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Beyond Interdependence: The Challenge of Economic Security in a Changing Political and

Economic Landscape 1

J.D. Kenneth Boutin

Deakin University

Introduction

This paper examines economic security in China, Australia, and the United States, focusing on how

political authorities conceptualize and approach economic security, how economic security in these

states may be changing, and the implications this has for relations between them. This study is

situated in the complex economic and political environment of the Asia-Pacific region.

Security issues complicate economic relations between China, Australia, and the United States.

These states pursue distinct economic security programmes, and there are potential tensions within

their policy agendas as well as between them. The former is the product of the pursuit of

incompatible economic security objectives. Conflicting national and comprehensive economic

security requirements can be particularly difficult to reconcile. Even without this, dissimilar

economic security interests pose a significant challenge. Regional economic and political trends are

contributing to this by eroding the common ground of economic interdependence and encouraging

greater attention to the requirements of national economic security.

Economic security trends within these states and changing regional conditions have major

implications for relations between them. These are strongest in the case of China and the United

States, while Australia potentially is subject to the impact of developments in the Sino-American

relationship. The emergence of triliteralism where economic security is concerned is unlikely.

Instead, we can expect to see more complex bilateralism.

Space limitations preclude detailed discussion of economic and security relations between China,

Australia, and the United States. Neither is this study in a position to survey the extensive economic

security-related initiatives of these states. Readers are directed instead to dedicated studies, a

number of which are indicated in the bibliography of this paper, and to the other papers presented

in this symposium.

1 The author would like to thank James Murphy and Gus Solis for their research assistance, and the American

Political Science Association for supporting him as a Centennial Fellow in Washington, DC in July 2011.

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Economic Security Considered

Before proceeding to examine economic security in China, Australia, and the United States, it is

necessary to address a number of crucial definitional and conceptual issues. Economic security is no

less amorphous and contested a concept than security itself, and remains the subject of lively

scholarly and policy debate. This reflects the relatively recent emergence of economic security as a

subject, with the formal study of economic issues in this context dating only from the 1930s, and the

label of ‘economic security’ only entering widespread use in the 1990s.2 It is important to note,

however, that many issues now being considered in economic security terms are not new to states’

policy agendas.

Care must be taken in studying economic security. Many authors continue to address economic

security issues implicitly rather than explicitly. To further confuse matters, there is no commonly-

agreed definition of economic security, despite the increasing currency of the concept in scholarly

and policy circles alike. The discussion of particular issues in economic security terms may represent

an effort to distinguish them from national security, while other authors employ the discourse of

national security in discussing all economic security issues, even where these are only partially

compatible or even incompatible with national security as this generally is understood.3 Similar

trends accompany economic security policy, with authorities in many states pursuing economic

security objectives without necessarily referring to them as such or subsuming them under the label

of national security regardless of their substance.4

One other important caveat is in order. This concerns the nature of policy communities in the states

that are the subject of this study. Policy communities are not monolithic, but are composed of

distinct institutional actors which may differ significantly in their perspectives and approaches to

economic security. China is no exception, though its system of democratic centralism largely

obscures the extent of this.5 Nonetheless, there are important policy continuities in each state,

which constitute the basis of this study.

Economic Security and the State: National Economic Security

Consideration of economic security issues is best established in the context of state-oriented

national security. As Emily Goldman and Leo Blanken note, ‘the material basis of military strength

2 Christopher M. Dent, ‘Economic Security,’ in Alan Collins, ed. Contemporary Security Studies (Oxford: Oxford

University Press, 2007), 206.

3 See, for example Russell Ong, China’s Security Interests in the 21

st Century (London: Routledge, 2007), 16-17.

4 The initiative of President Bill Clinton ‘to bolster America’s economic prosperity’ was presented in a study

entitled ‘A National Security Strategy for a New Century’, for example. Dent, 206.

5 See, for example Amos A. Jordan and Jane Khanna, ‘Economic Interdependence and Challenges to the

Nation-State: The Emergence of Natural Economic Territories in the Asia-Pacific.’ Journal of International

Affairs 48:2 (1995), 439.

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has traditionally been a starting point for assessments of military potential’.6 This state-centric

approach, which is referred to in this study as ‘national economic security,’ is relatively narrow in

focus and effectively realist in perspective, as suggested by the use of terms such as ‘economic

defence’ and ‘economic warfare’ and by examining economic issues in an adversarial inter-state

context. Typical is the perspective of one study that considers ‘economic actions that are

implemented with malign intent and [which] have a capability to do significant harm as security

threats.’7 A tendency to adopt a relatively short-term temporal focus on issues of pressing policy

concern characterizes the national economic security literature as a result.

There is a useful distinction to be made between studies of national economic security that focus on

economic policy instruments, as opposed to the economic basis of national security. The former

entails economic statecraft: the use of economic instruments to attain security objectives that if

economic in nature, are important through their national security implications. This may involve a

focus on coercive counter-economic or counter-industrial strategies and instruments such as

sanctions. Alternatively, this may involve positive incentives such as the provision of economic

assistance or market access.8

Focusing on the economic basis of national security, on the other hand, involves consideration of the

resources required by states to ensure their security. These can include financial, industrial,

technological, and ‘security of supply’ considerations for natural resources such as oil and strategic

minerals.9 This encompasses issues such as the capacity of economies to generate and political

authorities to extract tax revenues, national industrial capabilities in ‘strategic’ areas such as those

essential to the defence-industrial base, and economic trends and developments which impact in

these terms.10

6 Emily O. Goldman and Leo J. Blanken, ‘The Economic Foundations of Military Power,’ in Peter Dombrowski,

ed. Guns and Butter: The Political Economy of International Security (Boulder, CO: Lynne Rienner Publishers,

2005), 37.

7 Dan Caldwell and Robert E. Williams, Jr., Seeking Security in an Insecure World (Lanham, MD: Rowman &

Littlefield Publishers, 2006), 145.

8 See David Baldwin, Economic Statecraft (Princeton, NJ: Princeton University Press, 1985); and Simon Pepper,

‘Aspects of Operational Art: Communications, Cannon, and Small War,’ in Frank Tallett and D.J.B. Trim, eds.

