A wary respect A 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

A wary respect Also in this section Round and round it goes America buys Chinese exports, China buys American Treasuries. Can it continue? Page 3

Tug•of•car Detroit’s and China’s carmakers both want a piece of the action. Page 4

The price of cleanliness China is torn between getting greener and getting richer. Page 5

Overkill China is piling up more weapons than it appears to need. Page 7

A message from Confucius New ways of projecting soft power. Page 8 America and China need each other, but they are a long way from trusting each other, says James Miles Sore points UR future history will be more de• imminent as it was for America in 1905. But How Taiwan and North Korea complicate the termined by our position on the recent talk of a ŒG2 hints at a remarkable Sino•American relationship. Page 9 ŒO Paci†c facing China than by our position shift in the two countries’ relative on the Atlantic facing Europe, said the strengths: they are now seen as near• Aiming high American president as he contemplated equals whose co•operation is vital to solv• China is moving heaven and earth to put a the extraordinary commercial opportuni• ing the world’s problems, from †nance to man on the moon. Page 11 ties that were opening up in Asia. More climate change and nuclear proliferation. than a hundred years after Theodore Roo• sevelt made this prediction, American Choose your weapons The rich scent of freedom leaders are again looking across the Paci†c Next month Mr Obama will make his †rst Will a wealthier China become less to determine their own country’s future, ever visit to China. He and his Chinese authoritarian? Page 12 and that of the rest of the world. Rather lat• counterpart Hu Jintao (pictured above) er than Roosevelt expected, China has be• stress the need for co•operation and avoid come an inescapable part of it. playing up their simmering trade disputes, A dragon of many colours Back in 1905, America was the rising fearful of what failure to co•operate could America will have to get along with China. power. Britain, then ruler of the waves, mean. On October 1st China o ered a stun• But which China will it be? Page 13 was worrying about losing its supremacy ning display of the hard edge of its rising to the upstart. Now it is America that looks power as it paraded its fast•growing mili• uneasily on the rise of a potential challeng• tary arsenal through Beijing. er. A shared cultural and political heritage The †nancial crisis has sharpened fears Acknowledgments helped America to eclipse British power of what Americans often see as another In addition to those individuals quoted in the text, the author would like to thank the following for their without bloodshed, but the rise of Ger• potential threat. China has become the generous help: Je Bingham, Peter Brookes, Sue Cischke, many and Japan precipitated global wars. world’s biggest lender to America through Charles Eisendrath, Charles Freeman, John Frisbie, President Barack Obama faces a China that its purchase of American Treasury securi• Robert Graziano, Hu Angang, C.S. Kiang, Derrick Kuzak, Mei Xinyu, James Mulvenon, Vincent Sabathier, Orville is growing richer and stronger while re• ties, which in theory would allow it to Schell, Shi Yinhong, Drew Thompson, Xiao Geng, Andrew maining tenaciously authoritarian. Its rise wreck the American economy. These fears Yang, Michael Yahuda. Diplomats and other government will be far more nettlesome than that of ignore the value•destroying (and, for Chi• oˆcials in Washington, DC, Taipei and Beijing, some of whom spoke on condition of anonymity, also gave his own country a century ago. na’s leaders, politically hugely embarrass• valuable assistance. With America’s economy in tatters and ing) e ect that a sell•o of American debt China’s still growing fast (albeit not as fast would have on China’s dollar reserves. A list of sources is at as before last year’s †nancial crisis), many This special report will explain why China Economist.com/specialreports politicians and intellectuals in both China will continue to lend to America, and why and America feel that the balance of pow• the yuan is unlikely to become a reserve An audio interview with the author is at er is shifting more rapidly in China’s fa• currency soon. Economist.com/audiovideo vour. Few expect the turning point to be as When Lawrence Summers was presi• 1 2 A special report on China and America The Economist October 24th 2009

2 dent of Harvard University (he is now Mr ion; others resemble those with the old So• Obama’s chief economic adviser), he once viet Union, Œdepending on what part of referred to a Œbalance of †nancial terror the bureaucracy you are dealing with. between America and its foreign creditors, Cold•war parallels are most obvious in principally China and Japan. That was in the military arena. China’s military 2004, when Japan’s holdings were more build•up in the past decade has been as than four times the size of China’s. By Sep• spectacular as its economic growth, cata• tember 2008 China had taken the lead. lysed by the ever problematic issue of Tai• China Daily, an oˆcial English•language wan, the biggest thorn in the Sino•Ameri• newspaper, said in July that China’s mas• can relationship. There are growing sive holdings of US Treasuries meant it worries in Washington, DC, that China’s could break the dollar’s reserve•currency military power could challenge America’s status any time. But it also noted that in ef• wider military dominance in the region. fect this was a Œforeign•exchange version China insists there is nothing to worry of the cold•war stalemate based on ‘mutu• about. But even if its leadership has no ally assured destruction’ . plans to displace American power in Asia, China is exploring the rubble of the glo• this special report will say that America is bal economy in hopes of accelerating its right to fret that this could change. own rise. Some Chinese commentators ism with American characteristics. In Mr Politically, China is heading for a partic• point to the example of the Soviet Union, Yan’s view, China’s and America’s com• ularly unsettled period as preparations which exploited Western economic disar• mon interest in dealing with the †nancial gather pace for sweeping leadership ray during the Depression to acquire in• crisis will draw them closer together strate• changes in 2012 and 2013. Mr Hu and the dustrial technology from desperate West• gically too. Global economic integration, prime minister, Wen Jiabao, will be among ern sellers. China has long chafed at he argues with a hint of resentment, has many senior politicians due to retire. As controls imposed by America on high• made China Œmore willing than before to America moves towards its own presiden• technology exports that could be used for accept America’s dominance. tial elections in 2012, its domestic politics military purposes. It sees America’s plight The China that many American busi• will complicate matters. Taiwan too will as a cue to push for the lifting of such barri• ness and political leaders see is one that hold presidential polls in 2012 in which ers and for Chinese companies to look ac• appears to support the status quo and is China•sceptic politicians will †ght to re• tively for buying opportunities among keen to engage peacefully with the outside gain power. America’s high•technology industries. world. But there is another side to the The economic crisis brie‡y slowed the country. Nationalism is a powerful, grow• Triple hazard rapid growth, from a small base, of China’s ing and potentially disruptive force. Many This political uncertainty in all three coun• outbound direct investment. Stephen Chinese‹even among those who were tries simultaneously will be a big chal• Green of Standard Chartered predicts that educated in America‹are suspicious of lenge for the relationship between China this year it could reach about the same lev• American intentions and resentful of and America. All three will still be grap• el as in 2008 (nearly $56 billion, which was American power. They are easily persuad• pling with the aftermath of the global †• more than twice as much as the year be• ed that the West, led by the United States, nancial crisis. Urban Chinese may be feel• fore). Some Americans worry about Chi• wants to block China’s rise. ing relaxed right now, but there could be na’s FDI, just as they once mistakenly did This year marks the 30th anniversary trouble ahead. Yu Yongding, a former ad• about Japan’s buying sprees, but many of the restoration of diplomatic ties be• viser to China’s central bank, says wasteful will welcome the stability and employ• tween America and China, which proved spending on things like unnecessary infra• ment that it provides. a dramatic turning point in the cold war. structure projects (which is not uncom• China may have growing †nancial Between the communist victory in 1949 mon in China) could eventually drain the muscle, but it still lags far behind as a tech• and President Richard Nixon’s historic vis• country’s †scal strength and leave it with nological innovator and creator of global it to China in 1972 there had been as little Œno more drivers for growth. In recent brands. This special report will argue that contact between the two countries as there weeks even Chinese leaders have begun to the United States may have to get used to a is between America and North Korea to• sound the occasional note of caution bigger Chinese presence on its own soil, in• day. But the eventual disappearance of the about the stability of China’s recovery. cluding some of its most hallowed turf, two countries’ common enemy, the Soviet This special report will argue that the such as the car industry. A Chinese man Union, raised new questions in both coun• next few years could be troubled ones for may even get to the moon before another tries about why these two ideological ri• the bilateral relationship. China, far more American. But talk of a G2 is highly mis• vals should be friends. Mutual economic than an economically challenged Ameri• leading. By any measure, China’s power is bene†t emerged as a winning answer. ca, is roiled by social tensions. Protests are still dwarfed by America’s. More recently, both sides have been trying on the rise, corruption is rampant, crime is Authoritarian though China remains, to reinforce the relationship by stressing surging. The leadership is fearful of its own the two countries’ economic philosophies that they have a host of new common ene• citizens. Mr Obama is dealing with a China are much closer than they used to be. As mies, from global epidemics to terrorism. that is at risk of overestimating its strength Yan Xuetong of Tsinghua University puts But it is a relationship fraught with con• relative to America’s. Its frailties‹social, it, socialism with Chinese characteristics tradictions. A senior American oˆcial says political and economic‹could eventually (as the Chinese call their brand of commu• that some of his country’s dealings with imperil both its own stability and its deal• nism) is looking increasingly like capital• China are like those with the European Un• ings with the outside world. 7 The Economist October 24th 2009 A special report on China and America 3

