 I thank you, Cam, and thank you all for coming on behalf of the university. I think we must apologise for so many of you not having seats. I shall not be offended if you find that you have to leave the room. I, too, like to acknowledge the presence of the Diplomatic Corps here, the Australian intelligence community, very senior academic colleagues from the university. I'd like to thank the AIIA, ACT branch, and the Strategic Defence Study Centre, and this research school for organising this. Welcome also to A and U students. Some of you, I know, are also doing the master's programme at SDSC. To members of the AIIA, it is a critically important organisation with, as you've heard, an enormously long history, and it contributes to the democratic public debate. And also to members of the public here, who are none of the above. It is part of the AIIA's outreach programme, part of its AIIA's outreach programme, to encourage discussions like this, so that we have a much broader audience than the highly specialised academic ones. About an hour ago, I got a phone call from Stephen Smith, the Minister for Defence, wanting to know if he could have a copy of my speech, because he was about to go on to an aeroplane and fly overseas, and I said to him with due respect, Minister, unlike you, nobody writes my speeches. I'm scribbling the notes as you ring. You can watch the YouTube. I am not a China expert. There are people here, like Ross Tyrrell and Richard Rigby, who are. I first went to China as the first ever intelligence invited guest in 1978, as a guest of the Foreign Affairs Bureau. I reviewed the Sixth Tank Army at Badaling. I was a bit younger then, by the way, and we believe I was the first westerner to be invited to the Chinese submarine building yard in Shanghai and go on board a Chinese, that is a Russian submarine. The first time I'd been on a submarine, so our intelligence people were very disappointed when I came back, when I said, they said, what did you see? I said, I saw a lot of tubes and tiles. And of course, in my official and academic life, I've spent a long time in the United States. I've held American top secret absolute security clearances to do with satellite photography, pungent, and Narunga and a few other things, as indeed other colleagues in this room have. I'd like to discuss three main issues with you this evening. The first one, as the title of the talk suggests, are the Chinese and the United States going to go to war. And I was a bit provoked on this by a statement by former Prime Minister, Kevin Rudd, some weeks ago, in which he likened the risks of war with regard to the Senkaku Dai Olu Islands as Sarajevo 1914 and major powers going to war. Well, I must say, I found that a stretch of his vivid imagination, but he's provoked me into this. Secondly, and associatedly, I'd like to discuss is China the rising power, rising and rising with no problems, and is America in inevitable decline? To answer the challenge of one of my colleagues, will the United States have to concede strategic space to China in Asia? If I get time, and most likely looking at my notes I won't, the third thing I'd like to discuss is what does all this mean for Australian defence policy? And if I don't get onto that, please feel free in the question time because, as you've heard, I'm not just a theoretician, I've been in the past a practitioner with regard to Australian defence policy. Now, as I said, I'm not a China expert, but I'm used to the sort of use of Chinese numerology, you know, from the Communist Party of China, you know, the 12 dos and the 14 don'ts. So, I've got the three no's and the two yes's for you. My three no's are as follows. No, there will not be a major power war between China and the United States, but, of course, there is a risk of limited conflict. Number two, no, the United States is not in irretrievable decline, and no China, in my view, is not on the inevitable rise and rise and rise with no weaknesses. And no, neither America nor anybody else is going to concede willingly a sphere of influence for China in such a place as Southeast Asia, which is what has been recommended in certain quarters in this town and in an instant recent fairly useless article in the journal Survival by an American. And the final no is a no, we've no need to arm ourselves to fight war with China, unlike what was implied in Rudd's 2009 defence white paper. The two yes's are, yes, we need to focus more on managing the peace in Asia and particularly in our own region, but we need to fix up the rules that are lacking in terms of confidence building and preventive diplomacy. And I'm concerned about the lack of cohesion and strategic rigor, particularly in Southeast Asia, with regard to their approach to security and security organisations such as the ARF. And the second yes is, yes, we do need to spend more than 1.5% of GDP on defence as soon as the economy improves, but there is no urgency about it, where is the clear and imminent threat. Turning now to my conceptual framework, as I think many of you know, I'm a considerable believer in the balance of power theory. I know there are some colleagues here who don't care for that theory. Most of you are aware of the theory and how it worked in 19th century Europe and how there are speculations how it may or may not work in our region. The academic theory of the balance of power suggests that bipolarity such as existed between the former Soviet Union and the United States was inherently unstable because there were not enough players and that by comparison a multipolar situation with many players and checks and balances is a more stable situation. That is a matter of judgment. Some of you will agree with that and some of you won't. I think there