European Warfare, 1350-1750 (Cambridge: Cambridge University Press, 2010), 196-97.

9 See Vincent Cable, ‘What is International Economic Security?’ International Affairs 71:2 (1995), 307.

10 Examples of this body of literature include Norrin M. Ripsman, ‘False Dichotomies: Why Economics Is High

Politics,’ in Peter Dombrowski, ed. Guns and Butter: The Political Economy of International Security (Boulder,

CO: Lynne Rienner Publishers, 2005), 17-20; Edward Mead Earle, ‘Adam Smith, Alexander Hamilton, Friedrich

List: The Economic Foundations of Military Power,’ in Peter Paret, ed. Makers of Modern Strategy: From

Machiavelli to the Nuclear Age (Princeton, NJ: Princeton University Press, 1986), 217-61; and Klaus Knorr,

‘Military Strength: Economic and Non-Economic Bases,’ in Klaus Knorr and Frank N. Trager, eds. Economic

Issues and National Security (Lawrence, KS: Regents Press of Kansas, 1977), 183-99.

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There is an intermediate stream of national economic security studies that embraces the key

features of the approaches outlined above. This perspective, which is termed ‘geo-economics’ by

some authors, focuses on inter-state competition in the interest of economic prosperity and state

power. This considers both the economic basis of national security and the means by which political

authorities pursue this.11

The distinction between economic statecraft and the economic basis of national security is

important in considering Sino-Australian-American relations. National economic security policy in

many cases is focused in one of these areas. The potential compatibility of concern over the

economic basis of national security and comprehensive economic security concerns, which are

outlined in the following section, is far greater than that of economic statecraft and comprehensive

economic security. This is important where political authorities pursue multi-faceted economic

security agendas in complex economic and political environments such as that of the Asia-Pacific

region.

Economic Security Beyond the State: Comprehensive Economic Security

Formal consideration of economic issues in a security context other than that of national security is

quite recent. This is regarded by some as a product of the changed post-Cold War political

environment,12 but such interest dates from before this point.13 While the conceptual leap involved

in what is referred to here as ‘comprehensive economic security’ grew in popularity from the 1990s,

the apparent emergence of this facet of economic security was only facilitated by the policy space

opened up by the end of the Cold War.14 There are a number of contributing factors, including the

apparent success of policy initiatives focusing on socio-economic progress in the Asia-Pacific

region.15

The emergence of comprehensive economic security demonstrates the extent of the gulf between

the substance and study of economic security: issues now being discussed in this context long have

been sufficiently important to generate sustained policy attention in many states. As David Baldwin

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See Cable, 308-09; Robert Gilpin, ‘The Economic Dimension of International Security,’ in Henry Bienen, ed.

Power, Economics, and Security: The United States and Japan in Focus (Boulder, CO: Westview Press, 1992),

51-68; and Edward N. Luttwak, ‘From Geopolitics to Geo-Economics: Logic of Conflict, Grammar of Commerce.’

The National Interest No.20 (1990), 17-23.

12 Dent, 205.

13 See, for example Edward Azar and Chung-in Moon, ‘Third World National Security: Toward A New

Conceptual Framework.’ International Interactions 11:2 (1984), 103-35.

14 It should be noted that comprehensive economic security overlaps with but is not synonymous with state-

centric ‘comprehensive security,’ which similarly has been the subject of increasing scholarly and policy

attention.

15 See Miles Kahler, ‘Economic Security in an Era of Globalization,’ in Helen E.S. Nesadurai, ed. Globalisation

and Economic Security in East Asia: Governance and Institutions (London: Routledge, 2006), 25.

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and Helen Milner note, the ‘economic well-being of the citizenry is almost always one of the core

values of a state’.16 Many relevant issues have been addressed in terms other than security by

scholars of international political economy and other social science disciplines.17 Scholarship from

diverse areas of study continues to offer valuable insights into comprehensive economic security.

Comprehensive economic security is substantially more complex than national economic security. As

its title suggests, comprehensive economic security is much broader in scope. It encompasses a wide

and diffuse set of issues, ranging from prosperity and economic growth to economic

competitiveness and the domestic impact of economic trends and developments. This breadth is

closely related to the other defining feature of comprehensive economic security: no longer is the

state the sole or even a necessary referent of security.

Comprehensive economic security essentially represents a switch from a focus on the economic

welfare of states to the economic welfare of groups within states. This is consistent with the broader

‘non-traditional’ approach to security. Comprehensive economic security may focus on human,

societal, or regime security, or some combination of these. These all consider popular welfare, with

attention to issues such as meeting people’s needs (sometimes articulated in terms of ‘income

security’), distributive equity, and promoting prosperity through economic development.18 This can

be accompanied by concern over social stability, particularly where the objective is regime security.

Concern over regime security, which involves maintaining the primacy of governing political

regimes,19 encourages minimizing popular discontent through what is sometimes referred to as

‘performance legitimacy’.

Comprehensive economic security is distinct in other important respects. Comprehensive economic

security often is distinguished from national economic security by its temporal span. Concern over

the issues involved in comprehensive economic security encourages a more long-term perspective,

such as on the basis of prosperity. This is manifest in attention to the structures and processes

underlying sustainable economic development alongside more immediate issues. Comprehensive

economic security also often involves a distinct perspective on inter-state relations, as states’

objectives of economic development and progress are not necessarily incompatible. This provides

greater scope for the collaborative pursuit of economic security through the liberal international

economic system. One final feature concerns the role of non-state actors. The comprehensive

economic security approach ascribes much greater importance to this.

16

David A. Baldwin and Helen V. Milner, ‘Economics and National Security,’ in Henry Bienen, ed. Power,

Economics, and Security: The United States and Japan in Focus (Boulder, CO: Westview Press, 1992), 39.

17 See Helen E. S. Nesadurai, ‘Conceptualising Economic Security in an Era of Globalisation: What Does the East

Asian Experience Reveal?’ in Helen E.S. Nesadurai, ed. Globalisation and Economic Security in East Asia:

Governance and Institutions (London: Routledge, 2006), 4-7, for an excellent discussion of this issue.

