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The east is ready

By Mark Leonard. Source: The Guardian, 11 September 2004

By 2020 China will be on the verge of superseding the US as the world's leading economic power. Time for the US to wake up and smell the soy sauce, reckons Mark Leonard.

China's rise through America's eyes: "When a speeding freight train is heading towards you, you either get on board or you get out of the way. We want to get on board." The locomotive is China, whose economy is forecast to become the second largest in the world by 2016 and to have overtaken America by 2041. "We" are the people of South Carolina, the southern US state whose textile-based economy is under increasing threat from cheap labour in the People's Republic. And getting on board means trying to get the Chinese to invest in the state rather than trying to keep them out by erecting protective trade barriers.

The speaker is Mark Sanford, South Carolina's Republican governor, who has travelled to Beijing to attract Chinese investment to revive its beleaguered economy. He is speaking at a private dinner in a club so exclusive that it doesn't have a name, just an unmarked red door in a windowless wall. The late Deng Xiaoping used to come here to relax, but today the mix of privacy and transparency has become an irresistible magnet to China's nouveau riche.

In his Southern drawl, Sanford speaks elegiacally of a knitwear factory that closed in his neighbouring state of North Carolina. This closure, and others like it, have led to a heated debate about attempts to restrict "off-shoring". Sanford explains that his goal is to attract investment from Chinese companies such as Haier, which built a fridge factory in South Carolina in 2000, completing an integrated system of production and sales with its design centre in Los Angeles and trade centre in New York. He speaks about turning his state into a "poster-boy" for globalisation, a Chinese gateway into America, reversing the sense of an inexorable flow of jobs and business from the US to China, and creating a "win-win" scenario. The Chinese roar with approval at his speech: they like this new face of America, as supplicant rather than bully.

But Sanford is a lonely voice in preaching the need to woo China, despite the overwhelming force of the statistics: China has a population of more than a billion, an economy that is growing year-on-year by more than 8%, and had a trade surplus with the US of $124bn in 2003; Chinese imports into the US are outpacing American exports to China by more than five to one. More typical, perhaps, are the words of Roger W Robinson Jr, the former chairman of the US-China Economic and Security Review Commission, the official body charged with assessing the security implications of the trade between the US and China. "The US-China economic relationship is heavily imbalanced and undermining our long-term economic health," he said at the launch of the commission's last report. John Edwards, the vice-presidential nominee who represents the neighbouring state of North Carolina in the Senate, has taken a much tougher line than Sanford: he promises to review US trade agreements and investigate workers' rights abuses in China.

China's growing economic power is doing much more than harming America's trade figures. Its development needs huge quantities of oil, forcing up prices on the world market. That is another big campaign issue in the world's most oil-hungry nation. According to the International Energy Agency, China will generate one-third of global incremental demand for oil between 2002 and 2004. Martin Wolf of the Financial Times has argued: "As Asian growth continues, the global balance between demand and supply will continue to be tight, unless (or until) a vast increase in investment takes place. With such tight markets, relatively modest disruptions could lead to explosive jumps in oil prices, as happened twice in the 1970s."

If the US Democrats are exercised by China's economic threat, the Republicans have focused on its military one. President George Bush's first intelligence briefing from the CIA listed China as one of three strategic threats, along with terrorism and weapons of mass destruction. The thin red mist descends and China becomes, in the neo-con imagination, a Soviet Union of the east, intent on establishing puppet regimes, governed by a modern mandate from heaven. Though not all would go as far as denouncing Deng Xiaoping as a "chain smoking communist dwarf", as the rightwing firebrand Pat Buchanan did, there is a segment of the US political class that recoils at reports of double-digit increases in Chinese military spending, an intense focus on military modernisation and the simmering tensions over Taiwan.

Back in 1997, Paul Wolfowitz, the neo-conservative flag-carrier who is now deputy defence secretary, wrote an article in the journal Foreign Affairs that compared the rise of China at the dawn of the 21st century to the rise of Germany a century earlier. He characterised China as "a country that felt it had been denied its place in the sun", that believed it had been mistreated by the other powers, and that was determined to achieve its rightful place by nationalistic assertiveness. He warned there may be another world war. But rather than a hot war, the two have engaged in a competition for influence in the Asian region.

