2012 Richard Larkins Oration - Australia and China at 40 : pivot, divot and the US

Aug 07, 2012

Distinguished guests, ladies and gentlemen, I’m delighted to be here to present this, the second, Larkins Memorial Lecture in recognition of the work and contribution of the former Vice Chancellor of the University.

It is a great honour that both Emeritus Professor Richard Larkins and Mrs Caroline Larkins are with us here this evening, together with the Governor of Victoria, The Honourable Alex Chernov, and the Chancellor of Monash University, Dr Alan Finkel, and Mrs Elizabeth Finkel.

I am grateful to the Vice Chancellor, Professor Ed Byrne, and the University Council for appointing me as a Vice Chancellor’s Professorial Fellow.

I have been referred to in the media as an “outspoken” former Ambassador.  I would hope that I’m simply fulfilling the mandate that the Vice Chancellor gave me on my appointment.

However, judged by the contemporary standards of Australian Commonwealth public servants, unfortunately that description may be justified.   But there was a time in our not-so-distant past when it was normal and welcomed for serving and ex-public servants to put their personal views on the public record in the interest of good public policy.  I would like to see that tradition revived.

The public service exists to serve the Australian public by providing advice to, and implementing the policies of, the government of the day.  Whatever our individual political beliefs and values may be, we do our best to support the government of the day. 

Public servants, however, are not part of the government of the day.  While policy advice needs to be confidential between departments of state and their Ministers, this should not preclude public servants contributing to the community’s understanding of the issues involved.

In 1991, when I returned to Australia from my first five years in China as head of the Embassy’s Economic Section, I was selected to create DFAT’s East Asia Analytical Unit.  The Unit’s establishment was a result of one of the recommendations from the Hawke Governments’ commissioned report by Ross Garnaut – Australia and the Northeast Asian Ascendency.  The Unit was established to provide analysis and assessments of the rise of East Asia and the implications of this for Australia.

The Unit’s principal novelty was that it was to produce reports that were available to the public in order to stimulate debate around how best should Australia prepare itself for the profound changes taking place in our region and from which Australia – if it played its cards right – could benefit massively.  Each report published on my watch received headline attention in the media and stimulated a raft of editorials and Op Ed pieces.  We were contributing to Australia’s understanding of big events shaping our destiny and stimulating public discussion and debate about these in the interests of good public policy.

This evening’s talk is made in the same spirit.  I have largely avoided commenting publicly on security and geo-political issues as these are not my strong suit and many others are more than happy to rush into print on such matters.  But so important are these issues to the future security of Australia that it would be remiss not to enter the public debate on these matters.

Yesterday, former Prime Minister Paul Keating launched Professor Hugh White’s book on the subject of this evening presentation – the rise of China and how Australia balances its economic interests with China and its alliance relationship with the United States.  I haven’t had a chance to read Hugh’s latest contribution to this subject, but I’m sure there are things we agree on and things we disagree on.

Professor White has made a singular contribution to Australia’s wellbeing and future security by putting these issues into the public domain.  Some of the public attacks on him beggar belief that we in Australia really do cherish a liberal intellectual environment, in which a diversity of views is encouraged.

Universities in our society have a responsibility to foster debate and a diversity of views.  So it is in this setting that I turn to my subject for this evenings talk.

Pivot and Divot

When US President, Barack Obama, addressed the joint Houses of Parliament in November last year on his first, much delayed, trip to Australia, his speech surprised many in Australia with its strident comments on China. 

While the more world-weary saw it as a speech not for the Australian Parliament or people, nor even so much for China, but rather as an opening round at the start of the President’s re-election campaign, it was nevertheless seen as rather odd that he would use a friendly country’s parliament to tartly criticize and admonish another country –in this case China – with which the hosts have had warm and friendly relations for the past 40 years.

And which happens to be the host’s overwhelmingly most important economic partner, and major contributor to its economic growth and low unemployment.

For many in Australia, this seemed to be overstepping the boundaries of normal diplomatic behaviour – stretching the friendship as it were.  More curious, however, was the way the Australian Prime Minister embraced the President’s views.

One was painfully reminded of the former Liberal Prime Minister, Harold Holt, in the depths of the darkest days of the Vietnam War, declaring that Australia “was all the way with LBJ”, the then US President Lyndon Baines Johnson. 

