, with some questioning why an internal strategic review of the ministry has not been made public.
Are we seeing an unprecedented consolidation of unregulated power? Or is there a reasonable story of good public policy behind the headlines?
Creating a single defence portfolio
These questions need to be placed in the context of both history and broader developments in home affairs policy.
We’re used to having a single Department of Defence in Australia. But it was only 40 years ago that the momentous decision was made to consolidate five departments — including one for each of the armed services — into a single agency.
There was push-back at the time from some agencies, and also a focus on the high-profile personalities involved in the process, including Defence Secretary Sir Arthur Tange, and his relationship with ministers and service chiefs.
Decades later, the Department of Defence remains a large but effective organisation with a joint strategic and operational command, supported by a capable department. But its strategically important role and the significant resources needed to do its job mean it continues to require close management, attention and review.
Last year’s decision to take the Australian Signals Directorate out of the department shows it remains a work in progress, but one that continues to head in the right direction.
The lesson is that significant change in important areas of government policy, operations and services takes time, accompanied by ongoing review and revision.
Competing agencies and priorities
Before the Home Affairs portfolio was created, there were numerous security issues that cut across government agencies and demonstrated the need for a more strategic approach and greater collaboration among agencies.
The crisis around the unauthorised boat arrivals in the late-2000s, for example, created significant tension between the Department of Immigration and Citizenship (DIAC) and the Australian Security Intelligence Organisation (ASIO).
The high number of arrivals saw demands to speed up immigration visa processing. But ASIO was seen as delaying the process as it had to ensure the largely undocumented arrivals presented no security threat.
It was challenging for the two agencies, with such different responsibilities, to work through these issues. There was also pressure on the Australian Defence Force to provide the operational response at sea, and on law enforcement and customs officials investigating people-smuggling operations and other related crimes.
The agencies worked reasonably well together, but were often constrained due to their separate roles and protocols that did not support collaboration. They got through the crisis, with a lot of effort.
Counter-terrorism has been another major cross-agency issue. ASIO handled terror threat advisories and terror investigations (along with the police), while the attorney-general’s department oversaw countering violent extremism (CVE) policy.
The prime minister’s department was home to senior counter-terrorism and cyber-security coordinators, and the departments of defence and foreign affairs and trade ran their own counter-terrorism initiatives.
There was no single agency responsible for providing strategic policy direction on the issue until the establishment of Home Affairs.
One strategic policy home
The advent of Home Affairs means that complex and sometimes competing priorities have a strategic policy home and can be worked through at a portfolio level.
Immigration and ASIO are now in the same portfolio. Other agencies have also been added to the mix, including the Australian Border Force (ABF), the Australian Federal Police (AFP), the Australian Criminal Intelligence Commission (ACIC) and the Australian Transaction Reports and Analysis Centre (AUSTRAC).
Even in the short period since its creation, Home Affairs has made progress in providing more effective operations and services, supported by enhanced information sharing and technical capabilities.
For example, the department now has dedicated leads overseeing cross-agency efforts on counter-terrorism, cyber-security, organised crime and foreign interference.
Yet, the breadth of issues handled by the portfolio has also raised concerns about consolidation of power.
But most of the Home Affairs agencies are separate statutory authorities, retaining the independence and power established in their roles. The heads of ASIO and AFP, for instance, provide advice directly to the prime minister and cabinet when required and carry out their own operations.
The most important issue facing Home Affairs is the need for clear communication to the public on what the department does, why it’s important, and how its work is carried out. That must also include assurances the department has appropriate oversight and accountability systems in place.
This is easier said than done in the highly charged political atmosphere that’s surrounded Home Affairs since its inception.
It’s good news, then, that Labor chose to establish a shadow home affairs minister after the federal election, thereby working with the new Home Affairs arrangements and letting the portfolio as a whole settle down.
The oversight and accountability mechanisms are also doing what they’re supposed to do. The proposed security laws, for example, were scrutinised by the Parliamentary Joint Committee on Intelligence and Security (PJCIS), which recommended changes to reduce the minister’s power.
Most suggestions were incorporated in the revised legislation, though Labor still has concerns about the minister’s power to grant a temporary exclusion order (TEO) for returning foreign fighters. The PJCIS will continue to examine the use of TEOs, as will the Independent National Security Legislation Monitor and other oversight organisations.
The PJCIS is also due to report to parliament in October on its inquiry into press freedom, which will shed light on issues related to the AFP raids. And we’ll likely see the key findings of Home Affairs’ internal review as its annual report and regular Senate Estimates appearances approach.
Why it should work
The creation of Home Affairs enables a more strategic and integrated approach to security, law enforcement, migration and border issues. It also means more efficient delivery of services.
But there are significant challenges to doing this and getting it right, particularly while managing such a vast portfolio of operations and responsibilities. Maintaining a balanced approach, and ensuring considered and appropriate oversight and review will be critical to its success.