18 See Nesadurai, 9-12. See also Kuo-Ting Li, The Evolution of Policy Behind Taiwan’s Development Success

(Second Ed.) (Singapore: World Scientific Publishing Co., 1995), 260-61.

19 Mohammed Ayoob, The Third World Security Predicament: State Making, Regional Conflict, and the

International System (Boulder, CO: Lynne Rienner Publishers, 1995), 4.

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Though the stakes involved may be less critical than in national economic security, where the very

survival of states may be at risk, comprehensive economic security involves objectives that are no

less daunting. These constitute something of a moving target in that they often are far more

ambiguous and subject to change as a result of the domestic context in which they are pursued.

Policy requirements potentially increase in tandem with the success of political authorities in

promoting comprehensive economic security, for example. The adoption of market-oriented policy

approaches similarly complicates policy agendas. Political authorities must balance the benefits of

participation in international economic processes against the risks of increasing vulnerability to

exogenous economic trends and developments which they have limited capacity to manage. Beverly

Crawford refers to this as the ‘economic security dilemma.’20

It is instructive to consider the context which gave rise to an explicit focus on comprehensive

economic security and where policy approaches are best developed. This is the Asia-Pacific region,

where political authorities in emerging industrial states such as China and Singapore have pursued

economic growth and prosperity as means to attaining objectives such as popular welfare and social

stability. Despite this, comprehensive economic security is far from ‘Asianocentric,’ as the issues

highlighted in this region are generally important and authorities in a growing number of states

outside the region adopt policies consistent with a comprehensive economic security approach.

The categorization outlined above provides a useful means of considering economic security. There

are crucial differences in core issues and concerns which ensure that political authorities intent on

pursuing agendas encompassing national and comprehensive economic security are confronted by

objectives which are difficult to reconcile, though their objectives are not necessarily entirely

mutually exclusive. Inter-state economic collaboration potentially contributes the development of

defence industries in other states, for example, and it is difficult to address the negative aspects of

deepening economic interdependence through mercantilist measures without compromising the

basis of interdependence.21 It is important to note that not only is it the case that understandings of

economic security vary considerably, but there are no definitive economic security policy

imperatives.

The Changing Regional Environment

The regional environment for economic security is inherently complex. The Asia-Pacific region

features states which are rivals in some sense or which otherwise pursue incompatible security

agendas. This is only partially offset by common interests that enable political authorities to pursue

some security objectives alongside if not in collaboration with each other. The regional environment

continues to evolve in both economic and political terms. The impact of recent trends varies

20

Beverly Crawford, ‘The New Security Dilemma Under International Economic Interdependence.’ Millennium

23:1 (1994), 26.

21 J.D. Kenneth Boutin, ‘Emerging Defense Industries: Prospects and Implications,’ in Richard A. Bitzinger, ed.

The Modern Defense Industry: Political, Economic, and Technological Issues (Santa Barbara, CA: Praeger

Security International, 2008), 233-34.

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considerably between the states that are the subject of this study, reflecting their distinct economic

security interests and approaches, but in a number of respects potentially complicate relations

between them.

Regional Economic Trends

Recent decades have seen the development of extensive economic interdependence in the Asia-

Pacific region encompassing many forms of economic activity. This is readily apparent in the

progressive integration of industrial activities in many Asia-Pacific states. This first emerged in terms

of production in the 1960s, but recent years have seen increasing trans-national industrial

collaboration in production and research and development (R&D). This has broadened and

deepened in concert with the changing demands of export competitiveness and the expanding ranks

of the export-oriented economies. This trend has been industry-driven, with firms seeking to offset

their spiralling resource requirements through enhanced collaboration with other firms, which in

many cases are based abroad.

Regional economic interdependence is as much a political as an economic phenomenon in that the

domestic and international political space provided by governments has been crucial.22 Political

support for deepening economic interdependence has been driven by its perceived benefits. This

has been seen as having a positive impact on economic security in many Asia-Pacific states,

providing a strong basis for economic progress through facilitating the development of

internationally-competitive industries.

The scope for so many states to benefit from economic interdependence was crucial to the extent of

political acceptance and support for the processes involved. Regional industrial integration reflected

the complementary strengths of firms in different states, for example. The industrial development of

particular states thus posed little threat to the market position of industries in other states as the

latter generally succeeded in maintaining substantial technological leads over what would otherwise

have emerged as regional competitors.23 This extensive complementarity minimized the potential

competitive pressures of regional industrial overcapacity and impeded the development of deep-

rooted economic rivalries as strong as those found in Western Europe.

The success of economic interdependence may prove its undoing. This now is threatened by growing

economic security concerns. The seemingly-inexorable industrial progress being registered in China

and other emerging industrial states greatly complicates efforts to promote important national and

comprehensive economic security objectives. In terms of the former, this is the product of declining

economic synergies and the pressures being generated by increased competition in important

22

See Peter Dicken and Henry Wai-chung Yeung, ‘Investing in the Future: East and Southeast Asian Firms in the

Global Economy,’ in Kris Olds et al, eds. Globalisation and the Asia-Pacific: Contested Territories (London:

Routledge, 1999), 122-23.

23 See, for example Peter Katzenstein, ‘Regionalism in Comparative Perspective.’ Cooperation and Conflict 31:2

(1996), 128.

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export markets. This has major implications in terms of efforts to promote popular welfare over the

long term. The threat from a national economic security perspective concerns the emergence of

significantly more capable defence industries in states that may constitute or develop into rivals.

The impact of this trend is exacerbated by the general effect of deepening integration into trans-

national economic processes. This increases potential vulnerability through restricting the capacity

of political authorities to unilaterally address issues of concern. Not only is it the case that it is much

more difficult to do so without impacting negatively on one’s own economy, but the scope for this

often is limited by bi- and multilateral commitments entered into in the interest of supporting

economic progress. As a result, while concern over the security implications of economic integration

may encourage political intervention, this may prove impractical or impossible.

