The China-U.S. relationship will be the pivot of the post-unipolar world order. Western perceptions of China tend to oscillate between confrontation and fascination, either inflating or downsizing its importance. The benign view sees China taking its rightful place as a responsible stakeholder in the management of regional and world order; the pessimistic assessment worries about its potential for mischief across a broad range of issues around the world.

Driven by strategic narcissism, the three-trillion-dollar wars in Iraq and Afghanistan have helped to bankrupt the United States and, by outsourcing manufacturing to China and services to India, enfeeble its capacity to produce enough goods and services to pay its bills.

The U.S. economy used to be the biggest, best-balanced and most productive and innovative. Now it is saddled with debts, deficits and distortions. The U.S. deficit, projected at around 11 per cent of economic output for the next year, will still be around five per cent of GDP in 2020. A seemingly dysfunctional political system neuters all efforts to address structural problems. If by the end of the decade the U.S. is still the world's biggest borrower -- 10-year economic forecasts lack credibility -- will it still be the world's biggest power?

China is the world's largest auto market by unit volume, the biggest exporter of merchandise and will account for the largest growth in world trade for some time. The U.S. remains the finance and consumption capital of the world but the new production capital is China. It is dependent no longer on U.S. markets, managerial know-how and technology, nor on U.S. power as a counterweight to a Soviet threat. A dominant player in setting energy, mineral and other commodity prices, China is the world's major net (but not per capita) emitter of greenhouse gases and determinant of climate change.

U.S. columnist Thomas Friedman argues that the loss of faith in western prescriptions is leading to the discredited Washington Consensus of free-market, pro-trade and globalization policies being replaced by a Beijing Consensus: state-guided, strictly controlled capital markets and an authoritarian decision-making process that can make tough strategic choices and long-term investments without being distracted by daily polls.

The Chinese save as stubbornly as the Americans spend. President Barack Obama's China visit in November was of a supplicant paying tribute to his chief creditor. His refusal to meet the Dalai Lama before the trip reinforced the symbolism. Their subsequent White House meeting drew fresh warnings from Beijing.

Yet, while the U.S. needs China to finance its mounting debt, a collapse of the U.S. economy would mean drastic cutbacks to sales of made-in China products in the world's biggest consumer market and also erode the value of China's currency reserves.

China used to believe that the world order of one superpower and several great powers would continue. The Iraq and Afghanistan wars hastened the military, financial and moral decline of America. To protect their interests, some Chinese debated how they could arrest the pace of America's descent from heaven. Since the financial crisis, which proved China's remarkable resilience, there has been a flood of declinist commentary about the U.S. by Chinese analysts.

For the first time in 200 years, the world must engage with a united and powerful China that has become more aggressive on several issues, including climate change, Internet freedom and the border dispute with India. But so too must China come to terms with its new status: The Middle Kingdom has no historical, philosophical or literary tradition of diplomatic intercourse as a great power in a system of great powers. This will become especially relevant as China's footprint becomes increasingly global and its interests, presence and activities mushroom around the world.

Treating China as an enemy could turn it into one. But should the U.S. underwrite the rise of a one-party state that is its only plausible geopolitical rival? The Clinton and Bush administrations' China policies had rested on the assumption that exposure to free trade and the information age would release and strengthen the forces of liberalization and political change. What if the assumptions are false? The evidence to date is mostly in the opposite direction.

Washington approved arms sales to Taiwan worth $6 billion, calculating that, with more than 1,300 Chinese missiles pointed at Taiwan, bolstering the latter's military preparedness may be a prudent hedge against having to defend it from attack. It simultaneously raises the risks of failure and the costs of success should Beijing choose to go to war. Beijing retaliated immediately, suspending bilateral military exchanges and imposing sanctions on companies selling arms to Taiwan.

Yet calculations of relative U.S. decline are more likely to nudge Beijing toward exerting leverage over U.S. international policy than outright confrontation. It will want to recalibrate the multilateral order on its terms, setting aside questions of human rights and political values to focus instead on solving common problems. It will be more willing and able than before to shape the international environment and world order proactively rather than react passively to it.

China's rise has been welcomed by many as a counterweight to U.S. military muscle and political arrogance. China could also be the world's engine of growth. If it's not careful, though, it could encounter a grating wall of resistance as countries, multinationals and NGOs begin to push back against heavy-handed assertiveness.

Is China prepared to shed Deng Xiaoping's anachronistic adage to keep a low profile and not take the lead? Will it use growing wealth, power and influence for narrow mercantilism or the common good? How long can it question the dollar's status as the global reserve currency without loosening its iron grip on the yuan?

Google's threat to leave rather than become more complicit in Internet censorship may be a harbinger of a changing international mood. Google's fight with China is more likely to be motivated by commercial calculation than concerns about freedom of information.

As most foreign companies have discovered, it is not easy to move from China's massive potential to massive profits. Google's one-third share of China's search engine market provides just five per cent of its global revenue. On a level playing field, Google could potentially wrest a much larger market share from Baidu, its government-connected chief competitor in China. The risk assessment of the strategy of standing up to Beijing may reflect this cost-benefit analysis.

In China's implicit social contract, the citizens acquiesce to political control in return for the government overseeing continuing prosperity that delivers the same goods and services to them as to westerners. With communism discredited, the government lacks a legitimizing ideology to economic growth. If this is put under threat by Google and other major multinational firms pulling out, the strategic loss for the Chinese government could be bigger than the lost revenues for the firms.

China basks in the growing acknowledgment of its rising status. It is happy to take the benefits flowing from it but is less keen to stop being a free rider, exercise international public leadership and accept the burdens of being a great power.

That mindset helps to explain currency manipulation to protect exports at the expense of other countries, unwillingness to commit to internationally verifiable cuts in greenhouse gas emissions and courting of pariah authoritarian regimes to gain access to raw materials and resources.

China is as unwilling as the Bush administration was to bind itself to agreed global norms. It could find itself in somewhat lonesome company with arms-length relationships of convenience rather than true friends and allies, of which the U.S. still has plenty, including Australia, Canada, the EU and Japan.

Ramesh Thakur is director of the Balsillie School of International Affairs, distinguished fellow at The Centre for International Governance Innovation, and a professor of political science at the University of Waterloo. His new book on "Global Governance and the UN" will be published shortly by Indiana University Press.

The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.
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