The establishment of US bases in central Asia, America's tightening defence ties with Japan and Australia, and its growing relationship with India are all seen by China's elite as part of Washington's design to keep them in check. China's response has been to bend over backwards to prove it is no threat either to the US or its neighbours. Li Junru, the vice president of the Central Party School, one of the Communist part institutions, has said the policy of heping jueqi (literally "merging precipitously in a peaceful way") means other nations need not fear. "China's rise will not damage the interests of other Asian countries," he told the Beijing Review. "That is because as China rises, it provides a huge market for its neighbours. At the same time, the achievements of China's development will allow it to support the progress of others in the region." He talks of the Chinese developing free trade areas and security organisations for the region on the model of the European Union and Nato. As part of this strategy, Beijing has resolved virtually all its land border disputes with its neighbours: it has signed a non-aggression pact with the Association of South East Asian Nations (Asean); it is working to help resolve the North Korean nuclear issue; it is signing a treaty of friendship and cooperation with Asean which includes free trade agreements and economic aid; and it is conducting joint military exercises with Russia, Kyrgyzstan, India and Pakistan.

The American analyst Robert W Radtke, writing in the Christian Science Monitor, argued that China's soft sell appeals to America's allies in Asia: "China's peaceful rise was introduced to Asia by Chinese President Hu Jintao on his tour of south-east Asia in October - on the heels of President Bush's visit to the region that month. The contrast in tone between the two leaders couldn't have been more striking. In short, China's message was, 'We're here to help,' while the US message was 'You're either with us or against us' in the war on terror. It's not hard to imagine which was the more effective diplomatic strategy."

But the Chinese will not push this competition too far: their biggest fear is that the neo-cons in Washington will encourage Bush to ratchet up the pressure over Taiwan, whose government has been making noises about declaring independence from the mainland, to the displeasure of the Beijing administration. Since the spat early in Bush's term when a US spy-plane crashed into a Chinese fighter, relations between the world's two leading powers have thawed. Beijing has provided Washington with useful intelligence and, like Russia, used the war on terror as an excuse to damn its own separatist movements. Even over Iraq, the Chinese supported the first UN resolution and kept a low profile over the second. During Kosovo, by contrast, Chinese spokesmen were on a 24-hour rota condemning Nato's illegal action. This time the risk of causing a rift with the Americans was judged too great.

American policy towards China is trapped between an imperative for engagement and a preference for containment. Earlier this year US policymakers welcomed a Chinese trade delegation for a multi-billion dollar buying and spending spree, during which the Chinese were to look at making investments. Within days of the delegation's departure, however, the US threatened sanctions that would make the purchases impossible. And in the security sphere the US is seeking the People's Republic's help on the proliferation of WMD in North Korea at the same time as pushing a missile defence shield that could launch a new arms race between the two nations.

What is becoming clear is that the Chinese are no longer easily manipulated. China's welfare is so intimately woven into the international order that its welfare affects the hope and dreams of others across the world. China is already on its way to becoming America's chief banker: the $400bn of foreign reserves it has accumulated allows the US to sustain its astronomical budget deficit. If Beijing stopped buying dollars, the US currency would collapse. The security analyst François Heisbourg has even compared the Chinese hold on the dollar to a nuclear weapon: "Breaking the dollar would be the functional equivalent of using a nuclear weapon," he wrote in 2003. "The possession of such a capability cannot be ignored by the weaker party."

Because of this mutual dependence it is unlikely that Wolfowitz's predictions of world war will come true. But as China rises, the balance of power will continue to shift to the east and more and more Americans will follow Sanford's example: approaching China with a begging bowl rather than a stick. China itself will face intense pressures over the coming years - unemployment, labour unrest, environmental problems and financial problems - but any problems in the People's Republic will also threaten American interests.

Maybe the neocons have got it wrong. Perhaps the only thing worse for the US than a China that is too strong in 2020 will be one that is too weak.

Mark Leonard is director of the Foreign Policy Centre.

Published in The Guardian on 11 September 2004, http://www.guardian.co.uk