These images and sense of disassociation of time and place were amplified when the Prime Minster and the President jointly announced the rotation of 2,500 US troops through Darwin for training and other exercises.  The Prime Minister’s gushing enthusiasm to be standing next to the President as he made this announcement was distinctly at odds with the Australian Government’s preparedness to explain what this was all about to the Australian people, let alone near neighbours, and, of course, China.

The quote of the episode belonged to the Indonesian Foreign Minister, Marty Natalegawa, an ANU PhD, who said, when asked by an Australian journalist for his view, that “he had been unaware that Australia saw Indonesia as an imminent military threat”.  It would seem that he, and other regional governments, were less gushing than our Government and displeased that a significant strategic announcement was made without adequate forewarning and consultation.

The President’s “pivot” had become the Prime Minister’s divot – a golfer’s errant swing that gashes the green.

Knowing the President’s passion for basketball, many in Australia assumed that he was using a benign sporting term colourfully to explain a change of foreign policy direction to the American electorate, involving a renewed emphasis on Asia.  Intentionally or not, “pivot” also has a precise military definition, meaning to re-deploy or re-position military assets.   At the recent Shangri-la Security Dialogue in Singapore, US Defense Secretary Leon Panetta quantified this as an increase from 50 to 60% of US overseas forces deployed in Asia.

So wittingly or unwittingly, Australia has aligned itself with the pivot in US force deployments directed against our single biggest economic partner now, and as far as one can see into the future.   And also a country with whom we have no historical enmities, whose students and tourists we welcome in big numbers, whose investment we desire.

President Obama’s comments in the Australian Parliament could leave no one in doubt, not even our nearest neighbour, Indonesia, that this was all about China.  Former Prime Minister Paul Keating summed this up well when interviewed on the ABC’s Lateline program just after President Obama’s visit.

He said that for the Chinese Government it was less a matter of the troop rotation, let alone numbers, than the way it was done and the subtle and not-so-subtle messages sent to Beijing by Australia.  While the Chinese are sophisticated enough to understand that this was largely about domestic US politics, they were deeply perplexed – and remain so – about what message Australia was wanting to send to China.

From a Chinese perspective, the pivot speech in Australia, Darwin troop rotations, and other well-sourced speculation about further accommodation of US military in and around Australia, signals clearly a shift in the balance of our position further towards the US and against China.  At the same time, there has been no public explanation as to what has changed in our security outlook to warrant this strategic repositioning and why at this particular time.

Government commentary tries to reassure that nothing has really changed, but this is most unconvincing to the Chinese.  China would not be able to imagine that such a major strategic decision would not have been part of a serious, protracted, high-level policy review.  But to suggest that it is “business as usual” in the balance of our relations with China and the US, implies that no such strategic re-assessment has occurred. 

Hugh White has set out in a number of important essays the single biggest foreign policy challenge facing Australia today and in the years to come, that is: how to balance our interests with China and the US as China continues to rise relative to the United States and seeks greater strategic space.

He suggests Australia has three basic choices: 1) to ignore it, until it maybe too late and we find ourselves caught in the worst of all worlds of eventually having to chose; 2) to side with the US, as some conservative views in Australia would have us do, and try to contain China’s rise, which again may end in conflict between the US and China; or 3) to work with both China and especially the US to find creative, peaceful ways to accommodate this epochal strategic shift and changing balance of power which is now well underway in our region.

Although I share the view of most that the China-US relationship is the single biggest foreign policy issue Australia confronts, my position is much less alarmist than most others who comment on this. 

Viewed from China’s security perspective, power projection into the Pacific is a lower order priority than we understand it to be.  Moreover, the strategic realignment is already well underway, though it has decades to run and the ultimate shape of the future power balance in this region is still very much a work in progress.  The good news for Australia is that the US and China have begun to learn ways to manage their differences in the course of this realignment.  The challenge for Australia is how it manages its relations separately with China and with the US.

Australia’s role is limited and is likely to diminish further.  The influence we once had in China and other parts of Northeast Asia has already shrunk considerably, not least as a consequence of China’s rise.  For Australia, our highest policy objective in our own interests is to do our best to ensure that our concerns about conflict do not become self-fulfilling.  A big risk exists that that we might unwittingly contribute to producing the outcome, which we most wish to avoid.

