Know your place: we're attendants to Chinese superpower

For the better part of a millennium China has existed as the largest single co-ordinated collection of humanity on the planet.

China

LET'S talk of the demographic behemoth. Let's talk of China. For the better part of a millennium, and possibly for longer, China has existed as the largest single co-ordinated collection of humanity on the planet.

New census figures place China's population at 1.34 billion, or at almost one-fifth of mankind. India, the beast in waiting, holds 1.19 billion. But whereas China's growth is slowing (a mere six million per year), India's continues to surge (16 million annually). It is closing the population gap on China at a rate of 10 million a year.

But this is not a story about India, it is a story about China and its ascendancy.

China's gross domestic product when measured in US dollars, according to the latest estimates by the International Monetary Fund, is about the $US6000 billion ($5870bn) mark, or roughly equivalent to one-third the US economy.

At the beginning of the 21st century, China's economy was one-fifth the US economy and in 1990 it was one-twentieth.

On this trajectory China will control the largest economic machine on the planet, and in history, at some stage during the late 2020s. But the timeframe to China's primacy could be shorter when output is measured by purchase price parity rather than by US dollars.

And consider this. At no point during the Cold War did the economy of the USSR ever exceed one-tenth the output of the US economy.

China has achieved more in the past 15 years than the Soviets achieved in the 45 years following World War II. And yet Russia was very much perceived as a strategic threat to the US and to the Western Alliance in the mid to late 20th century. And all this from what was in effect a modest economic base.

But the resources that the Soviets did control were managed to compete with the West in the military, in space and even in the sporting arenas.

On the other hand a free-market economy is far less disciplined in its allocation of resources: money and effort can be directed to the pursuit of leisure and pleasure rather than to the delivery of infrastructure, power and steel.

On this basis it is reasonable to question whether the 2010s will witness the transfer of the planet's primary economic force from US hands to China. The last such transition was from the collective powers of Western Europe to America in the early 20th century. The American empire, if measured solely on the ability to amass and control the economic resources that might be required in conflict, will last for maybe 100 years.

Perhaps this is about as good as it gets in the modern era for a globally dominant economy: about a century at the top before new forces combine to present a genuine contender.

My point is that the rise and dominance of China is much closer than is suggested by the raw numbers. A planned economy that is reasonably well galvanised across its people is a formidable economic and cultural force. How long do you suppose it will be before the average Australian knows the odd word of Mandarin or the most fashionable precincts of Shanghai and Beijing?

The role of Australia in this Asian hemisphere is becoming clear. We are to be attendants to an emerging empire: providers of food, energy, resources, commodities and suppliers of services such as education, tourism, gambling/gaming, health (perhaps) and lifestyle property.

And why not. After all, Russian billionaires do not live in Moscow, they live in the lifestyle city of London. (Many prefer Belgravia, I hear.)

The Chinese middle class - now estimated by Euromonitor at close to 10 per cent of the population - will look to mitigate sovereign risk by diverting funds to Australian and other lifestyle property.

China is now Australia's leading supplier of overseas students (150,000) and in 2008 it replaced Japan as our single most important export market, mostly through iron ore, coal and gas: the stuff that underpins, if not delivers, middle-class prosperity.

In previous eras global-power transition followed a contest such as a war. Not so in the 2010s.

China will silently slip past the US in its economic capacity, but it may not be until the late 2020s that the new order becomes clear.

With the fall of Singapore in February 1942 Australians realised that Britain could no longer defend the extremities of its empire and that it had been unable to do so for much of the 20th century. It's just that the issue was not tested until World War II.

How will we know that China has usurped the US as the planet's most powerful economy? Perhaps it will be through the projection of naval power via the acquisition of an aircraft carrier. (The US has 20 but that's not the point. China now has one.)

Perhaps it will be the establishment of supply lines that connect China with places such as Australia, but also with other resource-rich nations such as Canada, Namibia, Chile and South Africa. These will be Australia's natural competitors in the coming decade.

Perhaps it will be through the type of cultural imperialism that the Americans perfected so well through television, Hollywood and corporate infiltration. If this is to be the case then the opportunities for Australian business are profound.

But while the China trajectory may well be a compelling story it is also by no means assured. The 2010s are likely to deliver even more prosperity to the Chinese, who will convert manufacturing wealth into consumer goods such as mobile phones, motorbikes, air-conditioning units (for all) and perhaps also for meat-based protein as opposed to rice.

The challenges for China in the new century are twofold: to navigate the after-effects of the one-child policy from the 1970s which is now diminishing the labour market; and to manage the possibility of a rising market for dissent. Beyond consumer goods in the hierarchy of human aspiration is the desire for freedom of expression. It is this concept that delivered the Arab Spring of 2011.

A galvanised nation is a nation that projects power beyond its numbers; a dissent-ridden nation - perhaps for all the "right" reasons - is less effective than its numbers would suggest. There is a very different future for Australia from the 2020s onwards depending on how China manages the challenges.

Based on Bernard Salt's contribution to Australia & China: Future Partnerships in 2011, released today by KPMG and University of NSW China Studies Centre. Download from www.kpmg.com.au at http://tinyurl.com/6fa5z7e;