Round and round it goes

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

T ONE stage it all seemed to be working, Lardy of the Peterson Institute for Interna• we think is important, that has some sa• Aeven if it appeared a little surreal. Chi• tional Economics in Washington, DC, even lience, he says. na, a developing country, lent vast as America’s economy is still trying to To help cajole China into joining hands amounts of money to wealthy America to emerge from recession. with America, Mr Obama has set up a new feed its spending habit. Americans spent No wonder that China is feeling a little annual forum called the Strategic and Eco• the money on Chinese•made goods, send• smug. Millions of migrant workers have nomic Dialogue that held its †rst meeting ing the dollars back to China, which lent been laid o from their jobs in the ravaged in Washington, DC, in July. The idea was to them to America again. But now many talk export industry, but now a rush of Christ• bring together leading policymakers from of a decoupling of the two economies. mas orders is opening up new opportuni• both countries to discuss the entire range Niall Ferguson, a Harvard historian who, ties. Some factories even complain of la• of problems confronting them. ŒThe pur• only a couple of years ago, popularised the bour shortages. In many cities house suit of power among nations must no lon• term ŒChimerica for the symbiosis be• prices have been rising rapidly (a new bub• ger be seen as a zero•sum game, the presi• tween the two, now says it is a marriage ble, some fear) and consumer spending‹ dent said as he addressed the gathering. headed for the rocks. though never as strong as the government China’s export †gures appeared to sup• would like it to be‹is holding up well. Stu• You lose, we lose port the idea that the country depended dents face a tough job market when they As far as the economy is concerned, China hugely on overseas markets for its growth, graduate, but that is partly because college heartily agrees. It may grumble about the and on America in particular. By 2007 the enrolment has surged in recent years. Oˆ• dollar’s dominance in the global trading value of China’s exports amounted to cial statistics show that urban unemploy• system, but it has no desire to pull the rug about 36% of its GDP, up from just over ment has risen only a whisker since the be• from under America’s economy. A run on 20% in 2001. America was (and remains) ginning of the year. Chinese job †gures can the dollar would be a blow to China itself, second only to the European Union as a be unreliable, but anecdotal evidence slashing the value of its stash of over $800 customer for Chinese exports, and by far points the same way. billion in US Treasuries. Chinese oˆcials the biggest single country. This year China American oˆcials have developed a also worry openly about a possible resur• is on course to regain its position as the big• tendency to put the two economies on a gence of in‡ation in America, which gest supplier of goods to the American par, but despite all the talk of a G2 (though would also drive down the value of the market, overtaking Canada. And by Sep• not by the two governments themselves) dollar. The American budget de†cit spooks tember 2008 China had surpassed Japan they are far from equal. China’s GDP in China, but appears to make little di erence as the largest holder of US Treasuries (see 2008 was $4.4 trillion, smaller than Japan’s to its willingness to lend. China, says Wu chart 1), in other words as America’s princi• (although next year it could overtake Ja• Xiaoqiu of Renmin University, has been pal creditor. pan) and less than a third of America’s. Al• Œkidnapped by America’s currency. Chi• But the marriage was not quite as close bert Keidel, a former Treasury oˆcial, says na’s purchases of US Treasuries will natu• as the headline †gures suggested. China it makes little sense to equate the econo• rally slow down along with its export certainly helped its exporters by keeping mies of China and America. ŒBut in terms growth. But for now the country is still pil• the value of its currency low, buying dol• of in‡uencing China to think that it is a ing them up. lars that were used to buy US Treasuries. partner with us and therefore it has certain China may dream of a di erent world Those Treasury holdings helped keep responsibilities and should listen to what in which the yuan ranks alongside the dol• American interest rates low and American lar, euro, sterling and yen as a reserve cur• consumers spending. But sustaining such rency. It is beginning to promote use of the growth in exports was not as vital to China Treasury trove 1 yuan instead of the dollar in transactions as many assumed. The value•added com• Biggest holders of US Treasury securities, $bn with some of its trade partners, but it has ponent of its exports accounted for a much set no timetable for making its currency 800 smaller share of its GDP than the gross †g• Japan convertible. In September it bought $50 ure because much of the value of Chinese billion in IMF bonds to boost its in‡uence goods consumed in America was created 600 in the institution and strengthen the role of elsewhere. The biggest driver of growth in non•dollar currencies (IMF bills are linked China was investment, and that has be• 400 to a basket of currencies). But China has come all the more true as China tries to China not sought to ease the Americans or Euro• Britain pump up its economy with nearly $600 200 peans out from their dominant roles in the billion in stimulus spending. So although World Bank and the IMF. China’s economy no longer enjoys the When Timothy Geithner, now treasury double•digit growth rates of a few years 0 secretary, said during a Senate con†rma• 2000 01 02 03 04 05 06 07 08 09 ago, it is on course for 8% growth this year tion hearing in January that Mr Obama be• Source: US Treasury and a similar rate next year, says Nicholas lieved China was Œmanipulating its cur•1 4 A special report on China and America The Economist October 24th 2009

2 rency to gain an unfair trade advantage, the As Americans save more and buy less big a party to spoil). administration was quick to back away from China, America’s trade de†cit with American businessmen, meanwhile, from the remark. The yuan’s value has China‹which has been its biggest with worry no less about protectionism in Chi• hardly been mentioned in public since. A any country since 2000‹will shrink any• na. Many saw China’s decision in March to recent study by the Peterson Institute says way. But protectionist sentiment in both reject a takeover bid by Coca•Cola for a that the yuan remains Œsigni†cantly un• countries will remain strong. Mr Obama’s Chinese juice company as a bad omen. As dervalued, by 15•25% against a weighted decision in September to impose punitive Chinese businesses look around America average of the currencies used by China’s tari s on imports of Chinese steel pipes for bargains, they will get a mixed recep• trading partners. But American oˆcials and tyres infuriated the Chinese govern• tion: sellers are eager for China’s cash, but know just how prickly China can get when ment, although it has so far resisted lashing worried about the survival and security of it is accused of mercantilism. out (summitry with Mr Obama being too Brand America. 7 Tug•of•car

