China and America: The Usual Head-To-Heads Or Something New?

One whose judgment we trust took us to task for assuming that the escalation of tensions between China and the U.S. embodied in the row over yuan revaluation, and now President Barak Obama’s call for the release of the new Nobel peace laureate, was a temporary creation of election season.

The counter argument goes like this: After three decades of economic reform and opening to the world, China has been transformed by its economic growth. That has made Beijing more self-confident when it comes to its role in matters of global economics, trade and security. With that has come self-assertiveness, be it not always skillfully deployed. What has not come from those 30 years is China turning into anything that looks like a democratic Western country, or even a variant of the modern-day former Soviet Union or any of its old Communist Eastern European satellites. Nor has it joined the club of the international community, for want of a better phrase, playing the international game by the established rules and respecting international norms.

That was what many Washington policymakers had expected China’s rise to be accompanied by; instead it has become a self-centric rival that expects to rewrite the international rules for its own ends (not that self-interest is ever far from any nation). Thus, our critic argued, as this interpretation gains currency in Washington, the China-engagers there are losing ground to the China critics, and that that is a fundamental change, not a transitory shift prompted by the U.S. mid-term elections next month. The upshot of this change will be a consistently sharper confrontational tone to the bilateral relationship: to see this already happening, witness how Beijing has handled issues such as North Korea, the trawler dispute with Japan, territorial claims in the South China Sea and Iran, let alone trade and the currency issues.

Like Keynes, we would like to think that our opinions change when the facts change. We remain unconvinced that the facts have changed that much, at least yet, though we are open to the notion that they may be slowly starting to. We certainly acknowledge that there is a rivalry between China and the U.S. and that Beijing is systematically testing the boundaries of its new-found power. But we don’t think it would have pushed the U.S. in the way it pushed, say, Japan over the recent fishing trawler incident. The relationship with the U.S. is its most important bilateral one and the two countries are economically so intertwined that both have more to loose than to gain from it breaking down. China’s leaders have repeatedly shown themselves ready to go to the brink before backing down if it appears they risk doing themselves harm, but they will continue to give themselves a large margin of error when it comes to brinkmanship with the U.S.

There is also the unchanged if often overlooked fact that there are two not one election seasons in play. As China approaches a leadership transition in 2012, the nationalists, who see the economy as an instrument of national security, and the economic reformers, who see a more open economy as the only way to ensure the long-term growth that will underpin the Party’s continued legitimacy to rule, are jostling for position. Both the diplomatic and military aspects of China’a foreign policy often reflect domestic politics, so the recent more self-assertive strain in its foreign policy, we believe, reflects the current balance of the internal leadership succession battle.

So we still expect to see episodic confrontation between Beijing and Washington on specific issues over the next couple of years, probably recurring more frequently and some of it quite sharp, but we don’t expect it to degenerate into anything much worse.

That has to be set against a longer-term context. Economies are growing larger, more complex and more divorced from domestic political constituencies thanks to globalization, technology change and sharpening competition that are dissolving and reforming the borders of business and societies faster and more chaotically than politics and political institutions can keep up with. Tomorrow’s global powers will look different from today’s, more shared leadership in some areas, more competitive in others, just as modern management theory tells us that tomorrow’s corporate  leaders will have to be less controlling and more willing to share authority and decision making. Perhaps what we are starting to see in the China-U.S. relationship is the first outlines of that, uncomfortable as the thought may be for both sets of incumbent political leaders.

Are we right, are we wrong? Let us know your thoughts.

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One response to “China and America: The Usual Head-To-Heads Or Something New?

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