a wary respect

A wary respectA special report on China and America l October 24th 2009

US&China.indd 1 13/10/09 11:30:05

The Economist October 24th 2009 A special report on China and America 1

America and China need each other, but they are a long way fromtrusting each other, says James Miles

imminent as it was for America in 1905. Butrecent talk of a �G2� hints at a remarkableshift in the two countries’ relativestrengths: they are now seen as nearequals whose cooperation is vital to solving the world’s problems, from �nance toclimate change and nuclear proliferation.

Choose your weaponsNext month Mr Obama will make his �rstever visit to China. He and his Chinesecounterpart Hu Jintao (pictured above)stress the need for cooperation and avoidplaying up their simmering trade disputes,fearful of what failure to cooperate couldmean. On October 1st China o�ered a stunning display of the hard edge of its risingpower as it paraded its fastgrowing military arsenal through Beijing.

The �nancial crisis has sharpened fearsof what Americans often see as anotherpotential threat. China has become theworld’s biggest lender to America throughits purchase of American Treasury securities, which in theory would allow it towreck the American economy. These fearsignore the valuedestroying (and, for China’s leaders, politically hugely embarrassing) e�ect that a sello� of American debtwould have on China’s dollar reserves.This special report will explain why Chinawill continue to lend to America, and whythe yuan is unlikely to become a reservecurrency soon.

When Lawrence Summers was presi

A wary respect

�OUR future history will be more determined by our position on the

Paci�c facing China than by our positionon the Atlantic facing Europe,� said theAmerican president as he contemplatedthe extraordinary commercial opportunities that were opening up in Asia. Morethan a hundred years after Theodore Roosevelt made this prediction, Americanleaders are again looking across the Paci�cto determine their own country’s future,and that of the rest of the world. Rather later than Roosevelt expected, China has become an inescapable part of it.

Back in 1905, America was the risingpower. Britain, then ruler of the waves,was worrying about losing its supremacyto the upstart. Now it is America that looksuneasily on the rise of a potential challenger. A shared cultural and political heritagehelped America to eclipse British powerwithout bloodshed, but the rise of Germany and Japan precipitated global wars.President Barack Obama faces a China thatis growing richer and stronger while remaining tenaciously authoritarian. Its risewill be far more nettlesome than that ofhis own country a century ago.

With America’s economy in tatters andChina’s still growing fast (albeit not as fastas before last year’s �nancial crisis), manypoliticians and intellectuals in both Chinaand America feel that the balance of power is shifting more rapidly in China’s favour. Few expect the turning point to be as

An audio interview with the author is at

Economist.com/audiovideo

A list of sources is at

Economist.com/specialreports

Round and round it goesAmerica buys Chinese exports, China buysAmerican Treasuries. Can it continue? Page 3

TugofcarDetroit’s and China’s carmakers both want apiece of the action. Page 4

The price of cleanlinessChina is torn between getting greener andgetting richer. Page 5

OverkillChina is piling up more weapons than itappears to need. Page 7

A message from ConfuciusNew ways of projecting soft power. Page 8

Sore pointsHow Taiwan and North Korea complicate theSinoAmerican relationship. Page 9

Aiming highChina is moving heaven and earth to put aman on the moon. Page 11

The rich scent of freedomWill a wealthier China become less authoritarian? Page 12

A dragon of many coloursAmerica will have to get along with China.But which China will it be? Page 13

Also in this section

AcknowledgmentsIn addition to those individuals quoted in the text, theauthor would like to thank the following for theirgenerous help: Je� Bingham, Peter Brookes, Sue Cischke,Charles Eisendrath, Charles Freeman, John Frisbie,Robert Graziano, Hu Angang, C.S. Kiang, Derrick Kuzak,Mei Xinyu, James Mulvenon, Vincent Sabathier, OrvilleSchell, Shi Yinhong, Drew Thompson, Xiao Geng, AndrewYang, Michael Yahuda. Diplomats and other governmento�cials in Washington, DC, Taipei and Beijing, some ofwhom spoke on condition of anonymity, also gavevaluable assistance.

1

2 A special report on China and America The Economist October 24th 2009

2 dent of Harvard University (he is now MrObama’s chief economic adviser), he oncereferred to a �balance of �nancial terror�between America and its foreign creditors,principally China and Japan. That was in2004, when Japan’s holdings were morethan four times the size of China’s. By September 2008 China had taken the lead.China Daily, an o�cial Englishlanguagenewspaper, said in July that China’s massive holdings of US Treasuries meant itcould break the dollar’s reservecurrencystatus any time. But it also noted that in effect this was a �foreignexchange versionof the coldwar stalemate based on ‘mutually assured destruction’ �.

China is exploring the rubble of the global economy in hopes of accelerating itsown rise. Some Chinese commentatorspoint to the example of the Soviet Union,which exploited Western economic disarray during the Depression to acquire industrial technology from desperate Western sellers. China has long chafed atcontrols imposed by America on hightechnology exports that could be used formilitary purposes. It sees America’s plightas a cue to push for the lifting of such barriers and for Chinese companies to look actively for buying opportunities amongAmerica’s hightechnology industries.

The economic crisis brie�y slowed therapid growth, from a small base, of China’soutbound direct investment. StephenGreen of Standard Chartered predicts thatthis year it could reach about the same level as in 2008 (nearly $56 billion, which wasmore than twice as much as the year before). Some Americans worry about China’s FDI, just as they once mistakenly didabout Japan’s buying sprees, but manywill welcome the stability and employment that it provides.

China may have growing �nancialmuscle, but it still lags far behind as a technological innovator and creator of globalbrands. This special report will argue thatthe United States may have to get used to abigger Chinese presence on its own soil, including some of its most hallowed turf,such as the car industry. A Chinese manmay even get to the moon before anotherAmerican. But talk of a G2 is highly misleading. By any measure, China’s power isstill dwarfed by America’s.

Authoritarian though China remains,the two countries’ economic philosophiesare much closer than they used to be. AsYan Xuetong of Tsinghua University putsit, socialism with Chinese characteristics(as the Chinese call their brand of communism) is looking increasingly like capital

ism with American characteristics. In MrYan’s view, China’s and America’s common interest in dealing with the �nancialcrisis will draw them closer together strategically too. Global economic integration,he argues with a hint of resentment, hasmade China �more willing than before toaccept America’s dominance�.

The China that many American business and political leaders see is one thatappears to support the status quo and iskeen to engage peacefully with the outsideworld. But there is another side to thecountry. Nationalism is a powerful, growing and potentially disruptive force. ManyChinese�even among those who wereeducated in America�are suspicious ofAmerican intentions and resentful ofAmerican power. They are easily persuaded that the West, led by the United States,wants to block China’s rise.

This year marks the 30th anniversaryof the restoration of diplomatic ties between America and China, which proveda dramatic turning point in the cold war.Between the communist victory in 1949and President Richard Nixon’s historic visit to China in 1972 there had been as littlecontact between the two countries as thereis between America and North Korea today. But the eventual disappearance of thetwo countries’ common enemy, the SovietUnion, raised new questions in both countries about why these two ideological rivals should be friends. Mutual economicbene�t emerged as a winning answer.More recently, both sides have been tryingto reinforce the relationship by stressingthat they have a host of new common enemies, from global epidemics to terrorism.

But it is a relationship fraught with contradictions. A senior American o�cial saysthat some of his country’s dealings withChina are like those with the European Un

ion; others resemble those with the old Soviet Union, �depending on what part ofthe bureaucracy you are dealing with�.

Coldwar parallels are most obvious inthe military arena. China’s militarybuildup in the past decade has been asspectacular as its economic growth, catalysed by the ever problematic issue of Taiwan, the biggest thorn in the SinoAmerican relationship. There are growingworries in Washington, DC, that China’smilitary power could challenge America’swider military dominance in the region.China insists there is nothing to worryabout. But even if its leadership has noplans to displace American power in Asia,this special report will say that America isright to fret that this could change.

Politically, China is heading for a particularly unsettled period as preparationsgather pace for sweeping leadershipchanges in 2012 and 2013. Mr Hu and theprime minister, Wen Jiabao, will be amongmany senior politicians due to retire. AsAmerica moves towards its own presidential elections in 2012, its domestic politicswill complicate matters. Taiwan too willhold presidential polls in 2012 in whichChinasceptic politicians will �ght to regain power.

