But Xi’s ambitions extend beyond these areas to something more fundamental. In the 1940s, Mao led the communist revolution that created the contemporary Chinese party-state. Beginning in the late 1970s, his successor, Deng Xiaoping, oversaw a self-proclaimed “second revolution,” in which he ushered in economic reforms and the low-profile foreign policy that produced China’s economic miracle. Now, Xi has launched a third revolution. Not only has he slowed, and, in many cases, reversed, the process of “reform and opening up” set in motion by Deng, but he has also sought to advance the principles of this new China on the global stage. Moreover, in a striking move made in March, the government eliminated the constitutional provision limiting the president to two terms, allowing Xi to serve as president for life.  For the first time, China is an illiberal state seeking leadership in a liberal world order.

Yet as cooperation has increased, so has controversy. Significant groups in both countries claim that a contest for supremacy between China and the United States is inevitable and perhaps already under way. In this perspective, appeals for U.S.-Chinese cooperation appear outmoded and even naive.

The mutual recriminations emerge from distinct yet parallel analyses in each country. Some American strategic thinkers argue that Chinese policy pursues two long-term objectives: displacing the United States as the preeminent power in the western Pacific and consolidating Asia into an exclusionary bloc deferring to Chinese economic and foreign policy interests. In this conception, even though China’s absolute military capacities are not formally equal to those of the United States, Beijing possesses the ability to pose unacceptable risks in a conflict with Washington and is developing increasingly sophisticated means to negate traditional U.S. advantages. Its invulnerable second-strike nuclear capability will eventually be paired with an expanding range of antiship ballistic missiles and asymmetric capabilities in new domains such as cyberspace and space. China could secure a dominant naval position through a series of island chains on its periphery, some fear, and once such a screen exists, China’s neighbors, dependent as they are on Chinese trade and uncertain of the United States’ ability to react, might adjust their policies according to Chinese preferences. Eventually, this could lead to the creation of a Sinocentric Asian bloc dominating the western Pacific. The most recent U.S. defense strategy report reflects, at least implicitly, some of these apprehensions.

No Chinese government officials have proclaimed such a strategy as China’s actual policy. Indeed, they stress the opposite. However, enough material exists in China’s quasi-official press and research institutes to lend some support to the theory that relations are heading for confrontation rather than cooperation.

U.S. strategic concerns are magnified by ideological predispositions to battle with the entire nondemocratic world. Authoritarian regimes, some argue, are inherently brittle, impelled to rally domestic support by nationalist and expansionist rhetoric and practice. In these theories -- versions of which are embraced in segments of both the American left and the American right -- tension and conflict with China grow out of China’s domestic structure. Universal peace will come, it is asserted, from the global triumph of democracy rather than from appeals for cooperation. The political scientist Aaron Friedberg writes, for example, that “a liberal democratic China will have little cause to fear its democratic counterparts, still less to use force against them.” Therefore, “stripped of diplomatic niceties, the ultimate aim of the American strategy [should be] to hasten a revolution, albeit a peaceful one, that will sweep away China’s one-party authoritarian state and leave a liberal democracy in its place.”

On the Chinese side, the confrontational interpretations follow an inverse logic. They see the United States as a wounded superpower determined to thwart the rise of any challenger, of which China is the most credible. No matter how intensely China pursues cooperation, some Chinese argue, Washington’s fixed objective will be to hem in a growing China by military deployment and treaty commitments, thus preventing it from playing its historic role as the Middle Kingdom. In this perspective, any sustained cooperation with the United States is self-defeating, since it will only serve the overriding U.S. objective of neutralizing China. Systematic hostility is occasionally considered to inhere even in American cultural and technological influences, which are sometimes cast as a form of deliberate pressure designed to corrode China’s domestic consensus and traditional values. The most assertive voices argue that China has been unduly passive in the face of hostile trends and that (for example, in the case of territorial issues in the South China Sea) China should confront those of its neighbors with which it has disputed claims and then, in the words of the strategic analyst Long Tao, “reason, think ahead and strike first before things gradually run out of hand . . . launch[ing] some tiny-scale battles that could deter provocateurs from going further.”