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

HANGHAI, Guangzhou, Chang• nancial crisis, is telling its companies to ŒS chun, Beijing, Wuhan, Chongqing: Touché 2 look abroad for bargains. A little•known six cities with six dreams. But what they Light-vehicle sales, m private company from Sichuan Province, really all dream of is the same‹Detroit. So Sichuan Tengzhong Heavy Industrial Ma• concluded an article on the rival centres of 20 chinery, earlier this month reached a deal China’s fast•growing car industry pub• United States with GM to buy its Hummer brand (sub• lished by one of China’s leading newspa• 15 ject to Chinese government approval). A pers, 21st Century Business Herald. That state•owned company, Beijing Automotive was a long †ve years ago. Now Detroit 10 Industry Holding, is planning to join a dreams of China. Swedish•led consortium in a bid for GM’s Earlier this year, as the American gov• China Saab unit. Geely, a private company, is 5 ernment was buying 61% of General Mo• looking at Ford’s Volvo operation. Buying a tors and 8% of Chrysler to prevent them foreign brand makes sense for Chinese car from collapsing, the two manufacturers’ 0 †rms, which have little international repu• sales in China were rocketing. Indeed, Chi• 2001 02 03 04 05 06 07 08 09* tation or experience of their own. Quality na’s car market was overtaking America’s Source: CEIC *Year to August and safety issues have proved enormous in sales volume for the †rst time (see chart barriers for Chinese brands trying to enter 2), several years earlier than analysts had nies’ bottom lines are far less so. One se• Western markets. predicted before the †nancial crisis. Plum• nior manager of a Detroit carmaker says Just as Japanese carmakers rattled the meting demand in the West was to blame. that rather than actual pro†ts, China o ers American car industry in the 1970s, the ar• GM’s sales in China in August more more in the way of psychological solace rival of Chinese makers, though not yet than doubled on a year earlier. For 2009 as for companies eager to show they can still imminent, will be upsetting for some a whole the company predicted a 40% rise. do business. The boom in China is generat• when it comes. The United Auto Workers Sales of all car brands in China in August ing far less revenue for American car union (UAW), which represents the Big were about 90% up, helped by a cut in the manufacturers than the growth in car sales Three’s blue•collar car workers, was out• purchase tax on smaller, more fuel•eˆ• in Europe did in the 1990s, he notes. The raged when GM said earlier this year that it cient cars. There is huge pent•up demand cars selling fastest in China‹as the govern• was planning to make the Chevrolet Spark, as a new middle class takes to the road. ment intended‹are the smaller models a subcompact car, in China and ship it to The Chinese government wants to em• with the lowest pro†t margins. America. Many politicians sided with the ulate America’s rise to industrial glory by But China still o ers huge potential, not union, pointing out that the company was making the car industry a pillar of eco• only because its citizens will get richer and majority•owned by the American govern• nomic growth. This is a boon to foreign car• upgrade their cars, but also eventually‹or ment. ŒIf you’re going to build them in Chi• makers‹not least American ones‹which so China likes to believe‹as a base for pro• na, sell them in China, says the UAW’s have formed joint ventures with Chinese ducing cars at low cost and selling them president, Ron Gettel†nger. state•owned companies to build their cars into developed markets. ŒThe irony is that in China. The relentless growth of cities some of the †rst cars that the Chinese ex• Buy American and huge government spending on ex• port might have an American brand name Chinese companies buying American pressways o er prospects for carmakers on them, says Stephen Biegun, a senior ones will also cause anxiety. In 2005 the reminiscent of those in America in the manager at Ford. plan of a Chinese state•owned company, mid•20th century. Another possibility is that some Ameri• CNOOC, to buy an American oil company, The sales †gures may be impressive, can brand names will become Chinese. Unocal, sparked widespread fury among but the bene†ts to American car compa• Dollar•rich China, encouraged by the †• American politicians. They worried, mis•1 The Economist October 24th 2009 A special report on China and America 5

2 takenly, that America would lose a strate• gic asset. CNOOC meekly withdrew its $18 billion bid. ŒIt’s not necessarily the Chi• nese [government] making decisions, says Ford’s Mr Biegun. ŒIt is the Chinese people and Chinese companies. Politi• cians, however, have so far been muted in their response to the possible sale of Hum• mer, a gas•guzzling, loss•making brand. These days, what counts is keeping jobs. Jim Farley, who is in charge of market• ing at Ford, says that Œover time the whole industry absolutely has to be prepared for the day when †nished cars will be shipped from China to America. The industry should Œwelcome that with open arms, Pillars of economic growth he insists. Another car executive says it may not make sense to set up dedicated an opportunity in hybrid and other to mandate the use of new fuel technol• factories in China to serve the American Œgreen cars, demand for which is likely to ogies so early in the development of its car market, but production lines in China grow fast. With its economies of scale and industry. Others disagree. China, says one could be used to plug gaps in supply that abundant labour, China is hoping to gain American car executive, could leapfrog might open up in America. an edge in what promises to be a lucrative ahead in adopting cleaner car fuels, espe• American consumers might be slow to new industry. cially batteries, for which it already has a embrace Chinese•branded vehicles, which That would help to brighten the envi• strong manufacturing base. ŒI do think so far have made inroads only in emerging ronmentally gloomy prospect of a China they are going to be formidable competi• markets that care more about price than moving towards American levels of car tors, she says. The UAW may one day quality. But the Chinese government sees ownership. Sceptics say China is unlikely have to brace itself. 7 The price of cleanliness

China is torn between getting greener and getting richer

HE Taiyanggong Thermal Power Plant The Beijing authorities built Taiyang• Luckily for them, Taiyanggong has quali• Tin north•east Beijing is delightfully gong to impress the world in the run•up to †ed for funding under the UN’s Clean De• green. Unlike most of China’s smoke• the Olympic games which opened in the velopment Mechanism (CDM), which en• belching power stations, it has such low city in August 2008‹on the same day that ables rich countries to o set carbon emissions that luxury ‡ats are being built America opened a new embassy in Beijing emissions by paying for carbon cuts in de• next to it. They are fetching high prices. (heated, American oˆcials say proudly, by veloping ones. Zhang Yandong, a senior Owners will look out over something that Taiyanggong). Some 5,000 workers toiled manager at the plant, says it will receive looks more like a cluster of oˆce buildings night and day to deliver on the Chinese about 80m yuan ($12m) in CDM money (apart from a couple of grey chimneys) government’s promise to provide an envi• this year. Even with this, he says, the plant than a power plant. The cooling towers, ronmentally friendly power source for the will at best break even. A CDM project re• near a grove of date trees and an ornamen• games. Taiyanggong was connected to the port estimates that it costs 50% more to tal pool, look a bit like the Great Wall. grid with nearly eight months to spare. generate electricity at a plant like Taiyang• With the help of two natural•gas•fu• Money was no object. It was clear that gong than it does at an equivalent coal• elled turbines built by America’s General natural gas would be considerably more †red facility. Electric, Taiyanggong produces only half expensive than coal, the fuel used by most But American oˆcials hope this will the carbon emissions of a coal•burning fa• power plants, and American•made state• change, and that co•operation on climate cility of comparable size in China. It also of•the•art turbines would be far costlier change will even help strengthen the rela• generates much less smog•forming nitro• than those made at home. Maintaining the tionship overall. At the UN in September gen oxide. Its steam supplies heat to 1m GE machinery would keep running costs Mr Obama said America was Œdetermined homes. When Hillary Clinton visited the high for years to come. But the government to act on climate change. When he visits power station in February, she called it a was in a high•spending mood, pouring China next month, the topic will be the Œwonderful collaboration between Chi• about $40 billion into an infrastructure centrepiece. He is likely to secure an agree• na and America in clean•energy produc• makeover for the games. ment on greater co•operation over clean• tion. ŒWe need to †gure out ways to do Now the power station’s owners, led by energy development between the two more and more of this, Mrs Clinton said. a municipal state•owned company, are countries. He might even prise out of Mr That is where the problems begin. struggling to make it work †nancially. Hu what he meant when he spoke of a 1 6 A special report on China and America The Economist October 24th 2009