More than 40 years after its creation, the Department of Defence is held up now for its strategic vision and stewardship of the country’s armed forces. The divisive politics surrounding its creation have long been forgotten.
And so it should be with Home Affairs. The creation of the portfolio is ultimately a good thing for Australia and for good public policy and services. But this is a long-term endeavour and the project is still in its early days.
Iran’s announcement last Sunday that it would break the limit on uranium enrichment agreed to in the nuclear deal with world powers was not a surprise. It came hot on the heels of another breach only a few days earlier on the 300-kilogram limit agreed to in the deal on stockpiles of low-enriched uranium.
Iran had warned Europe that it would start dismantling the nuclear accord if the promised economic benefits of the agreement did not materialise. A year after the US withdrew from the nuclear deal, otherwise known as the Joint Comprehensive Plan of Action, or JCPOA, and imposed very strict sanctions on Iran, the Iranian leadership appears ready to give up on finding a diplomatic solution to this deadlock.
This was Rouhani’s greatest achievement and riskiest gamble. He faced the ire of hard-liners in Iran who continue to have a formidable presence in the parliament, as well as the security and judicial system.
They accused Rouhani of selling out Iranian sovereignty and betraying the ideals of the Islamic revolution by scaling back Iran’s nuclear program and subjecting it to an unprecedented international monitoring regime.
Rouhani nonetheless pushed through his agenda of finding a diplomatic solution to Iran’s isolation because he believed that years of sanctions and mismanagement had pushed the Iranian economy to the brink of collapse.
He staked his political fortunes on bringing Iran out of isolation.
The JCPOA was the compromise deal to assure the international community that Iran would not pursue a nuclear weapons program in return for sanctions relief to revive the Iranian economy.
But US President Donald Trump never liked the deal. He campaigned against it and often questioned Iran’s commitment to it, though the UN International Atomic Energy Agency consistently reported on Iran’s compliance with the terms of the agreement.
Trump’s decision to tear up the nuclear deal was seen by the conservatives in Iran as a vindication of their feelings towards the United States. They lambasted Rouhani for putting his trust in the US.
In May 2019, the situation got even more tense after Trump announced that US warships were sailing to the Persian Gulf to counter potential Iranian hostility. No intelligence regarding a suspected Iranian threat was shared.
This realisation has seriously undermined Rouhani, who appears to have adopted the language and posture of the hard-liners in relation to the US. It is unclear if this can save him in office, or embolden his critics who seem to be gaining significant momentum.
In May, the Supreme Leader appointed a battle-hardened General as the commander of the Basij paramilitary force, an arm of the Revolutionary Guards that suppresses domestic dissent.
This was a significant development for the hard-liners in case they seek to assert political control. Basij has been a ruthless security force inside Iran and can provide the necessary street support for a potential coup against Rouhani.
Another notable military commander is General Qasem Soleimani, who has enjoyed a meteoric rise in Iran due to his performance as commander of Quds Force, the Revolutionary Guards’ international arm operating mostly in Iraq and Syria to defeat the Islamic State.
He is considered a war hero by the public and now has the confidence of the Supreme Leader. This is an ominous development for Rouhani.
Breaking with the tenets of the nuclear deal was also clearly not Rouhani’s objective, as it would reverse his hard-won diplomatic gains and discredit his legacy.
Iran’s recent breaches on uranium enrichment and stockpiles were incremental steps to exert pressure on European leaders to adhere to their promises of sanctions relief. This strategy was predicated on the assumption that Europe has more to lose with the collapse of JCPOA than a rift with the United States. It can only be described as a desperate move, showing that Rouhani is fast running out of options.
The window of opportunity for a diplomatic solution is fast closing and the alternative scenario of the return of a combative government in Tehran is looking more and more unavoidable. This would shut the doors to diplomacy and increase the chance of confrontation with the West.
Trump accused Iran of not wanting to sit at the table. He may be fulfilling his own prophecy.
An earlier version of this article implied General Qasem Soleimani was the leader of the Basij security force, when he is actually the commander of the Quds Force.
Shahram Akbarzadeh, Professor of Middle East & Central Asian Politics, Deputy Director (International), Alfred Deakin Research Institute for Citizenship and Globalisation, Deakin University
As China grows more powerful and influential, we’re publishing a series, The New Superpower, looking at what this means for the world – how China maintains its power, how it wields its power and how its power might be threatened.
Chinese leader Xi Jinping took power as head of the Chinese Communist Party – the most important position in China – in late 2012. Today, nearly seven years on, he is one of the most recognisable figures on the world stage.
Yet, while he already commands the destiny of some 1.4 billion Chinese people, and seeks to shape, in his words, “a common future for mankind”, he remains an enigmatic leader.
In a short period of time, Xi has concentrated power to himself and established a remarkably influential role, nearly unprecedented among Chinese leaders since 1949.
