PacNet #31 – The Structural Limits of the Supply Chain Resilience Initiative

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As a hub of global economic activity and great power tensions, the Indo-Pacific is home to an increasing number of minilateral arrangements shaping the future of the region. Groupings like the Quadrilateral Security Dialogue (Quad), as well as the Japan-America-India, Australia-Japan-India, and France-Australia-India trilaterals demonstrate this trend. The Supply Chain Resilience Initiative (SCRI), launched in April 2021 and complementing the Australia-Japan-India trilateral, is the latest such venture.

China’s deep integration in the international financial system and status as “factory of the world” make global supply chains unsustainably China-centric. COVID-19 revealed many states’ over-dependence on China-centered value chains, and the SCRI seeks to reconfigure global supply chain networks to overcome such vulnerabilities.

The SCRI seeks to ensure global supply chains remain resilient to future “black swan” events, such as pandemics and geopolitical tensions. With several states prioritizing supply chain risk diversification, the SCRI can also further Indo-Pacific economic security dialogue between like-minded nations. Importantly, the SCRI can help balance against China’s rapidly expanding influence, including through the Belt and Road Initiative.

Yet, despite its merits, the SCRI faces considerable structural limitations.

Firstly, although primarily a geo-economic mechanism, the SCRI risks losing focus amid the intensifying regional power rivalry. The initiative is a product of strategic necessity brought about by the pandemic, yet this emphasis on supply chain management is frequently ignored in media and scholarship in favor of strategic positioning vis-a-vis China. Yet, like Japan’s Expanded Partnership for Quality Infrastructure and India’s Act East Policy, the SCRI is not necessarily an anti-China venture.

China-dependent supply chains are a major concern for both smaller and major powers across many critical sectors, including essential pharmaceutical products, food, and industrial raw materials. However, the SCRI does not aim to entirely re-route existing supply chains; this would require complete economic decoupling from China, an unfeasible (and undesirable) goal considering Beijing’s economic clout. Instead, it seeks to build alternative, resilient supply chains to reduce over-dependency, diversify risk, and enhance ability to absorb future market disruptions. Rather than isolating China, the aim is to ensure national economies can withstand adversity. The focus on enhancing cooperation with like-minded nations is drawn on the imperative of building “a free, fair, inclusive, non-discriminatory, transparent, predictable and stable trade and investment environment.” The focus on inclusivity implies openness to dialogue (or participation) with all nations committed to similar ideals—even China.

Secondly, the SCRI remains far-fetched, even overly ambitious. Despite their broad-based synergy on China (or matters relating to China), the main proponents of the SCRI—Australia, India, and Japan—have gaps in their global multilateral practices, including trade and economic outlooks. This will limit the progress of the SCRI. For instance, Japan’s reluctance to support the expansion of the G7 to include India and Australia highlights how national interest considerations supersede any prospects of regional cooperation. Japan is a trading economy, and supply chains are critical to its growth. This is not true for India, which prioritizes manufacturing and innovation, even while aspiring to enhance integration with other economies before it can emerge as a trading nation. These differences could impact the SCRI’s direction and the importance each state gives it.

Thirdly, no clear vision currently exists among SCRI founders on how to shape their initiative. To succeed, a clear plan or charter is vital. The lack of a guiding document risks hampering cooperation, as has been the case with the Quad and Quad-plus, which has only picked up steam over the past year amid increased tensions with China. A similar problem emerged with the Asian Infrastructure Investment Bank and Regional Comprehensive Economic Partnership. Although India and Australia became AIIB members, Japan and the United States opposed it. With RCEP, Japan and Australia could not continue engaging (or supporting) India, displaying a lack of coordination and resulting in New Delhi’s withdrawal from this mega-trade deal.

These examples show the need for a common understanding, agreed framework, and concentrated dialogue to shape and implement the initiative. A charter would be useful in laying down expectations and requirements for the SCRI. As founding members consider the SCRI’s expansion “based on consensus” and acknowledge the importance of business and academia in further developing it, a charter could be critical in coding and committing to an “inclusive” outlook. A formal document would also mitigate criticisms that the initiative is a cartel or “anti-China,” potentially opening the door to induction for Beijing (or even to countries aligned strongly with Beijing) and allowing the Australia-Japan-India trilateral a rulebook to regulate China’s actions.