2 Œsigni†cant cut in China’s carbon intensi• imported oil (see chart 4). If the rich world, tional threat to stability. For a party that ty (the amount of carbon emitted per unit through CDM arrangements, can help Chi• places stability above everything else, this of GDP) by 2020. na achieve that, so much the better. could be a clincher. But even if Mr Hu and Mr Obama ap• What China will want in return is lots China will enjoy the Schadenfreude of pear in broad agreement on what needs to of money. Unfortunately for its environ• watching Mr Obama’s struggle with a re• be done, persuading politicians and the ment, coal is plentiful and cheap. About calcitrant democracy. The climate•change public in both countries will not be easy. 70% of China’s electricity supply comes legislation now before Congress has little China has set impressive targets but strug• from coal•†red power stations. So the chance of being passed by the Senate be• gles with ill•motivated bureaucrats. In question is how fast China can introduce fore the Copenhagen conference even America even lacklustre climate•change technologies to reduce carbon emissions though it was watered down as it passed legislation now before Congress could from coal•burning, or else replace coal through the House of Representatives. founder as Mr Obama devotes political en• with cleaner forms of energy, both of This will make it diˆcult for America to ergy to what he clearly sees as a higher pri• which will be expensive. China will de• claim the moral high ground at Copenha• ority: health•care reform. mand that developed countries foot the gen. China may even garner more praise. bill and also help provide the technology. Whatever accord is reached at Copen• The road to Copenhagen This will be hard for Mr Obama to sell hagen, scepticism will still be rife in Ameri• In Beijing the two presidents will avoid air• to Congress. Politicians will worry about ca about China’s intentions, and in China ing public doubts about each other’s coun• how to monitor China’s success in achiev• about America’s willingness to provide tries’ †tness for the task. If China and ing its targets. China pledged in 2006 to re• the money and technology. At a time when America‹the world’s two biggest green• duce the amount of energy used per unit trade friction between China and America house•gas polluters, which between them of GDP by 20% by the end of this decade. is growing, such misgivings could lead to account for 40% of the world’s carbon•di• Oˆcials say the country is on track to more shouting matches. The climate• oxide emissions‹are seen to be in accord, achieve this. But stimulus spending is change bill threatens to impose carbon ta• their oˆcials reckon, there will also be a ‡owing into energy•burning industries. In ri s on countries that are deemed not to be better chance of agreement at the UN cli• the pursuit of growth local governments doing enough. China will rightly argue mate conference in Copenhagen in De• are even less inclined to take energy•sav• that it is doing a lot, but it will worry that cember. That meeting is meant to come up ing targets seriously. And verifying wheth• Americans will not see it that way. with a successor to the Kyoto protocol of er China is meeting its energy targets will Mr Hu will also have to watch his own 1997, a treaty on cutting carbon emissions be hard. For China to measure its carbon back. Just as in America, implementing that Congress never rati†ed. emissions and for America to be satis†ed carbon•emissions cuts will upset powerful Securing vague agreements will be the with the results will be even harder. Even a interest groups: fossil•fuel•energy produc• easy part. Having recently overtaken pledge for emissions to peak by 2035 will ers, for one. Unless the West, including America as the world’s biggest carbon not go down well in America. Kenneth Lie• America, is prepared to help out on a large emitter (see chart 3), China is anxious not berthal of the Brookings Institution says scale, he will be under pressure to go slow. to be singled out as the main obstacle to cli• China will be under pressure to make it His decisions on climate change will be a mate•change prevention. To China’s lead• earlier, perhaps 2020 or 2025. clue to whether domestic or global inter• ers, image counts for a lot. China will cling Technology transfer will also be a ests take priority. to the view (shared by most developing thorny issue. China resents the idea of Like Mr Obama, he will vacillate. Co• countries) that the developed world bears American clean•energy companies taking penhagen is likely to be just the beginning the main responsibility for dealing with advantage of China’s predicament to pro†t of a long, hard, struggle between the two the problem. But it is also keen to co•oper• from their expertise. But American compa• countries over what the other is doing. An ate. Cutting the growth of its carbon emis• nies will not be keen to hand over ad• often defensive and secretive Chinese bu• sions happens to †t well with China’s vanced technologies without adequate reaucracy up against a bewilderingly com• longstanding campaign to use energy less protection for their intellectual•property plex mishmash of competing interests in wastefully and reduce its dependence on rights. China’s lack of attention to this area America will not make for harmony. 7 is bitterly resented by many American businesses, not just high•tech ones. The price of progress 3 American climate•change experts say Make me frugal, but not yet 4 Carbon-dioxide emissions, tonnes bn there are grounds for optimism that China Energy-consumption intensity will do its best. The country’s leaders, they ’000 BTUs per $ of GDP* 12 China say, are beginning to appreciate how much 50 10 of a threat climate change poses to China China FORECAST † 40 8 itself. It has taken a while to convince them. In a country where every year hun• 30 6 dreds, if not thousands, of people die in United States 4 natural disasters, crops are devastated by 20 droughts and millions of peasants migrate United States 2 10 FORECAST* to cities, the extra disruption and loss of 0 life that global warming might cause have 0 1990 95 2000 05 10 15 20 25 30 not seemed like pressing concerns. But Mr 1990 95 2000 05 10 15 20 25 30 Source: Energy *Based on “business- Lieberthal says leaders now worry that cli• Source: Energy Information *2005 constant $ †Based on Information Administration as-usual” assumptions Administration “business-as-usual” assumptions mate change could pose a serious addi• The Economist October 24th 2009 A special report on China and America 7

Overkill

China is piling up more weapons than it appears to need

HEN Hillary Clinton said in January tional Studies, a think•tank in Washington, Wthat America should exercise Œsmart DC, that helped popularise the notion of Still a world apart 5 power, Chinese oˆcials and commenta• smart power with a study on American Defence budget, $bn tors pricked up their ears. Here was a neat foreign policy in 2007, issued a report in 700 way of describing, some of them said, March which drew attention to a Œstrategic United States what China too was trying to do: †nd the mistrust between the two countries’ lead• 600 * right mix of military might, cultural in‡u• ers. American policymakers, it said, 500 ence and economic clout‹hard power and should start a Œnew narrative and show 400 soft power‹to secure its place in the world. respect for China’s status as a rising power. 300 Yet both countries are at risk of dangerous• Mr Obama, who has put more emphasis ly mishandling this exercise in carefully than Mr Bush did on China as a solver of 200 calibrating their dealings with each other. global problems, appears to agree. 100 China China’s demonstration of military America’s friendly rhetoric may help to 0 might and authoritarian muscle on Octo• secure more constructive thinking in Beij• 1995 2000 05 09 ber 1st, its national day, was one recent ex• ing about issues such as tackling climate Sources: US Defence *Additional funding Department; IISS may be approved ample of how its judgment can go awry. change or dealing with North Korea. But The parade of thousands of goose•step• the intractable problem of Taiwan will ping troops through central Beijing, along continue to fuel a dangerous escalation of did in 1996 when it sent two aircraft•carrier with military hardware intended mainly the two countries’ hard•power capabilities battle groups close to the island. The Penta• to intimidate America and its quasi•ally with respect to each other. In the realm of gon says China is developing medium• Taiwan, was a throwback to the imagery of soft power (a term de†ned by Joseph Nye, range ballistic missiles that could be guid• cold•war days. It did not help that dissi• a Harvard professor and former senior oˆ• ed to their targets far out into the Paci†c be• dents were rounded up and the public kept cial, as a country’s ability to persuade or in• yond Taiwan: a clear threat to the away from the event (except on television). ‡uence others without the threat of force), American navy. Medium•range missiles Such scenes touch raw nerves in Ameri• China has only recently begun to play a are also being targeted at American bases ca, where intellectual and political opinion global part. Its e orts so far, whether in se• in Japan and Guam. China, says the Penta• has long been bitterly divided over how to curing oil and mineral deals in Africa or in gon, has the biggest missile programme of assess China’s rise. Left•wing Democrats, trying to promote its view of the world any country in the world. alarmed by China’s human•rights abuses, through the internet, have often merely Although it is well aware of the dangers †nd themselves in league with right•wing raised American hackles. of misunderstandings, China has brushed Republicans who see China as a new Sovi• o repeated American overtures for more et Union, to be distrusted and contained. Unlikely but not unthinkable dialogue. Talks between the two armed The October 1st extravaganza also worried On the military side, the Pentagon worries forces typically sputter on for a few a third, more centrist, camp: those who see that China is acquiring capabilities that go months before being called o again by the Communist Party’s resort to national• beyond what is needed to deal with possi• China to express its disapproval of Ameri• ism as a sign of its weakness and of Chi• ble con‡ict over Taiwan. China does not can military support for Taiwan. There na’s vulnerability to upheaval that could speak publicly of displacing American have been glimmers of progress. This year have damaging global consequences. power in Asia. It has good reasons, indeed, multinational anti•piracy operations in the Mr Obama’s smart•power strategy to• to support it, given that America’s pres• Gulf of Aden (China’s †rst active naval en• wards China resembles that of his prede• ence helps to deter North Korean aggres• gagement beyond Asia) saw Chinese and cessor, George Bush, who after the attacks sion against South Korea, keep Japan from American ships operating in the same of September 11th 2001 abandoned talk of becoming militarily more assertive and zone and communicating with each other China as a Œstrategic competitor and protect shipping lanes in South•East Asia. in a friendly enough manner. sought instead to downplay di erences. But China’s military build•up, which be• But Pentagon oˆcials have never been China, no less smartly, began in 2003 to gan to gather pace in the late 1990s and has allowed to visit the headquarters of the emerge from its diplomatic shell by orga• shown no sign of slacking, could one day Chinese armed forces, an underground fa• nising six•nation talks to deal with the nuc• tempt Chinese leaders to think that they cility in the Fragrant Hills west of Beijing. lear crisis on the Korean peninsula. By the could †ght and win a war, either over Tai• Attempts by the Pentagon over the past middle of this decade it had also begun to wan or over a host of mostly uninhabited few years to persuade the chief of China’s back away from its belligerent rhetoric on islands whose sovereignty China disputes strategic nuclear forces to visit America Taiwan (while continuing to amass more with countries from Japan to Malaysia. have so far failed (although he has visited weaponry should it ever wish to attack the China’s growing armoury would make other countries). In 2008 the two countries island). America breathed easier. it far more diˆcult for America to respond agreed to establish a hotline between their The Centre for Strategic and Interna• to a crisis in the Taiwan Strait in the way it two defence ministries. But for unex•1 8 A special report on China and America The Economist October 24th 2009

