The Next Cold War? How the West Should Answer the Chinese Challenge

In his recent visit to the US, China’s President Hu Jintao was treated to an extravagant state banquet at the White House, an honour usually reserved for America’s closest friends and strategic partners and something denied to him in 2006. And the overall tone adopted by the leaders of the world’s two preeminent economic powers during this visit in general, although candid was extraordinarily conciliatory. Hu Jintao even publicly acknowledged that China still has a long way to go with regard to human rights – a truly astonishing admission indeed.

But notwithstanding this show of goodwill and the downplaying of recent tensions, actions speak louder than words. Neither Obama’s claim that the US is not opposed to China’s emergence as a superpower nor the repeated assurances by the two leaders that the US and China would only “gain from a sound China-US relationship, and lose from confrontation” manage to camouflage the fact that US-China relations are anything but on track.

Only in December last year, Kathrin Hille reported in the Financial Times that according to a new government report, China is preparing to build an aircraft carrier. And just shortly before the US trip of Hu Jintao, China not only tested a new stealth fighter, but it did so during a visit to Bejing by US Defense Secretary Robert Gates, which was meant to defuse military tensions between the two powers. This is military posturing at its finest.

In fact, as the New Year progresses, the one question that will occupy American policymakers and political leaders more than any other – in addition of course to the ongoing financial and economic crisis – will not be withdrawal from Afghanistan or Iraq, the ongoing military aggressions of North Korea, nuclear proliferation in Iran, or even the question of how best to reform multilateral institutions. It will be the coming New Cold War with China.

This might sound like just another case of sabre rattling by a pundit eager for media exposure, but let’s not be mistaken. Just consider the escalating standoff between the US and China on a whole range of issues over the past few years: China’s continued manipulation of the exchange rate of the renminbi to keep Chinese products even more competitive than would anyway be the case; growing disputes over China’s violation of international maritime law in the South China Sea; its gross human rights violations; its purported cyber attacks and highjacking of world internet traffic; its flagrant disregard for intellectual property rights, counterfeiting and free trade in general; its continued obstruction to the search for solutions with regard to Iran’s nuclear ambitions as well as global warming; and many other issues.

The months prior to the recent meeting in Washington, the rhetoric on both sides had been progressively heating up as well. While American Nobel prize winner Paul Krugman is proposing that the time has come to play hardball with China by raising import tariffs of up to 25% on Chinese goods entering the US, Max Baucus, US Senate finance committee chairman, has argued that: “We no longer have the luxury of pursuing failed approaches… We must rethink the US-China economic relationship. We must act, not just talk.” And even Chinese officials, usually rather cautious in their public criticism of the United States, have responded in kind, charging the US with pursuing a policy of devaluing the dollar and flooding emerging markets with excess liquidity.

And these are just the more public quarrels between the floundering American Eagle and the awakened Chinese Dragon. For some years now, competition over access to crucial resources in Africa, Latin America and Central Asia has stepped up markedly. China and the US are competing, for example, over the construction of new pipelines and over access to the vast untapped oil and gas reserves of Central Asia and the Caspian basin in what has become known as the New Great Game.

Meanwhile, the narrative of China’s peaceful and non-confrontational rise is still widespread here in the West. China’s rapid military built up, especially its String of Pearl strategy aimed at maritime dominance in the South China Sea and increasingly the Indian Ocean, however, clearly disproves such views. It shows that China’s rise has not only been motivated by legitimate economic concerns but also by clear-cut geopolitical considerations. And this, not China’s rise per se, poses a real threat to the international system the West had constructed in the wake of World War II.

For many years, the US government has downplayed the challenge posed by China and silenced those critics in Congress that have been calling for retaliatory actions against China for its gross violation of WTO rules and its flagrant protectionism. China has been given all the time in the world to change course and become a responsible member of the international community. Those criticising America’s apparent U-turn in its China policy (albeit the recent meeting in Washington seems to suggest that there has not been a U-turn) seem to forget that western, especially American, investments and the unrestricted access the West has granted Chinese goods to its consumer markets, more than any other factor, has aided China’s transformation from a largely agricultural developing nation to a modern and flourishing industrial powerhouse.

But China has not responded to the West’s open door policy in kind. In the midst of a global financial and economic crisis, China still does little to nothing to reduce the global imbalances that have been a crucial cause of the crisis in the first place and threaten economic recovery, particularly in the West. The model – we consume and China produces – that has underpinned the globalisation gamble for the past two decades has failed spectacularly and left the West with a moribund industrial sector and a service sector nowhere left to expand to the generate the necessary growth to prevent a further decline in western living standards. This is unacceptable.

So what can be done? First of all, the US needs to get Europe, which in principle faces the same challenges as America, on board and join forces with its trusted ally to face off this new threat to the West as a whole in a concerted manner. Second, Europe, especially Germany, need to get its act together and find a common European solution to the ongoing debt crisis in the eurozone as a prerequisite to finally be able to fully focus on the looming international challenges the West faces. Third, western companies should avoid, as much as possible, the transfer of crucial technologies and technological know-how (the only aspect where the West still has a competitive advantage) to China absent a new grand bargain fully addressing the issue of China’s protectionism. Fourth, the EU and US should work hard to gain Russia’s, India’s, and if possible Iran’s support and ensure their westward orientation. Fifth, the West needs to work hard to revise its approach to the developing world, especially Africa, to ensure that western values of good governance, liberal democracy and individual freedom once again appeal to others and are not just perceived as mere western hypocrisy. And sixth, the US and Europe need to push for swift progress towards further transatlantic economic integration, which would give the West a clear strategic edge over China.

The challenge posed by China is not an easy one to address. And it surely does not help that China’s alternative development model of authoritarian capitalism, or the Beijing Consensus in the words of Cambridge Professor Stefan Halper, has already become far more attractive to many emerging market economies than the much loathed Washington Consensus, which is now clearly in its death throes.

But for a start, it would be helpful if western politicians and business leaders alike stop to simply reiterate the mantra that the richer China gets, the more it will be forced by an emerging middle class to also democratise. This supposed correlation between a market economy and democracy has long been discredited. The sooner we acknowledge the fact that nothing points in the direction of China changing course and becoming a responsible member of the international community any time soon and take the China challenge much more serious the better.

This article originally appeared in the Atlantic Times/German Times in February 2011.

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The Global Policy Institute is a research institute on international affairs. It is based in the City of London, and draws on both a rich pool of international thinkers, academics as well as policy and business professionals. The Institute gives non-partisan guidance to policymakers and decision takers in business, government, and NGOs.