A New Kind Of Challenge

For the first decade of its development (the 1980s), China did not have a foreign policy. Or rather, its grand strategy was a growth strategy. China quietly supported (or did not oppose) U.S. policies, largely because it saw good relations with America as the cornerstone of its development push. And this nonconfrontational approach—"to hide its brightness"—still lingers. With the exception of anything related to Taiwan, even now its major foreign-policy moves are largely outgrowths of economic imperatives. These days that means a ceaseless search for continued supplies of oil and other commodities.

But things are changing. In a paper titled "The Beijing Consensus," drawing heavily on interviews with leading Chinese officials and academics, Joshua Cooper Ramo provides a fascinating picture of China's new foreign policy. "Rather than building a US-style power, bristling with arms and intolerant of others' world views," he writes, "China's emerging power is based on the example of their own model, the strength of their economic system, and their rigid defense of ... national sovereignty" (http://fpc.org. uk/publications/123).

China has followed a very different development strategy than Japan. Rather than focusing only on export-led growth to a few markets and keeping its internal market closed, China opened itself to foreign investment and trade. The result is that much of the world now relies on the China market. From the United States to Germany to Japan, exports to China are among the crucial factors propelling growth. For developing markets, China is the indispensable trading partner.

In November 2004, President George W. Bush and China's President Hu Jintao traveled through Asia. I was in the region a few weeks afterward and was struck by how almost everyone I spoke with rated Hu's visits as far more successful than Bush's. Karim Raslan, a Malaysian writer, explained: "Bush talked obsessively about terror. He sees all of us through that one prism. Yes, we worry about terror, but frankly that's not the sum of our lives. We have many other problems. We're retooling our economies, we're wondering how to deal with the rise of China, we're trying to address health, social and environmental problems. Hu talked about all this; he talked about our agenda, not just his agenda." From Indonesia to Brazil, China is winning new friends.

There are a group of Americans—chiefly neoconservatives and Pentagon officials—who have been sounding the alarms about the Chinese threat. And they speak of it largely in military terms, usually wildly exaggerating China's capabilities. But the facts simply do not support their case. China is certainly expanding its military, with a budget that rises 10 percent or more a year. But it is still spending a fraction of what America does, at most 10 percent of the Pentagon's annual bill.

The Chinese threat or challenge will not present itself in the familiar guise of another Soviet Union, straining to keep pace with America in military terms. It is more likely to be what Ramo describes as an "asymmetrical superpower." It will use its economic dominance and its political skills to achieve its objectives. China does not want to invade and occupy Taiwan; it is more likely to keep undermining the Taiwan independence movement, so that Beijing slowly accumulates advantage and wears out the opponent. "The goal for China is not conflict but the avoidance of conflict," Ramo writes. "True success in strategic issues involves manipulating a situation so effectively that the outcome is inevitably in favor of Chinese interests. This emerges from the oldest Chinese strategic thinker, Sun Zi, who argued that 'every battle is won or lost before it is ever fought'."

At least that's the plan. The trouble is that while maintaining this long-term strategy, China often lapses into short-term behavior that seems aggressive and hostile. Perhaps this is because the rational decision-making that guides its economic policy is not so easily applied in the realm of politics, where honor, history, pride and anger all play a large role. So with Taiwan, last week Beijing was playing out its long-term plan, "normalizing" relations with the island's main opposition party, and smothering it with conciliation. But last month it passed the anti-secession law, which angered most Taiwanese and alarmed Americans and Europeans.

Or take its relations with Japan. It makes little sense for Beijing to behave as aggressively as it does with Tokyo. It only ensures that China will have a hostile neighbor, one with an economy that is still four times its size. A wiser strategy might be to keep ensnaring Japan with economic ties and cooperation, achieving dominance over time.

There are grounds for reconciliation. Japanese have not behaved perfectly, but they have apologized several times for their wartime aggression. They have given China more than $34 billion in development aid (effectively reparations), something never mentioned by the Chinese. Even in this latest standoff, the Japanese moved first to break the impasse.

But for China, emotion seems to get in the way. Having abandoned communism, the Communist Party has been using nationalism as the glue that keeps China together. And modern Chinese nationalism is defined in large part by its hostility toward Japan. Mao is still a hero in China despite his many catastrophic policies because he unified the country and fought the Japanese. And as China advances economically, Chinese nationalism only gets more intense. Scratch a Shanghai Yuppie and you will find a virulent nationalist—on Taiwan, Japan and America.