2 plained reasons the two sides did not use it war between the two countries over Tai• China bristles at any American sugges• when Chinese boats harassed an Ameri• wan is not unimaginable. tion that its behaviour could be construed can surveillance ship, the Impeccable, in No less worrying to the Pentagon is as threatening. America’s latest National the South China Sea in March. what appears to be a lack of e ective com• Intelligence Strategy, the †rst issued by the Few expect rapid progress. Dennis munication between the Chinese armed Obama administration, makes one brief Wilder, a former adviser to the National forces and other parts of the bureaucracy. mention of China, saying that its Œincreas• Security Council under President Bush, This was evident in April 2001 when an ing natural•resource•focused diplomacy says there is a dangerous lack of knowl• American EP•3 military spyplane hit a Chi• and military modernisation are among the edge even about basic issues such as Chi• nese †ghter jet o the Chinese coast. factors making it a complex global chal• na’s nuclear•alert system. China has a few American oˆcials believe the crisis was lenge. This statement of the obvious was dozen land•based nuclear missiles capable escalated by distorted information that enough to trigger howls of protest. The of hitting some or all parts of America and was fed to Chinese leaders by the armed Chinese foreign ministry called on Ameri• is soon expected to deploy them on sub• forces before other departments were able ca to abandon its Œcold•war mentality and marines. America’s nuclear force is far larg• to weigh in with sounder analysis. It prejudices. At an annual gathering of re• er, but as Richard Bush and Michael seemed that the Chinese armed forces did gional defence ministers in Singapore ear• O’Hanlon of the Brookings Institution ar• not promptly inform China’s foreign min• lier this year, a speech by the deputy Chi• gue in a book published in 2007, nuclear istry about the Impeccable incident. nese chief of sta , Ma Xiaotian, was 1

New ways of projecting A message from Confucius soft power

N THE ground ‡oor of one of the Uni• the Œremarkable social changes and im• Oversity of Maryland’s redbrick Geor• provement in Tibet under Chinese rule gian•style buildings is the small oˆce of and demonstrated that Tibet had been the Confucius Institute. When it opened Œpart of China since ancient times. But †ve years ago, it was the †rst of its kind in the website of the Confucius Institute in America. Now there are more than 60 of Edinburgh promotes a talk by a dissident them around the country, sponsored by Chinese author whose works are banned the Chinese government and o ering Chi• in China. Even the Pentagon has been nese culture to win hearts and minds. helping to fund some language courses at China’s decision to rely on Confucius Confucius Institutes under the National as the standard•bearer of its soft•power Security Language Initiative, launched by projection is an admission that commu• George Bush in 2006 to promote the study nism lacks pulling power. Long gone are of Œcritical•need languages. the days when Chairman Mao was idol• The late Samuel Huntington, in his ised by radicals (and even respected by 1996 bestseller ŒThe Clash of Civilisations some mainstream academics) on Ameri• and the Remaking of World Order, de• can university campuses. Mao vili†ed scribes a Confucian world, with China at Confucius as a symbol of the backward its centre, that will †nd itself in growing conservatism of pre•communist China. con‡ict with the West. This is the kind of Now the philosopher, who lived in the 6th view that the Confucius Institutes are in• century BC, has been recast as a promoter tended to dispel. Mr Liu, a long•time phys• of peace and harmony: just the way Presi• Back in fashion ics professor at the university, says his dent Hu Jintao wants to be seen. Li Chang• mission is to promote cultural under• chun, a party boss, described the Confu• of the others). It helps with Chinese•lan• standing. He speaks of the Œamazing simi• cius Institutes as Œan important part of guage teaching in the wider community, larity between Confucian teachings and China’s overseas propaganda set•up. not just on campus. The director, Chuan George Washington’s etiquette guide, China’s partial †nancial backing, its Sheng Liu, is appointed by the university, ŒRules of Civility and Decent Behaviour hands•o approach to management and as most of them are. in Company and Conversation. the huge unmet demand in many coun• There are occasional hints of politics. Some American oˆcials grumble that tries for Chinese•language tuition have Earlier this year the University of Mary• Chinese universities are far less receptive helped Confucius Institutes embed them• land’s institute organised an exhibition of to America’s cultural•promotion e orts selves in universities that might have photographs from the Tibetan plateau. At than American ones are to China’s. But as been suspicious. The University of Mary• an opening ceremony a senior Chinese one comforts himself, Œif you’re in a sys• land’s institute does not o er courses that diplomat made a speech criticising the tem that’s that paranoid, your soft power count towards degrees (and nor do many Dalai Lama. The pictures, he said, showed is self•limited. The Economist October 24th 2009 A special report on China and America 9

2 sprinkled with critical allusions to American Œcold•war behaviour in Asia. China has reason to feel uncomfortable about the imbalance between its own mil• itary power and America’s. American ships and spy planes claim the right to op• erate only 12 nautical miles from the Chi• nese coast (a boundary observed by Soviet and American military craft o each oth• er’s coasts during the cold war). They rou• tinely come closer than the 200•mile boundary that China insists on. China does not have the means to project its pow• er anything like as close to America’s shore, and shrewdly refrains from suggest• ing that it would like to. A sight to terrify the enemy But some Americans worry that China could make a cold war with America a self• mander in the Paci†c, that when China has A cursory glance at the streets and ful†lling prophecy by trying to acquire aircraft•carriers the two countries should shops of Chinese cities suggests what Mr more of the trappings of a global military draw a line down the middle of the Paci†c Hu may have had in mind: the all•perva• power. For example, China is quietly de• through Hawaii to de†ne their spheres of siveness of American brands and cultural veloping its †rst aircraft•carrier. The Penta• operation. Mr Keating politely declined. products, from Coca•Cola to (pirated) gon reckons the country is unlikely to have boxed sets of a comedy series, ŒFriends, one in operation before 2015, but is consid• Culture wars from Kentucky Fried Chicken to Starbucks. ering building at least two by 2020, along On the soft•power side, China is slowly America’s intellectual drawing power is with associated vessels. ŒThe Indians have learning. After much complaining from evident in the queues of students waiting one, the Italians have one, so why can’t Western politicians and NGOs, it has used for visas at the American embassy: in the China have one? asks a Chinese general. its considerable economic clout to give Su• 2007•08 academic year more than 81,000 Pentagon oˆcials profess not to worry. dan and Myanmar at least little nudges to• Chinese were studying in American col• America’s navy would be well equipped wards accommodating Western concerns leges. Such exposure to American ideas to deal with a Chinese carrier•borne force, in those countries (less so, however, in the does not always work in America’s favour. particularly one with little experience (it case of Iran). Soft power was mentioned Many of the nationalists who have staged would be an Œeasy target, says one former for the †rst time by a Chinese leader in protests against America in recent years senior oˆcial in the Bush administration). public in 2007. Culture, said Mr Hu (obli• have been members of an internet•savvy But China’s deployment of a carrier would vious, it seemed, of the cold•war over• generation immersed in American popu• send a powerful signal that its naval inter• tones of his remarks), was of growing sig• lar culture. But the Chinese government ests are no longer con†ned mainly to coast• ni†cance in the Œcompetition in overall now hopes that by taking its own cultural al defence. A senior Chinese oˆcer once national strength. China should therefore message to foreigners it can help to con• quipped to Admiral Timothy Keating, who Œenhance culture as part of the soft power vince them that China’s rise is nothing to is about to retire as America’s top com• of our country. be feared (see box, previous page). 7 Sore points

