Facing the rise of China as a power and the descent of Pakistan into Chaos
Saber Rattling in Canberra
Last week an Australian government white paper titled "Defending Australia in the Asia-Pacific Century; Force 2030" outlined a program of spending that will ultimately exceed $72 billion and bring 12 new nuclear submarines, 100 fighter planes, upgraded destroyers and frigates and a plethora of other ordinance online over the coming decade. This document follows the Australian Strategic Policy Institutes December report and largely draws the same conclusions (although it reflects the present administrations desire to keep defense costs lower).
For US observers, the rise of China as a military power is a fascinating and complex situation on the horizon. For the Australians it is a more nerve wracking development in their backyard.
With a country a little smaller than the lower 48 states, but a population of only about 21M, the land down under has always faced uniquely insurmountable defense issues which are exacerbated by their undisputed role as the beat cop for the entire Southern Pacific. They simply do not possess the manpower to defend the space they inhabit and police. Historically they have offset this through alliance (particularly with the US) and a military tradition that has won them the reputation as some of the most tenacious and respected soldiers on earth (witness the inscribed words of Mustafah Kemal at ANZAC cove).
The rise of Chinese military presence in the Pacific region, coupled with increasing diplomatic and economic clout raises a variable that is a bigger challenge than the Australian military faced during the cold war, and now that the US is curtailing defense spending and recovering from the demoralizing Iraq actions they are increasing feeling alone. This new spending will not make the Australian military self sufficient in the face of a threat from a major power, but it goes a long way towards closing the gap. Critically, this sends a clear message to the Chinese and they will not like it.
From a political standpoint, Australia asserting its strength appears uniformly positive to us as a regional balance, and the residual economic impact of increased defense spending should be long term positive for Australian contractors brought in on projects.
Pakistan: Nobody Wins
As the Indian elections continue, most parliamentary candidates across the political spectrum walk a tightrope between displaying resolve in response to last Year's Mumbai attacks and shrill antagonism for Pakistan. This doesn't represent a new found desire for peace and cooperation as a much as a pragmatic attempt to remain removed from the increasingly chaotic mess that Pakistan's internal security is becoming; an unwelcome acknowledgement that a fractured Pakistan may ultimately be more dangerous for India than a strong Pakistan.
The Mumbai terror brings home the threat to the Indian government, but they are far from alone. US, Australian and NATO governments are monitoring the increasing weak looking post Musharraf regime with almost as much alarm as the deteriorating situation in the tribal regions controlled by the Taliban. The re instatement of Justice Chaudhry has appeased the PML somewhat, but in a nation where indecisiveness equates to weakness even rational diplomacy carries risks.
The perception of some observers that president Zardari ultimately retains power solely at the pleasure of the army, the only truly functional government force in Pakistan, may not be entirely accurate. Never the less, the military leadership remains the most powerful single political force in the country by virtue of their strength, and they have their own agenda entirely separate from the government.
We see Pakistan as the biggest wild card in Asia, quite a statement if you consider the current issues in Thailand, North Korea and Sri Lanka. Despite all of the threats lurking elsewhere, the unique threat posed by Pakistan's nuclear arsenal (Pyongyang's mastery of photoshop not withstanding) changes the complexion of the turbulence there entirely, essentially forcing all powers in the region to attempt intervention in the event of a complete collapse of government. Among the many things that keep us awake at night, Pakistan's internal situation is near the top.
Stocks in Pakistan closed down -1.8% overnight amidst nothing short of a meltup across the rest of Asia. Canary in a coal mine? Stay tuned...