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The G2 – China and the U.S.

Tango on the Top Rung

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Tango on the Top Rung

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In as little as a decade, China will eclipse the U.S. as the world's biggest economy. As America shares its superpower status with China, their often contradictory rivalry is becoming a decisive factor in the fate of Taiwan, and the world.

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Tango on the Top Rung

By Yi-Shan Chen
From CommonWealth Magazine (vol. 463 )

In 1941 Life magazine titled the cover story of its Feb. 17 issue "The American Century," declaring that the 20th century belonged to the United States, as it had become the dominant power in the world. An American government ad from after World War II on display at the National Museum of History in Washington D.C. vividly illustrates the American way of life: a typical Caucasian family, the husband standing proudly in front of a grand house, while his wife, wearing an apron, stands in the kitchen in front of a four-burner cooking range, and their baby sleeps in its own nursery.

As we approach 2011, it becomes increasingly evident that the 21st century will belong to China as much as the United States. Political observers speak of a new world order with two major players, also dubbed the Group of Two (G2). The U.S. is waning as the world's lone super power, and China is asserting its rising influence.

(For a comparison of the relative national strengths of China and the U.S.A., see Table 1) 

The financial crisis of 2008 dealt the U.S. a massive blow. Contrary to original expectations, full recovery of the U.S. economy did not take a mere 18 months, but might take as much as six years. Should economic growth fail to reach 4 percent, unemployment is bound to become a persistent problem. In contrast, China's greatest concern is an overheating economy that cannot be reined in.

Released in mid-November, "The Super-Cycle Report" by Standard Chartered chief economist Gerard Lyons boldly predicts that by 2020 China's nominal GDP will surpass that of the U.S. This is seven years earlier than another forecast by U.S.-based investment banking firm Goldman Sachs. Just this year, China surpassed Japan to become the world's second largest economy.

As Nicholas Kwan, Standard Chartered's head of research on East Asian economies, points out, the U.S. economy is currently still three times larger than the Chinese economy. But at an annual real growth rate of 10 percent, the Chinese economy will double in size within seven years. This means that China could outstrip the U.S. within 14 years, if growth is the only factor taken into consideration.

Standard Chartered forecasts that China will post an average growth of 7 percent for the coming two decades and then gradually slow down to 5 percent. The Chinese currency, the renminbi, will appreciate from its current rate of 6.6 to 1 U.S. dollar, to 5.8 to 1 in the coming decade, which adds up to an appreciation of 14 percent. During the same period inflation will lie between 2 percent and 3 percent in China. If inflation and the renminbi exchange rate are included in the projections, then China could catch up with the U.S. even as early as 2020. (See Table 2)

The American Dream Becomes the Chinese Dream

Faced with China's rise over the past decade, the Taiwanese have experienced a deep sense of frustration. The same is currently happening in U.S. society. William Wang, CEO of flat-screen television brand Vizio, deftly describes the sea change currently underway: In the past, some of his Taiwanese friends would let out a "Wow!" when he told them he did business in the U.S. They felt this was great. But now when the same people run into him, they ask: "When are you going to start doing business in China?"

If a company has the slightest connection with China, its share price will rise, Wang observes, while any company that exclusively sells in the American market is considered box office poison. "What used to be the American dream has now become the Chinese dream!"

Briton David Mann, who moved from Hong Kong to New York in January to take over as Standard Chartered regional head of research, Americas, closely observed U.S. public opinion during the recent mid-term elections. Mann found that among the many controversial matters discussed in TV talk shows, a total of 13 had to do with China. Asked whether Americans still talk about Russia, he shot back with a clear-cut "No."

Things are different from the 18th century when France and Britain publicly declared war on each other, or the 20th century when the world was split in two clearly defined hostile camps led by the U.S. and the Soviet Union, respectively. The U.S. and China of the 21st century are closely interdependent, but also fierce competitors. One legal advisor to a member of the U.S. Congress describes Washington's dealing with Beijing as "the trickiest dance we've ever had."

Richard Bush, director of the Brookings Institution's Center for Northeast Asian Policy Studies, points out that when it comes to foreign policy, the Democratic Party and the Republican Party have no major differences. Washington looks at Sino-U.S. relations against the backdrop of the global status quo and is fully aware that the U.S. won't be able to face the challenges of the future all by itself. Instead, it needs to join hands with the other major powers of the world.

The Trickiest Pas de Deux

The tricky part, according to both Bush and Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy in Singapore, is that at the present stage it is inconceivable for world affairs to be solely determined by Washington and Beijing. Pointing to the important roles of Europe, Japan, India, Brazil and others, Bush opines: "The world will not be decided only by the U.S. and China. But the interaction of China and the U.S.A. will sometimes be decisive in this century."