Triple hazardThis political uncertainty in all three countries simultaneously will be a big challenge for the relationship between Chinaand America. All three will still be grappling with the aftermath of the global �nancial crisis. Urban Chinese may be feeling relaxed right now, but there could betrouble ahead. Yu Yongding, a former adviser to China’s central bank, says wastefulspending on things like unnecessary infrastructure projects (which is not uncommon in China) could eventually drain thecountry’s �scal strength and leave it with�no more drivers for growth�. In recentweeks even Chinese leaders have begun tosound the occasional note of cautionabout the stability of China’s recovery.

This special report will argue that thenext few years could be troubled ones forthe bilateral relationship. China, far morethan an economically challenged America, is roiled by social tensions. Protests areon the rise, corruption is rampant, crime issurging. The leadership is fearful of its owncitizens. Mr Obama is dealing with a Chinathat is at risk of overestimating its strengthrelative to America’s. Its frailties�social,political and economic�could eventuallyimperil both its own stability and its dealings with the outside world. 7


1

AT ONE stage it all seemed to be working,even if it appeared a little surreal. Chi

na, a developing country, lent vastamounts of money to wealthy America tofeed its spending habit. Americans spentthe money on Chinesemade goods, sending the dollars back to China, which lentthem to America again. But now many talkof a decoupling of the two economies.Niall Ferguson, a Harvard historian who,only a couple of years ago, popularised theterm �Chimerica� for the symbiosis between the two, now says it is a marriageheaded for the rocks.

China’s export �gures appeared to support the idea that the country dependedhugely on overseas markets for its growth,and on America in particular. By 2007 thevalue of China’s exports amounted toabout 36% of its GDP, up from just over20% in 2001. America was (and remains)second only to the European Union as acustomer for Chinese exports, and by farthe biggest single country. This year Chinais on course to regain its position as the biggest supplier of goods to the Americanmarket, overtaking Canada. And by September 2008 China had surpassed Japanas the largest holder of US Treasuries (seechart 1), in other words as America’s principal creditor.

But the marriage was not quite as closeas the headline �gures suggested. Chinacertainly helped its exporters by keepingthe value of its currency low, buying dollars that were used to buy US Treasuries.Those Treasury holdings helped keepAmerican interest rates low and Americanconsumers spending. But sustaining suchgrowth in exports was not as vital to Chinaas many assumed. The valueadded component of its exports accounted for a muchsmaller share of its GDP than the gross �gure because much of the value of Chinesegoods consumed in America was createdelsewhere. The biggest driver of growth inChina was investment, and that has become all the more true as China tries topump up its economy with nearly $600billion in stimulus spending. So althoughChina’s economy no longer enjoys thedoubledigit growth rates of a few yearsago, it is on course for 8% growth this yearand a similar rate next year, says Nicholas

Lardy of the Peterson Institute for International Economics in Washington, DC, evenas America’s economy is still trying toemerge from recession.

No wonder that China is feeling a littlesmug. Millions of migrant workers havebeen laid o� from their jobs in the ravagedexport industry, but now a rush of Christmas orders is opening up new opportunities. Some factories even complain of labour shortages. In many cities houseprices have been rising rapidly (a new bubble, some fear) and consumer spending�though never as strong as the governmentwould like it to be�is holding up well. Students face a tough job market when theygraduate, but that is partly because collegeenrolment has surged in recent years. O�cial statistics show that urban unemployment has risen only a whisker since the beginning of the year. Chinese job �gures canbe unreliable, but anecdotal evidencepoints the same way.

American o�cials have developed atendency to put the two economies on apar, but despite all the talk of a G2 (thoughnot by the two governments themselves)they are far from equal. China’s GDP in2008 was $4.4 trillion, smaller than Japan’s(although next year it could overtake Japan) and less than a third of America’s. Albert Keidel, a former Treasury o�cial, saysit makes little sense to equate the economies of China and America. �But in termsof in�uencing China to think that it is apartner with us and therefore it has certainresponsibilities and should listen to what

we think is important, that has some salience,� he says.

To help cajole China into joining handswith America, Mr Obama has set up a newannual forum called the Strategic and Economic Dialogue that held its �rst meetingin Washington, DC, in July. The idea was tobring together leading policymakers fromboth countries to discuss the entire rangeof problems confronting them. �The pursuit of power among nations must no longer be seen as a zerosum game,� the president said as he addressed the gathering.

You lose, we loseAs far as the economy is concerned, Chinaheartily agrees. It may grumble about thedollar’s dominance in the global tradingsystem, but it has no desire to pull the rugfrom under America’s economy. A run onthe dollar would be a blow to China itself,slashing the value of its stash of over $800billion in US Treasuries. Chinese o�cialsalso worry openly about a possible resurgence of in�ation in America, whichwould also drive down the value of thedollar. The American budget de�cit spooksChina, but appears to make little di�erenceto its willingness to lend. China, says WuXiaoqiu of Renmin University, has been�kidnapped� by America’s currency. China’s purchases of US Treasuries will naturally slow down along with its exportgrowth. But for now the country is still piling them up.

China may dream of a di�erent worldin which the yuan ranks alongside the dollar, euro, sterling and yen as a reserve currency. It is beginning to promote use of theyuan instead of the dollar in transactionswith some of its trade partners, but it hasset no timetable for making its currencyconvertible. In September it bought $50billion in IMF bonds to boost its in�uencein the institution and strengthen the role ofnondollar currencies (IMF bills are linkedto a basket of currencies). But China hasnot sought to ease the Americans or Europeans out from their dominant roles in theWorld Bank and the IMF.

When Timothy Geithner, now treasurysecretary, said during a Senate con�rmation hearing in January that Mr Obama believed China was �manipulating� its cur

Round and round it goes

America buys Chinese exports, China buys American Treasuries. Can it continue?

1Treasury trove

Source: US Treasury

Biggest holders of US Treasury securities, $bn

0

200

400

600

800

2000 01 02 03 04 05 06 07 08 09

China

Japan

Britain


2

1

rency to gain an unfair trade advantage, theadministration was quick to back awayfrom the remark. The yuan’s value hashardly been mentioned in public since. Arecent study by the Peterson Institute saysthat the yuan remains �signi�cantly undervalued�, by 1525% against a weightedaverage of the currencies used by China’strading partners. But American o�cialsknow just how prickly China can get whenit is accused of mercantilism.

As Americans save more and buy lessfrom China, America’s trade de�cit withChina�which has been its biggest withany country since 2000�will shrink anyway. But protectionist sentiment in bothcountries will remain strong. Mr Obama’sdecision in September to impose punitivetari�s on imports of Chinese steel pipesand tyres infuriated the Chinese government, although it has so far resisted lashingout (summitry with Mr Obama being too

big a party to spoil). American businessmen, meanwhile,

worry no less about protectionism in China. Many saw China’s decision in March toreject a takeover bid by CocaCola for aChinese juice company as a bad omen. AsChinese businesses look around Americafor bargains, they will get a mixed reception: sellers are eager for China’s cash, butworried about the survival and security ofBrand America. 7

�SHANGHAI, Guangzhou, Changchun, Beijing, Wuhan, Chongqing:

six cities with six dreams. But what theyreally all dream of is the same�Detroit.� Soconcluded an article on the rival centres ofChina’s fastgrowing car industry published by one of China’s leading newspapers, 21st Century Business Herald. Thatwas a long �ve years ago. Now Detroitdreams of China.

Earlier this year, as the American government was buying 61% of General Motors and 8% of Chrysler to prevent themfrom collapsing, the two manufacturers’sales in China were rocketing. Indeed, China’s car market was overtaking America’sin sales volume for the �rst time (see chart2), several years earlier than analysts hadpredicted before the �nancial crisis. Plummeting demand in the West was to blame.

GM’s sales in China in August morethan doubled on a year earlier. For 2009 asa whole the company predicted a 40% rise.Sales of all car brands in China in Augustwere about 90% up, helped by a cut in thepurchase tax on smaller, more fuele�cient cars. There is huge pentup demandas a new middle class takes to the road.

The Chinese government wants to emulate America’s rise to industrial glory bymaking the car industry a pillar of economic growth. This is a boon to foreign carmakers�not least American ones�whichhave formed joint ventures with Chinesestateowned companies to build their carsin China. The relentless growth of citiesand huge government spending on expressways o�er prospects for carmakersreminiscent of those in America in themid20th century.