THE PAST NEED NOT BE PROLOGUE

Is there, then, a point in the quest for a cooperative U.S.-Chinese relationship and in policies designed to achieve it? To be sure, the rise of powers has historically often led to conflict with established countries. But conditions have changed. It is doubtful that the leaders who went so blithely into a world war in 1914 would have done so had they known what the world would be like at its end. Contemporary leaders can have no such illusions. A major war between developed nuclear countries must bring casualties and upheavals impossible to relate to calculable objectives. Preemption is all but excluded, especially for a pluralistic democracy such as the United States.

If challenged, the United States will do what it must to preserve its security. But it should not adopt confrontation as a strategy of choice. In China, the United States would encounter an adversary skilled over the centuries in using prolonged conflict as a strategy and whose doctrine emphasizes the psychological exhaustion of the opponent. In an actual conflict, both sides possess the capabilities and the ingenuity to inflict catastrophic damage on each other. By the time any such hypothetical conflagration drew to a close, all participants would be left exhausted and debilitated. They would then be obliged to face anew the very task that confronts them today: the construction of an international order in which both countries are significant components.

The blueprints for containment drawn from Cold War strategies used by both sides against an expansionist Soviet Union do not apply to current conditions. The economy of the Soviet Union was weak (except for military production) and did not affect the global economy. Once China broke off ties and ejected Soviet advisers, few countries except those forcibly absorbed into the Soviet orbit had a major stake in their economic relationship with Moscow. Contemporary China, by contrast, is a dynamic factor in the world economy. It is a principaltrading partner of all its neighbors and most of the Western industrialpowers, including the United States. A prolonged confrontation between China and the United States would alter the world economy with unsettling consequences for all. 

Nor would China find that the strategy it pursued in its own conflict with the Soviet Union fits a confrontation with the UnitedStates. Only a few countries -- and no Asian ones -- would treat an American presence in Asia as “fingers” to be “chopped off” (in Deng Xiaoping’s graphic phrase about Soviet forward positions). Even those Asian states that are not members of alliances with the United States seek the reassurance of an American political presence in the region and of American forces in nearby seas as the guarantor of the world to which they have become accustomed.Their approach was expressed by a senior Indonesian official to an American counterpart: “Don’t leave us, but don’t make us choose.”

China’s recent military buildup is not in itself an exceptional phenomenon: the more unusual outcome would be if the world’s second-largest economy and largest importer of natural resources did not translate its economic power into some increased military capacity. The issue is whether that buildup is open ended and to what purposes it is put. If the United States treats every advance in Chinese military capabilities as a hostile act, it will quickly find itself enmeshed in an endless series of disputes on behalf of esoteric aims. But China must be aware, from its own history, of the tenuous dividing line between defensive and offensive capabilities and of the consequences of an unrestrained arms race.

China’s leaders will have their own powerful reasons for rejecting domestic appeals for an adversarial approach -- as indeed they have publicly proclaimed. China’s imperial expansion has historically been achieved by osmosis rather than conquest, or by the conversionto Chinese culture of conquerors who then added their own territoriesto the Chinese domain. Dominating Asia militarily would be a formidable undertaking. The Soviet Union, during the Cold War, bordered on a string of weak countries drained by war and occupation and dependent on American troop commitments for their defense. China today faces Russia in the north; Japan and South Korea, with American military alliances, to the east; Vietnam and India to the south; and Indonesia and Malaysia not far away. This is not a constellation conducive to conquest. It is more likely to raise fears of encirclement. Each of these countries has a long military tradition and would pose a formidable obstacle if its territory or its ability to conduct an independent policy were threatened. A militant Chinese foreign policy would enhance cooperation among all or at least some of these nations, evoking China’s historic nightmare, as happened in the period 2009–10.