Nothing is more important for Australia than to prevent a return to Cold War attitudes – but this time between the US and China – which would necessarily involve joining with the US in a futile effort to contain China militarily.

Our policy on the great security issue of our age needs to be based on careful assessments of both China’s security concerns and geopolitical ambitions and on the China-US relationship.  Fortunately, this suggests a rather more optimistic outlook than the one that is usually presented in public commentaries.

China’s Security – A constrained regional power

Much of the discussion around regional security spends little time trying to understand China’s own security needs and objectives.  This is odd.  How China sees its own security would seem to be a fundamental starting point.

Those that take a benign view of the security challenges posed by China’s rise often begin by asserting that China is not expansionary.  This is also constantly asserted by the Chinese party/state apparatus.  There is little basis for this claim and, even if there were, it would be the flimsiest of foundations on which to base our security policies.

Historically, China’s borders have expanded greatly over the long sweep of time.  The final borders of the Qing Empire were considerably greater than those of its predecessor the Ming.  Some may argue that the Qing were Manchus, not Han, which are the vast majority of people in today’s China, so the Qing westward expansion does not count.  But since1949, the Chinese state has kept a grip on much of the Qing territorial conquests.  It is noteworthy, that the democratically elected government in Taiwan, if it ever were returned to the mainland, holds even greater territorial ambitions than the Communist Party.

China’s last expansionary foray (as distinct from ongoing territorial disputes involving competing claims such as with India in Arundel Pradesh, and various islands in the East China Sea with Japan and Korea, and South China Sea) was against Vietnam in 1979.  Deng launched an invasion of Vietnam “to teach them a lesson” for being too close to the Soviet Union, only to discover what tenacious fighters they were, even if war weary from their defeat of the United States.

Seen from Beijing, China’s security worldview can best be thought of as consisting of at least six priorities for the purpose of having a stable geopolitical environment in which to pursue continued economic growth.  Significantly, none of which involves challenging US presence in the western Pacific, other than with respect to Taiwan.

First, it needs to be recalled, that China today is an empire with still unresolved internal territorial issues – namely Tibet, Xinjiang, and Taiwan. Together these comprise what the Chinese Government refers to as  “core” security concerns.  These absorb and occupy massive military, paramilitary, and other security resources.  

Taiwan, of course, has until recently dominated China’s military planning and preparations.  China probably now has the military capacity to deny the US the freedom to defend Taiwan. Or at least, it has now raised the cost of doing so to such a level that no US Administration would be prepared to unless it was seen as a direct attack on the US. 

It is inconceivable today that the US would sail a carrier fleet through the Taiwan Straits to make a point to Beijing as it did in 1996.  One would hope that it would be even more inconceivable that an Australian Prime Minister would support such an action, as did John Howard in 1996.

With the easing of tensions across the Straits, the likelihood of conflict has diminished substantially.

Second, China has vast extensive land borders.  China shares borders with 14 countries, with over 22 thousand of kilometers of borders to secure.  Most of these borders have been contested at some time and China has had hostile relations with most countries along its land borders.  Some of these themselves are nuclear-armed powers, the weightiest of which are Russia and India. Notwithstanding attempts to present a newfound closeness in relations with major bordering states like Russia and India, mutual distrust runs deep on all sides and will continue to do so.

Third, is the Korean Peninsula.  China simply doesn’t want to see anything that might de-stablise the Peninsula and which might hasten the collapse of its prickly, pugnacious neighbour, North Korea.  A collapse of North Korea threatens China with the likely influx of tens, if not hundreds, of thousands of refugees, including armed members of North Korea’s two million strong army.  While at the same time, it would mean that a close US ally was established on its borders.

Fourth, although Japan no longer poses a military or security threat to China, the historical antipathy runs deep.  Japan is also in a military alliance with the US and itself has a huge military.  Unresolved territorial disputes mean an ever-present risk of flare-ups and flashpoints.

Fifth is the other “near neighbourhood” in the South China Sea.  Again, unresolved territorial issues keep China’s neighbours on edge, especially Vietnam and the Philippines.  While the South China Sea is getting a lot of attention lately, partly due to increased Chinese assertiveness, there is little China can do militarily to resolve these issues. 