The sales �gures may be impressive,but the bene�ts to American car compa

nies’ bottom lines are far less so. One senior manager of a Detroit carmaker saysthat rather than actual pro�ts, China o�ersmore in the way of psychological solacefor companies eager to show they can stilldo business. The boom in China is generating far less revenue for American carmanufacturers than the growth in car salesin Europe did in the 1990s, he notes. Thecars selling fastest in China�as the government intended�are the smaller modelswith the lowest pro�t margins.

But China still o�ers huge potential, notonly because its citizens will get richer andupgrade their cars, but also eventually�orso China likes to believe�as a base for producing cars at low cost and selling theminto developed markets. �The irony is thatsome of the �rst cars that the Chinese export might have an American brand nameon them,� says Stephen Biegun, a seniormanager at Ford.

Another possibility is that some American brand names will become Chinese.Dollarrich China, encouraged by the �

nancial crisis, is telling its companies tolook abroad for bargains. A littleknownprivate company from Sichuan Province,Sichuan Tengzhong Heavy Industrial Machinery, earlier this month reached a dealwith GM to buy its Hummer brand (subject to Chinese government approval). Astateowned company, Beijing AutomotiveIndustry Holding, is planning to join aSwedishled consortium in a bid for GM’sSaab unit. Geely, a private company, islooking at Ford’s Volvo operation. Buying aforeign brand makes sense for Chinese car�rms, which have little international reputation or experience of their own. Qualityand safety issues have proved enormousbarriers for Chinese brands trying to enterWestern markets.

Just as Japanese carmakers rattled theAmerican car industry in the 1970s, the arrival of Chinese makers, though not yetimminent, will be upsetting for somewhen it comes. The United Auto Workersunion (UAW), which represents the BigThree’s bluecollar car workers, was outraged when GM said earlier this year that itwas planning to make the Chevrolet Spark,a subcompact car, in China and ship it toAmerica. Many politicians sided with theunion, pointing out that the company wasmajorityowned by the American government. �If you’re going to build them in China, sell them in China,� says the UAW’spresident, Ron Gettel�nger.

Buy AmericanChinese companies buying Americanones will also cause anxiety. In 2005 theplan of a Chinese stateowned company,CNOOC, to buy an American oil company,Unocal, sparked widespread fury amongAmerican politicians. They worried, mis

Tugofcar

Detroit’s and China’s carmakers both want a piece of the action

2Touché

Source: CEIC *Year to August

Light-vehicle sales, m

0

5

10

15

20

2001 02 03 04 05 06 07 08 09*

China

United States


2

1

takenly, that America would lose a strategic asset. CNOOC meekly withdrew its $18billion bid. �It’s not necessarily the Chinese [government] making decisions,�says Ford’s Mr Biegun. �It is the Chinesepeople and Chinese companies.� Politicians, however, have so far been muted intheir response to the possible sale of Hummer, a gasguzzling, lossmaking brand.These days, what counts is keeping jobs.

Jim Farley, who is in charge of marketing at Ford, says that �over time the wholeindustry absolutely has to be prepared� forthe day when �nished cars will be shippedfrom China to America. The industryshould �welcome that with open arms�,he insists. Another car executive says itmay not make sense to set up dedicatedfactories in China to serve the Americanmarket, but production lines in Chinacould be used to plug gaps in supply thatmight open up in America.

American consumers might be slow toembrace Chinesebranded vehicles, whichso far have made inroads only in emergingmarkets that care more about price thanquality. But the Chinese government sees

an opportunity in hybrid and other�green� cars, demand for which is likely togrow fast. With its economies of scale andabundant labour, China is hoping to gainan edge in what promises to be a lucrativenew industry.

That would help to brighten the environmentally gloomy prospect of a Chinamoving towards American levels of carownership. Sceptics say China is unlikely

to mandate the use of new fuel technologies so early in the development of its carindustry. Others disagree. China, says oneAmerican car executive, could leapfrogahead in adopting cleaner car fuels, especially batteries, for which it already has astrong manufacturing base. �I do thinkthey are going to be formidable competitors,� she says. The UAW may one dayhave to brace itself. 7

Pillars of economic growth

THE Taiyanggong Thermal Power Plantin northeast Beijing is delightfully

green. Unlike most of China’s smokebelching power stations, it has such lowemissions that luxury �ats are being builtnext to it. They are fetching high prices.Owners will look out over something thatlooks more like a cluster of o�ce buildings(apart from a couple of grey chimneys)than a power plant. The cooling towers,near a grove of date trees and an ornamental pool, look a bit like the Great Wall.

With the help of two naturalgasfuelled turbines built by America’s GeneralElectric, Taiyanggong produces only halfthe carbon emissions of a coalburning facility of comparable size in China. It alsogenerates much less smogforming nitrogen oxide. Its steam supplies heat to 1mhomes. When Hillary Clinton visited thepower station in February, she called it a�wonderful collaboration� between China and America in cleanenergy production. �We need to �gure out ways to domore and more of this,� Mrs Clinton said.That is where the problems begin.

The Beijing authorities built Taiyanggong to impress the world in the runup tothe Olympic games which opened in thecity in August 2008�on the same day thatAmerica opened a new embassy in Beijing(heated, American o�cials say proudly, byTaiyanggong). Some 5,000 workers toilednight and day to deliver on the Chinesegovernment’s promise to provide an environmentally friendly power source for thegames. Taiyanggong was connected to thegrid with nearly eight months to spare.

Money was no object. It was clear thatnatural gas would be considerably moreexpensive than coal, the fuel used by mostpower plants, and Americanmade stateoftheart turbines would be far costlierthan those made at home. Maintaining theGE machinery would keep running costshigh for years to come. But the governmentwas in a highspending mood, pouringabout $40 billion into an infrastructuremakeover for the games.

Now the power station’s owners, led bya municipal stateowned company, arestruggling to make it work �nancially.

Luckily for them, Taiyanggong has quali�ed for funding under the UN’s Clean Development Mechanism (CDM), which enables rich countries to o�set carbonemissions by paying for carbon cuts in developing ones. Zhang Yandong, a seniormanager at the plant, says it will receiveabout 80m yuan ($12m) in CDM moneythis year. Even with this, he says, the plantwill at best break even. A CDM project report estimates that it costs 50% more togenerate electricity at a plant like Taiyanggong than it does at an equivalent coal�red facility.

But American o�cials hope this willchange, and that cooperation on climatechange will even help strengthen the relationship overall. At the UN in SeptemberMr Obama said America was �determinedto act� on climate change. When he visitsChina next month, the topic will be thecentrepiece. He is likely to secure an agreement on greater cooperation over cleanenergy development between the twocountries. He might even prise out of MrHu what he meant when he spoke of a

The price of cleanliness

China is torn between getting greener and getting richer


2 �signi�cant cut� in China’s carbon intensity (the amount of carbon emitted per unitof GDP) by 2020.

But even if Mr Hu and Mr Obama appear in broad agreement on what needs tobe done, persuading politicians and thepublic in both countries will not be easy.China has set impressive targets but struggles with illmotivated bureaucrats. InAmerica even lacklustre climatechangelegislation now before Congress couldfounder as Mr Obama devotes political energy to what he clearly sees as a higher priority: healthcare reform.

The road to CopenhagenIn Beijing the two presidents will avoid airing public doubts about each other’s countries’ �tness for the task. If China andAmerica�the world’s two biggest greenhousegas polluters, which between themaccount for 40% of the world’s carbondioxide emissions�are seen to be in accord,their o�cials reckon, there will also be abetter chance of agreement at the UN climate conference in Copenhagen in December. That meeting is meant to come upwith a successor to the Kyoto protocol of1997, a treaty on cutting carbon emissionsthat Congress never rati�ed.

Securing vague agreements will be theeasy part. Having recently overtakenAmerica as the world’s biggest carbonemitter (see chart 3), China is anxious notto be singled out as the main obstacle to climatechange prevention. To China’s leaders, image counts for a lot. China will clingto the view (shared by most developingcountries) that the developed world bearsthe main responsibility for dealing withthe problem. But it is also keen to cooperate. Cutting the growth of its carbon emissions happens to �t well with China’slongstanding campaign to use energy lesswastefully and reduce its dependence on

imported oil (see chart 4). If the rich world,through CDM arrangements, can help China achieve that, so much the better.