DEALING WITH THE NEW CHINA

Another reason for Chinese restraint in at least the medium term is the domestic adaptation the country faces. The gap in Chinese society between the largely developed coastal regions and the undeveloped western regions has made Hu’s objective of a “harmonious society” both compelling and elusive. Cultural changes compound the challenge. The next decades will witness, for the first time, the full impact of one-child families on adult Chinese society. This is bound to modify cultural patterns in a society in which large families have traditionally taken care of the aged and the handicapped. When four grandparents compete for the attention of one child and invest him with the aspirations heretofore spread across many offspring, a new pattern of insistent achievement and vast, perhaps unfulfillable, expectations may arise.

All these developments will further complicate the challenges of China’s governmental transition starting in 2012, in which the presidency; the vice-presidency; the considerable majority of the positions in China’s Politburo, State Council, and Central Military Commission; and thousands of other key national and provincial posts will be staffed with new appointees. The new leadership group will consist, for the most part, of members of the first Chinese generation in a century and a half to have lived all their lives in a country at peace. Its primary challenge will be finding a way to deal with a society revolutionized by changing economic conditions, unprecedented and rapidly expanding technologies of communication, a tenuous global economy, and the migration of hundreds of millions of people from China’s countryside to its cities. The model of government that emerges will likely be a synthesis of modern ideas and traditional Chinese political and cultural concepts, and the quest for that synthesis will provide the ongoing drama of China’s evolution.

These social and political transformations are bound to be followed with interest and hope in the United States. Direct American intervention would be neither wise nor productive. The United States will, as it should, continue to make its views known on human rights issues and individual cases. And its day-to-day conduct will express its national preference for democratic principles. But a systematic project to transform China’s institutions by diplomatic pressure and economic sanctions is likely to backfire and isolate the very liberals it is intended to assist. In China, it would be interpreted by a considerable majority through the lens of nationalism, recalling earlier eras of foreign intervention. 

What this situation calls for is not an abandonment of American values but a distinction between the realizable and the absolute. The U.S.-Chinese relationship should not be considered as a zero-sum game, nor can the emergence of a prosperous and powerful China be assumed in itself to be an American strategic defeat. 

A cooperative approach challenges preconceptions on both sides. The United States has few precedents in its national experience of relating to a country of comparable size, self-confidence, economic achievement, and international scope and yet with such a different culture and political system. Nor does history supply China with precedents for how to relate to a fellow great power with a permanent presence in Asia, a vision of universal ideals not geared toward Chinese conceptions, and alliances with several of China’s neighbors. Prior to the United States, all countries establishing such a position did so as a prelude to an attempt to dominate China.

The simplest approach to strategy is to insist on overwhelming potential adversaries with superior resources and materiel. But in the contemporary world, this is only rarely feasible. China and the United States will inevitably continue as enduring realities for each other. Neither can entrust its security to the other -- no great power does, for long -- and each will continue to pursue its own interests, sometimes at the relative expense of the other. But both have the responsibility to take into account the other’s nightmares, and both would do well to recognize that their rhetoric, as much as their actual policies, can feed into the other’s suspicions.

China’s greatest strategic fear is that an outside power or powers will establish military deployments around China’s periphery capable of encroaching on China’s territory or meddling in its domestic institutions. When China deemed that it faced such a threat in the past, it went to war rather than risk the outcome of what it saw as gathering trends -- in Korea in 1950, against India in 1962, along the northern border with the Soviet Union in 1969, and against Vietnam in 1979.

The United States’ fear, sometimes only indirectly expressed, is of being pushed out of Asia by an exclusionary bloc. The United States fought a world war against Germany and Japan to prevent such an outcome and exercised some of its most forceful Cold War diplomacy under administrations of both political parties to this end against the Soviet Union. In both enterprises, it is worth noting, substantial joint U.S.-Chinese efforts were directed against the perceived threat of hegemony.

Other Asian countries will insist on their prerogatives to develop their capacities for their own national reasons, not as part of a contest between outside powers. They will not willingly consign themselves to a revived tributary order. Nor do they regard themselves as elements in an American containment policy or an American project to alter China’s domestic institutions. They aspire to good relations with both China and the United States and will resist any pressure to choose between the two.