Yet, while he is certainly powerful, he is also vulnerable. He faces massive challenges on the grandest of scales: a simmering trade war with the US, slowing economic growth, increasing concern among China’s neighbours about his more assertive use of the country’s economic and military might.
Given these enormous internal and external challenges, the biggest question for Xi is how he will maintain his absolute grip on power and legitimacy in the eyes of the Chinese people.
He has promised them a better life in a stronger and more prosperous China. And he has gone a long way to deliver on those promises. But many challenges loom ahead.
From princeling to party leader
This year, the People’s Republic of China turns 70. And Xi, its paramount leader, turned 66 last month. No other Chinese leader’s life so closely parallels the life of the PRC – and that explains a lot about Xi’s mindset and his ambitions for China.
As the son of a vice premier and revolutionary hero, Xi was born into great privilege in June 1953. He was considered a “princeling”, the term for the children of the country’s most powerful elites. In his youth, he attended the August 1st School for the children of high-ranking cadres in Beijing and spent time inside the walls of Zhongnanhai, the seat of Communist Party power. He was destined for leadership.
All of this came crashing down in 1962 when Mao Zedong purged Xi’s father from the party, accusing him of harbouring dangerous “rightist” views.
When the Cultural Revolution descended on China in the late 1960s, the younger Xi was sent to the countryside. He spent seven formative years – from age 15 to 22 – in rural Shaanxi province, working with the local peasantry.
By 1979, when Deng Xiaoping launched China on its historic reform drive, Xi embarked on his own fast track to the top. Over the next 30 years, he ascended through party and government ranks, serving in increasingly senior postings, mostly in the rapidly growing eastern provinces of China.
In early 2007, he became the party chief of Shanghai, but was only in that post for seven months before he was elevated to the Politburo Standing Committee, making him one of the nine most powerful men in China. Five years later, he was installed as general secretary of the Chinese Communist Party and, the following year, became China’s president.
In those 60 years, Xi experienced China’s own coming of age, from its early struggles with nation-building, to the depths of Maoist excess, to its spectacular rise to great power status.
This life experience has made him what he is today: a confident risk-taker who remains insistent on the communist party’s indispensable role in the country’s success and tenaciously focused on achieving China’s expansive national ambitions.
Surveillance, crackdowns and absolute power
Once in power, Xi moved to solidify his position. He saw weakness at the heart of the party, owing to lax ideological discipline and pervasive corruption. And so he launched attacks on both.
Much of his early popularity among the Chinese public came from his high-profile anti-corruption drive targeting the country’s elites. This campaign not only sent fear across ranks of the party and the People’s Liberation Army (PLA), it also helped Xi remove rivals and roadblocks to his grand plans for national revival.
By 2015, he was able to launch a massive reorganisation of the PLA to transform it from a bloated, corrupt, untested and inward-looking military to one far more capable of projecting China’s power abroad and far more loyal to Xi and the party.
He also centralised decision-making authority ever closer to himself, eclipsing the authority of Premier Li Keqiang. Xi is now in charge of nearly all the key bodies overseeing economic reform, foreign affairs, internal security, innovation and technology, and more.
And, just to be sure everyone understands who is boss, Xi orchestrated the inclusion of “Xi Jinping Thought” into the party’s constitution to guide the country into a “new era” of national rejuvenation. He also saw to the removal of term limits on his presidency, in effect allowing him to stay in power for life.
Xi has been equally bold as a leader on the international stage, setting out an extremely ambitious foreign policy agenda.
He surely has much to worry about. His reforms and crackdowns have created many enemies and much disgruntlement, especially among elites. Income disparity has grown as wealth has become concentrated in fewer hands. The pace of China’s economic growth is slowing. Localised unrest is common.
Analysts say much bolder economic reform is needed to avoid the stagnation of the “middle income trap.” China is also facing a perilous demographic future as the population ages and people have fewer children. And Xi’s ambitions at home and abroad are increasingly being met with push-back – not least from the United States – leading some in China to question whether he has over-reached.
But the biggest challenge is how to continue maintaining economic growth and social stability without losing the party’s absolute political control. It’s the same challenge every Chinese leader since Deng has faced.
Embarking on political and economic reforms would help ensure a more prosperous, stable and just future for the country. But doing so would surely undercut the one-party rule of the communist party.
On the other hand, foregoing these changes in favour of tighter control risks future stagnation and possibly instability.
Xi has chosen to double-down on the latter course. He clearly sees the party’s extensive system of ideology, propaganda, surveillance and control as absolutely necessary to achieving the Chinese Dream – the country’s re-emergence as a powerful, wealthy and respected great power.
From this perspective, we will likely see a continued tightening of the party’s grip on power for as long as Xi is in charge, which could well last into the late-2020s or beyond.
Whether or not the outside world ultimately respects Xi’s autocratic approach to power and leadership, he is convinced it is best for China and, by extension, benefits the world.
As China grows more powerful and influential, we’re publishing a series, The New Superpower, looking at what this means for the world – how China maintains its power, how it wields its power and how its power might be threatened.