Fourthly, the SCRI remains limited to its founding members. With its focus on recalibrating global supply chains, expansion to include the United States must be explored. This would make the SCRI a derivative of the Quad, strengthening the Indo-Pacific concept and furthering their supply chain goals. President Biden’s recent comprehensive supply chain review outlined Washington’s need to build “resilient, diverse, and secure” supply chains; SCRI integration could be a productive move forward.

Similarly, the SCRI must consider full/partial participation of key economies and economic blocs—including ASEAN, the European Union (especially France, given its Indo-Pacific focus), and the United Kingdom. Several such entities, including the United States and ASEAN, have sought to reconfigure supply chains to reduce dependence on China and increase resiliency, but made no concerted effort in this direction. While the SCRI might be an Asian exercise, its ambition to create diverse, expansive, inclusive, and resilient supply chains mandates involvement by other major and middle-ranked economies everywhere. Moreover, the participation of technologically advanced actors beyond Asia would prove crucial given the SCRI’s focus on digital technologies. 

The SCRI’s success will depend on inroads it can make with ASEAN. With Australia-Japan-India at its core, the SCRI promotes inclusivity and multipolarity, but also seeks to build Asia-driven (or Indo-Pacific-driven) supply chains. Japan and India are key East Asian and South Asian economic powers; Australia is a major Indo-Pacific actor closely connected to Asia. In relative comprehensive national power, the Lowy Institute’s 2020 Asia Index placed Japan third in the region, India fourth, Australia sixth, and the United States first (with China a close second). Connecting with ASEAN will be economically lucrative and promote the SCRI’s “Asian” vision.

Despite its merits, the SCRI is structurally limited right now. Yet with economic transformation and post-pandemic recovery shaping regional power distribution, the expectations for the SCRI are immense. To meet expectations, the Australia-Japan-India trilateral must acknowledge the challenges and shape the initiative adequately to overcome them.

Dr. Jagannath Panda ([email protected]) is a Research Fellow and Centre Coordinator for East Asia at the Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi. Dr. Panda is the Series Editor for “Routledge Studies on Think Asia.”

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged. Click here to request a PacNet subscription.

PacNet #36 – Countering China’s Influence Operations: Lessons from Australia

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This is an abridged version of a commentary originally published by the Center for Strategic and International Studies.

In 2017 a rising politician in the Australian Labor Party, Senator Sam Dastyari, proclaimed at a press conference with Chinese-language media that “the South China Sea is China’s own affair,” and that his Labor Party would help maintain the relationship by knowing “when it is and isn’t our place to be involved.” This statement stood in stark contrast to the position taken just the day before by the Labor Party shadow defense minister Stephen Conroy, who had condemned China’s “absurd” island building and stated unequivocally that a Labor government would authorize freedom of navigation operations in the South China Sea.

When confronted by Australian reporters Dastyari denied making the remarks, and it would be more than a year before the leaked audio of the press conference confirmed that he did, and forced him to resign from Parliament. But the image from the press event of Dastyari standing aside billionaire Chinese property developer Huang Xiangmo, coupled with recent revelations of their close financial ties, raised troubling questions about the role of Chinese influence in Australian money politics.

Australia’s energized investigative journalists, with some helpful leaks provided by the Australian security officials, began reporting on a range of activities undertaken by the Chinese Communist Party-state that had long been hidden or obscured in Australian politics and society. These activities included efforts to buy political influence, cultivate pro-Beijing voices in elite circles, coopt and control the Chinese diaspora in Australia, and shape discussion while silencing dissent Australian university campuses. What emerged from the barrage of media reporting was a disturbing and extensive pattern of Beijing’s attempts to interfere with Australia’s democratic processes along a variety of fronts. These revelations captured the attention of China watchers the world over and touched off a firestorm in Australian politics.

Prominent politicians, commentators, business and university leaders, scholars, and voices in the Chinese Australian community lined up on different sides of a national debate over how serious a challenge Chinese influence posed to Australian democracy. Prime Minister Malcolm Turnbull spearheaded legislative reforms to crack down on foreign interference, which were enacted with strong bipartisan support, and the government subsequently banned Huawei and ZTE from Australia’s 5G network. Beijing responded with a diplomatic freeze and a slowdown on coal imports from Australia.