What China will want in return is lotsof money. Unfortunately for its environment, coal is plentiful and cheap. About70% of China’s electricity supply comesfrom coal�red power stations. So thequestion is how fast China can introducetechnologies to reduce carbon emissionsfrom coalburning, or else replace coalwith cleaner forms of energy, both ofwhich will be expensive. China will demand that developed countries foot thebill and also help provide the technology.

This will be hard for Mr Obama to sellto Congress. Politicians will worry abouthow to monitor China’s success in achieving its targets. China pledged in 2006 to reduce the amount of energy used per unitof GDP by 20% by the end of this decade.O�cials say the country is on track toachieve this. But stimulus spending is�owing into energyburning industries. Inthe pursuit of growth local governmentsare even less inclined to take energysaving targets seriously. And verifying whether China is meeting its energy targets willbe hard. For China to measure its carbonemissions and for America to be satis�edwith the results will be even harder. Even apledge for emissions to peak by 2035 willnot go down well in America. Kenneth Lieberthal of the Brookings Institution saysChina will be under pressure to make itearlier, perhaps 2020 or 2025.

Technology transfer will also be athorny issue. China resents the idea ofAmerican cleanenergy companies takingadvantage of China’s predicament to pro�tfrom their expertise. But American companies will not be keen to hand over advanced technologies without adequateprotection for their intellectualpropertyrights. China’s lack of attention to this areais bitterly resented by many Americanbusinesses, not just hightech ones.

American climatechange experts saythere are grounds for optimism that Chinawill do its best. The country’s leaders, theysay, are beginning to appreciate how muchof a threat climate change poses to Chinaitself. It has taken a while to convincethem. In a country where every year hundreds, if not thousands, of people die innatural disasters, crops are devastated bydroughts and millions of peasants migrateto cities, the extra disruption and loss oflife that global warming might cause havenot seemed like pressing concerns. But MrLieberthal says leaders now worry that climate change could pose a serious addi

tional threat to stability. For a party thatplaces stability above everything else, thiscould be a clincher.

China will enjoy the Schadenfreude ofwatching Mr Obama’s struggle with a recalcitrant democracy. The climatechangelegislation now before Congress has littlechance of being passed by the Senate before the Copenhagen conference eventhough it was watered down as it passedthrough the House of Representatives.This will make it di�cult for America toclaim the moral high ground at Copenhagen. China may even garner more praise.

Whatever accord is reached at Copenhagen, scepticism will still be rife in America about China’s intentions, and in Chinaabout America’s willingness to providethe money and technology. At a time whentrade friction between China and Americais growing, such misgivings could lead tomore shouting matches. The climatechange bill threatens to impose carbon tari�s on countries that are deemed not to bedoing enough. China will rightly arguethat it is doing a lot, but it will worry thatAmericans will not see it that way.

Mr Hu will also have to watch his ownback. Just as in America, implementingcarbonemissions cuts will upset powerfulinterest groups: fossilfuelenergy producers, for one. Unless the West, includingAmerica, is prepared to help out on a largescale, he will be under pressure to go slow.His decisions on climate change will be aclue to whether domestic or global interests take priority.

Like Mr Obama, he will vacillate. Copenhagen is likely to be just the beginningof a long, hard, struggle between the twocountries over what the other is doing. Anoften defensive and secretive Chinese bureaucracy up against a bewilderingly complex mishmash of competing interests inAmerica will not make for harmony. 7

4Make me frugal, but not yet

Source: Energy InformationAdministration

*2005 constant $ †Based on“business-as-usual” assumptions

Energy-consumption intensity’000 BTUs per $ of GDP*

0

10

20

30

40

50

1990 95 2000 05 10 15 20 25 30

China

United States

F O R E C A S T †

3The price of progress

Source: EnergyInformation Administration

*Based on “business-as-usual” assumptions

Carbon-dioxide emissions, tonnes bn

0

2

4

6

8

10

12

1990 95 2000 05 10 15 20 25 30

China

United States

F O R E C A S T*


1

WHEN Hillary Clinton said in Januarythat America should exercise �smart

power�, Chinese o�cials and commentators pricked up their ears. Here was a neatway of describing, some of them said,what China too was trying to do: �nd theright mix of military might, cultural in�uence and economic clout�hard power andsoft power�to secure its place in the world.Yet both countries are at risk of dangerously mishandling this exercise in carefullycalibrating their dealings with each other.

China’s demonstration of militarymight and authoritarian muscle on October 1st, its national day, was one recent example of how its judgment can go awry.The parade of thousands of goosestepping troops through central Beijing, alongwith military hardware intended mainlyto intimidate America and its quasiallyTaiwan, was a throwback to the imagery ofcoldwar days. It did not help that dissidents were rounded up and the public keptaway from the event (except on television).

Such scenes touch raw nerves in America, where intellectual and political opinionhas long been bitterly divided over how toassess China’s rise. Leftwing Democrats,alarmed by China’s humanrights abuses,�nd themselves in league with rightwingRepublicans who see China as a new Soviet Union, to be distrusted and contained.The October 1st extravaganza also worrieda third, more centrist, camp: those who seethe Communist Party’s resort to nationalism as a sign of its weakness and of China’s vulnerability to upheaval that couldhave damaging global consequences.

Mr Obama’s smartpower strategy towards China resembles that of his predecessor, George Bush, who after the attacksof September 11th 2001 abandoned talk ofChina as a �strategic competitor� andsought instead to downplay di�erences.China, no less smartly, began in 2003 toemerge from its diplomatic shell by organising sixnation talks to deal with the nuclear crisis on the Korean peninsula. By themiddle of this decade it had also begun toback away from its belligerent rhetoric onTaiwan (while continuing to amass moreweaponry should it ever wish to attack theisland). America breathed easier.

The Centre for Strategic and Interna

tional Studies, a thinktank in Washington,DC, that helped popularise the notion ofsmart power with a study on Americanforeign policy in 2007, issued a report inMarch which drew attention to a �strategicmistrust� between the two countries’ leaders. American policymakers, it said,should start a �new narrative� and showrespect for China’s status as a rising power.Mr Obama, who has put more emphasisthan Mr Bush did on China as a solver ofglobal problems, appears to agree.

America’s friendly rhetoric may help tosecure more constructive thinking in Beijing about issues such as tackling climatechange or dealing with North Korea. Butthe intractable problem of Taiwan willcontinue to fuel a dangerous escalation ofthe two countries’ hardpower capabilitieswith respect to each other. In the realm ofsoft power (a term de�ned by Joseph Nye,a Harvard professor and former senior o�cial, as a country’s ability to persuade or in�uence others without the threat of force),China has only recently begun to play aglobal part. Its e�orts so far, whether in securing oil and mineral deals in Africa or intrying to promote its view of the worldthrough the internet, have often merelyraised American hackles.

Unlikely but not unthinkableOn the military side, the Pentagon worriesthat China is acquiring capabilities that gobeyond what is needed to deal with possible con�ict over Taiwan. China does notspeak publicly of displacing Americanpower in Asia. It has good reasons, indeed,to support it, given that America’s presence helps to deter North Korean aggression against South Korea, keep Japan frombecoming militarily more assertive andprotect shipping lanes in SouthEast Asia.But China’s military buildup, which began to gather pace in the late 1990s and hasshown no sign of slacking, could one daytempt Chinese leaders to think that theycould �ght and win a war, either over Taiwan or over a host of mostly uninhabitedislands whose sovereignty China disputeswith countries from Japan to Malaysia.

China’s growing armoury would makeit far more di�cult for America to respondto a crisis in the Taiwan Strait in the way it

did in 1996 when it sent two aircraftcarrierbattle groups close to the island. The Pentagon says China is developing mediumrange ballistic missiles that could be guided to their targets far out into the Paci�c beyond Taiwan: a clear threat to theAmerican navy. Mediumrange missilesare also being targeted at American basesin Japan and Guam. China, says the Pentagon, has the biggest missile programme ofany country in the world.

Although it is well aware of the dangersof misunderstandings, China has brushedo� repeated American overtures for moredialogue. Talks between the two armedforces typically sputter on for a fewmonths before being called o� again byChina to express its disapproval of American military support for Taiwan. Therehave been glimmers of progress. This yearmultinational antipiracy operations in theGulf of Aden (China’s �rst active naval engagement beyond Asia) saw Chinese andAmerican ships operating in the samezone and communicating with each otherin a friendly enough manner.