How Taiwan and North Korea complicate the Sino•American relationship

AIWAN, as Chinese oˆcials never tire Ying•jeou. For nearly 15 years Taiwan’s activity. Recently China criticised CNN for Tof reminding their American counter• transition to democracy, and the growth of running an online poll asking whether Mr parts, is the most important and sensitive Taiwanese nationalism which it fostered, Ma should step down over his handling of issue in the two countries’ relationship. In had been adding dangerous unpredictabil• the aftermath of a typhoon in August that the mid•1990s the two nuclear•armed ity to cross•strait relations. America had killed hundreds of people. Its response to states inched to the brink of war over the been getting fed up with Mr Ma’s predeces• Mr Ma’s decision later in August to allow island. Since then Taiwan has been the pre• sor, Chen Shui•bian of the Democratic Pro• the Dalai Lama to visit Taiwan to pray for text for a massive military build•up by Chi• gressive Party, who revelled in riling China. the dead was unusually muted. Mr Ma, na. Pragmatism has so far restrained Chi• China has o ered Mr Ma some carrots. notes Sun Yan of Peking University ap• na’s nationalist instincts, but for how long? In May it allowed Taiwan to send a delega• provingly, bows regularly before a statue Both China and America were relieved tion to the World Health Assembly, the of Sun Yat•sen, a pre•communist revolu• that elections in Taiwan in March 2008 re• WHO’s governing body‹the †rst time it tionary who is also held in reverence by turned a China•friendly president, Ma had agreed to Taiwan taking part in any UN China’s leaders. This, she says, Œsuggests in 1 10 A special report on China and America The Economist October 24th 2009

2 his heart he thinks of himself as Chinese. China ingratiate itself with America. Vic• Korea and Taiwan were Œintrinsically But Taiwan will remain a problem for tor Cha, who was Mr Bush’s top adviser on linked. As long as China worried about China and America. Mr Chen was sen• Korean a airs and a one•time participant American intervention in the Taiwan tenced to life in prison for corruption in in the talks, describes them as Œthe only Strait, he said, it would value North Korea’s September, but his pro•independence thing they [the Chinese] have ever contrib• role in pinning down American forces in views still enjoy a vocal, if minority, back• uted to the international system. But Chi• the region, so regime change in the North ing. Mr Ma’s popularity has been badly na still would like to keep the status quo on would be Œunacceptable to China. dented by the typhoon response. Taiwan’s the Korean peninsula. Even a nuclear• For all China’s rhetoric about the cen• economic malaise will not help. The armed North Korea it sees as less threaten• tral importance of Taiwan (and constant Democratic Progressive Party has been in ing than a North Korea in political melt• whispering to Western oˆcials that any disarray since its defeat in last year’s elec• down or, worse still, one occupied by Chinese leader seen as Œlosing Taiwan tion, but it might still be a strong contender American troops. would be overthrown in an instant), the in the next presidential polls in 2012. That If China and America have talked country is reassuringly careful to avoid let• would deeply worry the two big powers. about how to handle a political collapse in ting the issue become prey to Chinese pub• More immediately, Mr Obama needs to North Korea, they have managed to keep it lic sentiment. Lin Chong•pin, a former Tai• think about arms sales to the island. Mr Ma secret. Mr Cha says China has shown inter• wanese deputy defence minister, says that says he wants new F•16 †ghter jets. ŒWe est in informal low•level discussions. But as early as 2006, two years before Mr Ma simply want to maintain the military bal• took oˆce, China had decided that it was ance with China, he says, by replacing Œcheaper to buy Taiwan than to attack Tai• ageing military hardware. Mr Obama, anx• wan. Chinese oˆcials would certainly ious to secure Chinese co•operation on a worry about public reaction in China if it range of issues, will want to tread warily, were to lose a war over the island, as well but Taiwan has many friends in Congress. as about the long•term viability of control• Mr Obama could argue that the im• ling Taiwan, noting that the wars in Iraq provement in cross•strait political relations and Afghanistan have shown that even a reduces the need to sell more weapons to superpower can †nd it diˆcult to impose Taiwan. China will certainly argue, with its will on occupied countries. some justi†cation, that selling Taiwan Mr Ma himself plays down the worries more advanced F•16s is hardly in keeping about the growth of Chinese nationalism with what America promised in a 1982 and its potential to disrupt the region’s sta• joint communiqué with China: that Amer• bility. He says he was Œquite startled last ica’s arms sales to Taiwan would not ex• year when China reached an agreement ceed Œeither in qualitative or in quantita• with its hitherto arch•rival Japan on joint tive terms the level of those supplied in exploration of disputed gas†elds in the the three years prior to the agreement. East China Sea. Relations between China American law complicates the issue. and Japan, which is a bigger bête noire to The Taiwan Relations act of 1979 requires Chinese nationalists even than America, the administration to arm Taiwan suˆ• have improved Œbeyond my imagination, ciently to defend itself. In 1992 President Mr Ma says. George Bush senior agreed to sell the is• But others worry that Chinese nation• land 150 F•16s, a package worth vastly more Spotting trouble on the border alism is dangerously unpredictable. Susan than the arms America had sold Taiwan Shirk, a former senior State Department of• annually since the beginning of the previ• without top•level agreement there re• †cial in the Clinton administration, argued ous decade. China, which was far less mains a considerable risk that the Chinese in her 2007 book ŒChina: Fragile Super• powerful then, dragged its heels for a while and American armed forces could †nd power that Œthe more developed and in international arms•control talks. Today themselves drawn into a North Korean po• prosperous China becomes, the more inse• it might respond more robustly. litical vacuum, with little knowledge of cure and threatened China’s leaders feel. each other’s intentions. China’s Œemotional responses to external The North Korean conundrum China at the very least would want to crises Œmay undermine its more moderate Military contacts with the Pentagon would establish a bu er on the North Korean side aims and get it, and us, into trouble. be an obvious †rst casualty. But China of its border with the country in order to The con‡uence of political uncertainty might also become less co•operative in stop a ‡ood of refugees. The Americans in the region early in the next decade dealing with another issue of huge impor• would want to secure North Korea’s chem• makes such advice worth heeding. Tai• tance to American security: North Korea. ical and nuclear weapons, some of which wan’s presidential polls in March 2012, China is an enthusiastic organiser of the are stored near the Chinese border. ŒHow China’s change of leadership in the au• six•party•talks process that brings together will you get there, will you †ght your way tumn of that year and American presiden• the two countries, both Koreas and Japan there? asks a senior Chinese oˆcer. China tial elections in November will create fer• and Russia to discuss ways of rolling back and America, he says, will have to co•oper• tile ground for emotional responses in all North Korea’s nuclear programme. The ate in order to Œprevent another war. three capitals. The poor health of North talks, which began in 2003 but are now on Shen Dingli of Fudan University in Korea’s leader, Kim Jong Il, adds a wild hold because North Korea is angry about Shanghai argued in an essay in 2006 that card. Mr Obama would do well to keep the Chinese•backed sanctions, have helped from China’s strategic perspective, North dialogue with China wide open. 7 The Economist October 24th 2009 A special report on China and America 11

Aiming high

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

IELDS of peanuts and paddy, water buf• pride, despite Wenchang’s languid air. generation of leaders who will want to Ffaloes, deserted beaches, coconut trees China already has three space centres: start their terms on an inspirational note). and the odd building site are about all Taiyuan in the north, Xichang in the south• Some time in the following year China’s there is to see for now at what will eventu• west and Jiuquan in the north•west. Jiu• new Long March 5 rocket is due to be ready. ally become one of the world’s most im• quan earned a name for itself by launching This will be the workhorse of China’s lu• portant centres for space exploration. Very China’s †rst man into orbit in 2003, fol• nar programme. Chinese press reports few people outside China have heard of lowed in 2005 by a two•man crew and last have suggested that a manned lunar land• the town of Wenchang on China’s tropical year by a three•man mission, including ing could take place around 2020, preced• island of Hainan, but in a mere four years, China’s †rst spacewalk. But these three fa• ed by an unmanned mission that would Chinese oˆcials say, it will become ŒChi• cilities are in remote locations deep inland, return lunar samples to Earth. Unlike na’s Kennedy Space Centre. It is from re‡ecting China’s secretive approach to America, which is dithering over its plans here, eventually, that China’s †rst man on space ‡ight, a venture under the control of to return to the moon, China does not ap• the moon is likely to take o . the armed forces. The Wenchang centre pear troubled by †nancial constraints. Lit• Just as President Kennedy aimed for the will have a space theme park and beach re• tle is revealed of what China’s space pro• moon to boost American morale in a strug• sorts right next to it. China’s space pro• gramme actually costs. gle for supremacy with the Soviet Union, gramme is at last coming out. Chinese oˆcials now see a Chinese moon America in particular will turn its eyes A race of sorts landing as a way to bolster patriotism (al• on Wenchang as China gets ready to shoot A Chinese moon landing might chip away though no formal target date has been de• for the moon. No Chinese oˆcial, any at America’s sense of its scienti†c supe• clared yet). On the streets of Wenchang, more than anyone at NASA, would dream riority, adding to the worries that were whose sole (non•astronautical) claim to of talking of a space race between the two aroused in 2005 when a panel commis• fame at the moment is a form of boiled countries. That would smack too much of sioned by Congress gave warning that chicken, the authorities are already trying cold•war rivalry. But in 2007 Mike Griˆn, America was losing its technological edge. to get the public in the mood. ŒBuilding a then NASA’s chief administrator, said he The panel cited statistics showing that Chi• Space Centre, Take•O for Wenchang’s believed China would be the †rst country na produces 600,000 engineering gradu• Economy, says one slogan against a back• to go back to the moon and that ŒAmeri• ates a year against America’s 70,000 ground of waves crashing on the town’s cans will not like it. (though a detailed report published by the sun•soaked shore. In China money talks The plan is to open the new launch cen• panel two years later gave a far narrower just as loudly as appeals to nationalist tre in 2013 (good timing for China’s next gap and questioned whether degrees from the two countries were comparable). Even before China gets to the moon, it aims to have a rudimentary space station of its own. The †rst orbiting module (Tian• gong, or Heavenly Palace), which will be used to gain docking experience for the space•station project, will be launched as early as next year. Work on the station it• self could begin in 2015, Chinese media say. When the †rst Long March 5 is delivered to Wenchang in 2014, America may not even have a space•launch vehicle of its own. Unless Mr Obama decides other• wise, the Space Shuttle will retire next year. Its successor, the Ares rocket, is not due to be put into service until 2015. Some schol• ars in America see this gap in their coun• try’s launch capability as an opportunity to reach out to China. The current plan is to rely mainly on Russian and commercial American launch services to get Ameri• cans to the International Space Station (ISS). The relationship with Russia can be tricky, as the invasion of Georgia last year The start of something big at Wenchang demonstrated. Teaming up with China 1 12 A special report on China and America The Economist October 24th 2009

