Dr Lee Seng Tee

Australian National University

Statement, E&OE, (check against delivery)

21 August 2012

Introduction – Lee SengTee

In 1946 Lee Seng Tee left Singapore to attend the Wharton Business School at the University of Pennsylvania.

The degree included a compulsory 40 per cent liberal arts component.

Lee Seng Tee studied art history and landscape architecture – setting himself the task of learning more about what had gone on in the world during the war outside Singapore.

He spent many hours in the library in Pennsylvania not just devoted to formal studies, but devouring information and news on world events.

At 89, Dr Lee today supports universities in Singapore, and Harvard, Stanford, Oxford and the Australian National University.

In addition, his generosity has helped build or restore libraries at Cambridge, Oxford and Nan'an in China.

This is testament to his philanthropic contribution to scholarship.

Transformation of Asia

There is no need to dwell on Asian economic statistics.

We are familiar with the metrics.

But there's one description that stands out.

The revolution in China set in train by Deng Xiaoping after 1979 has resulted in a faster and larger modernisation, urbanisation and industrialisation than ever witnessed in human history.

It is more dramatic than the process that brought the Industrial Revolution to Europe beginning with the erection of the first cotton mills in the United Kingdom in the 1780s.

It is more dramatic than the same process that transformed North America between the end of the Civil War and the start of the Great Depression.

In the last decade alone, China's Gross Domestic Product per capita grew by 158 per cent.

In practice this figure means that for every 100 urban households in China there are now 18 cars, 205 mobile phones and 82 computers.

Up from fewer than one car, 19 mobile phones and 10 computers in 2000.

But there are equally telling indicators about education, health, well-being.

In education

30 years ago in Indonesia, that is in1981, only two-thirds of children completed primary school.

By 2009, according to the World Bank, nearly every child did.

Higher education

Historically, around one in 20 students in Thailand, the Philippines, Malaysia and Hong Kong went on to higher education.

Now, it's one in four.

We know Asian students are studying abroad in the United States, in Australia and Europe.

And for our economy it is the number four export revenue earner.

But Asian students are studying more in Asia.

In 2010, 73,000 South Koreans were studying in the US but 80,000 South Koreans were studying in China.

According to The Times Higher Education world reputation rankings published in March, there are now 15 Asian universities in the world's top 100.

In May this year, The Times published a new list of the top 100 universities opened in the 50 years since 1963.

And six Asian universities are in the top 20.

Adult literacy

According to World Bank data, adult literacy has risen in Indonesia from 67 per cent in1980 to 92 per cent in 2008.

Infant mortality

The backdrop to these positive changes is a decisive decline in infant mortality.

In 1990 in Vietnam for example, 67 children died for every 1,000 children born.

By 2010, the number had been reduced to23 deaths per 1,000.

In 2000, polio was eradicated in Vietnam.

And malaria has dropped by 75 per cent, measles by 90.

And all this translates into a revolution in life expectancy.

Life expectancy

From 1960 to 2010, life expectancy increased from a little over 40 years to:

Gender equality

And as life expectancy across Asia has increased, so have the educational opportunities for women and girls.

In 1999, only 53 Cambodian girls went to secondary school for every 100 boys.

That gap is closing with 82 girls attending secondary school for every 100 boys.

In China, where only 75 girls went to secondary school for every 100 boys in 1991, there are now more girls at school than boys.

And in China, the Philippines, Malaysia and Thailand there were more women at university than men at the end of the last decade.

Another perspective

All this confirms that most of Asia has transformed in under 50 years.

It is however, valuable to qualify the expectation that the century belongs to Asia.

For this country, an Asia strategy only makes sense in the broader context of our foreign and trade policy, a policy which will have a global focus.

It is realistic to acknowledge all large Asian economies will face serious challenges this century.

There are potential downsides. There are risks.

The President of the Asian Development Bank, Haruhiko Kuroda, said last year:

"While an Asian Century is plausible, it is far from pre-ordained".