is too much of the debate, however, in this town about effectively thinking it's a bipolar position between the United States and China. Of course that is the most crucial relationship that you people, including you young ones, will see through your lifetime. It is the most crucial relationship of all, the United States-China relationship. But we must not just accept that there is a bipolar relationship. There are major players on the rise as well. Look at India, look at Indonesia, look at Vietnam, look at the ROK and major players already established like Japan and players that may or may not have a future as a major power like Russia. So one way or another and however you interpret it and you welcome to your own views on this we have a fairly complicated and competitive multipolar power situation. Next, as you know, writers have written about the rise and fall of nations throughout history and speculated on the cause for the rise and fall and again there are many views on this. The most prominent book in recent decades was Paul Krugman's book in which he proclaimed that economic growth was at the essence of the rise and fall of powers and without great economic power you can't be a great military power and you can't have great influence. Again that is a contentious judgment. I particularly like Paul Krugman by the way because towards the end of his book which was written in the late 80s he cited my then just published book on the Soviet Union which I call the incomplete superpower which was not a welcome book in certain quarters in the United States in 89. Not least not welcome in place called Langley. But they got it wrong and I got it right and Krugman quoted this book of mine at length in his last chapter so look his book is a really good book. Krugman I think tends to underrate domestic social and political fragilities and I want to come on to those with regard to China and indeed we need to debate those in the United States. There are conceptually in any case two key points for strategic policymakers in the issue I'm about to discuss and again one of these at least is contentious the other in my view is not but we'll see. The first one is that we're now in a period of economic interdependence the like of which the world has never seen. Some argue that at the turn of the last century in the early 1900s that was the last time when the world was so economically interdependent in terms of trade investment new technologies you know the airplane the telephone whatever telegraph and indeed travel but you look at the depth of economic interdependence now you look at the products you buy my favorite example is my iphone and my ipad where is it invented well it wouldn't surprise me not invented in China invented in the United States whereas some of the bits of kit made including with rare earths Japan and where are they assembled with only 30% value added in China and you can go on about that if you you know I recommend you when you buy products just have a look where they made you know and and how many countries are involved and I would put it to you that the global supply chains including in the area I'm deeply involved with that is defense policy and defense equipment there is a very complicated and tenuous global supply chain it depends on just in time delivery many ways of course if I can criticise myself there was a famous professor of international relations in 1910 called Norman Angel who wrote a book called the great illusion who proclaimed and I see the ambassador's nod in his head who proclaimed 1910 that the Kaiser's Germany and Britain were so interdependent on each other economically technologically travel royal family that it was absolutely insane to think that war would break out and of course four years later it did but that was then and now is now and I would say that the interdependence economically now is an order of magnitude or several order of magnitude different the second one and you'll make your own mind up on that one I think I'm on much firmer ground I believe on the second fundamental strategic policy issue that will inhibit war in our region and that is plain and simple nuclear deterrence it has worked for over 70 years and as close as the Soviet Union of the United States got in the Cuban Missile Crisis in 62 and in my experience as head of defense intelligence a done site closer to nuclear war in 1983 war did not happen not nuclear not conventional because each side aimed to destroy the other side as we used to say as functioning modern societies that is you aim to wipe out the Americans aim to wipe wipe out the Soviet Union population by 50 in the first 24 hours so you get 100 million dead in 24 hours it's called the end of the world we used to talk about nuclear winter so this issue now and it's a current issue with regard to the alleged build up of China's nuclear weapons and whether there's a stable deterrence and first strike versus second strike and so on some people believe that in the event of a limited conflict between the United States and China which would escalate that for instance says one theory China could drop a nuclear weapon on the American base in Guam and the Americans wouldn't dare do anything about it because of the risk to Los Angeles and New York all I can say is that people who believe that don't understand the United States and how when it decides to go to war it don't mess around it don't mess around at all look at Iraq look at Hiroshima and Nagasaki it's a myth by the way that democracies and when they go to war don't go to war violently and don't demand unconditional surrender so what are the risks of war let's start with Taiwan let me quote last week's Chinese PLA defense white paper in which that white paper said and