The pressures generated by growing concern over economic interdependence have serious

implications in terms of the regional basis for economic competitiveness. This is threatened by the

potential of political authorities to address their concerns by seeking to develop decisive advantages

in ‘strategic’ industrial sectors by promoting the development of relatively autonomous national

industries that are more advanced than those of other states, such as traditionally has characterized

national economic security policy. This potentially undermines the political basis for regional

economic interdependence which has been crucial economic progress, not least by introducing

considerable uncertainty into the regional economic environment. This also has major implications

for competitiveness through its impact in limiting the capacity of firms to overcome their resource

limitations through transnational collaboration in R&D and production. Increased national autonomy

comes at the cost of increased state support for industry and reduced competitiveness.

The eroding basis for regional economic interdependence has important implications for China,

Australia, and the United States. In the case of China and the United States, this stems from the

extent of collaboration between their high-technology firms, while Australia potentially is impacted

in terms of the demand for its natural resources, which constitutes a key pillar of its economy.

Regional Political Trends

The key regional political trends impacting on economic security are associated with the increasing

salience of politico-military security issues in the Asia-Pacific region. Though these have been a

feature of the regional landscape throughout the postwar period, until recently their impact in

economic security terms was relatively limited.

The most prominent aspect of the increasing salience of national security concerns involves China.

There is growing concern in some quarters that China poses a security threat. China is far more

active in the Asia-Pacific region in politico-military terms than at any point in its modern history.

Chinese foreign policy in the Asia-Pacific region initially focused on economic issues, but gradually

grew to encompass national security issues as well. This has seen China engage regional states

bilaterally and multilaterally while adopting a more pro-active military role in the region. China’s

changing posture has been accompanied by the development of its military capabilities in relative as

well as absolute terms, as the People’s Liberation Army (PLA) evolves from an establishment capable

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of territorial defence into one able to support a broad range of political objectives in the regional

environment and to some extent beyond it. The transformation of the PLA is readily apparent in its

introduction of much more advanced generations of arms based on progressively greater indigenous

technological inputs. High-profile arms programmes such as China’s first aircraft carrier serve to

reinforce regional concerns.

Concern over this aspect of the rise of China reflects uncertainty as to long-term Chinese political

objectives. While Chinese authorities strive to reassure their neighbours of their peaceful intentions

and have worked to resolve territorial and maritime boundary disputes, a number of these remain

outstanding. Those in the South China Sea are particularly worrisome from the perspective of some

of China’s neighbours at this time. Regional concerns are compounded by the relative lack of

transparency in Chinese defence development processes and in political decision making. Important

aspects of China’s position with respect to resolving outstanding issues with other claimants in the

South China Sea remain unclear, for example.

While China constitutes the most prominent example of the regional shift in approaches to national

security, it hardly is alone in this. Broadly similar defence capability development processes are

evident on the part of a number of Northeast and Southeast Asian states, including Japan, the

Republic of Korea, and Singapore. Growing attention to national security issues in some cases may

reflect concern over the erosion of the American-centric ‘San Francisco system’ of bilateral security

arrangements and the underdeveloped nature of regional security institutions as much as

heightened concern over the potential threat posed by any other state.

The defence development programmes of a number of Asia-Pacific states are being supported by

their economic development. The impressive economic progress resulting from efforts to promote

comprehensive economic security is providing a strong basis for arms-related production and R&D,

as well as the means of paying for defence modernization. Deepened economic interdependence

thus has provided a basis for potentially destabilizing military development.24

Regardless of their source, regional political trends have important economic security implications.

They have considerable potential to generate increasing attention to national economic security on

the part of concerned political authorities. As noted above, the policy requirements typically

associated with national economic security conflict with those of comprehensive economic security

in important respects, and often prove incompatible. Increased emphasis on ensuring the capacity of

industry to fulfil national defence requirements and to limiting their potential to support defence

development in other states has particular potential to undermine the regional basis for economic

progress.

Political trends in the region have considerable potential to impact on economic security in all three

of the states that are the subject of this study, but in dissimilar respects. The potential impact is

greatest in the cases of China and the United States, where growing mutual concern over political

objectives is readily apparent and the nature of the economic relationship is such that there are

many issues of concern. The potential impact of political trends on Australia is much less due to its

24

Dent, 207.

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particular economic security agenda and the manner in which it engages China and the United States

as a result.

Economic Security in China, Australia, and the United States

Political authorities in the states that are the subject of this study pursue complex economic security

agendas, which in the case of China and the United States encompass both national and

comprehensive economic security objectives. This potentially forces political authorities to choose

between disparate economic security objectives and has a significant impact on inter-state relations.

The sections that follow examine how economic security is understood and approached in each of

these states.

Economic Security in China

There are a number of noteworthy features of economic security in China. Economic security is

conceptualized and approached in very broad terms by Chinese authorities, with the importance of

economic issues in the context of both national security and popular welfare recognized throughout

the history of the People’s Republic. Chinese authorities have approached security in comprehensive

terms, including consideration of subjects of security within the state.25 Chinese economic security

policy has reflected this perspective, with consistent efforts to promote economic objectives

commensurate with concern over national security and popular welfare. Not coincidentally, the

importance of economic security in comprehensive terms is openly recognized in China. This

includes in the scholarly literature, which is far better developed on this issue than in Australia and

the United States.

Chinese economic security priorities have evolved over time, as has the approach used to promote

them. The importance attached to economic security in China and the nature of economic security

policy have been strongly influenced by China’s formative and developmental experiences,

particularly its negative treatment at the hands of other members of the international community.

China’s exploitation by other states during the ‘century of shame’ from the mid-1840s to the time of

the establishment of the People’s Republic in 1949 was facilitated by China’s economic

underdevelopment. China lacked any capacity for the effective mobilization of economic resources

and was unable as a result to defend itself from aggressive foreign powers, thus demonstrating the

importance of national economic security. This period also was one of great economic hardship

within China, highlighting the importance of economic issues in human and societal security terms. It

is noteworthy that comprehensive economic security also has been regarded as very important in

Taiwan.

China’s post-1949 foreign relations have had a similar impact in highlighting the importance of

national economic security. This resulted from the perceived threat posed by the United States,

25

Ong, 12-13.

