Fresh US-China bilateral conflict sparked by China’s challenge to established rules of global competition poses a growing threat – particularly over the next 18 months as US elections loom. Avoiding crisis requires that Western policy makers and executives urgently develop deeper objective insight on China’s future global role and dispassionately reappraise the three pillars that underpinned past US economic influence.
US academics, policy makers and executives express growing concerns about China’s leadership under President Xi Jinping’. A long time friend addressing a Harvard seminar recently characterized recent Chinese policy as “Xi’s war on Western values and Western business”. While some consider this overly dramatic, points of friction appear larger and more numerous by the day.
Responding effectively makes it essential that Westerners put the growing competitive challenge from China into broader perspective. Objectively interpreting China’s actions and critically re-examining our own deeply held assumptions about “how the world works” will be vital to charting a course through rough waters ahead.
China’s “anti-Western” policies generally fall into three – sometimes overlapping – categories that render them more comprehensible than viewing these moves as attacks that presage some sort of economic Cold War conflict.
Expectations of Equity: China expects to be treated as an equal to the US and EU. Policies designed to provide the government with access to IT infrastructure installed in China are reported to be less onerous and no more invasive than US and European practices. Limiting sales by Cisco, IBM and other technology firms mirror barriers the US erects to Huawei and ZTE. When the US treats the world’s largest trading nation as “another Asian market” that is welcome to join the Trans Pacific Partnership if Beijing follows Washington’s rules, America seems of touch with current global economic reality. In Chinese eyes, “equity” does not merely mean being granted a seat a Western poker table. It also assumes a key role in deciding whether the game will use mahjong tiles or playing cards.
Demonstrations of Leadership: China is playing a transformational role in the global economy, much as the US once did. Its aid and concessional lending already outdistances World Bank development support to Africa and Latin America. Xi’s “Silk Road” and a Hong Kong company’s proposed $50 billion Nicaraguan canal indicate the scale of China’s ambition. It is inevitable that China use its political, economic and financial influence to shape global trade, economic development, infrastructure and finance rather than meekly accept the Western status quo. US opposition to such initiatives – including castigating UK support for the Asia Infrastructure Investment Bank – have proved embarrassingly counterproductive.
Domestic Political Imperatives: Resurrection of Maoist-like rhetoric and management tools form one part of the intense battle Xi is waging on the corrupt and complacent political-bureaucratic-industrial complex that blocks reform. That Xi and 5th generation leaders selectively adopt tone and tactics reminiscent of the Cultural Revolution reflects lessons from their upbringing, not their underlying policy beliefs. Today’s ideological rhetoric helps coopt one segment of the body politic while having limited impact on key policy choices. Imagine if China took seriously American ideological demagoguery used to marshal support from extremists in Congress and their followers.
US thinking and actions seem predicated on the assumption that three central drivers of past US leadership remain powerful pistons in US economic competitiveness and diplomatic influence. Yet the power of all three is rapidly, irrevocably diminishing:
- Market Size: China has replaced the US as the largest global market. Forget arcane debates over validity of GDP comparisons. Chinese demand already surpasses the US in most industrial and consumer sectors; in smart phones, luxury goods and advanced industries such as alternative energy, China’s market is already two to three times larger. Limiting or granting access to the US market no longer provides the powerful leverage it did when the US imposed its version of global trade liberalization in the last century.
- Financial Leverage: The US has become the world’s largest debtor nation and China the world’s largest creditor. Neither nation will change its role soon. The groundwork is therefore in place for the progressive transformation of financial markets to accelerate as China gradually eases control over capital account convertibility.
- Scientific Leadership: The US legacy built through past investment in science and technology is rapidly eroding as public spending basic scientific research declines in parallel with the number of American science and engineering graduates. China’s research spending and cadre of scientists and engineers is expanding rapidly, facilitated by the return of Western-trained post-docs.
Even as the original sources of US leadership lose potency, alternatives to perennial conflict with China exist. The US-China climate change agreement offers a collaborative template that supports domestic priorities in both countries and hews the missing cornerstone of global agreement. Melding US basic research capabilities with China’s capital and its urgent need to deliver affordable solutions to health, energy, environmental and agricultural challenges provide vast, fertile areas for cooperation.
America’s entrenched myth of its own exceptionalism daily collides head on into China’s conviction that the Middle Kingdom will regain its position as the center of the world. A century of undisputed US global leadership – capping 400 years of European domination – makes it difficult to let go of outdated concepts that no longer serve us. Coming to grips with the complex reality of China’s future global impact and developing a coherent strategy that transcends the US ideological divide requires clear thinking and honest self-appraisal – precisely as America’s perennial election cycle makes such capabilities desperately scarce.