China desires compliant states in Southeast Asia, but its own actions are producing the opposite result.  It is rekindling long-standing suspicion, and even fear, encouraging these states to strengthen relations with the US and keep China at a distance.  China is limited to finding a diplomatic solution, even if at present its behaviour suggests that Beijing is slow to come to realize this.

Sixth, over the past 15 years or so, China’s security outlook has changed dramatically.  Until around the mid-1990s, China was largely self-sufficient in all the major resources it needed for its development, including oil.  Until about ten years ago, the major concern Australian trade officials had was that China would flood our regional markets with coal.  None of us expected that China would become a major net importer of coal.

It is often forgotten in this age of super-resource cycles and booms fuelled by Chinese demand that China itself has rich endowments of natural resources, including arable land.  The problem is that there are so many Chinese.

For the vast sweep of China’s history it has been largely self-sufficient.  But with the rapid growth of the economy after the reform and open door policies were introduced in 1978, demand began to outstrip domestic sources of supply across nearly all mineral and energy types. 

China is now, for the first time in its history, utterly dependent on foreign markets and foreigners for all the things it needs to keep its economy growing.  I often imagine how in the middle of one night in the early years of the last decade, deep in the leadership compound at Zhongnanhai in Beijing, someone woke up and started screaming at the ceiling with the realization that China was now utterly dependent on foreigners. 

After all, the reform and open door policies were never intended to integrate China’s economy into the international economy on the basis of Ricardian principles of comparative advantage.  Deng’s original design was mercantilist: trade as much you need to be able to purchase the technology you lack to be able to substitute for imports.  And overtime build your reserves and build your arms.

The very success of the reforms, however, meant that if you make a big number of people much, much wealthier then you will end up relying on international markets, not only to sell your products but critically to supply your basic needs for survival.

China is thus best thought of as a highly constrained power.  This contrasts sharply with the US.  During the US’s rise to global economic and military predominance, it had no hostile borders and had just about everything it required to sustain its growth within its borders.  The exception was people, which it sucked out of Europe in large numbers.  By contrast, China’s options are extremely limited.

Please note: absent from these six immediate security concerns is the US’s role in the Western Pacific, other than with respect to Taiwan.  It is not that the US is unimportant from Beijing’s perspective on its security.  Indeed, smooth management of China-US relations is by far the single most important objective for China’s diplomacy.  President Hu Jintao has made it a feature of his tenure in the top job over the past ten years.

China and the US

In an ideal world, China would want the US out of Asia.  The Chinese, however, whatever their faults, are super realists when it comes to foreign and strategic policy. 

First, they know that with the exception of the Taiwan Straits, they are decades away from matching the US in terms of military hardware.  There is simply no comparison with the US having eleven fully equipped and operational – and battle-hardened – carrier fleets and China’s having just one refitted, dated, ex-Ukrainian aircraft carrier.  Its only value would be for target practice by the US.

Australian Governments of both political persuasions have generally been sensible in their assessments of China’s military strength.  To the extent that we can form a view on the published numbers, China’s military modernization is roughly in proportion to the growth of China’s economy.  Even in democratic societies with well functioning economies, it would be expected that military spending would grow in line with GDP growth.

Second, for quite some time to come, China understands that the US’s presence in the region underpins regional security.  From China’s perspective, this is particularly so with regard to the Korean Peninsula and Japan.  For the moment, then, China is comfortable having a strong and credible US presence in the Asia-Pacific region.

For now, and the next several decades at least, China wants to be recognized as the regional great power.  It doesn’t seek to exclude the US from the region – which of course would be unrealistic and counter to China’s own interests – but it does want to be respected and to have a say over how the US operates in the region.

Since the end of the Second World War, the US has been able to operate in East Asia as if it were off the coast of California.  That is now over and will never return.  But China is still so far behind the US in military capability that all it can do is seek to negotiate the terms under which the US operates in East Asia.

Although not an expert in such matters, my guess is that it has achieved this already over the Taiwan Straits.  Two years ago, China denied US naval ships access to Hong Kong at Thanksgiving because ostensibly the proper protocols had not been secured.  China has harassed US vessels off its coast, concerned that they may have been involved in intelligence collection.  Despite a great deal of irritation on behalf of the US, so unaccustomed to having to take account of other nation’s sensibilities, it has adjusted to this new reality.