Can the fear of hegemony and the nightmare of military encirclement be reconciled? Is it possible to find a space in which both sides can achieve their ultimate objectives without militarizing their strategies? For great nations with global capabilities and divergent, even partly conflicting aspirations, what is the margin between conflict and abdication?

That China will have a major influence in the regions surrounding it is inherent in its geography, values, and history. The limits of that influence, however, will be shaped by circumstance and policy decisions. These will determine whether an inevitable quest for influence turns into a drive to negate or exclude other independent sources of power.

For nearly two generations, American strategy relied on local regional defense by American ground forces -- largely to avoid the catastrophic consequences of a general nuclear war. In recent decades, congressional and public opinion have impelled an end to such commitments in Vietnam, Iraq, and Afghanistan. Now, fiscal considerations further limit the range of such an approach. American strategy has been redirected from defending territory to threatening unacceptable punishment against potential aggressors. This requires forces capable of rapid intervention and global reach, but not bases ringing China’s frontiers. What Washington must not do is combine a defense policy based on budgetary restraints with a diplomacy based on unlimited ideological aims.

Just as Chinese influence in surrounding countries may spur fears of dominance, so efforts to pursue traditional American national interests can be perceived as a form of military encirclement. Both sides must understand the nuances by which apparently traditional and apparently reasonable courses can evoke the deepest worries of the other. They should seek together to define the sphere in which their peaceful competition is circumscribed. If that is managed wisely, both military confrontation and domination can be avoided; if not, escalating tension is inevitable. It is the task of diplomacy to discover this space, to expand it if possible, and to prevent the relationship from being overwhelmed by tactical and domestic imperatives. 

COMMUNITY OR CONFLICT

The current world order was built largely without Chinese participation, and hence China sometimes feels less bound than others by its rules. Where the order does not suit Chinese preferences, Beijing has set up alternative arrangements, such as in the separate currency channels being established with Brazil and Japan and other countries. If the pattern becomes routine and spreads into many spheres of activity, competing world orders could evolve. Absent common goals coupled with agreed rules of restraint, institutionalized rivalry is likely to escalate beyondthe calculations and intentions of its advocates. In an era in which unprecedented offensive capabilities and intrusive technologies multiply, the penalties of such a course could be drastic and perhaps irrevocable.

Crisis management will not be enough to sustain a relationship so global and beset by so many differing pressures within and between both countries, which is why I have argued for the concept of a Pacific Community and expressed the hope that China and the United States can generate a sense of common purpose on at least some issues of general concern. But the goal of such a community cannot be reached if either side conceives of the enterprise as primarily a more effective way to defeat or undermine the other. Neither China nor the United States can be systematically challenged without its noticing, and if such a challenge is noted, it will be resisted. Both need to commit themselves to genuine cooperation and find a way to communicate and relate their visions to each other and to the world. 

Some tentative steps in that direction have already been undertaken. For example, the United States has joined several other countries in beginning negotiations on the Trans-Pacific Partnership (TPP), a free-trade pact linking the Americas with Asia. Such an arrangement could be a step toward a Pacific Community because it would lower trade barriers among the world’s most productive, dynamic, and resource-rich economies and link the two sides of the ocean in shared projects. 

Obama has invited China to join the TPP. However, the terms of accession as presented by American briefers and commentators have sometimes seemed to require fundamental changes in China’s domestic structure. To the extent that is the case, the TPP could be regarded in Beijing as part of a strategy to isolate China. For its part, China has put forward comparable alternative arrangements. It has negotiated a trade pact with the Association of Southeast Asian Nations and has broached a Northeast Asian trade pact with Japan and South Korea.

Important domestic political considerations are involved for all parties. But if China and the United States come to regard each other’s trade-pact efforts as elements in a strategy of isolation, the Asia-Pacific region could devolve into competing adversarial power blocs. Ironically, this would be a particular challenge if China meets frequent American calls to shift from an export-led to a consumption-driven economy, as its most recent five-year plan contemplates. Such a development could reduce China’s stake in the United States as an export market even as it encourages other Asian countries to further orient their economies toward China.