Beijing assumes it can handle popular sentiments but it might well be wrong. After all, it does not have much experience in it, not being a democracy. It deals with public anger and emotions cagily, unsure whether to encourage them or clamp down for fear of where they might lead. So it does not know what to do with a group like the Patriots Alliance, an Internet-based hypernationalist group that has organized the biggest demonstrations in the country in six years.

Experts say that the Chinese Communist Party has been seriously discussing political reforms and studying dominant single parties from Sweden to Singapore, to understand how it might maintain its position in a more open political system. "The smartest people in the government are studying these issues," a well-placed Beijing resident told me. But politics is often about more than smarts. In any event, how Beijing's mandarins end up handling their own people might have much to do with how China ends up handling the world.

What America Needs to Do

How to handle China? The best guide is to listen to what French President Jacques Chirac says, and do the opposite. Chirac, the tired old dinosaur who seems increasingly uncomprehending of today's world, recently denounced China's "brutal and unacceptable invasion" of Europe. He was referring to the fact that China's textiles have swarmed into the European (and American) markets following the abolition of textile quotas. Unfortunately, Chirac's advice, to reimpose quotas in some way, may soon be taken by both Europeans and Americans. (The textile issue is putting a damper on what has been a growing love affair between Europe and China.)

It's an understandable impulse. Textile exports from China have soared since Jan. 1—a 534 percent increase in pullover-sweater sales in Europe for example—but this is largely the result of free trade, not unfair practices. More generally, tariffs and walls are not the way to prosper in the emerging global economy. It's not just China but India, Brazil, South Africa and Thailand, among others, that are all entering the global market with sophistication and skill. The answer for Western countries cannot be to shut themselves off from this new reality. After all, they benefit from the expansion of global commerce. The European Union's exports to China have risen 600 percent in the past 15 years. More broadly, countries that have tried to wall themselves off from the rest of the world in the past—to maintain their economy or culture—have stagnated. Those that have embraced change have flourished. China is simply the biggest part of a new world. You cannot switch it off.

What you can do is be better prepared. For Americans, this means a renewed focus on the core skills that have propelled the American economy so far: science and technology. The United States has been slipping badly in all global rankings of these fields. Its research facilities are dominated by foreign students and immigrants—but a growing number of them are staying home or going home. Without a massive new focus in these areas, America will find itself unable to produce the core of scientists, engineers and technicians who make up the base of an advanced industrial economy. China and India already produce many more engineers than does the United States. In five years, China will produce more Ph.D.s than the United States. They may not be as good as American Ph.D.s, but numbers do matter.

For the American government, the free ride may be coming to an end. It has run irresponsible fiscal policies, knowing that foreign governments and people would provide it with unlimited credit. But that credit comes at a price. When China holds huge reserves of dollars, it also holds the power to damage the American economy. To do so would certainly hurt China as much or more than it would America, but surely it would be better if U.S. policy were less vulnerable to such possibilities. Fiscal responsibility at home means greater freedom of action abroad.

In foreign policy, Washington will face two possibilities. The first is that China will push its weight around, anger its neighbors and frighten the world. In this case, there will be a natural balancing process by which Russia, Japan, India and the United States will come together to limit China's emerging power. But what if China is able to adhere to its asymmetrical strategy? What if it gradually expands its economic ties, acts calmly and moderately, and slowly enlarges its sphere of influence, hoping to wear out America's patience and endurance?

The United States will then have to respond in kind, also working quietly and carefully, also adopting a calibrated and nuanced policy for the long run. This is hardly beyond its capacity. America has been far more patient than most recognize. It pursued the containment of the Soviet Union for almost 50 years. American troops are still on the banks of the Rhine, along the DMZ in Korea and in Okinawa.

A world war is highly unlikely. Nuclear deterrence, economic interdependence, globalization all mitigate against it. But beneath this calm, there is probably going to be a soft war, a quiet competition for power and influence across the globe. America and China will be friends one day, rivals another, cooperate in one area, compete in another. Welcome to the 21st century.

With Melinda Liu in Beijing, Christian Caryl in Tokyo, Karen Lowry Miller in Brussels, Rukhmini Punoose in New York and John Barry in Washington, D.C.

© 2005 Newsweek, Inc.