In short, the world has already moved beyond conventional assessments.  China is now a great power, albeit constrained and still militarily weak compared with the US, but capable of asserting itself in its immediate region.  On the other hand, the US has started to move to accommodate this and to open up strategic space for China.   These are positive developments, especially for Australia.

One of the great frustrations of being Australia’s Ambassador to China over the past four years was that we were constantly crowded out by the US.  The US and China are deeply engaged with each other.  When I wanted to see Ministers, senior officials, policy think tank people or academics, invariably and, with some embarrassment, we were often told that they were either in Washington or that their US counterparts were in Beijing.

The depth and extent of the US relationship with China vastly overshadows that of Australia’s.  It is multilayered, involving government, think tanks, academics, business and cultural spheres, and on a grand scale.  It is a great thing for Australia that this is the case.  It makes me confident that we will not have to make Hobson’s choices, between our economic interests in China and security interests in the US.

The US and China have an annual high-level meeting called the Strategic and Economic Dialogue.  On the US side it involves the Secretaries of State and Treasury, on the Chinese side a key Vice Premier and an army of senior officials and advisers.  Neither side wishes to admit to it, but it is effectively a G2.  

The world is already being led by the US and China.  No other country has anything like this level and intimacy of engagement with China, as does the US. The G20 is worthy, the G7 or 8 an anachronism, but the China-US G2 is the most influential group.

This doesn’t mean that tensions – on occasions - serious tensions - will not arise from time to time, as surely they will.  But the US and China now have a long established and successful track record in managing difficult issues. 

Beijing and Washington have cooperated closely during the dangerous years of the Chen Shuibian presidency in Taiwan.  It was only a half a dozen years ago that the Straits were seen as the scariest flash point in Asia.  Beijing and Washington successfully managed the risks over a number of years and conflict was avoided.

Again, Beijing and Washington worked closely over North Korea’s nuclear program and missile tests.  On this occasion, Washington put pressure on China to deal with its near neighbour.  Under the new leadership in Pyongyang, we don’t know where this issue is going but China has continued to engage to counsel moderation and economic reform.  It may not remove the threat, but with such a truculent neighbour it’s difficult to do much better.

So unlike other commentators, mine is a cautiously optimistic outlook of the historic realignment of power in the region and of the capacity of the US and China to manage the very big and challenging issues that beset their relations.  Neither side needs much help from Australia.

Australia and China

The Prime Minister’s foray into this last November left the Chinese asking what is that we, Australia, wish them to understand about how we view the bilateral relationship.

China, as foreign policy realists, accepts the Australia-US relationship as a fact of international affairs.  Despite what some people here would have us believe, I can assure you that no one this evening in Beijing is lying awake in their beds trying to work out how to peel Australia off from the US.  Yes, they would like that to be the case in the best of all possible worlds, but unlike Voltaire they live in the reality of the day.  It is just as clear to them as it is to us that our alliance with the US serves our interests very well.

So Beijing has come to terms with an Australia that benefits massively from its commercial relations with China, but is welded onto its security alliance with the US.  Australia by contrast still seems ill at ease with this situation.

If the US and China were managing their bilateral relations less well, it would of course be an issue of serious concern for Australia.  But so far, so good.

In a major speech made at the London School of Economics late last year, Malcolm Turnbull addressed these issues in a most thoughtful and comprehensive way.

Significantly, he drew a distinction between hedging and containing China.  While some in the more conservative think tanks in the US and in the Australian media seek to blur this distinction in favour of containment, he argued that hedging was the appropriate strategy for responding to China’s rise.

As successive US Administrations have said with differing degrees of conviction, containing a country with a fifth of the world’s population is not a policy option.  Hedging, however, is something entirely different.  It is about insurance against an uncertain future.  This is even more important with a one-party state system like China’s.  We simply don’t know who might run the system at some time in the future and what the checks and balances would be.

A hedging strategy primarily involves us building strong regional alliances with all of our and China’s near neighbours.  It of course requires ongoing commitment and support for the US presence in the region.  It does not involve, forming alliances that are based on political differences – such as groupings of so-called “democracies”.  Relations in the region need to be based on interests, not ideology.

China understands that we, and others, would want to hedge against some unexpected events in China.  It may not openly welcome this, but again, as realists, they would do the same.