But Pentagon o�cials have never beenallowed to visit the headquarters of theChinese armed forces, an underground facility in the Fragrant Hills west of Beijing.Attempts by the Pentagon over the pastfew years to persuade the chief of China’sstrategic nuclear forces to visit Americahave so far failed (although he has visitedother countries). In 2008 the two countriesagreed to establish a hotline between theirtwo defence ministries. But for unex

Overkill

China is piling up more weapons than it appears to need

5Still a world apart

Sources: US DefenceDepartment; IISS

*Additional fundingmay be approved

Defence budget, $bn

0

100

200

300

400

500

600

700

1995 2000 05 09

United States

*

China


2

1

plained reasons the two sides did not use itwhen Chinese boats harassed an American surveillance ship, the Impeccable, inthe South China Sea in March.

Few expect rapid progress. DennisWilder, a former adviser to the NationalSecurity Council under President Bush,says there is a dangerous lack of knowledge even about basic issues such as China’s nuclearalert system. China has a fewdozen landbased nuclear missiles capableof hitting some or all parts of America andis soon expected to deploy them on submarines. America’s nuclear force is far larger, but as Richard Bush and MichaelO’Hanlon of the Brookings Institution argue in a book published in 2007, nuclear

war between the two countries over Taiwan is not unimaginable.

No less worrying to the Pentagon iswhat appears to be a lack of e�ective communication between the Chinese armedforces and other parts of the bureaucracy.This was evident in April 2001 when anAmerican EP3 military spyplane hit a Chinese �ghter jet o� the Chinese coast.American o�cials believe the crisis wasescalated by distorted information thatwas fed to Chinese leaders by the armedforces before other departments were ableto weigh in with sounder analysis. Itseemed that the Chinese armed forces didnot promptly inform China’s foreign ministry about the Impeccable incident.

China bristles at any American suggestion that its behaviour could be construedas threatening. America’s latest NationalIntelligence Strategy, the �rst issued by theObama administration, makes one briefmention of China, saying that its �increasing naturalresourcefocused diplomacyand military modernisation are among thefactors making it a complex global challenge.� This statement of the obvious wasenough to trigger howls of protest. TheChinese foreign ministry called on America to abandon its �coldwar mentality andprejudices�. At an annual gathering of regional defence ministers in Singapore earlier this year, a speech by the deputy Chinese chief of sta�, Ma Xiaotian, was

ON THE ground �oor of one of the University of Maryland’s redbrick Geor

gianstyle buildings is the small o�ce ofthe Confucius Institute. When it opened�ve years ago, it was the �rst of its kind inAmerica. Now there are more than 60 ofthem around the country, sponsored bythe Chinese government and o�ering Chinese culture to win hearts and minds.

China’s decision to rely on Confuciusas the standardbearer of its softpowerprojection is an admission that communism lacks pulling power. Long gone arethe days when Chairman Mao was idolised by radicals (and even respected bysome mainstream academics) on American university campuses. Mao vili�edConfucius as a symbol of the backwardconservatism of precommunist China.Now the philosopher, who lived in the 6thcentury BC, has been recast as a promoterof peace and harmony: just the way President Hu Jintao wants to be seen. Li Changchun, a party boss, described the Confucius Institutes as �an important part ofChina’s overseas propaganda setup�.

China’s partial �nancial backing, itshandso� approach to management andthe huge unmet demand in many countries for Chineselanguage tuition havehelped Confucius Institutes embed themselves in universities that might havebeen suspicious. The University of Maryland’s institute does not o�er courses thatcount towards degrees (and nor do many

of the others). It helps with Chineselanguage teaching in the wider community,not just on campus. The director, ChuanSheng Liu, is appointed by the university,as most of them are.

There are occasional hints of politics.Earlier this year the University of Maryland’s institute organised an exhibition ofphotographs from the Tibetan plateau. Atan opening ceremony a senior Chinesediplomat made a speech criticising theDalai Lama. The pictures, he said, showed

the �remarkable social changes and improvement� in Tibet under Chinese ruleand demonstrated that Tibet had been�part of China since ancient times�. Butthe website of the Confucius Institute inEdinburgh promotes a talk by a dissidentChinese author whose works are bannedin China. Even the Pentagon has beenhelping to fund some language courses atConfucius Institutes under the NationalSecurity Language Initiative, launched byGeorge Bush in 2006 to promote the studyof �criticalneed� languages.

The late Samuel Huntington, in his1996 bestseller �The Clash of Civilisationsand the Remaking of World Order�, describes a Confucian world, with China atits centre, that will �nd itself in growingcon�ict with the West. This is the kind ofview that the Confucius Institutes are intended to dispel. Mr Liu, a longtime physics professor at the university, says hismission is to promote cultural understanding. He speaks of the �amazing similarity� between Confucian teachings andGeorge Washington’s etiquette guide,�Rules of Civility and Decent Behaviourin Company and Conversation�.

Some American o�cials grumble thatChinese universities are far less receptiveto America’s culturalpromotion e�ortsthan American ones are to China’s. But asone comforts himself, �if you’re in a system that’s that paranoid, your soft poweris selflimited.�

New ways of projectingsoft power A message from Confucius

Back in fashion


2

1

sprinkled with critical allusions toAmerican �coldwar� behaviour in Asia.

China has reason to feel uncomfortableabout the imbalance between its own military power and America’s. Americanships and spy planes claim the right to operate only 12 nautical miles from the Chinese coast (a boundary observed by Sovietand American military craft o� each other’s coasts during the cold war). They routinely come closer than the 200mileboundary that China insists on. Chinadoes not have the means to project its power anything like as close to America’sshore, and shrewdly refrains from suggesting that it would like to.

But some Americans worry that Chinacould make a cold war with America a selfful�lling prophecy by trying to acquiremore of the trappings of a global militarypower. For example, China is quietly developing its �rst aircraftcarrier. The Pentagon reckons the country is unlikely to haveone in operation before 2015, but is considering building at least two by 2020, alongwith associated vessels. �The Indians haveone, the Italians have one, so why can’tChina have one?� asks a Chinese general.

Pentagon o�cials profess not to worry.America’s navy would be well equippedto deal with a Chinese carrierborne force,particularly one with little experience (itwould be an �easy target�, says one formersenior o�cial in the Bush administration).But China’s deployment of a carrier wouldsend a powerful signal that its naval interests are no longer con�ned mainly to coastal defence. A senior Chinese o�cer oncequipped to Admiral Timothy Keating, whois about to retire as America’s top com

mander in the Paci�c, that when China hasaircraftcarriers the two countries shoulddraw a line down the middle of the Paci�cthrough Hawaii to de�ne their spheres ofoperation. Mr Keating politely declined.

Culture warsOn the softpower side, China is slowlylearning. After much complaining fromWestern politicians and NGOs, it has usedits considerable economic clout to give Sudan and Myanmar at least little nudges towards accommodating Western concernsin those countries (less so, however, in thecase of Iran). Soft power was mentionedfor the �rst time by a Chinese leader inpublic in 2007. Culture, said Mr Hu (oblivious, it seemed, of the coldwar overtones of his remarks), was of growing signi�cance in the �competition in overallnational strength�. China should therefore�enhance culture as part of the soft powerof our country�.

A cursory glance at the streets andshops of Chinese cities suggests what MrHu may have had in mind: the allpervasiveness of American brands and culturalproducts, from CocaCola to (pirated)boxed sets of a comedy series, �Friends�,from Kentucky Fried Chicken to Starbucks.America’s intellectual drawing power isevident in the queues of students waitingfor visas at the American embassy: in the200708 academic year more than 81,000Chinese were studying in American colleges. Such exposure to American ideasdoes not always work in America’s favour.Many of the nationalists who have stagedprotests against America in recent yearshave been members of an internetsavvygeneration immersed in American popular culture. But the Chinese governmentnow hopes that by taking its own culturalmessage to foreigners it can help to convince them that China’s rise is nothing tobe feared (see box, previous page). 7

A sight to terrify the enemy

TAIWAN, as Chinese o�cials never tireof reminding their American counter

parts, is the most important and sensitiveissue in the two countries’ relationship. Inthe mid1990s the two nucleararmedstates inched to the brink of war over theisland. Since then Taiwan has been the pretext for a massive military buildup by China. Pragmatism has so far restrained China’s nationalist instincts, but for how long?

