An Indo-Pacific Strategy for Australia?

Australia should be developing an "Indo-Pacific Strategy" involving the three giants of the region, China, India and the US, according to Rory Medcalf of the Lowy Institute.

Australia should be developing an "Indo-Pacific Strategy" involving the three giants of the region, China, India and the US, according to Rory Medcalf. But Australia's relationship with India is underdeveloped on both sides, and the Australian government still does not have a well developed and coherent strategy for the region.

The world is now changing rapidly with the re-emergence of China and India. This creates many opportunities for all countries, especially those like Australia which can exploit their fast growing market demands for natural resources. But it also creates many risks, like rising energy and food prices, and even the risk of conflict. All nations need a strategy to both adjust to and benefit from this historic re-emergence of Asia's giants.

China is now the world's second biggest economy, and Australia's biggest export destination, with exports concentrated on iron ore, tourism and education services. Chinese investments in Australia are also growing rapidly, although the US still has by far the biggest stock of investment in Australia. But China is neither a democracy, nor an Australian ally or even an ally of one of our allies.

Though India's re-emergence is more recent, dating back 20 years, it is on track to become the world's third biggest economy. It is presently Australia's fourth biggest export destination, but it could overtake Korea in the near future, and even Japan one day to become our second biggest export market. Coal and education services are major exports to India. Although they have not yet shown up in the official data, Indian companies have major investment plans on the board, especially in the coal industry.

This new economic wealth translates into power, through which China and India can exert their influence over other countries. China now has the world's second highest military spending, after the US. This is a source of tensions in Asia. India's military spending is on the rise too. There is risk of an arms race in the region.

What is very troubling is that although China is now India's biggest trading partner, there is great mistrust and indifference on both sides of this relationship, which share a long and testy border. China's political regime may seem more effective than India's, but being non-democratic it may also be more brittle.

Australia now has a good defense dialogue with China, and undertakes joint training and exercises for disaster relief. Australia and India have been more slow in building a strategic dialogue, although they have the common interest of combating terrorism.

India has failed to realize Australia's potential importance to it. The Australian Labor government decision in 2011 to approve exports of uranium to India has removed a sore point (given that Australia started exporting uranium to non-democratic China in 2006), and may open the way for better relations.

In fact, India and Australia have many mutual interests. Australia is very much an Indian Ocean nation, as well as a Pacific nation. Indeed, much of Australia's natural resource exports come from our Indian Ocean side in Western Australia. And we share many strategic concerns in the Indian Ocean. Moreover, Australian and India have shared concerns over the future development of China.

But much effort will need to be employed to strengthen Australia's relationship with India. It is a country whose little knowledge of Australia is out-dated, which has very few Australia champions and whose media is very ill-informed. Australia is no longer the Anglo-Saxon outpost that many Indians still imagine, but a hybrid society with one-quarter of its population being foreign-born.

Australia has many societal connections with both China and India through the growing migrant communities in Australia, students studying in Australia and tourism. This means that managing inevitable societal frictions will become ever more important. Two recent episodes show how quickly things can flare up, namely, the passage of the Olympic torch in Canberra in 2008, and the Indian student case in 2008-2010.

So against this background, what should be Australia's strategy to adapt to and exploit the benefits of an Indo-Pacific strategy?

Building on the many elements already in place, Australia needs to follow a two-pronged approach. First, we should engage and enmesh China and India in Australia through open trade and investment, and close strategic partnerships. We need to give them a stake in Australia's future, because they both need Australia as a stable supplier of resources.

At the same time, we need a hedge against the uncertain future courses of the China and India which are riddled with inequalities, corruption and environmental problems. And this hedge is Australia's Alliance with the United States. Most importantly this Alliance is not an anti-China instrument. It is a longstanding relationship with much broader implications.

Medcalf's analysis is spot on. Australia has indeed been much quicker to come to terms with China than other Asian countries. Not only have we have not put enough into developing relations with India, but relations with Indonesia have also been left to flounder.

The government's upcoming Asia Century White Paper offers an opportunity to develop a strong, coherent strategy. But will we seize this opportunity? The risk is no, as Australian policy and politics is currently characterized by short-termism, petty politics and a lack of leadership when a bipartisan, steady long-term approach is necessary.