In diplomatic circles there is widespread consensus that at least in the first half of the 21st century, the United States will remain a superpower, but will share its power with several other major nations. The numbers speak for themselves. U.S. military superiority is backed by annual defense spending of US$700 billion, about 4.5 times more than China is spending on its military build-up. This shows that China is not yet playing in the same league as the U.S.

But Washington needs to forge consensus with China on a number of potentially explosive issues: unpredictable North Korea, climate change, East Asian issues, territorial disputes in the South China Sea. "Good interaction will lead to peace. If not, the world will need to take sides. Japan, South Korea, ASEAN and Taiwan will all need to take sides," Bush warns.

Bush, a leading Asia expert and a former chairman of the American Institute in Taiwan, believes that the hardline attitude that China displayed in 2010 on a number of issues such as territorial claims in the East and South China Seas or on North Korea shows that Beijing has begun to deviate from its previous "peaceful rise" approach. As Bush points out, a number of China's neighbors are "extremely unhappy" about this development. While Asian nations' economic dependence on China keeps increasing, they feel militarily threatened by Beijing and can therefore not do without an American presence in the region. "These countries have started to worry that China is only concerned about its own narrow interest," Bush avers.

A political negotiator who often crosses swords with Chinese counterparts observes that Beijing has changed its modus operandi at the United Nations. Instead of taking the frontline, China now pulls the strings from behind the scenes as its diplomatic allies push its agenda. While Washington needs to confront any issue that comes up in international affairs, Beijing picks the opportune issue and opportune time before it gets involved. China has an opportunity to play a participating role, but no one has the slightest idea whether it wants to do so and how it wants to play that role.

A Lack of Understanding and Mutual Trust

Throughout history international politics have been most unstable in times when a rising power challenged the era's dominant power. Psychological factors most easily trigger armed confrontation, because the opponents are unable to understand each other's intentions.

"In my view, the biggest challenge, not only to the Americans but to the whole Western world, is to admit that the peak of the Western world happened ten or fifteen years ago," says Standard Chartered's Mann. Should the West be unable to face up to reality, this loss of control could give rise to protectionism.

But many Americans are not yet prepared to accept that America's might is on the wane. How difficult these changes are for many Americans to swallow became obvious in the indignant outcry that U.S. president Barack Obama caused for bowing to Japanese Emperor Akihito on his recent trip to Japan. His critics said that an American president should stand tall and not bow to anyone. Among those who believe that the U.S. must defend its status as the world's dominant superpower is former Republican vice-presidential candidate Sarah Palin, who often congratulates her own country for its strength and endorses the concept of American exceptionalism.

China is facing its own formidable challenges. Kenneth Lieberthal, an expert on China who is highly regarded in China itself, warns that as China continues to catch up to the U.S. in terms of national strength and international influence, Chinese nationalism will run high. Ironically, the more China believes that American power is on the decline, the less likely it is to cooperate or make concessions. The biggest challenges in what is shaping up to be the "Sino-American century" stem from Chinese pride and nationalism, and from the inexplicable fear that some Americans feel in the face of weakening U.S. power.

Fundamentally, the biggest challenge for China and the U.S. is to understand and accommodate each other's values and to reduce misunderstandings caused by a stubborn insistence on their own arguments and viewpoints. Washington must not further its own selfish interests under the banner of universal values. China, for its part, must resolve the longstanding question of "the modernization of China's culture and value system" in which the country's intellectuals have been entangled since the May Fourth Movement of 1919.

Qin Xiao is chairman of the Beijing Office of Boyuan Foundation, a think tank committed to academic research on contemporary China. In a dialogue with renowned Chinese philosopher Li Zehou in October this year, Qin frankly stated that China's current value system "deviates considerably from the spirit of modernity and the values of modern civilization."

The Marxist beliefs in economic determinism and history as a continuous class struggle are the ideological roots that have caused Chinese economic development and progress as well as political reforms to get out of control. They have also hampered the Chinese people from gaining an objective understanding of human civilization and universal values, Qin contended.

Li also did not mince words, saying that China still suffers from bureaucratic compartmentalism reminiscent of the feudal era, which means that different Chinese agencies have their own agendas and rivalries and seek to consolidate their influence at the expense of reforms. Li said the "Chinese model" should not be used as a pretext to resist reforms and enlightenment. He also warned that nationalism paired with populism is the most dangerous route for China to take.

Should Chinese civilization fail to achieve greater modernization, the probability of mutual misunderstandings between China and the U.S. will rise further. How will the Sino-American 21st century unfold? Subtle changes in public sentiment and intangible personal value systems will hold the key.

Translated from the Chinese by Susanne Ganz

Keywords:

好友人數