The key decision facing both Beijing and Washington is whether to move toward a genuine effort at cooperation or fall into a new version of historic patterns of international rivalry. Both countries have adopted the rhetoric of community. They have even established a high-level forum for it, the Strategic and Economic Dialogue, which meets twice a year. It has been productive on immediate issues, but it is still in the foothills of its ultimate assignment to produce a truly global economic and political order. And if a global order does not emerge in the economic field, barriers to progress on more emotional and less positive-sum issues, such as territory and security, may grow insurmountable.

THE RISKS OF RHETORIC

As they pursue this process, both sides need to recognize the impact of rhetoric on perceptions and calculations. American leaders occasionally launch broadsides against China, including specific proposals for adversarial policies, as domestic political necessities. This occurs even -- perhaps especially -- when a moderate policy is the ultimate intention. The issue is not specific complaints, which should be dealt with on the merits of the issue, but attacks on the basic motivations of Chinese policy, such as declaring China a strategicadversary. The target of these attacks is bound to ask whether domestic imperatives requiring affirmations of hostility will sooner or later require hostile actions. By the same token, threatening Chinese statements, including those in the semiofficial press, are likely to be interpreted in terms of the actions they imply, whatever the domestic pressures or the intent that generated them.

The American debate, on both sides of the political divide, often describes China as a “rising power” that will need to “mature” and learn how to exercise responsibility on the world stage. China, however, sees itself not as a rising power but as a returning one, predominant in its region for two millennia and temporarily displaced by colonial exploiters taking advantage of Chinese domestic strife and decay. It views the prospect of a strong China exercising influence in economic, cultural, political, and military affairs not as an unnatural challenge to world order but rather as a return to normality. Americans need not agree with every aspect of the Chinese analysis to understand that lecturing a country with a history of millennia about its need to “grow up” and behave “responsibly” can be needlessly grating.

On the Chinese side, proclamations at the governmental and the informal level that China intends to “revive the Chinese nation” to its traditional eminence carry different implications inside China and abroad. China is rightly proud of its recent strides in restoring its sense of national purpose following what it sees as a century of humiliation. Yet few other countries in Asia are nostalgic for an era when they were subject to Chinese suzerainty. As recent veterans of anticolonial struggles, most Asian countries are extremely sensitive to maintaining their independence and freedom of action vis-à-vis any outside power, whether Western or Asian. They seek to be involved in as many overlapping spheres of economic and political activity as possible; they invite an American role in the region but seek equilibrium, not a crusade or confrontation.

Yet for all of the panic and paranoia over this development, some basic questions remain unanswered. What exactly is the China model? It is clear that China’s economy has boomed despite its decision to spurn Western-style democracy, but does this mean that authoritarianism was responsible for the country’s capitalist success?

In reality, different parts of China have followed many different paths to economic and social development over the last several decades. The China model changes depending on where and when one looks for it. More important, it is inaccurate—and indeed misleading—to equate the China model with conventional authoritarianism. As I have argued in this magazine, the political foundation of China’s economic success since Chinese leader Deng Xiaoping opened markets in 1978 was not autocracy, but autocracy with democratic characteristics. By reforming China’s bureaucracy, Deng introduced democratic features, specifically accountability, competition, and partial limits on power, into the country’s single-party system. China’s experience in the reform era shows that even a partial injection of democratic qualities into an autocratic system can unleash tremendous initiative and adaptive capacity. Western democracies do not need to fear the China model. Instead, they should worry about the widespread misinterpretation of this model by the West, the developing world, and China’s own political elites. 

DEFINING THE CHINA MODEL

Today, it seems as if everyone has an opinion about the China model. To media outlets in the West, it is simply authoritarian capitalism—single-party rule combined with extensive state ownership and control over the economy. Many experts echo variants of this interpretation. McGregor defines China’s system as “a Leninist-style party with a centuries-old bureaucratic culture.” The economist Barry Eichengreen distills it to “strong political control.”