Visiting Wellington in April 1996, I fell into conversation with a very wise and experienced New Zealand government official. We talked about the still-unfolding Taiwan Straits crisis, during which Washington had deployed a formidable array of naval power, including two aircraft carrier battle groups, to the waters around Taiwan. The aim was to compel China to abandon a series of missile firings near Taiwan intended to intimidate voters in forthcoming presidential elections.
In this, the Americans had clearly been successful, but my Kiwi friend was worried.
Success has consequences, and the consequences here are plain: the Chinese will now do whatever it takes to make sure the Americans can never do that to them again.
That remark sparked one of the trains of thought which led to the arguments in my new book, How to Defend Australia.
His remark has been proved right. China has always had a formidable army, but only since 1996 has it begun to develop as a maritime power, as well. In that time, it has made massive and, it seems, very effective investments in the air and naval forces required to fight at sea.
Today, it is quite plainly the world’s second maritime power, behind only the United States. And it now threatens America’s maritime preponderance in the western Pacific, on which US strategic primacy in the region ultimately and absolutely depends.
This is a remarkable achievement in such a short time, with immense implications for the security of countries throughout the region, so it is important to be clear about how it has happened and what it means, including for our own defence.
This is especially important because China’s achievement has been largely misunderstood by traditional naval powers like America, Britain and Australia, whose approach to maritime strategy is markedly different from China’s.
China’s ‘sea denial’ strategy
When it comes to maritime strategy, traditional naval powers emphasise “sea control” and power projection. This means their maritime forces are designed primarily to defend major platforms like aircraft carriers and amphibious assault ships, with which they aim to project power against distant adversaries.
China’s primary strategic aim has been the opposite. It has developed its naval forces to prevent adversaries – particularly the United States – from projecting power against China the way the Americans did in 1996. This is what naval strategists call “sea denial”, which boils down simply to the capacity to find and sink the other side’s ships.
In doing this, the Chinese have had three big advantages:
First, they have been able to exploit inherent advantages of “sea denial” over “sea control”. Since the late 19th century, a whole range of systems, weapons and technologies – including radio, radar, aircraft, submarines, sea mines, torpedoes, guided missiles and space-based surveillance – have made it progressively easier to find and sink an adversary’s ships, and correspondingly harder to defend them.
Second, the Chinese were able to access an array of Soviet military technologies and develop them further as their own technological base expanded and deepened.
And third, they have had a lot of money to spend, without breaking the bank, thanks to their fast-growing economy.
As a result, Beijing is now well-placed to prevent America doing again what it did in 1996. A US naval carrier approaching Taiwan today would be at serious risk of attack from China’s formidable ships, aircraft and submarines, as well as from its notorious, carrier-killer, land-based ballistic missiles.
So much so, in fact, that Washington would now be very unlikely to risk such an operation.
America’s loss of military might
This comes as a surprise to those who still believe that America’s military is unchallengeable.
Of course, it is still very powerful, with an unmatched capacity to deploy and sustain armed forces far from its own shores. But that doesn’t mean it can automatically defeat any adversary it faces, especially when that adversary enjoys the advantages of fighting on its home ground, as Russia would, for example, in a war over Ukraine or the Baltic states, or China would in east Asia.
And wiser heads in the US military establishment understand this all too well. The Pentagon’s recent Indo-Pacific strategy report concedes that China is “likely to enjoy a local military advantage at the onset of conflict” in east Asia.
In fact, that understates the problem. America has no credible military strategy to overcome China’s “early local advantages” to achieve the kind of swift, low-cost victory in a potential war at sea that everyone has taken for granted for so long.
The only serious attempt to develop such a strategy – the US military’s “Air Sea Battle Concept” – was abandoned soon after it was promulgated six years ago. The reality today is that America relies on the implicit threat of nuclear escalation, embodied in its refusal to rule out using nuclear weapons first, to compel China to concede victory when US conventional forces cannot.
And how credible is that threat when China can retaliate against any nuclear attack with a nuclear counter-strike?
This swift shift in Asia’s maritime strategic balance has profound implications for the region’s strategic future. It does not just undermine America’s ability to defend Taiwan from Chinese military pressure, it undermines the credibility of US security guarantees to all its allies in the western Pacific, including Australia.
And that, in turn, undermines the foundation of America’s strategic leadership in east Asia, and paves the way for China to take its place – just as China intends.
It is this major change in the regional military balance, along with China’s relative economic weight, which makes the rapid eclipse of the old US-led order in our region now so likely.
China’s new maritime challenge
As this happens, however, China faces a new strategic challenge. Its cost-effective maritime denial strategy has been enough to undermine US regional primacy, but it will not be enough to take America’s place and establish dominance of its own in east Asia.
For that, it will need to be able to project its own military power across the vast expanse of the Asia-Pacific region. And that requires China to build its own carriers and amphibious forces – as it is now doing – and expand its capabilities to defend them from future potential adversaries.