I quote cross straits relations are sustaining a momentum of peaceful development I think that's dead right I think we've largely got no for the risk that Taiwan might unilaterally declare independence and thereby undoubtedly provoke China and that would not be anything in any case that the United States would want and as far as we are Australians are concerned you need to think that if there were if there was a war across the Taiwan straits in which American troops are getting killed the Americans in my view would immediately invoke the answers treaty which says worst of the effect in the event of an attack on the troops of the two contracting parties their ships or aircraft in the Pacific area we shall immediately consult but for us not to actually be involved in such a conflict if it was Chinese aggression unprovoked unprovoked by Taiwanese declaration of independence that would raise very serious foreign and defense policy issues for us but you know as former minister Alexander Downer said when he was once questioned on this they are hypothetical questions which I refuse to answer very wise minister and I think you know we can we can talk about what would happen but I think we have to say the prospect of war between the United States and China over the Taiwan straits these days is highly unlikely and that as the Chinese white paper says the cross straits relations are sustaining a momentum of peaceful momentum peaceful development and everyone say it increasing economic interdependence the second one is more serious and there are people in this room know more about this and just remember I don't get intelligence updates these days north Korea a much more dangerous situation than Taiwan you can't rule out a stupid nil calculated use of a nuclear weapon by this 28 year old seeking to impress his military bosses but it's not in the interest not only of the United States and South Korea demonstrably given where Seoul is with regard to the Korean border but I would argue it's certainly not in China's interest look how China has distanced itself of late from the DPRK and by the way in the event it was an outright DPRK use for instance of a nuclear weapon against the south somebody needs to tell the leadership in Pyongyang as I've just said earlier the response from the United States would be overwhelming and massive so let's put it in the more dangerous situation but still unlikely I would say very unlikely but unlikely I think the east China sea Sencacodau and the South China Sea and the issue of Chinese claims in the South China Sea and the so-called nine dotted line has pushed members of ASEAN away from China and closer to the United States not all members of ASEAN but a significant number not as a least not least as a result of the meeting of the ASEAN ministers in Nampen at last June when clearly the Chinese foreign ministry lent on the Cambodian leadership as we speak today some of you may have heard the news that near the Sencacau islands there are some Japanese citizens occupying the island and that there are Chinese surveillance vessels allegedly eight of them are coming close to the waters and I think and I can only quote the news that the Japanese Prime Minister said that any Chinese people landing on the Sencacus will be deported I suppose that would be the sort of Japanese version of illegal refugees you know but I do not think even if something happened over Sencacus and there was an exchange of fine remember those allegations a few weeks ago that a Chinese boat had done a radar lock-on to a Japanese boat that whilst one cannot eliminate conflict by miscalculation you would hope and expect it would be limited and it is easier to limit and constrain conflict on the high seas than it is not in the first world war across long borders with mobilisation timetables I would argue but there is a risk of miscalculation a recent Rand report has looked at the prospects of war over the next 30 years between the United States on China in all those issues I have mentioned and says their assessment is very unlikely and the Rand corporation there won't say it is not one some left-wing socialist tree-hugging organisation you know it ain't Australia in the Asia century our white paper earlier this year says very much the same thing about major power war being unlikely or some would say less than remote and I suspect that the forthcoming defence white paper that I imagine may well be out next month will have much the same view so let's turn then to the relative power of China and the United States a very vex question you'll have your own views and you must have your own views it's one of the crucial issues for you people to think about and determine in the coming decades how out of balance will the relationship between China and the United States get my view is quite simple I acknowledge the rise of China's power and I think a lot of that is to be welcome however the jury is out as to how China uses military power in future and the pushing and shoving in the South China Sea and the Sencacus of late has not been so reassuring but China is not the former Soviet Union in military power and it's not the United States now or foreseeably it is to use the title of a book by Susan shirk who was deputy assistant secretary of state her book was called China the fragile superpower so you see I had the Soviet Union the incomplete superpower and she has the fragile one and I think there's a great deal of truth in it and she she concentrates on here's a power that's becoming increasingly confident and strong abroad but is fragile domestically and there are people like Ross Terrell and Richard Ridley here who may well have different views and I'd be interested to hear them I think in any case militarily