2 would help spread the risk. Russians might object to the introduction ry that the Chinese are about to surpass But the prospects are dim. Many Ameri• of a competitor to their space•transport them, as they certainly did in 1957 when can oˆcials are still seething at China’s test service. Japan has similar ambitions, and the Soviet Union became the †rst to put a of an anti•satellite missile in 2007. It blew launched its †rst unmanned spacecraft to satellite into orbit. Jiao Weixin of Peking up an ageing Chinese weather satellite, the ISS in September. A NASA oˆcial says University says China’s space•exploration leaving thousands of pieces of debris in or• that any co•operation would require Œtotal capabilities are 30 years behind America’s. bit that pose considerable danger to other transparency from the Chinese. This A billboard on a main thoroughfare in space•based equipment (a small chunk would include allowing the Americans to Wenchang tries to whip up space excite• came close to the ISS in September). Even if go to China’s launch•control centre and get ment with a huge picture of a launch pad the Americans wanted to get Chinese help to know the nuts and bolts of its launch ve• at take•o . It shows ‡ames pouring from with the ISS project, they would have to get hicle. There seems little chance of this. boosters attached to what is clearly Ameri• agreement from other ISS partners. The But the Americans hardly have to wor• ca’s very own Space Shuttle. 7 The rich scent of freedom

Will a wealthier China become less authoritarian?

OR Americans, the psychological trem• ons, China’s GDP per person at 1998 pur• Fors of a Chinese moon walk could coin• chasing•power parity will be over $7,500. cide with another shock. Some time in the In 1998 all but three of the 31 countries next 20 years, if China’s growth stays on above this level of GDP per person were course, its economy will overtake Ameri• rated as free. People who live in rich coun• ca’s to become the largest in the world. tries (oil•rich ones notably excepted) gener• By the 2020s China’s middle class, to• ally enjoy high levels of political rights and day in its toddler phase, will be striding civil liberties, Mr Rowen concludes. into maturity. And by 2050, some econo• But what if he is wrong? An unsettling mists predict, China’s economy will be possibility for America is that China could double the size of America’s at current ex• grow richer and yet remain authoritarian. change rates. As with China’s space e orts, In his book, ŒThe China Fantasy: Why Cap• there will be less to this than meets the eye. italism Will Not Bring Democracy to Chi• In 2020 income per person in America will na, James Mann, an American journalist, still be four times China’s, and vast argues that his countrymen like to believe swathes of the Chinese countryside will they are changing China and that the Chi• look much the same as they do now. nese are becoming Americanised. ŒThese The numbers may say little about the assumptions have never been borne out in relative strength of China and America, the past, he writes. American political de• but they will raise big questions about Chi• bate tends to concentrate on two scenarios: na itself. With the growth of a middle class, the gradual liberalisation of China and, oc• many observers have long believed, the casionally, the possibility of political up• country’s politics will change too. Henry heaval there. A third, highly plausible sce• Rowen of Stanford University has predict• nario‹that there will be no real political Not happy, and not afraid to protest ed that by 2020 Freedom House, an Ameri• change‹is also worth considering, says Mr can NGO, will rate China as Œpartly free in Mann. American oˆcials have often said lose, but at least they try). The middle class, its annual country rankings (putting it in that their country’s trade and engagement armed with the internet (users of which re• the same category as relatively open but with China would help to change it politi• main a step ahead of censors), demands, not fully democratic societies such as Sin• cally, but they may have been mistaken. and sometimes gets, redress for abuses of gapore and Hong Kong). Freedom House power by local governments. currently rates China as Œnot free, one of Unchanged, and yet changing But for a disconcertingly large number 42 such countries in 2009. Mr Mann may have understated the extent of urban Chinese, authoritarianism has its For China, which routinely imprisons of recent changes in China. Its political in• attractions. The government’s swift re• dissidents, heavily censors the media, stitutions and its treatment of organised sponse to the †nancial crisis‹a huge stim• bans any opposition to the Communist opposition to the party remain unaltered. ulus package adopted without any refer• Party, bars citizens from electing the coun• But property rights, which hardly existed ence to legislators‹has reinforced this try’s leaders and oˆcially allows religious in China until the 1990s, have widely taken view. Chinese often say local oˆcials are activity only in places of worship con• hold. Citizens protest against forced evic• corrupt and uncaring, but describe the trolled by the government, this would be a tions from their homes to make way for de• party leadership as well•intentioned and big step forward. Mr Rowen bases his opti• velopment. A new army of private law• capable. There are no dissidents who are mism on the numbers. By 2020, he reck• yers take on the state in court (and usually household names across the country. ŒIn 1 The Economist October 24th 2009 A special report on China and America 13

2 this †nancial crisis, China’s political sys• rights protection. Mr Bush in his second tober visit to Washington, DC, an unusual tem has proved no worse than America’s, inaugural speech in 2005 said it was Amer• break from past presidential practice. He says Yang Fan, an economist. ica’s policy to support democratic move• preferred to wait until some time after his It is becoming increasingly possible to ments everywhere, Œwith the ultimate trip to Beijing. Mr Obama’s administration imagine that when China puts a man on goal of ending tyranny. During his visit to has even signalled that human rights are the moon and surpasses the output of China later that year China rounded up not among its top priorities. Before her trip America’s economy, it will still be a one• dissidents or put them under house arrest. to Beijing in February, Mrs Clinton said party state that brooks no organised oppo• Mr Bush, anxious not to upset his hosts, re• that pressing China on human rights must sition. For America this should be cause for mained tight•lipped in public. not interfere with talks on the economic concern. The resilience of Chinese authori• One argument commonly heard for crisis, climate change and security issues. tarianism will inspire dictators around the keeping quiet is that criticism of China’s world. It will frustrate America’s e orts to human•rights policies, especially in public, You never know cajole China into using its soft power to in• plays into the hands of nationalist hard• China is well aware that its critics’ priori• tervene more actively in humanitarian cri• liners. But if America is ill•equipped to in• ties are shifting. A senior American oˆcial ses. China may be shifting slightly away ‡uence the development of democracy in says the environment has become a great• from its lie•low policy in international af• China, it is almost as impotent when it er threat to China’s international image fairs; its willingness to engage in anti•pira• comes to managing the growth of nation• than repression in Tibet. Chinese leaders cy e orts o Somalia has been praised in alism. Trade between the two countries might well interpret this as meaning that a Washington, DC. But as an authoritarian more than tripled in value between 2000 greener China could get away with locking country it will remain fearful of setting a and 2008, with a huge surplus in China’s up dissidents. But human•rights di er• precedent that could justify Western Œmed• favour. Mr Bush kept human•rights di er• ences with China could suddenly cloud dling in China’s own internal problems. ences largely hidden. Yet virulent anti• the relationship, just as they did in the †nal Mr Obama’s predecessors found them• Western nationalism erupted in China months of Mr Bush’s presidency with the selves having to backtrack. President Clin• after the protests in Tibet in March 2008, upheaval in Tibet. Mr Bush decided not to ton realised soon after taking oˆce in 1993 with America and its allies accused of try• boycott the opening ceremony of the that America’s attempts to force change in ing to break up the country. Some Western Olympic games, as some NGOs and politi• a then more fragile China were of no avail. journalists received death threats. cians had suggested he should. They in• In not much more than a year he aban• As president, Mr Obama has refrained cluded Mr Obama and Mrs Clinton, both doned his attempt to make the annual re• from being too ambitious about human then candidates for the Democratic nomi• newal of China’s low•tari trade terms de• rights in China. He declined to meet the nation. China’s stubborn resistance to po• pendent on China’s progress with human• Dalai Lama during the Tibetan leader’s Oc• litical change could still embarrass them. 7 A dragon of many colours