This poses a whole new problem for China because now the boot is on the other foot. China has been able to leverage the inherent advantages of “sea denial” over “sea control” to counter US power projection in the region, but future adversaries can do the same to thwart China’s own power projection.
And that has very important implications for Australia’s future defence strategies.
The bad news is that we can no longer depend on America to ensure that a major power like China does not threaten us militarily in the decades ahead, or to defend us if one does. We must therefore explore – more seriously than we have ever done before – whether we can defend ourselves from a major Asian power.
It is a daunting task, but the good news, as I argue in my book, is that we can exploit the advantages of maritime denial over maritime control against China if it tries to project its power against us, or our close neighbours by sea.
By rigorously optimising our forces for a maritime denial strategy, we might be able to sustain an effective defence against a major power. That would come at a high price – much higher than we are paying for defence now – but it is a price we could afford if we decided the risks we face in Asia in the future were high enough to justify it.
Are they? That’s the big defence debate we need to have now.
And who wouldn’t enjoy a bit of a stoush between the big bad generators and the government, trying to break them up on our behalf?
Even if it was largely tangential to keeping prices low.
The “big stick” of forced divestiture, where the government through a court could order an energy company to sell off bits of itself, never made it to a vote in the final chaotic fortnight of parliament just finished.
It will be the subject of a Senate inquiry that will report on March 18. After that, parliament is set to sit for only seven days before the election, so its possible it’ll never happen, under this government.
It found against forced divestiture, but thought along similar lines to the government in some respects.
The legislation presented to parliament this month bans three types of misconduct:
electricity retailers’ failing to pass on cost savings
energy companies’ refusing to enter into hedge contracts (agreements to buy and sell at a particular price) with smaller competitors
generators’ manipulating the spot (short term) market, for example by withholding supply.
It imposes civil penalties for the first, forces companies to offer contracts for the second, and provides for divestiture orders for the third, after they have been recommended by the government and approved by the Federal Court.
There are good reasons for the government to act on the three behaviours, although each of the its proposed solutions raises concerns.
The ACCC wants something similar but different
Firstly, the ACCC did not identify the legislation’s first target as a major cause of high prices. They did observe that it is complicated to shop around and the offers are confusing, and sometime next year Australian governments will force retailers in some states to offer fairer default offers at an affordable price.
But it not clear why the energy sector has been singled out as an industry whose retailers have to pass on cost savings, and not supermarkets or banks or airlines or petrol stations, or any other kind of industry.
Secondly, the ACCC most certainly did raise concerns about dominant generator-retailers preferring not to enter into hedge contracts with competitors, particularly in South Australia.
It recommended that the Australian Energy Market Commission impose a “market making obligation” forcing large, so-called gentailers to buy and sell hedge contracts.
Its recommendation has the same intent as the one proposed by the government, although it has the advantage of being administered by a regulator that already exists.
Thirdly, the ACCC also concluded that concentration in the wholesale market means higher prices. Its report focused on the bidding activity of the Queensland government owned generator Stanwell Corporation.
The ACCC recommended giving powers to the Australian Energy Regulator to investigate and fix such problems.
It considered a divestiture mechanism of the kind in the government’s leglislation, but rejected it as extreme.
Its own less extreme recommendations would “if implemented, be a better means to restore competition to a level which serves consumers well”.
Breaking up corporations is a broader question
There may well be a case for breaking up corporations whose size prevents or substantially lessens competition. It happens overseas.
The government cites the example of the United States Sherman anti-trust legislation. It has been in place since 1890 and has been famously used to break up Standard Oil and AT&T. The ACCC does not have this power.
There is debate about whether it would work in the much smaller market of Australia.
It’s worth considering divestment powers broadly, rather than rushing to introduce them in one sector of the economy in what was to have been the leadup to Christmas because of a concern that its prices were too high.
The ACCC has already delivered a comprehensive report on the means to bring them down.
The government would be better served acting comprehensively on its recommendations.
Many analysts have seen China’s rapidly growing naval power as a sign that Australia needs to rethink its defence strategy in the Asia-Pacific region. Indeed, China has made remarkable strides in building up its defence capability. But it is worth noting that another military power is increasingly making its presence felt in our region – Russia.
The Coalition government does not give Russia much consideration at all in its current strategic planning. None of the recent Australian defence white papers, including the 2016 paper, considered Russia a significant military power. This perception stems from post-Cold War assumptions that Moscow has little political influence due to its reduced military power and limited economic engagement with our region.
Perhaps these assumptions were true in the 1990s or even ten years ago. However, current strategic realities are very different.
Putin’s game plan for military prowess
In the 2000s, Russia’s military began to gradually rebuild its combat potential. Under President Vladimir Putin’s leadership, the once cash-strapped military force received a massive financial boost and, more importantly, full political support.