Both China and America were relievedthat elections in Taiwan in March 2008 returned a Chinafriendly president, Ma

Yingjeou. For nearly 15 years Taiwan’stransition to democracy, and the growth ofTaiwanese nationalism which it fostered,had been adding dangerous unpredictability to crossstrait relations. America hadbeen getting fed up with Mr Ma’s predecessor, Chen Shuibian of the Democratic Progressive Party, who revelled in riling China.

China has o�ered Mr Ma some carrots.In May it allowed Taiwan to send a delegation to the World Health Assembly, theWHO’s governing body�the �rst time ithad agreed to Taiwan taking part in any UN

activity. Recently China criticised CNN forrunning an online poll asking whether MrMa should step down over his handling ofthe aftermath of a typhoon in August thatkilled hundreds of people. Its response toMr Ma’s decision later in August to allowthe Dalai Lama to visit Taiwan to pray forthe dead was unusually muted. Mr Ma,notes Sun Yan of Peking University approvingly, bows regularly before a statueof Sun Yatsen, a precommunist revolutionary who is also held in reverence byChina’s leaders. This, she says, �suggests in

Sore points

How Taiwan and North Korea complicate the SinoAmerican relationship


2 his heart he thinks of himself as Chinese�. But Taiwan will remain a problem for

China and America. Mr Chen was sentenced to life in prison for corruption inSeptember, but his proindependenceviews still enjoy a vocal, if minority, backing. Mr Ma’s popularity has been badlydented by the typhoon response. Taiwan’seconomic malaise will not help. TheDemocratic Progressive Party has been indisarray since its defeat in last year’s election, but it might still be a strong contenderin the next presidential polls in 2012. Thatwould deeply worry the two big powers.

More immediately, Mr Obama needs tothink about arms sales to the island. Mr Masays he wants new F16 �ghter jets. �Wesimply want to maintain the military balance� with China, he says, by replacingageing military hardware. Mr Obama, anxious to secure Chinese cooperation on arange of issues, will want to tread warily,but Taiwan has many friends in Congress.

Mr Obama could argue that the improvement in crossstrait political relationsreduces the need to sell more weapons toTaiwan. China will certainly argue, withsome justi�cation, that selling Taiwanmore advanced F16s is hardly in keepingwith what America promised in a 1982joint communiqué with China: that America’s arms sales to Taiwan would not exceed �either in qualitative or in quantitative terms� the level of those supplied inthe three years prior to the agreement.

American law complicates the issue.The Taiwan Relations act of 1979 requiresthe administration to arm Taiwan su�ciently to defend itself. In 1992 PresidentGeorge Bush senior agreed to sell the island 150 F16s, a package worth vastly morethan the arms America had sold Taiwanannually since the beginning of the previous decade. China, which was far lesspowerful then, dragged its heels for a whilein international armscontrol talks. Todayit might respond more robustly.

The North Korean conundrumMilitary contacts with the Pentagon wouldbe an obvious �rst casualty. But Chinamight also become less cooperative indealing with another issue of huge importance to American security: North Korea.China is an enthusiastic organiser of thesixpartytalks process that brings togetherthe two countries, both Koreas and Japanand Russia to discuss ways of rolling backNorth Korea’s nuclear programme. Thetalks, which began in 2003 but are now onhold because North Korea is angry aboutChinesebacked sanctions, have helped

China ingratiate itself with America. Victor Cha, who was Mr Bush’s top adviser onKorean a�airs and a onetime participantin the talks, describes them as �the onlything they [the Chinese] have ever contributed to the international system�. But China still would like to keep the status quo onthe Korean peninsula. Even a nucleararmed North Korea it sees as less threatening than a North Korea in political meltdown or, worse still, one occupied byAmerican troops.

If China and America have talkedabout how to handle a political collapse inNorth Korea, they have managed to keep itsecret. Mr Cha says China has shown interest in informal lowlevel discussions. But

without toplevel agreement there remains a considerable risk that the Chineseand American armed forces could �ndthemselves drawn into a North Korean political vacuum, with little knowledge ofeach other’s intentions.

China at the very least would want toestablish a bu�er on the North Korean sideof its border with the country in order tostop a �ood of refugees. The Americanswould want to secure North Korea’s chemical and nuclear weapons, some of whichare stored near the Chinese border. �Howwill you get there, will you �ght your waythere?� asks a senior Chinese o�cer. Chinaand America, he says, will have to cooperate in order to �prevent another war�.

Shen Dingli of Fudan University inShanghai argued in an essay in 2006 thatfrom China’s strategic perspective, North

Korea and Taiwan were �intrinsicallylinked�. As long as China worried aboutAmerican intervention in the TaiwanStrait, he said, it would value North Korea’srole in pinning down American forces inthe region, so regime change in the Northwould be �unacceptable� to China.

For all China’s rhetoric about the central importance of Taiwan (and constantwhispering to Western o�cials that anyChinese leader seen as �losing� Taiwanwould be overthrown in an instant), thecountry is reassuringly careful to avoid letting the issue become prey to Chinese public sentiment. Lin Chongpin, a former Taiwanese deputy defence minister, says thatas early as 2006, two years before Mr Matook o�ce, China had decided that it was�cheaper to buy Taiwan than to attack Taiwan�. Chinese o�cials would certainlyworry about public reaction in China if itwere to lose a war over the island, as wellas about the longterm viability of controlling Taiwan, noting that the wars in Iraqand Afghanistan have shown that even asuperpower can �nd it di�cult to imposeits will on occupied countries.

Mr Ma himself plays down the worriesabout the growth of Chinese nationalismand its potential to disrupt the region’s stability. He says he was �quite startled� lastyear when China reached an agreementwith its hitherto archrival Japan on jointexploration of disputed gas�elds in theEast China Sea. Relations between Chinaand Japan, which is a bigger bête noire toChinese nationalists even than America,have improved �beyond my imagination�,Mr Ma says.

But others worry that Chinese nationalism is dangerously unpredictable. SusanShirk, a former senior State Department of�cial in the Clinton administration, arguedin her 2007 book �China: Fragile Superpower� that �the more developed andprosperous China becomes, the more insecure and threatened� China’s leaders feel.China’s �emotional responses� to externalcrises �may undermine its more moderateaims and get it, and us, into trouble�.

The con�uence of political uncertaintyin the region early in the next decademakes such advice worth heeding. Taiwan’s presidential polls in March 2012,China’s change of leadership in the autumn of that year and American presidential elections in November will create fertile ground for emotional responses in allthree capitals. The poor health of NorthKorea’s leader, Kim Jong Il, adds a wildcard. Mr Obama would do well to keep thedialogue with China wide open. 7

Spotting trouble on the border


1

FIELDS of peanuts and paddy, water buffaloes, deserted beaches, coconut trees

and the odd building site are about allthere is to see for now at what will eventually become one of the world’s most important centres for space exploration. Veryfew people outside China have heard ofthe town of Wenchang on China’s tropicalisland of Hainan, but in a mere four years,Chinese o�cials say, it will become �China’s Kennedy Space Centre�. It is fromhere, eventually, that China’s �rst man onthe moon is likely to take o�.

Just as President Kennedy aimed for themoon to boost American morale in a struggle for supremacy with the Soviet Union,Chinese o�cials now see a Chinese moonlanding as a way to bolster patriotism (although no formal target date has been declared yet). On the streets of Wenchang,whose sole (nonastronautical) claim tofame at the moment is a form of boiledchicken, the authorities are already tryingto get the public in the mood. �Building aSpace Centre, TakeO� for Wenchang’sEconomy�, says one slogan against a background of waves crashing on the town’ssunsoaked shore. In China money talksjust as loudly as appeals to nationalist

pride, despite Wenchang’s languid air. China already has three space centres:

Taiyuan in the north, Xichang in the southwest and Jiuquan in the northwest. Jiuquan earned a name for itself by launchingChina’s �rst man into orbit in 2003, followed in 2005 by a twoman crew and lastyear by a threeman mission, includingChina’s �rst spacewalk. But these three facilities are in remote locations deep inland,re�ecting China’s secretive approach tospace �ight, a venture under the control ofthe armed forces. The Wenchang centrewill have a space theme park and beach resorts right next to it. China’s space programme is at last coming out.