The IMF has said:

There are tail risks of a hard landing in China".

And further:

"Domestic imbalances in China continue to cast a shadow on its ability to act as a sustained source of demand in the region."

Whether China remains the engine of so much growth in the region depends significantly on the Communist Party leadership's ability to drive more balanced and sustainable growth.

Feng Wang at the Brookings Institution has studied rising inequality in urban China.

He points out that the drivers of China's economy – cheap labour and capital – will no longer be as plentiful.

And he also argues that China's favourable demographics – that boosted per capita GDP growth by 25 per cent from 1980 to 2010 – are now largely exhausted.

In 2015, the working age population will peak.

But by 2030, the number of older Chinese will double to 229 million.

"China's demographic bullet train is racing into the unknown," says Feng Wang.

And:

"These changes have already begun to exert a powerful impact on the Chinese economy, and pose a serious risk to future economic growth, social harmony and political stability."

The World Bank Report, China 2030, describes China's economic performance over the last 30 years as a "unique development success story, providing valuable lessons for other countries".

It praises China for "…integrating with the world; adjusting to new technologies; building world-class infrastructure; and investing heavily in its people."

The World Bank report however, calls for a burst of economic reform in China to strengthen the foundations for a market based economy through privatisation of state-owned enterprises and implementation of a system of legal and corporate governance.

It also calls on China's policy makers to:

If it can achieve these reforms, China will transform from a middle-income country to high-income status.

Other major economies, like India, will gain a demographic dividend in the next few years, but they face a different challenge.

India's need to raise productivity and create new jobs is dramatic.

Every year, it struggles to find employment for a new cohort of job starters nearly as large as Australia's entire labour force.

Observers have referred to the middle-income trap.

By this they mean, a country reaches a moderate, middle income level and gets stuck – held back by factors like low investment, slow growth in manufacturing, a lack of diversity in the economy or poor labour market conditions.

A country growing at a rate too low to graduate to high income status creates the possibility that per capita incomes could stall between US$5,000 and US$10,000 for years or even decades.

The Asian Development Bank predicts China should avoid this trap, but finds other Asian countries stuck there or at risk.

When I was in Hanoi in March, I discussed this issue with an eminent group of thinkers.

They were very focused on what Vietnam needed to do to avoid that fate.

Some countries will be blocked from reaching full potential by infrastructure problems.

Elsewhere, wages growth is accelerating faster than productivity.

Others may be held back by shortcomings in governance.

It is a challenge for developing countries to make the transition to high income status.

Only a few large economies outside Europe have made the transition since the end of World War II, many of them in East Asia – Hong Kong, Japan, South Korea, Singapore and Taiwan.

But it is possible countries can be trapped in the middle, unable to build the robust governance and legal systems needed to propel higher economic growth.

When weighing risks to Asia's continued growth trajectory, we must consider the possibility of geo-political instability.

Competing nationalism and territorial disputes are not uncommon: the Taiwan Strait; the Korean peninsula; and, the South China Sea.

Certainly, there have been times when we had cause to worry: the Korean war, the Malayan emergency, and war in Vietnam.

But since the late 50s, for many, and from the 1980s for others, countries of the region have been able to set aside security concerns and focus on economic development.

In many cases it has meant they've postponed strategic ambitions.

Imagine what kind of region we would have now if Zhou Enlai and then Deng Xiaoping, had not shifted China's focus from reunification with Taiwan to the goal of economic growth.

Japan's confidence and capacity to pursue post-war reconstruction was not inevitable or pre-ordained.

Stability was tenuous in early post-war Japan – and for other countries in the region.

Korea and Singapore pulled themselves out of poverty by fast-tracking economic growth.

They and other countries in the region have benefitted from free trade and adherence to a rules-based international order.

For countries following this trajectory, like Vietnam, the Philippines and now at last, Myanmar, the demonstration effect was overwhelming.

An important factor behind this confidence has been the commitment and presence of the United States in the Asia Pacific.