These scandals and revelations turned Australia into a cautionary tale about the myriad and opaque ways that the Chinese Communist Party-state seeks to influence and interfere with political processes in democratic countries. But what exactly are the lessons of the Australia case for other advanced democracies and other countries in the region? The answer lies in the ways in which the Chinese Communist Party’s (CCP) sought to exploit Australia’s vulnerabilities, as well as in the sources of Australia’s resilience in pushing back on these influence efforts. 

The Nature of Chinese Influence Operations

China’s efforts to influence and shape public discourse and political outcomes beyond its borders go well beyond the legitimate public diplomacy that all governments engage in. The CCP uses unofficial channels in ways that are opaque, deceptive, and manipulative to influence foreign governments and citizens—leaving the realm of legitimate public diplomacy far behind. Turnbull aptly defined this as “covert, coercive, or corrupting” behavior that crosses the line “that separates legitimate influence from unacceptable interference.” In Australia, these methods have included, among others, monetary inducements to politicians to change their stance on key issues; threats to mobilize Chinese Australian voters to punish political parties who do not support Beijing’s policy preferences; “astroturfing” local grassroots organizations to give the appearance of broad support for Beijing; coopting the messaging of Chinese-language media and local civic organizations; and a variety of efforts to drown out or silence critics. These efforts are deliberately hidden from public view to create a layer of plausible deniability that obscures direct ties to Beijing and makes it more difficult to nail down the degree of interference.

The wave of influence operations in Australia has also thrown a spotlight on a once little-known department within the CCP, the United Front Work Department (UFWD). Under Xi Jinping, who calls the UFWD a “magic weapon” for the great rejuvenation of the Chinese people, United Front work has been dramatically expanded and elevated within the party. Its goal is to “win hearts and minds” of overseas Chinese and other influential targets and unite them in support of the CCP and its goals while neutralizing critics.

Beijing’s “Agents of Influence” and the Media Firestorm

The Dastyari affair begins with the figure of Huang Xiangmo, a billionaire property developer from China who came to Australia in 2011 and quickly gained permanent residency and political clout. Huang was a major political donor to both the Labor and Liberal parties and also gave generously to Australian universities, including a 2014 donation to the University of Technology Sydney to establish the Australian-China Relations Institute (ACRI). Huang was also chair of the UFWD-linked Australian Council for the Promotion of Peaceful Reunification of China (ACPPRC), a United Front-led organization whose leadership and activities are closely guided by Beijing and the Chinese embassy. Perhaps not surprisingly, it was the ACPPRC that organized the pivotal Dastyari press conference.

Spurred by the Dastyari incident, media investigations into the ties between CCP-linked money and politicians uncovered that China-linked businesses were the largest donors to both the Labor and Liberal parties, donating more than A$5.5 million between 2013 and 2015. The subsequent political scandals began to shed light on the range of ways that CCP-linked donors and proxies sought to exert influence, not just over political parties, but also academic campuses, research institutions, influential individuals, and groups within the ethnic Chinese community. Reporting focused on how overseas Chinese students were being surveilled and organized by local consulates to pump up patriotic, pro-party messages on college campuses while stifling dissent.

The barrage of revelations ignited an intense national debate just as Turnbull announced draft legislation to counter foreign interference and espionage. Many in the business and academic communities argued that fears over Chinese influence were being exaggerated while many in the broader ethnic Chinese community felt that they were being unfairly targeted. But the political ground had shifted decisively, and broad public support emerged for taking a tougher stance on foreign interference.

Why Did China Target Australia? 

Australia was an attractive target for China’s interference operations because of its strategic value as a US ally in an increasingly contested Asia-Pacific region. If China could sideline Australia from taking active part in efforts to constrain Chinese maritime behavior, it would sharply undercut American regional leadership and strengthen China’s hand in pursuing its ambitions in the South China Sea and more broadly.

Australia also offered some tantalizing vulnerabilities for Beijing, including its economic dependence on China as a trade partner and the growing dependence of Australian universities on tuition revenue from Chinese students and research funding from CCP-linked patrons. These two factors created natural constituencies of support which consistently advocated for a cooperative relationship with China.

Two other notable features made Australia particularly vulnerable. First, Australia was one of the few advanced democracies that did not prohibit campaign donations from foreigners, creating a wide-open loophole for wealthy Chinese political benefactors with links to the CCP to seek to influence political parties. Incredibly, Dastyari had in fact not broken any laws before being drummed out of office.