America in particular will turn its eyeson Wenchang as China gets ready to shootfor the moon. No Chinese o�cial, anymore than anyone at NASA, would dreamof talking of a space race between the twocountries. That would smack too much ofcoldwar rivalry. But in 2007 Mike Gri�n,then NASA’s chief administrator, said hebelieved China would be the �rst countryto go back to the moon and that �Americans will not like it.�

The plan is to open the new launch centre in 2013 (good timing for China’s next

generation of leaders who will want tostart their terms on an inspirational note).Some time in the following year China’snew Long March 5 rocket is due to be ready.This will be the workhorse of China’s lunar programme. Chinese press reportshave suggested that a manned lunar landing could take place around 2020, preceded by an unmanned mission that wouldreturn lunar samples to Earth. UnlikeAmerica, which is dithering over its plansto return to the moon, China does not appear troubled by �nancial constraints. Little is revealed of what China’s space programme actually costs.

A race of sortsA Chinese moon landing might chip awayat America’s sense of its scienti�c superiority, adding to the worries that werearoused in 2005 when a panel commissioned by Congress gave warning thatAmerica was losing its technological edge.The panel cited statistics showing that China produces 600,000 engineering graduates a year against America’s 70,000(though a detailed report published by thepanel two years later gave a far narrowergap and questioned whether degrees fromthe two countries were comparable).

Even before China gets to the moon, itaims to have a rudimentary space stationof its own. The �rst orbiting module (Tiangong, or Heavenly Palace), which will beused to gain docking experience for thespacestation project, will be launched asearly as next year. Work on the station itself could begin in 2015, Chinese media say.

When the �rst Long March 5 is deliveredto Wenchang in 2014, America may noteven have a spacelaunch vehicle of itsown. Unless Mr Obama decides otherwise, the Space Shuttle will retire next year.Its successor, the Ares rocket, is not due tobe put into service until 2015. Some scholars in America see this gap in their country’s launch capability as an opportunityto reach out to China. The current plan is torely mainly on Russian and commercialAmerican launch services to get Americans to the International Space Station(ISS). The relationship with Russia can betricky, as the invasion of Georgia last yeardemonstrated. Teaming up with China

Aiming high

China is moving heaven and earth to put a man on the moon

The start of something big at Wenchang


2

1

FOR Americans, the psychological tremors of a Chinese moon walk could coin

cide with another shock. Some time in thenext 20 years, if China’s growth stays oncourse, its economy will overtake America’s to become the largest in the world.

By the 2020s China’s middle class, today in its toddler phase, will be stridinginto maturity. And by 2050, some economists predict, China’s economy will bedouble the size of America’s at current exchange rates. As with China’s space e�orts,there will be less to this than meets the eye.In 2020 income per person in America willstill be four times China’s, and vastswathes of the Chinese countryside willlook much the same as they do now.

The numbers may say little about therelative strength of China and America,but they will raise big questions about China itself. With the growth of a middle class,many observers have long believed, thecountry’s politics will change too. HenryRowen of Stanford University has predicted that by 2020 Freedom House, an American NGO, will rate China as �partly free� inits annual country rankings (putting it inthe same category as relatively open butnot fully democratic societies such as Singapore and Hong Kong). Freedom Housecurrently rates China as �not free�, one of42 such countries in 2009.

For China, which routinely imprisonsdissidents, heavily censors the media,bans any opposition to the CommunistParty, bars citizens from electing the country’s leaders and o�cially allows religiousactivity only in places of worship controlled by the government, this would be abig step forward. Mr Rowen bases his optimism on the numbers. By 2020, he reck

ons, China’s GDP per person at 1998 purchasingpower parity will be over $7,500.In 1998 all but three of the 31 countriesabove this level of GDP per person wererated as free. People who live in rich countries (oilrich ones notably excepted) generally enjoy high levels of political rights andcivil liberties, Mr Rowen concludes.

But what if he is wrong? An unsettlingpossibility for America is that China couldgrow richer and yet remain authoritarian.In his book, �The China Fantasy: Why Capitalism Will Not Bring Democracy to China�, James Mann, an American journalist,argues that his countrymen like to believethey are changing China and that the Chinese are becoming Americanised. �Theseassumptions have never been borne out inthe past,� he writes. American political debate tends to concentrate on two scenarios:the gradual liberalisation of China and, occasionally, the possibility of political upheaval there. A third, highly plausible scenario�that there will be no real politicalchange�is also worth considering, says MrMann. American o�cials have often saidthat their country’s trade and engagementwith China would help to change it politically, but they may have been mistaken.

Unchanged, and yet changingMr Mann may have understated the extentof recent changes in China. Its political institutions and its treatment of organisedopposition to the party remain unaltered.But property rights, which hardly existedin China until the 1990s, have widely takenhold. Citizens protest against forced evictions from their homes to make way for development. A new army of private lawyers take on the state in court (and usually

lose, but at least they try). The middle class,armed with the internet (users of which remain a step ahead of censors), demands,and sometimes gets, redress for abuses ofpower by local governments.

But for a disconcertingly large numberof urban Chinese, authoritarianism has itsattractions. The government’s swift response to the �nancial crisis�a huge stimulus package adopted without any reference to legislators�has reinforced thisview. Chinese often say local o�cials arecorrupt and uncaring, but describe theparty leadership as wellintentioned andcapable. There are no dissidents who arehousehold names across the country. �In

The rich scent of freedom

Will a wealthier China become less authoritarian?

Not happy, and not afraid to protest

would help spread the risk. But the prospects are dim. Many Ameri

can o�cials are still seething at China’s testof an antisatellite missile in 2007. It blewup an ageing Chinese weather satellite,leaving thousands of pieces of debris in orbit that pose considerable danger to otherspacebased equipment (a small chunkcame close to the ISS in September). Even ifthe Americans wanted to get Chinese helpwith the ISS project, they would have to getagreement from other ISS partners. The

Russians might object to the introductionof a competitor to their spacetransportservice. Japan has similar ambitions, andlaunched its �rst unmanned spacecraft tothe ISS in September. A NASA o�cial saysthat any cooperation would require �totaltransparency� from the Chinese. Thiswould include allowing the Americans togo to China’s launchcontrol centre and getto know the nuts and bolts of its launch vehicle. There seems little chance of this.

But the Americans hardly have to wor

ry that the Chinese are about to surpassthem, as they certainly did in 1957 whenthe Soviet Union became the �rst to put asatellite into orbit. Jiao Weixin of PekingUniversity says China’s spaceexplorationcapabilities are 30 years behind America’s.A billboard on a main thoroughfare inWenchang tries to whip up space excitement with a huge picture of a launch padat takeo�. It shows �ames pouring fromboosters attached to what is clearly America’s very own Space Shuttle. 7


2

1

�OUR policy has succeeded remarkably well: the dragon emerged and

joined the world.� So said Robert Zoellick,then deputy secretary of state, in 2005, in aspeech su�used with con�dence in America’s ability to shape China’s progress. But,said Mr Zoellick, who is now president ofthe World Bank, China’s behaviour on theworld stage left room for improvement: thecountry needed to become a �responsiblestakeholder� in the global community.

This anodyne catchphrase helped to rede�ne the two countries’ relationship. Itwas, in e�ect, an admission that Americacould cohabit with a powerful China.Many in his audience of American businessmen in New York, however, felt uneasy. As Mr Zoellick recalls, they saw his remarks as �too harsh and demanding�. Hadhe delivered the same speech to the political elite in Washington, DC, he reckons, hemight have been criticised for being too

soft. But China, despite being a bit unsureat �rst how to translate the word �stakeholder� (a term for which a standard rendering in Chinese had yet to be found),quickly warmed to the new formulation.

It was not then obvious to Chinese o�cials that America really could accept therise of China as it was, a oneparty systemcontrolled by communists. China saw theinvasion of Iraq in 2003 and the �colourrevolutions� against authoritarian governments in former Sovietblock countries asevidence that America wanted to go italone as a superpower and was bent on recreating the world in its own image. TheChinese media accused America of instigating the prodemocracy movements inGeorgia, Ukraine and on China’s doorstepin Kyrgyzstan. A young Chinese diplomatproudly told Mr Zoellick that he spent until4 o’clock the next morning explaining thesigni�cance of the New York speech in a

cable to Beijing. �The Chinese saw it as justabout right,� says Mr Zoellick.

Mr Obama’s administration has madeless use of the �responsible stakeholder�tag, but its strategy is clearly the same. MrObama and Mr Hu have agreed to forgewhat they call a �positive, cooperative andcomprehensive relationship� (a step up,presumably, from what was previouslydubbed a �candid, constructive and cooperative relationship�). Notwithstandingthe tyre tari�s, Mr Obama can expect awarm reception in Beijing next month.China’s leaders see acceptance by Americaas a boost to their legitimacy at home.