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which for some time sought to ‘contain’ China, combined with concern over the Soviet Union

following the Sino-Soviet split of 1960. The under-development of China’s defence-industrial base

rendered it poorly positioned to meet the material needs of the PLA as it sought to develop a

capacity to defend China, particularly following the loss of military support from the Soviet Union.

The 1960s and 1970s saw notable initiatives such as relocating defence enterprises from Northeast

China, which was regarded as more vulnerable to attack, to the interior of China, despite the short-

and long-term costs involved. This period also saw heightened efforts to accelerate the technological

competency of Chinese defence enterprises, including through the reverse engineering of foreign

arms designs. This demonstrated the importance attached to national economic security by China’s

leaders.

China’s warming relations with the United States from the 1970s and the demise of the Soviet Union

at the end of the Cold War reduced the urgency attached to national economic security, but did not

eliminate the this requirement. If anything, the requirements of national economic security have

grown as the focus of Chinese defence policy has evolved from territorial defence to the promotion

of policy interests in the Asia-Pacific region and further abroad. The transformation of the PLA

required to enable it to fulfil such a role is considerable given the basis from which China had to

work. The past three decades have witnessed systematic efforts to develop that national defence-

industrial base.

The importance of national economic security in China has been demonstrated by it policy approach.

The early history of the People’s Republic saw Chinese authorities approach economic security in

terms of autonomy as a result of concern over the implications of vulnerability to other states. Deng

Xiaoping, for example, argued that ‘political independence and economic independence are

inseparable’.26 Chinese economic security policy during this period was notable for the extent to

which autonomy was promoted under slogans such as ‘walking on two legs.’ Not only was it the case

that China’s economy was unintegrated into transnational structures and it remained aloof from

multilateral economic processes, but its leaders displayed little interest in trade at all.

National economic security remains important in China, despite the recent emphasis on

comprehensive economic security discussed below. The changed international environment is

having a significant impact on how Chinese authorities pursue national economic security, however.

Concern over defence-industrial autonomy remains, but is relatively limited. Chinese authorities

continue to support the development of national industrial capabilities in key sectors through

restricting the emergence of domestic non-state arms industries, though there now is some scope

for this. They also continue to limit foreign investment in enterprises involved in the development

and production of arms for the PLA. Other than this, there is no apparent effort to restrict the

development of trans-national industrial ties by Chinese firms, however.

The focus of Chinese national economic security has been on security of supply, particularly in terms

of access to the natural resources required to sustain China’s economic development. China’s

expanding industrial base is generating demands for natural resources that far outstrip its domestic

26

Quoted in Thomas Fingar, ‘Introduction: The Quest for Independence,’ in Thomas Fingar, ed. China’s Quest

for Independence: Policy Evolution in the 1970s (Boulder, CO: Westview Press, 1980), 3.

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capacity in most areas. Such concerns have driven Chinese efforts, sometimes through quasi-state

institutions, to secure reliable, long-term access to oil, a range of minerals, and other resources. This

has seen the qualitative and quantitative transformation of Chinese economic relations with many

states, including in the Asia-Pacific region and beyond.

The requirements of comprehensive economic security have been pursued alongside those of

national economic security throughout the history of the People’s Republic, but the balance

between them has shifted over time. There was an early focus on improving popular welfare, but as

relations with the Soviet Union worsened these were took second place to national economic

security objectives. It was only in the late 1970s that comprehensive economic security began to

receive substantial policy attention again. This shift resulted from concern over flagging economic

development, which reinforced non-traditional security concerns that had been present since the

foundation of the People’s Republic. The death of Mao Zedong provided crucial political space for

the policy shift in favour of comprehensive economic security.

Chinese authorities have sought to raise living standards by promoting sustainable economic

development. This developed into what was a radical approach for China. In a fundamental break

with the ideological basis of the People’s Republic, Chinese authorities turned to market

mechanisms to effect China’s economic development, though without totally abandoning aspects of

its command economy. China’s commitment to this ‘market socialist’ approach deepened over time,

and extended to its foreign economic policy.

China has engaged the global economy in its quest for comprehensive economic security. Though it

was a relative latecomer to transnational market-oriented economic processes, China has become a

key supporter of the liberal economic order. Chinese authorities have supported the increasing

integration of local industry into the global economy in an effort to accelerate economic

development and improve living standards. China’s early commitment to transnational industrial

collaboration was quite tentative, however. There was a limited ‘opening up’ of China through the

establishment of four special economic zones. These were isolated enclaves of industrial activity

which do not seem to have been approached as a template for China’s industrial development, but

provided the basis for the progressive deepening of Chinese engagement of the global economic.

This trend appears set to continue. Intensive and extensive participation in the global economy is

considered crucial for China’s sustained development and economic security.27 This helps to explain

China’s commitment to this approach in the face of economic crises and the declining capacity of the

state to manage crucial aspects of the domestic economy, and despite the sometimes painful social

consequences of the economic reforms which are an inevitable product of participation in

multilateral economic mechanisms such as the World Trade Organization and the Asia-Pacific

Economic Cooperation (APEC) forum. Accept of the costs of deepening integration into the global

economy has been demonstrated by the fact that China’s commitment to this approach survived the

Asian Economic Crisis of 1997-98 and the recent Global Financial Crisis intact. Even if China was not

27

Daojiong Zha, ‘Chinese Considerations of “Economic Security”.’ Journal of Chinese Political Science 5:2

(1999), 82.

13

as adversely affected by these crises as some other states, these could not have but driven home the

dangers inherent in integration into the global economy.

Interest in national economic security objectives remains strong, but China’s autonomy effectively

has been sacrificed in the interest of comprehensive economic security. This has been facilitated by

the capacity of its market-oriented approach to meet crucial national and comprehensive economic

security objectives simultaneously, if not in concert. As well as providing a basis for unprecedented

economic progress and contributing to rising living standards within China, this has supported

sustained processes of economic development which are enhancing the capacity of Chinese industry

to meet the PLA’s expanding requirements.28 The national economic security focus on the economic

basis of national security rather than on economic statecraft is crucial.