After years of decline and neglect, Russian military power in the Asia-Pacific region is making a major leap forward. According to my research, Russian air force units deployed to East Asia received some 300 new upgraded aircraft from 2013-18. This is about equal to the total strength of the current Royal Australian Air Force.
By 2019, the Russian Eastern Military District (the military arm responsible for operations across the Pacific) is expected to receive more than 6,240 pieces of new and upgraded military equipment. This will include battle tanks, missiles and heavy artillery, aircraft, electronic warfare systems and more.
The Russian Pacific Fleet, the main means for Russia to exert power in the region, is expected to receive some 70 new warships by 2026. This will include 11 nuclear-powered and diesel-electric submarines, and 19 new surface warships – nearly the same number Australia is planning to add over the coming decade.
Russia is also increasingly showcasing this new-found military power in the region.
From late August to mid-September, the Russian military carried out the largest single show of its military power in 37 years, the Vostok 2018 war games. According to the Russian Ministry of Defence, the war games involved 297,000 personnel, more than 1,000 aircraft and 80 warships. A sequence of large-scale exercises was held across eastern Siberia, the Russian Far East and parts of the Arctic. The maritime component was staged in the Okhotsk and Bering seas on Russia’s Pacific coast.
Condemned by NATO as a rehearsal for “large scale conflict”, the war games signalled that Russia’s military is prepared for possible confrontation in the Asia-Pacific region. This reinforces what many analysts believe is Putin’s intention – to reassert Russia’s status as a global power.
The Russian military is making its presence felt. This month alone, the Russian army staged joint exercises with Pakistan, while Russian warships were operating in the Indian and Pacific oceans.
Through these arms sales and joint activities, Russia is increasingly bringing Asian countries into its orbit and altering the balance of power in the region by increasing their military capabilities.
In addition to existing security and defence relationships with China, India and more recently Pakistan, Russia has been actively seeking to build ties with other countries on Australia’s doorstep – Indonesia, Malaysia, Myanmar, the Philippines, Thailand and Fiji.
In November 2014, a Russian naval task group staged operations near Australia’s north at the same time Putin attended the G-20 summmit in Brisbane. This triggered a brief media storm, and was seen by some as a projection of Russia’s naval power.
Last December, Russian strategic bombers conducted exercises out of an Indonesian airfield close to Australia, forcing Australian Defence personnel in Darwin into a state of “increased readiness”. There were concerns the exercises may have been aimed at information gathering.
Russia is making its presence felt in the region for the benefit of its regional allies and clients, and as a form of deterrent to its geopolitical rivals.
Australia’s strategic alliance with the US is clearly on Moscow’s radar. Russia has a keen interest in our joint defence facilities and intelligence sharing, as well as our latest defence technology and operations.
Australia’s relations with Moscow are at their lowest point in decades. And while Australia is by no means a priority for Russia, the country is still being viewed as a geopolitical and security rival. The time has come for us to appreciate a power north of the Great Wall, as well.
This article is part of our series of explainers on key moments in the past 100 years of world political history. In it, our authors examine how and why an event unfolded, its impact at the time, and its relevance to politics today.
By orchestrating China’s transition to a market economy, Deng Xiaoping has left a lasting legacy on China and the world.
After becoming the leader of the Communist Party of China in 1978, following Mao Zedong’s death two years earlier, Deng launched a program of reform that ultimately saw China become the world’s largest economy in terms of its purchasing power in 2014.
Last year it accounted for 18.2% of total global purchasing power, compared with 15.3% for the United States.
A major turning point was the 3rd Plenum of the 11th Central Committee of the Communist Party of China, which took place in December 1978. For the three decades prior, production in China was structured around a central planning model: collectivised agriculture in rural areas and state-owned industrial firms (SOEs) in urban regions. The prices of goods and services were also fixed by the government rather than determined by supply and demand.
Deng recognised that the outcomes produced by the planned economy were poor, with more than 60% of the population living in poverty. That’s why he launched a series of measures such as opening up the economy to foreign trade and investment.
He summarised his distinctly pragmatic rather than ideological approach to development with the phrase, “It doesn’t matter whether the cat is black or white, so long as it catches mice”.
Under Deng, the market wasn’t given free rein immediately. There was no reform of the “big bang” variety seen in former centrally-planned economies of Central and Eastern Europe.
Rather, in the words of Barry Naughton, China’s economy was simply allowed to “grow out of the plan”.
For example, state-owned firms were not sold off to private entrepreneurs at the outset. Rather, privately-owned companies were permitted to emerge alongside SOEs. This gave Chinese consumers choices and the competition forced SOEs to become more responsive to market demand and efficient in their production practices.
The impact of the reforms
The outcomes of Deng’s reforms have been without historical peer.
The latest data put the proportion of China’s population living in poverty at less than 1%. Of course, despite hundreds of millions being lifted out of poverty, this does not mean that all Chinese are rich: average incomes are still only around one-third of those in Australia.
