China is in the midst of an economic, political and social transformation that is unparalleled in human history. On the economic side, China's GDP nearly quintupled between 1978 and 2000; it will likely quadruple in size again by 2020, by which time it will be the world's second largest economy. From a command economy a quarter century ago when prices and production quotas were set by the state, China has moved most of the distance to a market economy today where supply and demand determines most production and pricing.
Politically, China still operates under a one-party system without organized political opposition. However, the party itself and the system under which it governs have changed greatly. Governance is more open and interest groups are able to influence policy decisions directly and through various institutions that are now being developed as the concept of civil society takes root and spreads.
Socially, China is becoming an increasingly urban society. From 1990 to 2000, 100 million peasants left their farms and moved to the cities. About 300 million peasants became urban residents between 1985-2000; as many as 300 million more will become urban residents by 2020 at which point the majority of Chinese will live in cities for the first time in the country's history.
Internationally, China is playing an increasingly active and for the most part constructive role. For example, the deal reached last year between the U.S. and North Korea to end Pyongyang's quest to acquire a nuclear arsenal was essentially enabled by China through the six-party talks it organized. China has also become an important U.S. ally in counterterrorism and anti-drug trafficking. After joining the WTO in December 2001, China quickly established itself as the key link in the global supply chain. In 2005, China's total volume of trade exceeded $1.4 trillion and it is now the world's second or third largest trading nation.
In short, measured against virtually any metric, China has made tremendous progress in a very short period of time.
Although still a long way from being a superpower China has become a country that the rest of the world – and the U.S. in particular – must reckon with. How then do the world's one remaining superpower and the world's most rapidly emerging economic power consider each other?
For China today (and indeed, for the past three decades) there is no strategic goal more important than maintaining constructive and non-hostile relations with the U.S. Nor is this primacy given to its relationship with the U.S. likely to change substantially any time soon.
Although it would be a bit of a stretch to say that the U.S. in all cases attaches equally great importance to its relations with China, it is certainly true that whatever its faults may be, the Bush administration since about May of 2001 has consistently chosen to remain constructively engaged with China even in the face of often harsh criticism of its China policies in Congress, from neo-conservatives and more recently from presidential candidates.
Since 2005, China has come under increasing criticism for its skyrocketing trade surplus with the U.S., intentional undervaluation of its currency as a means of subsidizing its exports, disruptions of the U.S. market, and failure to provide adequate measures to protect U.S. intellectual property, or to quash rampant piracy of intellectual property. There have also been complaints about the pace and direction of China's implementation of its WTO commitments.
Added to trade-related issues, there has been a rising chorus of voices in and out of the U.S. government positing China as a growing threat to U.S. national security. Critics in this area have focused on the significant growth of China's defense budget and the increasing modernization and sophistication of its military. Others point to China's changing foreign policy and diplomatic initiatives designed to strengthen its influence in regions that have historically been firmly in the U.S. sphere of influence (SE Asia and Latin America, for example), and among some of the less savory nations (e.g. – Iran, Sudan, Zimbabwe and Venezuela).
In the past several years there have been over 30 bills on China proposed in Congress, some addressing economic concerns, some security concerns and some conflating the two sets of concerns. Virtually all of the bills proposed taking some sort of action against China that range from the symbolic to those that would severely damage relations.
The sources of growing criticism of China are understandable, if seldom accurately stated. China's economic success thus far has translated into growing global presence and influence for Beijing. As its influence and interests expand, so does the potential for competition or even confrontation with the U.S. There already exists some open competition for energy and other natural resources.
Proceeding from China's economic success thus far, some have felt compelled to draw certain linear conclusions about "Rising China," or "China's Growing Threat," or even "The Coming Conflict with China" (all actual recent book titles). For those who have concluded that China is already, or soon will be, our global enemy and that conflict is inevitable, it makes sense for the U.S. to try to slow or halt China's march toward superpower status, contain China diplomatically and militarily through political and military alliances and invest heavily in continuous improvement of our war-fighting capabilities vis a vis China.
This line of reasoning greatly overstates China's capabilities now and into the indefinite future. From a strategic perspective China is no more than a middling regional power and even within its own region has only a very limited capability to project force beyond its borders. While China can be expected to continue its efforts to modernize its military, the U.S. continues to hold a huge advantage here and will no doubt further improve its capabilities.
China has certainly made impressive economic gains since the policy of reform and opening was put in place in the late 1970s. In fact, China's economy is on track to register a 20-fold growth by 2020 from the base year of 1980. While growth of this nature is unprecedented in human history, China's economy will still only be about half the size of the U.S.' in aggregate terms in 2020, and about one-eighth or less the size in per capita terms. (I would note here parenthetically that according to a recent poll, 40 percent of Americans believe China's economy is already larger that the U.S.')
By then China's tier one cities like Shanghai and Beijing will be among the most modern in the world and residents of those cosmopolitan centers will enjoy living standards close to those of developed nations. But nine-tenths of China will still be a developing country with millions of people still not connected to the power grid or even to sources of clean running water. Even optimists concede that it may be close to the end of the 21st Century before China can be considered a developed country.
In the meantime, whither U.S.-China relations? One of the currently most neuralgic issues for U.S. politicians – China's global and bilateral trade surpluses – may be losing some steam. Growth of U.S. imports from China has slowed appreciably while U.S. exports and the rate of export growth have been moving rapidly upward. Overall China's global trade surplus is likely to begin a long decline this year, and the rate of growth of our trade deficit with China will also likely continue to shrink.