While Chinese authorities have been able to manage the requirements of national and

comprehensive economic security, there are tensions inherent in their approach. It is not clear, for

example, if they will be able to pursue national and comprehensive economic security alongside

each other over the long term.

The major economic security policy comes from the expanding requirements of comprehensive

economic security. Chinese authorities are faced with the growing pressures generated by

development and rising popular expectations, which is producing what some authors have termed a

‘crisis of governance’.29 This is complicated by regional disparities within China, as some areas

develop at a far more rapid pace than others. As Kjeld Brødsgaard notes, this trend has been

developing for some time, and entails serious political implications.30 Recognition of this has driven

efforts to minimize regional disparities through promoting balanced development nationwide.31 The

sensitivity of this issue is increasing, as recent trends suggest growing concern over regime security

in China, as political authorities search for alternatives to the former ideological justification for rule

by the Chinese Communist Party.

It is important to keep in mind the potential for Chinese policy to change. This scope for this is

greater than in some other states as a result of China’s political system. China’s highly centralized

system makes possible major policy shifts, regardless of the consequences, should key authorities

decide this. As outlined above, this has occurred on a number of occasions in the past.

The implications of China’s current economic security priorities and approach are significant, if

mixed. China’s relationship with Australia is straightforward where economic issues are concerned.

28

J.D. Kenneth Boutin, ‘Arms and Autonomy: The Limits of China’s Defense-Industrial Transformation,’ in

Richard A. Bitzinger, ed. The Modern Defense Industry: Political, Economic, and Technological Issues (Santa

Barbara, CA: Praeger Security International, 2009), 216-18.

29 Minxin Pei, Beijing Drama: China’s Governance Crisis and Bush’s New Challenge (Policy Brief No.21)

(Washington, DC: Carnegie Endowment for International Peace, 2002), 1.

30 Kjeld Erik Brødsgaard, ‘Regional Disparities in China,’ in Werner Draguhn and Robert Ash, eds. China’s

Economic Security (Richmond: Curzon Press, 1999), 17-18.

31 Ibid., 3-4.

14

Australia is important to China primarily as a source of natural resources necessary to its sustained

economic development. Developing economic ties with Australia supports parallel national and

comprehensive economic security objectives, without jeopardizing any major objectives in either

area.

The implications for Chinese relations with the United States are more complex. Here both national

and comprehensive economic security considerations have an impact. Engaging the United States is

important in the interest of China’s economic development. This importance is reinforced by the

central role played by the United States in crucial multilateral economic mechanisms. At the same

time, however, national economic security concerns are a significant factor as a result of awareness

of the implications of becoming too dependent on the United States in economic or defence-

industrial terms. The potential for this was highlighted by the sanctions imposed by the United

States in the wake of the Tiananmen Square incident of 1989, and by the importance of economic

statecraft in American foreign policy.

The tensions arising from concern in some circles in the United States over the continuing

modernization programme of the PLA have considerable potential to encourage more of a focus on

national economic security in China, but the importance of comprehensive economic security

requirements will continue to temper such a tendency. In addition, the importance attached to

comprehensive economic security in China potentially serves to temper any inclination to use force

to attain policy objectives, as suggested by scholars of interdependence.32 This has important

implications for Sino-American relations in terms of discouraging the tendency to perceive China as a

rival to the United States.

Economic Security in Australia

Australia is an example of a state where the importance of economic security issues long has been

recognized, without being referred to in these terms. Economic security traditionally has been

approached through a straightforward focus on promoting the exports which constitute the central

pillar of the Australian economy. Australia’s approach to this objective has not evolved in an entirely

linear manner and has not always met desired objectives, but this has remained an important focus

for successive Australian governments.

Economic progress became the focus of more systematic policy attention in Australia during the

1980s as a result of its deteriorating export position. The perceived economic crisis facing Australia

at that time prompted the government of Prime Minister Robert Hawke to seek to reposition the

Australian economy. As well as promoting economic diversification, this strategy involved

encouraging exports of manufactured goods and greater integration into the global economy,

particularly in the context of East Asia.33 This included more of an emphasis on manufactured

32

See Joseph Nye and Robert Keohane, Power and Interdependence (Boston, MA: Little, Brown & Co., 1977),

29.

33 Ann Capling, ‘Twenty Years of Australia’s Engagement with Asia.’ The Pacific Review 21:5 (2008), 605.

15

exports, rather than on natural exports. This shift has been manifest in efforts to engage the region

multilaterally as well as bilaterally, including mechanisms such as the Pacific Economic Cooperation

Conference proposed by Australia and Japan, and the Australian initiative APEC launched in 1989.34

The current emphasis on promoting economic collaboration is noteworthy. This has been manifest

of the persistence of Australian efforts to engage regional multilateral processes. Successive

Australian governments have struggled for Australia to be accepted as an Asia-Pacific state and as a

legitimate participant in regional economic mechanisms, with varying degrees of success.

There is little apparent prospect of any fundamental change to Australia’s approach, though the

emphasis on Asia relative to other regions has and likely will continue to vary. There is interest in

diversifying the basis of Australia’s economic prosperity, but not in changing the comprehensive

focus of economic security.

The strength of the focus of Australian economic security policy has been made possible by the

scope for political authorities to pursue it in relative isolation from their national security concerns.

Indeed, it has been argued that to the extent that these overlap at all, it is economic objectives that

impact on security policy. It has been suggested, for example, that Australian non-proliferation

strategy has been driven by the objective of producing a regional environment conducive to

Australian economic interests.35

The implications of Australia’s economic security position are considerable. Australian

comprehensive economic security interests are best served by successful engagement of export

markets. The resource-extraction basis of Australia’s economy ensures that expanding resource-poor

economies necessarily will figure prominently in such efforts. While this does not necessarily involve

exporting to China, the opportunities provided by its apparently-insatiable demand for natural

resources that Australia possesses in abundance render China an obvious economic partner. The

importance of China to Australia has increased as Australian exports of natural resources to China

have expanded.

