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Confronting Beijing’s New Bipolar Reality

John Lee

Several years before his historic visit to China in 1972, Richard Nixon articulated what was to become the contemporary rationale behind America’s policy of engagement toward China: Taking the long view, we simply cannot afford to leave China forever outside the family of nations—there to nurture its fantasies, cherish its hates and threaten its neighbors. Fast forward four decades, and the received wisdom is that it is better for America to see a strong and confident China striding the world than a weak and insecure one.

With the downturn in U.S.-China relations over issues such as Taiwan and the Dalai Lama’s U.S. visit, it is becoming apparent that America is confronting a new reality: Washington is facing a strong, wealthy and assertive Chinese government plagued by a weak, poor and dysfunctional civil society. How has this happened? It is partly because American attempts to “manage” China’s rise are failing.

The modern American paradigm remains World Bank President Robert B. Zoellick’s “responsible stakeholder” approach. It argues that the best way to manage the rise of China is to offer it a stake in the existing international system within which China benefits. China is thus encouraged to be a status-quo power within a U.S.-led regional and global order. This is a clever advance from old-fashioned containment or appeasement strategies that are inappropriate for a country that is both economic partner and strategic competitor. But it does not account for the fact that China has simply chosen to be a “free rider” within the system. As Chinese attitudes to free trade and open markets demonstrate, it plays by the rules when that suits its purposes and undermines those rules when it does not.

The responsible-stakeholder approach is also designed to be transformative. Presidents since Bill Clinton have assured us that further economic liberalization will bring prosperity and this will gradually bring political reform to China and domestic respect for human rights. Indeed, there is near consensus in Washington that China cannot achieve its true potential in becoming a modern, prosperous and confident country unless it pursues greater economic and political liberalization.

However, it has become apparent that American faith in the transformative power of China’s economic rise—even if it is within the prevailing global economic system—might be misplaced. “Capitalism with Chinese characteristics” places far more power and wealth in the hands of the state sector than ever occurred in countries that once followed “authoritarian capitalism,” such as Japan and South Korea. Beijing is nurturing state-owned champions to dominate domestic markets and crowd out the private sector in order for the Chinese Communist Party to retain its economic relevance, privileged status in Chinese society and hands on the country’s wealth. This means the party does not believe sweeping economic—much less political—liberalization is required for China’s continued rise. It is unclear whether China’s political economy can be successful in the longer term because frightening imbalances within the domestic economy are accumulating. But for the moment, the party has become the primary beneficiary of the country’s rise.

The privileging of the state and party has come at a cost. The price of privileging the state over its people is worsening inequality, which has become the most extreme in all of Asia. The price of monopolizing political, judicial and administrative power for the Communist Party is severe corruption and graft caused by the lack of accountability for the country’s 45 million officials. The result is an estimated 124,000 instances of mass unrest in 2008, according to official figures. The upshot is an insecure regime that believes it needs at least 8 percent growth in gross domestic product each year just so it can stay in power—and is willing to do what it takes to achieve it.

This brings us back to Beijing’s outrage at the recent arms package to Taiwan and President Obama’s meeting Thursday with the Dalai Lama.

On the one hand, Beijing has acquired a newfound confidence as it rejoices at Washington struggling with the consequences of the economic downturn. As my survey of internal Communist Parry memos written since 2009 reveals, senior officials have been earnestly debating the consequences of America’s decline and ways in which Beijing can seize an advantage.

Yet, as these same memos argue, “hostile foreign forces [read America] have not abandoned their conspiracy and tactics to exploit domestic weaknesses to Westernize China and to divide the country.” For example, continued American support for Taiwan is undermining the Communist Party’s domestic legitimacy because Chinese elites grow increasingly impatient for the island’s return. Likewise, China thinks Mr. Obama’s meeting with the Dalai Lama is designed to give renewed life to separatists in Tibet and Xinjiang.

This state of affairs provides one reason why relations with China are becoming more intractable. On the one hand, the growing wealth and power of the regime are leading to arrogance and hubris in China’s conduct of diplomacy and foreign affairs. On the other hand, the problems caused by China’s dysfunctional political economy—capitalism with Chinese characteristics—is causing Beijing to view any disagreement with America as one that can be exploited by Washington to undermine the Communist Party’s domestic legitimacy.

Therefore, Beijing’s recent belligerent behavior is a product of both hubris and domestic insecurity. Washington needs a new China-policy paradigm to reflect this reality.

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