China has is a long way behind the United States it is true that in close approaches to China China is developing some capable issues but who actually thinks that the United States is going to sit on its behind and do nothing about it this highly innovative United States that accounts for half of the world's military expenditure and on my calculations that accounts for close to 80% of advanced military R&D in the world who else does advanced military R&D well China a bit Britain my old country bit the French a bit the Russians well they've been in freefall for 20 years let's have a quick look at both these countries China and the United States and I apologise it can be very brutal you all know the figures that China's economy has eclipsed and outrun that of Japan in GDP terms and it depends whether you use exchange rate equivalents or purchasing power parity as to whether you think the Chinese economy will be bigger than that of the United States in about I don't know 2020 2028 whatever that will still not make China as richer country as the United States and there are interesting issues about what it spends on R&D and innovation given its rather disciplined education system in any case one of the key weaknesses I believe of China is if I'm right by 2015 two years from now the Chinese workforce will start to decline in absolute numbers because of the one child policy and there's nothing they can do about it and the figures and the figures I have is that by about 2040 over 380 million Chinese will be over the age of 60 if you think those two things I've just given you don't have serious geopolitical implications you'd be wrong already Chinese labour rates are going up and some companies soon will be looking at India Vietnam Indonesia and when you've got nearly 400 million people over the age of 60 and you don't have a good health care system age care system and indeed good health system the sort of money you're going to have to apply to age care is serious as we know only too well don't we you know the issue of growing social disturbances in China reaction to income inequalities between the urban east and the inland china where I've never been but which I understand enormous backward elements to it in terms of economic demand the corruption that is acknowledged by successive chinese leadership but which they seem to do a little about the costs of health and age care and unemployment benefits all those things I've mentioned turn into its military capabilities let me just quote to you from a forthcoming article in the china quarterly by adam lyff and andrew ericsson who've done a thing on demystifying china's defense spending and looking at their footnotes unlike me they clearly read chinese and they say the following developing the capabilities necessary to wage high or even medium intensity warfare beyond china's immediate vicinity would require significant additional increase in the defense budget and heavy investment in new platforms weapons and related systems as well as training operations and maintenance not to mention some form of support infrastructure abroad abroad if china decides to develop significant power projection capabilities its investments are likely to be increasingly inefficient and provide significantly less bang for a significantly larger buck and they say look into the future defense budget growth in china will face increasingly powerful headwinds as a motley of domestic and social challenges demand the attention of chinese leaders a rapidly aging society will inevitably generate higher economic and social service expectations which may well exacerbate extant domestic instability they say and even if defense spending continues internal pla factors such as rapidly rising equipment and personal costs not to mention corruption all but guarantee diminishing returns and will limit improvements to overall chinese force structure and capabilities and they summarize this by saying in short it seems clear that the future pace and scope of china's military development will depend upon the health and wealth of the nation now i don't have time to go through some of the undoubted chinese developments in what's called area denial anti access capabilities and how the united states is developing what's called an air sea battle to respond to that i refer you to an excellent article that asked me the australian strategic policy institute has published by a former colleague of ours benjamin schreer on this very subject i will just note in in passing most chinese submarines not least their nuclear ones are quite noisy their older submarines are hand me down from the russians and they're still buying russian submarines and is america good at asw yes and is america and japan developing a submarine detection capability along the okinawa chain to bottle up the northern fleet yeah the chinese have been trying for 35 years to my certain knowledge to develop a high performance military jet engine which is very demanding and technically difficult and they have not succeeded where do they get these jet engines from a place called russia whose defense industry as i've said has been in freefall for 20 years then we have this much-vaunted crappy old aircraft carrier which was called the variag whatever it's called in chinese who believes the 1970s russian technology aircraft carrier is the start of an aircraft carrier capability the america's have been at it for 70 years and it would be a no game i could go on about the so-called df 21 anti aircraft carrier ballistic missile well have they ever tested one against a target moving at 50 knots like a nuclear powered aircraft carrier can and if it misses the target with a conventional warhead by 200 meters they're wasted a shot and if they