The reasons Deng’s reforms proved successful can be traced back to two key factors.
The first is policy logic.
John McMillan and Barry Naughton showed that the newly-emerged private sector played a crucial role in improving the Chinese economy’s overall efficiency.
Another key consideration was that China benefited from its starting point.
Jeffrey Sachs and Wing Thye Woo pointed out that in 1978, most Chinese people were poor and living in rural areas. Compared with other centrally-planned economies such as the former Soviet Union, this made the task of shifting labour from producing low-productivity agricultural output to higher productivity industrial goods easier.
Just how far along the path to a market economy has China come?
That depends on the measure and the part of China’s economy under focus.
Last month, Meixin Pei, a professor at Claremont McKenna College in the United States, pointed to China’s state sector as evidence its economic growth would slow. He wrote that China’s economy was “nowhere near as efficient as that of the US”. And the “main reason for this is the enduring clout of China’s state-owned enterprises (SOEs), which consume half of the country’s total bank credit, but contribute only 20% of value-added and employment”.
Yet, perhaps unwittingly, Pei makes an important observation. SOEs may account for one-fifth of China’s value-added output and employment. But that means four-fifths now comes from Deng’s private sector.
Careful work by Nicholas Lardy at the Peterson Institute for International Economics has concluded that by 2011, China’s public sector, including SOEs, only employed 11% of China’s labour force. As a comparison, in 2013, Australia’s public sector accounted for 18.4% of total employment. In other words, at an aggregate level and in terms of employment, the private sector is more prominent in China than in Australia.
An OECD study in 2010 found that 87% of China’s 523 industrial sectors were highly competitive. They observed that this compared favourably with international standards, including with the US.
Commentators like Minxin Pei are correct that China’s SOEs do benefit from government policy support, such as cheap loans from state-owned banks.
But the data nonetheless point to China’s private sector being hyper-competitive in the sense that despite such discriminatory policies, the sector as a whole has continued to thrive.
In a 2016 paper for a Reserve Bank of Australia conference, Nicholas Lardy highlighted that in terms of output growth, profitability and indebtedness, private Chinese industrial firms outperform SOEs by a wide margin.
The prominent and vibrant role the private sector plays in China today means that its economic growth may be more sustainable than some of its critics imagine.
That said, the pace of economic reform has slowed under current Chinese leader, Xi Jinping, who took over in 2012.
Arguably the slowdown dates back even further. For example, in terms of subjecting Chinese firms to increased competition from overseas firms, China’s trade-weighted average tariff in 2000 stood at 14.7%. After entering the World Trade Organisation (WTO) in 2001, this fell dramatically to 4.7% by 2005. Since then, no further progress has been made. In fact, in 2016 the figure was higher at 5.2%.
Similarly, four decades after Deng began to allow foreign investment into the manufacturing sector, other parts of China’s economy, particularly the so-called “commanding heights” of the economy such as energy, telecommunication and finance, remain curtailed or off limits entirely. Overall, China is less open to foreign investment than high-income countries and many emerging markets as well.
This lack of reciprocity is at least partly responsible for much of the international community’s criticisms of China’s economy today. Jason Young, the Director of the New Zealand Contemporary China Research Centre wrote last week that the current US-China trade war is really a “dispute over what models of political economy are deemed fair and legitimate economic policy-making in today’s highly-integrated global economy”.
Over the past decade, around one-third of the world’s economic growth has emanated from China. Countries like Australia have been leading beneficiaries, with China buying $116 billion last year.
China’s economic growth, and therefore the world’s, will be more assured if Deng’s reform legacy is reclaimed by China’s current crop of leaders. Just announced tariffs cuts and new openings for foreign investment are steps in that direction.
The first German chancellor, Otto von Bismarck, said there were two sights the public should not see: the making of laws and the making of sausages. To this list of enduringly nauseating spectacles we should add one more: the political machinations of media moguls.
ABC political editor Andrew Probyn has skilfully violated this standard of public taste by laying out what look like very plausible entrails of the evident involvement of Rupert Murdoch and Kerry Stokes in the recent Liberal Party leadership spill.
It is impossible to independently verify Probyn’s account because he has been careful to mask his sources. But it is plausible partly because some elements are corroborated by separate reports in the Australian Financial Review and Sydney Morning Herald, partly because Probyn worked for both Murdoch and Stokes for lengthy periods and may be assumed to have good contacts in those places, and partly because there is circumstantial evidence to support some of what he says.
The Australian reports that Stokes has denied having communicated with Murdoch over Turnbull’s leadership. Interestingly, however, the newspaper does not quote its own proprietor on the matter, which is the obvious way to corroborate Stokes’s claim.
Murdoch, of course, is notorious for meddling in politics. In Australia, it can be traced back to his endorsement of Gough Whitlam at the 1972 election, his campaign against Whitlam in 1975, which was so virulent even his own journalists held a strike in protest, his support for John Howard in 1996, his somewhat ambivalent support for Kevin Rudd in 2007 and his full-frontal support for Tony Abbott in 2013.