Prepare for all eventualities�We no longer have the luxury of not getting along with China,� John Podesta told acongressional committee in September.Mr Podesta was the head of Mr Obama’stransition team and now heads the Centre

A dragon of many colours

America will have to get along with China. But which China will it be?

this �nancial crisis, China’s political system has proved no worse than America’s,�says Yang Fan, an economist.

It is becoming increasingly possible toimagine that when China puts a man onthe moon and surpasses the output ofAmerica’s economy, it will still be a oneparty state that brooks no organised opposition. For America this should be cause forconcern. The resilience of Chinese authoritarianism will inspire dictators around theworld. It will frustrate America’s e�orts tocajole China into using its soft power to intervene more actively in humanitarian crises. China may be shifting slightly awayfrom its lielow policy in international affairs; its willingness to engage in antipiracy e�orts o� Somalia has been praised inWashington, DC. But as an authoritariancountry it will remain fearful of setting aprecedent that could justify Western �meddling� in China’s own internal problems.

Mr Obama’s predecessors found themselves having to backtrack. President Clinton realised soon after taking o�ce in 1993that America’s attempts to force change ina then more fragile China were of no avail.In not much more than a year he abandoned his attempt to make the annual renewal of China’s lowtari� trade terms dependent on China’s progress with human

rights protection. Mr Bush in his secondinaugural speech in 2005 said it was America’s policy to support democratic movements everywhere, �with the ultimategoal of ending tyranny�. During his visit toChina later that year China rounded updissidents or put them under house arrest.Mr Bush, anxious not to upset his hosts, remained tightlipped in public.

One argument commonly heard forkeeping quiet is that criticism of China’shumanrights policies, especially in public,plays into the hands of nationalist hardliners. But if America is illequipped to in�uence the development of democracy inChina, it is almost as impotent when itcomes to managing the growth of nationalism. Trade between the two countriesmore than tripled in value between 2000and 2008, with a huge surplus in China’sfavour. Mr Bush kept humanrights di�erences largely hidden. Yet virulent antiWestern nationalism erupted in Chinaafter the protests in Tibet in March 2008,with America and its allies accused of trying to break up the country. Some Westernjournalists received death threats.

As president, Mr Obama has refrainedfrom being too ambitious about humanrights in China. He declined to meet theDalai Lama during the Tibetan leader’s Oc

tober visit to Washington, DC, an unusualbreak from past presidential practice. Hepreferred to wait until some time after histrip to Beijing. Mr Obama’s administrationhas even signalled that human rights arenot among its top priorities. Before her tripto Beijing in February, Mrs Clinton saidthat pressing China on human rights mustnot interfere with talks on the economiccrisis, climate change and security issues.

You never knowChina is well aware that its critics’ priorities are shifting. A senior American o�cialsays the environment has become a greater threat to China’s international imagethan repression in Tibet. Chinese leadersmight well interpret this as meaning that agreener China could get away with lockingup dissidents. But humanrights di�erences with China could suddenly cloudthe relationship, just as they did in the �nalmonths of Mr Bush’s presidency with theupheaval in Tibet. Mr Bush decided not toboycott the opening ceremony of theOlympic games, as some NGOs and politicians had suggested he should. They included Mr Obama and Mrs Clinton, boththen candidates for the Democratic nomination. China’s stubborn resistance to political change could still embarrass them. 7


2

Previous special reports and a list offorthcoming ones can be found online

Economist.com/specialreports

Future special reportsBusiness and �nance in Brazil November 14th 2009The art market November 28th 2009The carbon economy December 5th 2009Social media January 23rd 2010Financial risk February 13th 2010

Economist.com/rights

O�er to readersReprints of this special report are available at aprice of £3.50 plus postage and packing. A minimum order of �ve copies is required.

Corporate o�erCustomisation options on corporate orders of 100or more are available. Please contact us to discussyour requirements.

Send all orders to:

The Rights and Syndication Department26 Red Lion SquareLondon WC1R 4HQ

Tel +44 (0)20 7576 8148Fax +44 (0)20 7576 8492email: [email protected]

For more information and to order special reportsand reprints online, please visit our website

for American Progress, a thinktank closeto the Obama White House. He said it wastime to move beyond the past strategy of�engage and hedge� and adopt one that�maximises opportunity but also manages risk�. But American respect and goodwill, as this special report has argued, cannot be relied upon to ensure that relationsremain on solid ground. And whethercalled hedging or managing risk, Americahas no choice but to prepare for the possibility that China might one day threatenAmerican security.

The risk is not that China’s current leaders might one day discard their pragmatism and march into allout con�ict withAmerica, whether in the economic or military sphere. It is rather the instability ofChina itself. So far the most disruptive in�uence on SinoAmerican relations hasbeen public and political opinion in America. China’s bloody crackdown in Tiananmen Square in 1989 was hugely destabilising, but consistent with a timehonouredapproach to political threats.

What do the Chinese think?Increasingly, however, public opinion inChina will play a role as well. Chinese censors ensure that criticisms of the Communist Party quickly disappear from the internet, but xenophobic opinions are usuallyleft untouched. The internet magni�esnationalist sentiment in China, sometimeseven putting the government on the backfoot. Such sentiment is invariably hostileto America.

Elitelevel politics is another worryingfactor. Over the past 30 years leadershipchanges in China have had remarkably little e�ect on the relationship between thetwo countries, but there have been occasional deviations. The Taiwan Strait crisisof 199596 erupted at a time of heightenedpolitical uncertainty in China, with DengXiaoping’s health fading and his relativelyinexperienced successor, Jiang Zemin, trying to burnish his credentials. The spyplane crisis of 2001, which resulted in atense stando� as China detained 24American crewmen for 11days, broke closeto a period of leadership transition.

China’s preparations for anotherchange at the top in 2012 and 2013 appear tobe in hand, but America would be wise tobe cautious. The workings of China’s leadership remain as much of a mystery to outsiders as they were when China andAmerica established diplomatic relationsin 1979, if not more so. Mr Hu is more cautious in his meetings with foreigners thanhis predecessors were (which may be a

blessing for Mr Obama, probably safefrom Mr Jiang’s predilection for burstinginto song). Leaks from politburolevel deliberations, few and far between at the bestof times, are now almost unheard of.

VicePresident Xi Jinping looks themost likely man to take over, with Li Keqiang as his prime minister. Mr Xi is a�princeling�, as the descendants of communist China’s revolutionary founders areoften called. As the party chief of ZhejiangProvince from 2003 to 2007 he promotedgreater openness in grassroots government. But in February a widely circulatedvideo clip of Mr Xi accusing �wellfed foreigners with nothing better to do� of interfering in China’s a�airs suggested that hemight incline towards nationalist crowdpleasing. And the succession is still not certain. Party leaders meeting in Beijing inSeptember failed to announce Mr Xi’swidely expected promotion as deputycommanderinchief of the armed forces.He currently has no military post.

It is reasonable to think that China maywell get richer yet stay authoritarian, atleast for the next 1020 years. But there are

two other scenarios that are worth thinking about. One is that China might in factbecome more democratic. A politicallymore liberal China would put enormousstrains on the multiethnic empire thatChina’s communists inherited from imperial times. Minorities across the Tibetanplateau and in Xinjiang would step up demands for greater autonomy. That, in turn,would jeopardise either China’s democratic development or the unity of thestate. And a more democratic China wouldbe unlikely to countenance the permanentseparation of Taiwan. It might even pursueirredentist claims more aggressively.

The other possibility is that Chinamight be convulsed by the same kind of tumult that occurred in much of the rest ofthe communist world two decades ago.This would be a nightmare for America. Insuch a scenario, the conservative and inwardlooking armed forces would play acritical role. As President Clinton put it in1999, �as we focus on the potential challenge that a strong China could present tothe United States in the future, let us notforget the risk of a weak China, beset by internal con�ict, social dislocation and criminal activity; becoming a vast zone of instability in Asia.� Ten years and mucheconomic growth later, his words are stillworth heeding.

The threat posed by China is not (yet,anyway) one of military expansion butone of great new uncertainty looming overthe global order. Mr Obama will need tokeep reminding China that Americawould be irresponsible not to prepare forthe worst even as it hopes for the best. Chinese leaders would be wise to be just ascautious about their own future. 7

Xi Jinping, princelinginwaiting

a wary respect

Documents