use a nuclear warhead guess what the game's on we can talk about the so-called stealth fighter which has been peddled out onto the runway is that a fifth generation fighter like an f22 or a jay set no and then we have a country called china that has no experience of modern war whatsoever mass peasant armies blowing bugles in the korean war and when i was deputy head of defense intelligence we watched very closely the chinese teaching vietnam a lesson you remember that one duck in 1978 guess what who won well certainly not the chinese they faced up to a battled hardened north vietnamese army which we knew early too well so yes the chinese are making advances there's no doubt about that and they need a capacity to defend themselves and close in it's going to be a greater challenge for the americans if push comes to shove and at distance it's going to be still a weak force on the chinese part and by 2030 which will be the strongest military power in the world without doubt the united states of america moving on quickly to the united states then yes its economy is in trouble and if they don't turn around from this global financial crisis and get back to dynamic rates of growth if they don't do that over a period of years then i will have to qualify what i'm telling okay i have a bit more confidence in the american economy than that i certainly have a lot of confidence a lot of confidence in the dynamic inventiveness of the american people like no other i mean you younger people you use all these things i don't use like facebook and twitter and all that stuff who invents all that who invents you know the most capable advanced military equipment in the world and not just the kid i've talked about but command and control intelligence surveillance reconnaissance overhead satellite systems which we in australia have privileged access to the likes of which the chinese are not in the same ballgame about yes they're making advances and as for the demography of america unlike china america does not have an aging population it is a young population it's 300 million people that are growing strongly you know the young hispanic contribution to the population so unlike china they don't face the declining population yes in addition to the economy problem i acknowledge there is political gridlock and again it is disappointed the americans are locked into that situation so there are some qualifications but in the end the country that sees itself as the exceptional society the light on the hill in god we trust all that stuff don't underrate them so do i believe that the united states will have to concede strategic space anytime soon to china absolutely not why should they and if there were to concede south east asia as a sphere of influence to china where would that leave australia's defense policy given that south east asia sits on the northern approaches to australia like a strategic shield if things go well and it would be the direction from or through which we would be attacked should it not go well some people are saying that america will be so weak in its inevitable decline and china will be so strong that japan will cast itself free of the alliance and develop nuclear weapons well who actually believes that given where the japanese are on matters nuclear you know i was in japan at the time of the earthquake and the Fukushima issue and look what that has done to their nuclear aversion and would we and america and south korea and china want japan to go nuclear no and where is the regional correlation of forces as the marxist used to say in the soviet union the regional correlation of world forces well who are china's great friends and allies well it's not a spectacular lineup is it the dpr k close to a lunatic society you know pakistan close to a failed state a nuclear armed until recently miamma who've suddenly decided don't like the chinese cast their lot in with the west and who else who else on the americ side you've got japan the rok in my view most if not all of the asians moving not to an alliance with america but increasingly cautious about the way in which china is throwing its weight around in the south china sea so from the united states washington point of view the correlation of forces of allies and friends is formidable i'm going to quickly then just spend a couple of minutes on what i promised and that is australia and china the two most powerful bureaucrats in this town the secretary of defense denis richardson and the secretary of foreign affairs pete of our gays have both said that the so-called choice that some say we have to make between china of the united states is a false choice and i agree with them why wouldn't we have to choose you know in the practical world of diplomacy and policy it's actually possible to walk and chew gum at the same time you know it really is it means like some of my academic friends you know type me as a as a hardline defense realist yeah well when you sit in the department of defense ordering weapons systems which are meant to kill people you're actually a realist but you also run a program called the defense corporation program in southeast asia in the south pacific that you know is liberal institutionalism if you like so the real world of policy is not like the world of academia whether you're either a realist or a liberal institutionalist or you know you're for this or against that it is more sophisticated frankly and does either the and does either the united states or china believe they have to choose between each other and friends and allies and do other countries not just australia but do other countries believe they have to choose does japan believe they have to choose or they are okay or can they believe they can do both things there