One reason China's trade surplus is declining and our exports to China are growing is that China's currency, the Renminbi, is appreciating. A year ago China's currency traded against the Dollar at 8.0, but it is currently at 7.0. On its present trajectory the Renminbi will be 6.0 against the Dollar before the end of this year. That would represent a 25 percent total appreciation since Beijing ended the Dollar peg in July 2005.
The increase in value of China's currency against the Dollar and Beijing's efforts to address both its global and bilateral trade surpluses have hardly had a "wow" effect on its U.S. critics. Moreover, now that we are in what I would call the election campaign silly season candidates in both parties – along with contenders for House and Senate seats – are discovering anew that China bashing generates votes. All three presidential candidates have chosen to portray China as a major source of most if not all of America's economic problems and as a country run by a government with no respect for its citizens' human rights.
In fact, Barack Obama recently managed to conflate economic issues and human rights when he said in Pennsylvania on April 9 that China in effect had become America's banker and went on to note: "If we are running huge deficits and we're borrowing money constantly from China, that gives us less leverage to talk about human rights."
He missed the mark on both sides, in my view. As Donald Trump famously said: "If you borrow one million Dollars from the bank, the bank owns you; if you borrow 100 million, you own the bank." In any case, I would posit that the U.S. has surrendered much of its leverage on human rights issues in this decade not because of our borrowings, but because our own sorry record on human rights has cost us the moral high ground on this issue.
My point is not that criticism of China is without merit; quite the opposite. However, the issues involved are complex in every case and simply cannot be meaningfully addressed with sound bites.
Whoever wins the presidency this year will probably be attempting to re-invent U.S. policy toward China by this time next year. Since some change is likely and perhaps even desirable, what might a rational policy toward China look like for the next administration?
To begin with, there is simply no viable policy alternative to one of continued engagement with China. George Bush tried an alternative approach in early 2001 premised on China as a "strategic competitor." Bill Clinton tried an alternative approach in 1993 by linking China's human rights performance to continuation of MFN status. Both approaches failed in less than a year. If anything, the drivers of engagement are even stronger today than they were then.
I would suggest, then, that the new administration begin its engagement with China by focusing first on the areas where our interests most clearly converge. We will need, for example, to continue to work closely together to complete the deal on denuclearizing North Korea.
We should also pursue more comprehensive cooperation on energy and the environment. This is one issue that is poised to overshadow all others between our two countries and is also one where agreement on common goals can perhaps be most easily reached.
The U.S. and China today share the dubious distinction of being the world's top two consumers of energy and the top two producers of greenhouse gasses, together accounting for nearly 50 percent of each. Because of China's especially heavy reliance on coal – which accounts for 70 percent of all its energy – 16 of the 20 cities in the world with the highest levels of air pollution are in China.
China's problem is exacerbated by the sharp decline over the past three years in its energy use efficiency. It now uses more than triple the world average of energy to produce one unit of GDP. Without significant changes in how China generates, distributes and consumes power and its mix of energy sources, its long term energy intensive growth plan will not be sustainable.
Virtually all recent studies of China's energy and environmental challenges agree that one of the best low cost options China could adopt is to increase its energy efficiency. This is an area where the U.S. is uniquely qualified to help and thus the new administration should early on signal its readiness to seek the closest possible level of cooperation with China. One way it can do this is by stating it will work with Beijing to overcome the structural obstacles to closer cooperation, e.g., by helping to arrange financing mechanisms to cover the incremental costs of adopting new technologies; lowering trade barriers that restrict the sale of advanced technology and equipment to China (including U.S. export controls); and exploring with China better means to protect proprietary intellectual property.
Engaging China effectively to increase energy efficiency and lower carbon emissions would not be a modest undertaking; indeed we are talking about a project on the scale of the post WWII Marshall Plan, and it will take a great deal of courage and imagination to bring it off. But, the potential payoffs for the U.S., China and indeed our planet's biosphere are huge.
Such deep and broad engagement on energy and the environment would, I think, also go a long way to deepening and broadening confidence in both countries that we are not fundamentally working at cross purposes. This, in turn, could facilitate better management on both sides of other frequently contentious issues like trade, human rights and Taiwan.
Whatever happens in the November elections and whatever policy framework the new administration brings to office, certain realities will remain. We can be certain, for example, that China is not going away and cannot simply be ignored.
Reality number 2: The point is long past (if it ever existed) where we could coerce China to change its behaviors. The most we can aspire to is influence behavior change on the margins and only where we can persuade Beijing that behavior change is not just in U.S. interests, but also in China's own interests.
Reality number 3: Believe what you want about China's rise and its potential threat to the U.S., but there are only three possible outcomes to China's development trajectory:
- China's efforts fail for whatever reason. The result of failure would be chaos in China touching off chaos in Asia and before long, global chaos.
- China's success continues, but at the cost of unbridled competition with the U.S. for resources, markets and global influence. This is the scenario for another cold war and decades of lost opportunities.
- China's success continues and it emerges eventually as a modern, prosperous, self-confident and globally engaged nation.
We need to think through carefully which outcomes are most likely to threaten the U.S.
Cast another way, the U.S.-China relationship is the world's single most important one today and probably will remain so for the balance of this century at least. How both countries manage this relationship in the years and decades ahead will weigh heavily on the judgment of 22nd Century historians whether to memorialize this century as one of peace and prosperity, or one of conflict and suffering.
