Australia’s foreign and security policy debate has become focused on how to manage the fundamental change in strategic and economic circumstances brought about by China’s rise. For the first time in the nation’s history, Australia’s chief trading partner is neither an ally, nor the ally of an ally, and does not share its democratic outlook and values. This change comes against the backdrop of an increasingly contested Indo-Pacific Asia. This article addresses two questions. First, how does Australia perceive a rising and increasingly powerful China? Second, how is Australia responding? It is argued that Australia possesses a discernable China strategy, although questions remain about its implementation, effectiveness and sustainability. That strategy has two broad strands—engagement and hedging—and the hedging strand contains several important sub-strands, namely, internal balancing (modernizing Australia’s own military) and external balancing (especially strengthening the US alliance). Each of these hedging approaches carries its own problems and questions, particularly regarding Australia’s willingness to fund an advanced military and whether the net effect of a strengthened US alliance can be stabilizing.
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