is only one codisol and caution to this that is there will be a compulsion to choose if china becomes militarily aggressive an expansionist and i don't see that i mean yeah it's monkeying around in the south china sea and it needs to behave itself more and it needs to be careful about the same cacos but this is not the form of soviet union hell bent on territorial expansion you know or indeed these days in china hell bent on ideological expansion no it's not there are dangers however susanne sheik would say about the fragile superpower that if the internal challenges and problems in china become more serious and as people drift away from really believing in communism to actually expecting the sort of devil's deal is we'll let your rulers even though you're not legitimately in power as the communist party of china as long as you deliver the economic welfare should that falter susanne sheik talks about would then a chinese leadership focus on external aggression well that's a series of ifs isn't it that's a series of ifs and that's neither good intelligence nor good policy finally for australia after 11 years in afghanistan australia needs to focus on our own region and not dreaming about going to war with china or to use a phrase of one of kevin rudd's external advisors to the 2009 white paper as developing a capability listen to this to tear an arm off china i mean you know how lunatic is that that particular person was proposing that we put tomahawk land attack cruise missile on the next generation of submarines in order to target the chinese leadership this is a well-known fact around this town let me stress that person was not a policy officer and um and we have none of that in the current inputs to this current white paper as far as i can see you remember early on i said we need to focus more on managing the peace on thinking about going to major power war and to do that we need to do two things we need to strengthen confidence building and preventive diplomacy the thing i'm about this with this asian regional forum thing i've been to for six years and i'm about to go to in three weeks time to honolulu to talk yet again with 27 countries about preventive diplomacy the disappointing issue in those meetings is i've tried for five of those six years to get the chinese delegate who's generally a retired very senior ambassador to agree to a discussion that's all a discussion on an avoidance of naval incidents at sea agreement like the soviet union had with the united states in 1972 which said warships in close proximity to each other shall not point guns missile systems or lasers on each other shall not illuminate the bridges of warships with high-powered lasers and shall not interfere with the line of direction of a warship taking off or landing aircraft and it had some similar cautions about aircraft and the fact is that japan has an agreement with russia on in that regard in which the wording is taken directly from the 1972 us solid agreement and the rok has an agreement using exactly the same words as the 1972 us solid agreement and yet the chinese will not even discuss the issue and what is the problem here what is the problem here the second thing we need to do is to recognise that southeast asia is the lynch pin of the indo pacific region which is not an entity it's an embryonic strategic concept but if you look at a map going from the west coast of africa through to the pacific southeast asia sits there is the lynch pin you remember i say from an Australian point of view it is our strategic shield if things go right it would not be a strategic shield if the united states conceded a sphere of influence which it isn't going to do to china in that regard so we need to focus more on southeast asia and in particular i think a number of us are concerned about the lack of strategic direction and cohesion in asian and about the security organisations like asian and the rf which are good at talking their talk shops but they're not good at getting something going forward but they're trying to do that with the chinese on a code of conduct in the south china sea and again with very little good response i'm afraid from china so you see those of you who think i'm only a realist can see that defence policy is not just about or fighting it's about confidence building preventive diplomacy encouraging regional cohesion final two points do we need to spend three or four percent of gdp on defence against a mythical china threat demonstrably and absolutely not but we do need to spend more than the 1.5 percent of gdp at present which is the lowest since 1938 that is not to drum up threats so if you know the sudeten land and here comes hitler it is just that in my experience something round about two percent of gdp is more like it to sustain a defence force of less than 60 000 but with modern submarines aircraft and other equipment to make sure that we have a clear margin of technological advantage in our region which successive governments both coalition and labour have supported since kim beasley white paper of 1987 so our focus needs to be on our own region and let me just finish by saying what that region is in military operational terms it's clearly not the indoe pacific all of it and it's clearly not all of asia in terms of operational and force structure priorities my definition of our region is the eastern indian ocean southeast asia including the waters of southeast asia therefore the south china sea plus the south pacific and our southern ocean approaches down to Antarctica on my rough estimate that adds up to more than 10 percent of the earth's surface that's more than enough of a challenge for an adf of 59 000 people without us drumming up threats of going to war with china thank you