Second, Australia has a large community of ethnic Chinese Australian citizens, which is a natural target for the United Front. The CCP and UFWD have worked for decades in these communities to coopt Chinese community organizations and help people sympathetic to Beijing to rise in local prominence—while also filtering out negative media coverage in Chinese-language press and drowning out critics.

The Strength of Australian Democracy

Australia’s resilience in the face of China’s large-scale influence efforts is makes it a case study in how democracies can marshal a defense against corrosive Chinese influence. First and foremost, Australia’s independent and boisterous free press launched aggressive investigations into many facets of Chinese influence and brought to light many troubling incidents. Once these issues were surfaced by the media, a vibrant public debate ensued, and over time public opinion moved decisively against China. Last year’s public opinion poll by the Lowy Institute showed that people’s trust in China dropped by 20 percentage points in a single year, from 52% to 32%.

Australia’s swift political response is also notable. Campaign finance, counter-interference, and espionage laws were enacted in 2018 that, among other things, banned foreign donations and toughened sanctions and enforcement provisions. A new coordinating office was also created with the mandate to formulate a comprehensive strategy and follow up on specific cases of foreign interference, and last December a new intelligence task force was launched with more dedicated resources to target enforcement of the new provisions.

Ultimately, Australia’s strong democratic culture, political will, and a healthy shot of transparency proved to be an antidote to Chinese intrusion into Australian domestic politics. Australia has not softened its South China Sea policy, and subsequent efforts by Beijing to freeze diplomatic relations and slow down imports of Australian coal have failed to dislodge support for the government’s tougher stance. However, the Australian public and government should not fall complacent. The CCP has made long-term investments in relationships and networks that will not be eroded overnight, and it is refining its toolbox through trial and error.

The “Magic Weapons” of Advanced Democracy

If the United Front Work is a “magic weapon” for Mao and Xi, then transparency and rule of law are the magic weapons for democracies. Legislative reforms and a free and vibrant press must help shine a light on the shadowy web of inducements, threats, cooptation, and self-censorship that actuates Chinese influence. This may entail tackling uncomfortable issues for democratic systems, but advanced democracies such as Australia have some advantages to bring to this challenge and should leverage their strengths to combat malign influence.

Dr. Amy Searight ([email protected]) is senior associate for Asia at the Center for Strategic and International Studies (CSIS) in Washington, D.C.  Dr. Searight has a wealth of experience on Asia policy—spanning defense, diplomacy, development, and economics — in both government and academia. Most recently, she served in the Department of Defense (DOD) as deputy assistant secretary of defense for South and Southeast Asia, from 2014 to 2016. Prior to that she served as principal director for East Asian security at DOD, and as senior adviser for Asia in the U.S. Agency for International Development (USAID).

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged. Click here to request a PacNet subscription.

PacNet #19 – Five Reasons Why Xi’s ‘Peking Model’ Will Struggle Post-Covid-19

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Xi Jinping’s model of governance—from an economically prosperous “Chinese dream” for its people to a “Community of Shared Future for Humanity” with China leading the way—has provided the reference points for Beijing’s diplomacy. That the Chinese political system can help build an equitable order favoring the developing world has been central to Xi’s international outreach.

The objective of such an order is to position China at the helm of a “Sino-centric” global order—a “Peking model.” The model not only promotes Xi as “globalizer in chief,” but also creates a wall of regulations between China and the world by controlling the flow of capital, ideas, and culture, ensuring regime sustainability for the Communist Party of China domestically. In the post Covid-19 order  this will not be easy for China, and Xi’s Peking model will come under serious challenges.

If Chairman Mao Zedong is credited with the establishment of the contemporary Chinese party-state, and Deng Xiaoping with bringing China onto the global map with economic reforms and an open-door foreign policy, then Xi has sought a “new era” foreign policy focused on promoting the “China brand” internationally. The Xi model of governance, known as the “modernisation of national governance,” was the fifth modernisation program, following Deng’s four-modernization policy introduced in 1979. While Deng’s program focused on agriculture, industry, technology, and the military, with the aim of building a stronger China “nationally,” Xi’s “modernization of national governance” was more internationally oriented, exemplifying the Communist Party’s global image as a new political model—a “Peking model” to be promoted abroad.