To execute a hedging strategy effectively and not create mutual suspicion and hostility, it is important to have a solid basis of trust between China and us.  That no longer exists.  We should be able to speak openly to China about these issues.  We should not be reticent in explaining our hedging to China, but we must also be credible.  We can’t seek to engage China on these issues, and then send China conflicting messages about whether we see them as friend or foe.  Consistency in our messaging and positioning is crucial.

China looks for credible consistent positions from Australia.

Australia and the US

We need to do the same in our management of the US.  The US is our ally and no relationship is closer.   But as we all know, it is not about friendship but interests. 

For this complex relationship between Australia, China and the US to work in our interests we need to be much more direct and clear with the US about what we can and cannot support. 

In recent years, it seems to be politically beyond the pail for us to disagree with the US on any subject. In the past we once had furious disagreements with the US over trade policy, agricultural subsidies under the Farm Bill and so on.  Political leaders then did not think that these disagreements lessened our commitment to the US alliance or the value of the relationship to either party.  It is a cliché, but a strong healthy partnership will always involve difference and disagreements. 

We need to be very clear and direct with the US that our economic future is utterly bound up and dependent on China.  Nothing will change that short of a collapse of China and that would cause horrendous damage to Australia.  Some in the Australian Government wistfully hope that India or others in the region collectively will in time supplant China as the cornerstone of the Australian economy.  It will not happen.  The complementarities between the Chinese and Australian economies are so deep and the scale of China so vast that we will become ever more dependent on China.

Some in the US, as in Australia, worry about this.  As a very good friend of the US we need to be clear and honest with the US about what this means.  No Australian Government can now be drawn automatically into some sort of conflict between the US and China.  The Australian electorate would require a lot of convincing that taking sides was in our interests. 

Fortunately, from my previous comments, I don’t think this is likely.  But to ensure that we’re never put in this terrible position, it is vital that we make these things clear to our friend and ally.

In late 2005, then Foreign Minister, Alexander Downer, did such a thing.  It was surprising that a seasoned politician would answer a hypothetical question, and even more so that he did it in Beijing concerning military intervention over Taiwan.

Asked at a press conference in the St Regis Hotel in Beijing, whether in the event of a Chinese military incursion against Taiwan Australia would invoke the ANZUS Treaty, quite reasonably and honestly he said it would depend on the specific circumstances.

The media beat this up, of course, and the US was unhappy.  In one of the most impressive relationships between a Prime Minister and Foreign Minister, Howard felt compelled to correct and mildly chastise his Foreign Minister.  Downer, however, was not only setting out the reality from Australia’s point of view but was being a very good friend to the US by telling them that when it comes to China don’t assume we’ll always be on your side.

It was a big mistake to say such a thing in Beijing, but I believe the Foreign Minister felt that he was doing the right thing by our ally.

A key part of managing this scalene triangular relationship, therefore, is for us to be as forthright and clear with the US about our differences, as we are with China.

Conclusion

Mine is an optimistic outlook on the greatest security challenge of our times.  It is based on the strength and depth of the China-US relationship, which we have little say in.

It is also based on China’s own security needs, which limit its capacity to use force to project itself.  It is, a heavily constrained regional power.

The adjustment by the US to accommodate China’s rise is well underway.  Over the past decade, both have been learning how to manage sensitive foreign and security policy issues in the region.  They will become better at doing so.

Our efforts to create and strengthen regional architecture are important.  And contribute to building habits of dialogue, which over time should also help build trust and confidence.

We should, of course, hedge against an uncertain future by working to strengthen our bilateral relations with China, including its military, and doing the same with regional partners.

But the main game in town is the US and China. In view of our unique position, we must avoid becoming, as we have done recently, a cheerleader for either side. Our interests are clearly in the continuing emergence of a strong, confident China.  We should be unambiguous in this view.  At the same time, regional peace and security requires a strong and ongoing US presence in the Asia Pacific region. 

We will be most helpful to our two great partners – the US and China – if we clearly articulate our own interests.

With China we must be transparent and consistent in our messages and positions.  We need to work much harder, especially at senior political levels, to build confidence and hence trust in each other. 

Because accidents can happen, this is an urgent task.

Thank you.

 

Professor Geoff Raby

Vice Chancellor’s Professorial Fellow, Monash University

Australian Ambassador to China, 2007-2011

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