China's emergence as a major economic power will pose great challenges for the global community. It is now the major factor driving commodity prices and is an increasingly important investor in many developing countries as well as Australia.
China is becoming a responsible stakeholder in the international economy, but the country’s economic takeoff has also led to a large increase in military spending. Beijing says that China's rise should be harmonious, but recent provocative actions against Japan, the Philippines, and Vietnam are increasing the concern that China might become belligerent.
The re-emergence of China as a great power will be Australia’s greatest foreign policy challenge during the 21st century. Canberra will have to carefully balance Australia’s growing economic relationship with China and its traditional alliance with the US. The major threat to this balancing act would be if America’s fiscal problems force it to slash defence spending and withdraw from the East Asian region. In such a scenario, Australia would cease to have a great-power ally and be more vulnerable to foreign aggression than at any time since 1942. The only Asian country with the long-term potential to challenge Chinese hegemony is India. Australia should pursue better relations with New Delhi.