At the same time, this has encouraged strengthened efforts to export to the United States and other

countries. The depth of Australian interest in enhancing the economic relationship with the United

States has been demonstrated by the effort made to develop a bilateral free trade agreement.36 It is

unlike that the United States will supplant China as an economic partner as long as resource

extraction constitutes the central pillar of the Australian economy. This does not produce a policy

dilemma for Australian authorities as their economic and national security objectives do not conflict,

but this could change.

34

Ibid., 606-07.

35 Andrew O’Neil, ‘Shifting Policy in a Nuclear World: Australia’s Non-Proliferation Strategy Since 9/11,’ in Carl

Ungerer, ed. Australian Foreign Policy in the Age of Terror (Sydney: University of New South Wales Press,

2008), 81.

36 See Richard Leaver, ‘The New Trade Agenda,’ in Carl Ungerer, ed. Australian Foreign Policy in the Age of

Terror (Sydney: University of New South Wales Press, 2008), 101-02.

16

This potential reflects the broader dilemma involved in how Australia engages the world: there is a

general struggle between a focus on the Asia-Pacific region and on the United States. Debate over

this is ongoing within Australia.37 The varying extent to which economic engagement with the Asia-

Pacific region is emphasized is driven in part by the perceived importance of strengthening

Australia’s relationship with the United States. This was particularly evident under Prime Minister

John Howard, whose period in office from 1996-2007 saw a marked effort to more strongly identify

Australia with the United States in policy terms. It is important to note, however, that this tension in

Australian policy largely reflects the important attached to national security, rather than differences

over the substance of economic security. Despite Howard’s evident prioritization of the relationship

with the United States, Australian engagement with the Asia-Pacific region deepened under his

leadership, however.38

The extent to which tensions with national security will complicate Australia’s otherwise

straightforward economic security agenda will depend on the state of Sino-American relations. This

has the potential to render unsustainable the Australian strategy of maintaining a strong economic

relationship with China alongside a strong political relationship with the United States. That said, the

relatively marginal position of Australia in terms of Sino-American relations potentially insulates it

from the effects of negative developments in this relationship.

Economic Security in the United States

Political authorities in the United States traditionally have approached economic security in national

security terms, if only because of the capacity of the private sector to provide for economic

prosperity. Considerable importance was attached to the development of autonomous industrial

capabilities from an early point in the history of the United States.39 Concern over the state of the

national defence-industrial base and its capacity to meet the material needs of the American

defence establishment was readily apparent throughout the Cold War. As one government study

noted, ‘the maintenance and protection of a broad U.S. technological base is vital to national

security.’40

The national economic security requirements of the United States were very demanding given the

nature of the perceived threat posed by the Soviet Union and a lesser extent states such as China.

37

See Carl Ungerer, ‘Australia’s Place in the International System: Middle Power, Pivotal Power or Dependent

Power?’ in Carl Ungerer, ed. Australian Foreign Policy in the Age of Terror (Sydney: University of New South

Wales Press, 2008), 23-24.

38 See Capling, 617.

39 See Alexander Hamilton, ‘Report on the Subject of Manufactures,’ in Arthur Harrison Cole and Edwin F. Gay,

eds. Industrial and Commercial Correspondence of Alexander Hamilton Anticipating His Report on

Manufactures (New York, NY: Augustus M. Kelley, Publishers, 1968), 284.

40 United States, International Trade Administration, An Assessment of U.S. Competitiveness in High

Technology Industries (Washington, DC: U.S. Government Printing Office, 1984), 4.

17

Not only was it regarded as crucial to be able to field a full range of conventional and unconventional

arms, but these had to be affordable enough to be procured in quantity and should be sourced

domestically wherever possible. This was accompanied by interest in impeding defence-industrial

progress in the Soviet Union. National economic security concerns drove a comprehensive system of

strategic technology controls.

The importance attached to national economic security in the United States did not abate with the

end of the Cold War. Concern over the issues involved has been reinforced by post-9/11 concern

over ‘homeland security,’ in which the technological capabilities of the United States are regarded as

providing an important advantage in defending against terrorist threats.41 There also is some

concern over China, though this has yet to have as strong as an impact as that over the Soviet Union

during the Cold War. For these reasons, American economic security policy continues to devote

considerable attention to the capacity of the defence-industrial base to meet national requirements,

and also to its integrity in the face of globalizing pressures, which are threatening national autonomy

in crucial industrial sectors which previously had been taken for granted. This can be seen in the role

of the Committee on Foreign Investment in the United States, which considers the national security

implications of foreign acquisitions of and investment in American firms, particularly where these

are active in the defence sector.

American concern over the economic basis of national security has been accompanied by strong

interest in economic statecraft. The United States is notable for the extent to which it has employed

the instruments of economic statecraft in support of foreign policy objectives.42 This includes

positive incentives, but the United States is conspicuous for its efforts to impose unilateral and

multinational sanctions in an effort to effect policy changes or regime change in other states. This

approach persists despite a marked ideological preference for market-based policy approaches and

strong support for the liberal international economic order.

As is the case with Australia, formal American understandings of economic security in any sense

other than as a facet of national security are relatively nascent. This fact notwithstanding,

recognition of the importance of pursuing comprehensive economic security-type objectives is well

established in the case of the United States. This is manifest in the crucial role of the United States in

the development of the liberal international economic order, as it has played a key role in

developing, sustaining, and deepening the resulting Bretton Woods-based economic order.

American authorities were able to focus for the most part on national economic security as a result

of the strength of the private sector in the United States. The evident capacity of industry to provide

for economic progress and prosperity effectively relieved American authorities of the need to

address this issue other than in structural terms, where the domestic and international roles of the

state were crucial.

41

Jeffrey Lewis, ‘The Role of Technology in Protecting America’s Gathering Places,’ in James J.F. Forest, ed.

Homeland Security: Protecting America’s Targets (Volume II: Public Spaces and Social Institutions) (Westport,

CT: Praeger Security International, 2006), 222.

42 Alan P. Dobson, US Economic Statecraft for Survival 1933-1991: Of Sanctions, Embargoes and Economic

Warfare (London: Routledge, 2002), 27-28.