These campaigns were all in support of the winning side, and much the same has been true of his equivalent campaigns in the UK and the US. After John Major led the British Conservative Party to victory in 1992, Murdoch’s London Sun newspaper proclaimed in a front-page banner headline: “It’s the Sun wot won it”.
All this has created a perception of Murdoch as political kingmaker, a perception that frightens the life out of politicians and thus confers great power on Murdoch.
But as two Australian scholars, Rodney Tiffen and David McKnight, have persuasively argued in their separate studies of Murdoch, while his media outlets routinely shred and humiliate their political targets, the evidence is that Murdoch observes which way the wind is blowing and then finds a rationale for endorsing the likely winner.
The Economist’s Bagehot column was on to this 15 years ago, as Tiffen records. Referring to the London Sun’s boasting of its political power, the column observed:
[T]hat probably says more about Mr Murdoch’s readiness to jump ship at the right time than about the Sun’s ability to influence the votes of its readers.
Even so, perceptions can swiftly harden into political reality.
According to Probyn, when Murdoch was seen to turn against Turnbull over the past couple of months, the alarm went off in the prime minister’s office.
This is where Stokes, chairman of Seven West Media, is said to have entered the picture.
He is a friend of Turnbull’s and they are said to have discussed the apparent campaign by the Murdoch media to oust the prime minister.
Stokes and Murdoch have a chequered history, to put it mildly. They have fought long, bitter and costly legal battles, but as Margaret Simons says in her biography of Stokes:
In the cosy club of media, neither love nor hate lasts forever. The only constants are power, money and self-interest.
So, according to accounts by Probyn and the Financial Review, Stokes rang Murdoch to ask what was going on and Murdoch is said to have told him: “Malcolm has got to go.”
But on the question of who should replace him, the moguls were all over the shop.
Murdoch’s Daily Telegraph was touting Peter Dutton. Three days later, when Turnbull spilled the leadership positions, Dutton nominated, lost, but lit the fuse for the ultimate detonation of the Turnbull prime ministership.
Stokes was opposed to Dutton for complex reasons, but didn’t seem to know who to go for instead. On the day before the leadership spill, his newspaper, The West Australian, was promoting Scott Morrison. The next day it was promoting Julie Bishop, a West Australian.
This shambolic confusion among the moguls is comforting in a perverse kind of way, because in the end neither of them was able to dictate the outcome.
Murdoch achieved one objective – the ousting of Turnbull – but Dutton, his preferred pick to replace him, is now clinging to political life by a single vote in the House of Representatives thanks to the hovering spectre of the Constitution’s section 44 (v), not to mention trouble with au pairs.
Stokes? Well, he is new to this kingmaking caper. He clearly did not want his friend Turnbull out, but when that became inevitable, he didn’t know where to turn. As my old editor at The Age, Creighton Burns, was fond of saying, he was caught between a shit and a shiver.
The net effect of their efforts has been to bring the Liberal-National government to the brink of disintegration within months of a general election.
This time, Murdoch may have indeed created a winner – Labor leader Bill Shorten – not by the traditional means of showering support on him, but by destroying his opponents, even though they happen to be Murdoch’s own ideological allies.
It is the latest chapter in a long and discreditable history of media proprietors using their power to advance their political ends, usually for commercial rather than ideological purposes.
Sir Frank and Kerry Packer did it; so did successive generations of Fairfaxes. In 1961 the Fairfaxes went so far as to virtually run Arthur Calwell’s campaign out of the company’s executive offices on the 14th floor of its newspaper mausoleum in Sydney’s Broadway. The Sydney Morning Herald’s journalists renamed it the Labor ward in honour of the exercise.
In Britain, the mould for the politically meddling modern newspaper proprietor was set by Alfred Harmsworth (Lord Northcliffe) in the early 20th century.
He and the other mighty British press baron of the time, Max Aitken (Lord Beaverbrook), were the inspiration, if that is the word, for Rudyard Kipling’s celebrated condemnation:
[The press exercises] power without responsibility: the prerogative of the harlot throughout the ages.
So Probyn has done Australian democracy a service by exposing the entrails of what looks like another abuse of media power, even if it makes for a nauseating public spectacle.
It also raises serious questions about media accountability.
Australia has never had a publicly trusted or effective system of media accountability. All attempts to create one have been howled down, the loudest and crudest voices belonging to Murdoch’s lieutenants.
There is already a crisis in people’s faith in democratic institutions. A new report by the Australian Museum of Democracy and the University of Canberra shows only 41% of Australians are satisfied with the way democracy is working. That is a dramatic plunge from the 86% recorded in 2007.
In this climate of disenchantment, it is not surprising there are now calls for a public inquiry into the way Murdoch and Stokes have evidently played a manipulative role in changing the prime minister.