Not only its military presence but also its aid, business investment and its willingness to transfer technology.

China and the United States

On our relationship with China and with the US, we've got to be resistant to a notion that there's a binary choice.

First, both the Chinse and the Americans tell us that their own relationship is very good – something that was confirmed by the recent economic and strategic dialogue between Americans and Chinese in China when the distraction of the Chen dissident affair failed to dislodge the talks.

Second, there's enormous economic self-interest in the interdependent relationship.

And this is in contrast with the relationship between America and the Soviet Union during the Cold War.

The prosperity of China and America would be undermined by a period of military conflict or frozen relations.

The third observation I'd make is this, the Australia-China relationship will continue to be robust because it's in the interests of both of us to enjoy a strong partnership.

South China Sea

We need to keep up our creative, diplomatic efforts to help build trust and understanding in our region.

We support an international rules-based order.

Australia is already one of the most Asian oriented economies.

Asia has been at the centre of our diplomacy for six decades.

And we have been at the forefront of creating and supporting regional institutions from APEC to the ASEAN Regional Forum.

More recently we've been involved in the expansion of the East Asia Summit.

Australia has long recognised that the geo-politics of Asia are fundamental to our security and prosperity.

Australia needs to ensure that both the opportunities and challenges of an Asian century continue to work to our advantage.

The South China Sea is a source of disputed territorial claims.

Australia does not take sides on the territorial disputes, but we call on countries to pursue their territorial claims and accompanying maritime rights in accordance with international law, including the United Nations Convention on the Law of the Sea.

Maintaining and strengthening peace and stability, based on the rule of law, remains our goal in the South China Sea.

This is not easy in a place where development potential intersects with deep and long-held convictions about who owns what.

But the South China Sea isn't the only place where there have been complex and overlapping territorial and maritime claims.

To advance, it can often be better for parties to 'agree to disagree' about who owns what and to focus on how all parties can benefit.

I want to mention two relevant models that can be adopted for countries to successfully manage competing interests.

The first is the Antarctic Treaty system.

The Treaty came into force in June 1961 after ratification by 12 countries then active in Antarctic science.

Its objectives are:

Under the Treaty, countries have for more than 50 years put aside their differences over sovereignty and cooperated to promote peace and science.

Members of the Antarctic treaty system have worked together to conserve and manage Antarctica's living marine resources, including through sustainable fisheries and by combating illegal fishing.

The Treaty works.

Australia, an initial signatory, played a key role in the negotiation and development of the treaty system.

And we hosted the 35th Antarctic Treaty Consultative Meeting in Hobart in June.

The second relevant model is that of joint development zones.

Joint development zones are designed to facilitate equitable and mutually beneficial development – a concept that is expressly provided for in the UN Convention on the Law of the Sea.

The zones are operating successfully around the world, including in South East Asia, Africa, northern Europe and the Caribbean.

In our region, Cambodia, Malaysia, Thailand and Vietnam were early participants in joint development zones.

Thailand and Malaysia entered into a Memorandum of Understanding (MoU) on joint development of seabed resources in the Gulf of Thailand in February 1979.

Cambodia and Vietnam concluded an agreement in July 1982 over disputed waters – which placed a maritime area under a "joint utilisation regime."

Before Thailand and Vietnam concluded an agreement on maritime boundaries in August 1997, they discussed the potential joint development of an overlapping area.

In June 1992, Vietnam and Malaysia applied the same principles in their Memorandum of Understanding – set in place to jointly exploit a "Defined Area" in the Gulf of Thailand.

In 1999, Vietnam, Thailand and Malaysia also agreed on joint development of an 800 square kilometre zone.

With our neighbours, East Timor, we are jointly developing Timor Sea petroleum resources for the mutual benefit of both countries – based on groundwork laid with Indonesia.

I'm not saying that joint development zones or an Antarctic Treaty-style system will provide all the answers in the South China Sea.

But thinking creatively and constructively and examining models like these provide a path that deserves to be explored.

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