The Contest of the Century (43 page)

In domestic politics, the party’s rigid control on power is being tested by a growing middle class that wants more rule of law and less corruption, by the irreverent irony and indignation of the Internet, and by Beijing’s choking pollution. On the economic side, the growth model that relies on funneling cheap bank loans to investment projects is running out of steam and needs to be replaced by more emphasis on consumers. Most of the goals that China has set itself for the coming decades, whether it is encouraging more innovation or winning cultural recognition, are rooted in the initiative of private citizens. The next Chinese era will be less about the state and much more about the individual. Xi’s challenge is to chart a series of reforms that start to address these demands without provoking a backlash from the party’s many and powerful vested interests. Even in his very careful speech, Xi almost admitted as much.
“We are not complacent …” he said. “Under the new conditions, our party faces many severe challenges, and there are also many pressing problems within the party that need to be resolved.”

The bewildering series of domestic problems may grab all the attention, but this same reform agenda is also the key to unlocking Chinese influence abroad. To win a bigger role in the world, it is not enough to be wealthy; a country also needs to secure trust. Without a political system that embraces a greater degree of pluralism, allows more dissent, and is rooted in the rule of law, China will struggle to get the respect it needs to turn its economic weight into power and influence.

The link between domestic politics and soft power is the most obvious: China will not be truly admired abroad while it shows such disrespect to some of its more impressive citizens. But China’s role in global economic affairs is also tied to its politics. The status of reserve currency is ultimately a question of trust and credibility. Having the biggest economy is an important but not sufficient condition. For the world’s central banks to invest heavily in a currency, they must have a high level of confidence about why and how important decisions are made, a comfort that China does not yet provide.

The same goes for the PLA. China’s military buildup was always bound to arouse intense suspicion in its Asian backyard, but the closed, opaque nature of the Chinese political system only adds to these tensions. The lack of transparency about its military spending, the absence of real discussion about China’s long-term, strategic objectives, and the
PLA’s ambiguous status within the country all make suspicion inevitable. Given such uncertainties, neighbors are forced to respond to China’s rapidly expanding capabilities, not its intentions, which remain unclear. Over the last few years, China has contented itself by winning small tactical victories that advance its territorial claims, but in the process has sown even greater mistrust.

Ultimately, China’s brittle domestic politics, with its squalls of nationalist anger, undermine its ability to forge the sorts of relationships with the peoples of other nations that are the route to enduring influence. The real way to alter the balance of power in Asia at the expense of the U.S. is not for China to bully its neighbors over small islands, but to win the lasting confidence of their populations. Instead, China has been doing the opposite.

The U.S. is also entering a critical period in which its economic problems are starting to undermine its role in the world. If the American economy remains sluggish and unemployment stays high, both allies and rivals will question its ability to meet future commitments. Indeed, the contest for influence that is emerging between the U.S. and China will be partly answered by the way both governments respond to the sense of malaise they both face. I am probably not the only person who has two mental lists about America’s economic future, unsure on any given day which is correct. On the pessimistic list, there is a familiar litany of problems, including rising debt and health-care costs, stagnant wages, inequality, crumbling infrastructure, failing schools, and a pervasive sense that Washington politics will prevent any real solutions from emerging. On the other side of the ledger is the potential energy boom, the universities that attract the world’s best and brightest, the unique ability to commercialize innovations, a cheaper currency, and the potential that the U.S., in the words of Australian Foreign Minister Bob Carr, is “
only one budget deal away” from ending all the talk of decline. The single most important thing the U.S. can do to enhance its influence overseas is to get its domestic house in order.

The management of the domestic economy is so important because one of the central priorities for the U.S. in Asia is to demonstrate a sense of staying power. A large number of the tensions with China in recent years are rooted in the Chinese perception that the U.S. is in decline—a
view that was almost uniform in 2008 and which is still strong today. The best way to sway Chinese behavior and to deter adventurism is to demonstrate that the U.S. is not going anywhere. That means maintaining a robust military presence in the region, although without the sort of rapid buildup that would provoke China. It also means constructing a convincing long-term economic agenda that ties the U.S. to Asia.

A second priority is the patient, long-term task of fostering new partners in Asia and elsewhere who will support a U.S.-led order. The core ideas that the U.S. has promoted since the end of the Second World War—free trade, freedom of navigation, and open government—remain popular. But in a world where American dominance is being replaced by a more uncertain balance of power, the careful diplomacy of building different coalitions of support will become the deciding factor. The U.S. will sometimes have to take a backseat as other countries pick up the baton, an approach that some might even be inclined to call leading from behind. In Asia, China’s belligerence over the past few years has done a lot of America’s diplomatic work for it, allowing it to shore up alliances and strengthen other friendships. But even in Asia, managing these alliances will require skillful diplomacy that persuades other countries to do more to defend themselves.

Over time, the U.S. and China will eventually have to find a way to live together in the western Pacific, to establish a middle ground that respects each other’s security interests. Before then, there is likely to be a lot of tension, and potentially some brinkmanship. But if Washington is successful in demonstrating staying power and in finding new sources of support, it will be in a much stronger position to influence China’s choices and to steer Beijing away from a broader confrontation.

First-time authors always underestimate the amount of effort and time that goes into writing a book, and I was no exception. But along the way, I had the immense good fortune to receive the help of some of the best professionals in the industry. Sarah Chalfant at the Wylie Agency was extremely generous with her time and indispensable with her advice: without her, my initial ideas would never have made it into print. Her colleague James Pullen was also endlessly helpful.

Through Sarah, I was lucky enough to meet Andrew Miller at Knopf, an incisive and perceptive editor, who provided just the right combination of support and pressure that any writer needs. I also owe huge thanks to his colleague Mark Chiusano for all his assistance and comments.

I would like to thank Lionel Barber, the editor of the
Financial Times
, for his indulgence during the writing of the book. I also received enormous help from a number of other colleagues at the
FT
, including Richard McGregor, Demetri Sevastopulo, David Pilling, Jamil Anderlini, and Kathrin Hille. During my years in China, I was fortunate to work closely with a number of Chinese journalists, without whom I really would have been lost and to whom I owe a special thanks—Helena Yu, Zhang Chenhao, Yang Jie, and Zhao Xue.

During the course of my research, I have benefited from the advice and wisdom of countless people, including good friends with whom I have talked regularly and occasional acquaintances whose insights I value highly. They include, in no particular order, Arthur Kroeber, Shi Yinhong, Joerg Wuttke, Jeff Wasserstrom, David Shambaugh, Shen Dingli, Stephanie Kleine-Ahlbrandt, Geoff Wade, Jim Holmes, Zhu
Feng, Bonnie Glaser, Chu Shulong, Chip Gregson, Michael Auslin, Jin Canrong, Mark Leonard, Andrew Small, Mike Green, Zha Daojiong, Paul Haenle, Chris Nelson, and Yan Xuetong.

Finally, I would like to thank my parents, Iain and Anne, for all their help in the early stages and my wife, Angelica, for her love and support. Without her, I really would never have made it through.

INTRODUCTION

1
CHINA TAKES TO THE NEAR SEAS

2
THE LURE OF THE INDIAN OCEAN