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

UR policy has succeeded remark• soft. But China, despite being a bit unsure cable to Beijing. ŒThe Chinese saw it as just ŒOably well: the dragon emerged and at †rst how to translate the word Œstake• about right, says Mr Zoellick. joined the world. So said Robert Zoellick, holder (a term for which a standard ren• Mr Obama’s administration has made then deputy secretary of state, in 2005, in a dering in Chinese had yet to be found), less use of the Œresponsible stakeholder speech su used with con†dence in Ameri• quickly warmed to the new formulation. tag, but its strategy is clearly the same. Mr ca’s ability to shape China’s progress. But, It was not then obvious to Chinese oˆ• Obama and Mr Hu have agreed to forge said Mr Zoellick, who is now president of cials that America really could accept the what they call a Œpositive, co•operative and the World Bank, China’s behaviour on the rise of China as it was, a one•party system comprehensive relationship (a step up, world stage left room for improvement: the controlled by communists. China saw the presumably, from what was previously country needed to become a Œresponsible invasion of Iraq in 2003 and the Œcolour dubbed a Œcandid, constructive and co•op• stakeholder in the global community. revolutions against authoritarian govern• erative relationship). Notwithstanding This anodyne catchphrase helped to re• ments in former Soviet•block countries as the tyre tari s, Mr Obama can expect a de†ne the two countries’ relationship. It evidence that America wanted to go it warm reception in Beijing next month. was, in e ect, an admission that America alone as a superpower and was bent on re• China’s leaders see acceptance by America could cohabit with a powerful China. creating the world in its own image. The as a boost to their legitimacy at home. Many in his audience of American busi• Chinese media accused America of insti• nessmen in New York, however, felt un• gating the pro•democracy movements in Prepare for all eventualities easy. As Mr Zoellick recalls, they saw his re• Georgia, Ukraine and on China’s doorstep ŒWe no longer have the luxury of not get• marks as Œtoo harsh and demanding. Had in Kyrgyzstan. A young Chinese diplomat ting along with China, John Podesta told a he delivered the same speech to the politi• proudly told Mr Zoellick that he spent until congressional committee in September. cal elite in Washington, DC, he reckons, he 4 o’clock the next morning explaining the Mr Podesta was the head of Mr Obama’s might have been criticised for being too signi†cance of the New York speech in a transition team and now heads the Centre 1 14 A special report on China and America The Economist October 24th 2009

2 for American Progress, a think•tank close two other scenarios that are worth think• to the Obama White House. He said it was ing about. One is that China might in fact time to move beyond the past strategy of become more democratic. A politically Œengage and hedge and adopt one that more liberal China would put enormous Œmaximises opportunity but also man• strains on the multi•ethnic empire that ages risk. But American respect and good• China’s communists inherited from impe• will, as this special report has argued, can• rial times. Minorities across the Tibetan not be relied upon to ensure that relations plateau and in Xinjiang would step up de• remain on solid ground. And whether mands for greater autonomy. That, in turn, called hedging or managing risk, America would jeopardise either China’s demo• has no choice but to prepare for the pos• cratic development or the unity of the sibility that China might one day threaten state. And a more democratic China would American security. Xi Jinping, princeling•in•waiting be unlikely to countenance the permanent The risk is not that China’s current lead• separation of Taiwan. It might even pursue ers might one day discard their pragma• blessing for Mr Obama, probably safe irredentist claims more aggressively. tism and march into all•out con‡ict with from Mr Jiang’s predilection for bursting The other possibility is that China America, whether in the economic or mil• into song). Leaks from politburo•level de• might be convulsed by the same kind of tu• itary sphere. It is rather the instability of liberations, few and far between at the best mult that occurred in much of the rest of China itself. So far the most disruptive in• of times, are now almost unheard of. the communist world two decades ago. ‡uence on Sino•American relations has Vice•President Xi Jinping looks the This would be a nightmare for America. In been public and political opinion in Amer• most likely man to take over, with Li Ke• such a scenario, the conservative and in• ica. China’s bloody crackdown in Tianan• qiang as his prime minister. Mr Xi is a ward•looking armed forces would play a men Square in 1989 was hugely destabilis• Œprinceling, as the descendants of com• critical role. As President Clinton put it in ing, but consistent with a time•honoured munist China’s revolutionary founders are 1999, Œas we focus on the potential chal• approach to political threats. often called. As the party chief of Zhejiang lenge that a strong China could present to Province from 2003 to 2007 he promoted the United States in the future, let us not What do the Chinese think? greater openness in grassroots govern• forget the risk of a weak China, beset by in• Increasingly, however, public opinion in ment. But in February a widely circulated ternal con‡ict, social dislocation and crim• China will play a role as well. Chinese cen• video clip of Mr Xi accusing Œwell•fed for• inal activity; becoming a vast zone of insta• sors ensure that criticisms of the Commu• eigners with nothing better to do of inter• bility in Asia. Ten years and much nist Party quickly disappear from the inter• fering in China’s a airs suggested that he economic growth later, his words are still net, but xenophobic opinions are usually might incline towards nationalist crowd• worth heeding. left untouched. The internet magni†es pleasing. And the succession is still not cer• The threat posed by China is not (yet, nationalist sentiment in China, sometimes tain. Party leaders meeting in Beijing in anyway) one of military expansion but even putting the government on the back September failed to announce Mr Xi’s one of great new uncertainty looming over foot. Such sentiment is invariably hostile widely expected promotion as deputy the global order. Mr Obama will need to to America. commander•in•chief of the armed forces. keep reminding China that America Elite•level politics is another worrying He currently has no military post. would be irresponsible not to prepare for factor. Over the past 30 years leadership It is reasonable to think that China may the worst even as it hopes for the best. Chi• changes in China have had remarkably lit• well get richer yet stay authoritarian, at nese leaders would be wise to be just as tle e ect on the relationship between the least for the next 10•20 years. But there are cautious about their own future. 7 two countries, but there have been occa• sional deviations. The Taiwan Strait crisis O er to readers of 1995•96 erupted at a time of heightened Future special reports Reprints of this special report are available at a Business and †nance in Brazil November 14th 2009 political uncertainty in China, with Deng price of £3.50 plus postage and packing. The art market November 28th 2009 Xiaoping’s health fading and his relatively A minimum order of †ve copies is required. The carbon economy December 5th 2009 inexperienced successor, Jiang Zemin, try• Social media January 23rd 2010 Corporate o er Financial risk February 13th 2010 ing to burnish his credentials. The spy• Customisation options on corporate orders of 100 plane crisis of 2001, which resulted in a or more are available. Please contact us to discuss tense stand•o as China detained 24 your requirements. American crewmen for 11days, broke close Send all orders to: to a period of leadership transition. China’s preparations for another The Rights and Syndication Department change at the top in 2012 and 2013 appear to 26 Red Lion Square WC1R 4HQ be in hand, but America would be wise to London Tel +44 (0)20 7576 8148 be cautious. The workings of China’s lead• Fax +44 (0)20 7576 8492 ership remain as much of a mystery to out• e•mail: [email protected] siders as they were when China and America established diplomatic relations For more information and to order special reports Previous special reports and a list of in 1979, if not more so. Mr Hu is more cau• and reprints online, please visit our website forthcoming ones can be found online tious in his meetings with foreigners than Economist.com/rights Economist.com/specialreports his predecessors were (which may be a