This model is now facing adversity, ironically, of Chinese origin: the Covid-19. As a global pandemic, the novel coronavirus has shaken the world, with tens of thousands of deaths and more than a million positive cases, prompting the question: is this the “Community of Shared Future for Humanity” Xi promised? Donald Trump calling the Covid-19 the “Chinese virus” will dent China’s image internationally. China will find it hard to dismiss the notion that the Covid-19 has revealed a poor governance structure that puts the entire world in danger, especially given the suppression of Dr. Li Wenliang’s early warning in Wuhan.

In a way, the Covid-19 has shown the international community how the trade, people-to-people contact, and connectivity China’s Belt and Road Initiative boasted of can export not only goods, but the dangers of a communist and authoritarian model based on suppression of news, information, and speech. The Wuhan episode exhibits how Xi’s model of centralized power slowed the decision-making process in the Chinese political system, leading to the paralysis of local governance. If anything, the pandemic reinforced the demand that China must promote freedom of speech and transparency, creating the following challenges.

First is a loss of confidence in the Chinese-sponsored schemes. An anti-Chinese crusade may emerge in Europe and the US in which the Communist Party’s model of governance and its approach toward the international community will face severe scrutiny. Italy, Spain, France, and Germany —Europe’s four most severely affected countries—might lead this anti-Chinese crusade in Europe. More importantly, the Covid-19 outbreak has brought into focus many developing economies’ growing dependence on China. Even though the spread of the virus appears to have slowed in China, other parts of the world still struggle, and will fear any outward engagement with China for some time—this will mean a setback for Xi’s model.

Second, the Communist Party has long fought a defensive ideological battle against democratic norms, liberal ideas, human rights, and the principles of democracy. Though the party never directly spread its autocratic functioning beyond China, the People’s Liberation Army has expanded its strategic wings across the Indo-Pacific by building ports, stationing points, and overseas bases. The assertive Chinese posture in Xi’s model has been noticed, from the South China Sea to the East China Sea to the boundary dispute with India. Post-pandemic, such assertiveness will not go unquestioned, with the democratic world doubting China’s approach and its “Shared Future.”

Third, China has exhibited a leadership role in global affairs, but without a corresponding sense of responsibility and accountability. The Chinese government reprimanding Li for his early warnings about the Covid-19 in Wuhan is just one example. In retrospect, the Chinese president has tried to promote a model of governance through the “new type of political party system” represented by the Communist Party as an alternative to the Western model of democracy and liberalism. This might not be easy for China now. The comity of nations may build pressure on China to display signs of solidarity and empathy on critical global governance issues.

Fourth, the post Covid-19 order will promote a contest of power where “China Inc” must face “America first,” along with a coalition of voices emerging with the lead of Indo-Pacific powers, pushing Xi’s leadership into defensive mode. The post-Covid-19 order would not only witness heightened power competition, but also experience a strengthened tiff between US and China, beyond trade and the cyber domain. The Chinese aspiration for supremacy across Asia and beyond might also be questioned more vigorously by India, Japan, and other countries, particularly in Southeast Asia. Australia can be expected to pursue a similar stance too.

Lastly, and above all, the key to China’s economic and diplomatic clout comes from the fact that it is key to the global supply chain. China’s foreign policy gains its strength from the economic power it has built over the years by emerging as a manufacturing powerhouse. Whether it is an exporter or an importer, China’s role is critical in preventing the global economy from going into a slump—signs of which are already evident. Indeed, the Covid-19 crisis has forced many corporates to think about relocating their manufacturing bases and factory outlets out of China. Beijing will face a great challenge in convincing companies and investors to stay engaged with its industries and market.

Politically, too, restoring normality is paramount in China. The economic growth benefitting the majority of the population has been the one overriding factor propping its confidence and enabling it to ignore demands for political ref­orms. Beating the coronavirus and putting the country back on the track economically remains critical to China’s future. The earlier it happens, the better it will be for the Chinese leadership including Xi Jinping.

Dr. Jagannath Panda ([email protected]) is a Research Fellow and Centre Coordinator for East Asia at the Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi. He is also the Series Editor for “Routledge Studies on Think Asia”. Dr. Panda tweets @jppjagannath1.

PacNet commentaries and responses represent the views of the respective authors. Alternative viewpoints are always welcomed and encouraged. Click here to request a PacNet subscription.