18

Comprehensive economic security has been the subject of growing attention in the United States

since the late 1980s, however. Heightened interest in domestic-oriented economic security was

reflected in President Jimmy Carter’s ‘Economic Security Council’ initiative and was cited by

President George W. Bush as a reason for encouraging domestic technological innovation.43

This has encouraged attention to the issue of competitiveness, which is being addressed by the

Central Intelligence Agency and the National Intelligence Council.44 This developing policy shift

reflects the political space opened up by the end of the Cold War and a general perception of an

eroding American economic position relative to states such as China and India.45 The acrimonious

nature of economic policy debate within the United States at the present time testifies to the depth

of concern over economic security issues.

The importance attached to national economic security by American authorities results in a

tendency to consider and pursue national and comprehensive economic security objectives

concurrently. President Bill Clinton, for example, sought to support technological development

important to both economic competitiveness and national security.46 Similar efforts were evident on

the part of Congress as well as far back as 1992.47 As policy debate within the United States

demonstrates, however, these objectives can be quite difficult to reconcile in practice.

There is considerable tension in American economic security policy as a result. One of the most

notable aspects of this involves the closely related issues of how the government manages relations

with industry as it strives to pursue its national and comprehensive economic security objectives.

While American authorities have supported the liberal international economic order in the interest

of economic progress, they have widely resorted to illiberal measures such as sanctions in the

interest of national security, as noted above.48

The importance of national economic security and the manner in which it is pursued in the United

States have important implications for relations with other states. American authorities are more

inclined than their counterparts elsewhere to consider economic issues through the lenses of

national security. Not only is it the case that American devote considerable attention to this aspect

of foreign economic policy, but national economic security considerations cast a large shadow over

43

United States, Office of the White House, A New Generation of American Innovation (Washington, DC: Office

of the White House, 2004), 11-12.

44 See Michael Hirsh, ‘Taking America Higher.’ National Journal (29 January 2011), 19.

45 See Dan Steinbock, ‘New Innovation Challengers: The Rise of China and India.’ The National Interest No.87

(2007), 67-69.

46 Wendy H. Schacht, Industrial Competitiveness and Technological Advancement: Debate Over Government

Policy (Washington, DC: Congressional Research Service, 2005), 4.

47 U.S. Congress, Office of Technology Assessment, Multinationals and the U.S. Technology Base (Washington,

DC: U.S. Government Printing Office, 1994), 31.

48 For an extensive discussion of this complex relationship, see J.D. Kenneth Boutin, American Technology

Policy: Evolving Strategic Interests After the Cold War (Dulles, VA: Potomac, forthcoming 2012), Chapter 5.

19

American economic relations in general. This renders American economic relations in general very

sensitive to national security considerations. American authorities are far more likely to subordinate

comprehensive economic security objectives to those of national economic security where these are

perceived to conflict. The American practice of approaching national economic security in terms of

economic statecraft as well as the basis of national security adds to the difficulty of isolating

comprehensive economic security from national security concerns.

It will likely continue to prove difficult for political authorities in the United States to pursue

comprehensive economic security in isolation from national economic security. This has little

potential impact on relations with Australia, which is relatively unimportant to the United States in

economic terms, but is very important in the context of relations with China. China figures

prominently in the United States in terms of its economic relationship and as a potential rival, at

least in some quarters. Sino-American economic interdependence is well established and continues

to deepen, but is vulnerable to increasing American national security concern over China. This is

compounded by threats to the economic synergies underlying their economic interdependence

resulting from the declining compatibility of their high-technology Chinese industry in areas such as

aerospace, information technology, and biotechnology. Development trends in China suggest that

the gap between American and Chinese high-technology industry will continue to narrow.

One issue which must be considered here is the potential for a shift in the relative prioritization of

national and comprehensive economic security in the United States. Increasing domestic concern

over the state of the economy and its long-term prospects is encouraging greater attention to the

requirements of economic competitiveness. There is little likelihood that these will entirely displace

concern over national economic security, but they could in time reduce its impact to the point where

it possible for the American government to focus more on deepening interdependence.

The Economic Security Challenge

Each of the states examined in this study approach economic security in comprehensive terms and

seeks to promote economic security, but in very distinct terms. The policy dilemmas facing political

authorities in China, Australia, and the United States stem from the requirement to pursue their

complex economic security agendas in the changing political and economic landscape, which are

bringing into sharp focus significant differences in national interests. These involve policy

requirements that potentially are difficult to reconcile, despite the continuing incentives for

developing mutually-beneficial policies. While regional trends and developments impact on China,

Australia, and the United States, they do so in different ways, which has implications for their

economic compatibility. In general, the common ground manifest in the support for the admission of

China to the World Trade Organization is eroding.

Of the states examined in this study, Australia is in the least difficult position. Its economic security

requirements are straightforward and it faces the least immediate economic security threat from

the regional trends outlined above. The nature of Australia’s economic and political relationships

with China and the United States mean that political authorities there are not confronted at the

present time with the need to choose between an economic relationship with China which is based

20

around to supply of natural resources and a political relationship with the United States which is

based on common security interests in the Asia-Pacific region and elsewhere. This does assume that

there is no fundamental shift in Australia’s foreign policy position. The most serious threat in

Australian economic security terms is more long-term in nature, and depends on the state of

relations between China and the United States.

Economic security issues are very complex where China and the United States are concerned. Not

only do political authorities in these states pursue policy agendas which are very ambitious and

broad, but these involve objectives which potentially are compounded by regional economic and

political trends in which these states figure prominently. The general compatibility of China’s

national and comprehensive economic security interests, which benefit from regional economic

trends, frees its leaders from difficult policy choices at this point. The sustained development of the

Chinese economy has the potential to encourage a position closer to that of the United States over

the long term, however.

The common ground is eroding the most where the United States is concerned. The greater salience

of national economic security means that regional economic and political trends are having the

greatest impact in this case. American authorities are experiencing the greatest difficulties

accommodating their national and comprehensive economic security objectives, and are likely to be

faced with increasingly difficult policy choices. For the present, they are responding by limiting trans-

national collaboration by American industry in key sectors. A strengthening of this tendency has

considerable potential to undermine the extensive economic interdependence which has developed

in the Chinese and American economies, with a negative impact on comprehensive economic

security in both cases.

21

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