But others disagree. The analyst Joshua Cooper Ramo coined the term “the Beijing Consensus” to describe a model of innovation-based development in which economic success is measured “not by GDP growth but by sustainability and equality” (a surprise to anyone familiar with China’s serious inequality problem). The Chinese commentator Zhang Weiwei, on the other hand, says that “super” conditions—“a super-large population, super-sized territory, a super-long history, and a super-rich culture”—have created a model that is characterized by a mixed economy, incremental reforms, and an enlightened state. The theorist Daniel Bell, meanwhile, casts China as a meritocracy, in which officials are selected by competence rather than multiparty elections.

All of these interpretations are partially correct, but none of them is complete. China is a vast country that has changed rapidly over the past four decades. As a result, there are numerous and sometimes contradictory China models depending on where and when one looks. 

Consider, for example, one of the most prosperous counties in Zhejiang Province (in my book, I use the pseudonym "Blessed County" to ensure anonymity). Between 1978 and 1993, when private capitalism was still forbidden, this county relied upon collective enterprises, which were owned by village and township governments. Despite the lack of formal private property rights, industrial output grew 33 times during this period as collective economic units were allowed to fully retain profits. Viewed in isolation, this snapshot demonstrates that incremental reforms on the margins of a planned economy were enough to fuel growth.

But the story doesn’t end here. Between 1993 and 1995, as Beijing further liberalized markets, the county government privatized collective enterprises en masse. Although the lack of private property rights had not prevented industrial production from taking off, it had hindered business expansion. By facilitating privatization and refraining from intervening directly in the economy, local officials supported the emergence of the county’s first generation of private entrepreneurs, several of whom went on to become globally competitive corporate titans. This second snapshot validates “the Washington Consensus,” the belief that private property rights and a limited government are the necessary preconditions for economic growth.

Moving into the first decade of this century, as local industries flourished, the county became congested and chaotic. This led private businesses to call for government intervention to coordinate the zoning of various industries and provide urban planning. To do so, the local leadership had to relocate factories and residents, sometimes through coercion. But this forceful step created a new business district in the heart of the county, where companies could congregate. This move stimulated the spread of services such as financial management and marketing that helped industries upgrade. It also vastly improved traffic and the quality of residential life. Such extensive measures took the county’s prosperity to a new level, not simply by increasing production but by transforming the economy’s structure. This third snapshot from 2000 to 2010 provides evidence for the theory that heavy-handed state intervention and planning can spur economic growth.

In one small area of China with a population of less than a million people, it is possible to observe three radically different models of development, each of which played an important role in the area’s economic and social transformation.

DIRECTED IMPROVISATION

Most explanations of the China model highlight qualities that prevailed only in certain locations at certain points of time. This does not mean there is no China model, however. Since 1978, the most consistent feature of China’s development has been the governing system that has allowed continuous change to emerge, often in unexpected ways.

This adaptive system, bequeathed by Deng, is what I call “directed improvisation.” Three disastrous decades under Mao Zedong’s dictatorship taught the reformists who took over about the limits and dangers of top-down control. Although Deng rejected Western-style democracy, he was also determined to remove ideological shackles and liberate bottom-up initiative within China’s vast bureaucracy.

Under Deng, Beijing became a director, not a dictator. Instead of trying to command their way to rapid industrialization and growth, reformers focused on creating the right conditions for lower-level officials to kick-start development in their own communities using local resources. This entailed more than just decentralization. Simply allowing localities to do whatever they pleased would have bred chaos; Beijing was highly involved in setting boundaries, initiating reforms across policy areas that complemented one another, and defining the criteria of bureaucratic success. Later, it also began intervening to balance rich and poor regions by encouraging the domestic transfer of industry and capital.

Although the Chinese leadership did not grant formal political rights to civil society, these changes liberated China’s vast civil service, which is as populous as a midsize country, to take initiative and innovate. In this environment, regions across China collectively improvised a large variety of development models that were tailored to local conditions and needs.

It was not simply single-party rule and state ownership that fueled China’s dramatic economic rise.

Once the full picture is revealed, it becomes clear that it was not simply single-party rule and state ownership that fueled China’s dramatic economic rise. To be sure, Beijing has swerved back and forth on the control barometer over the last several decades, and Xi now exercises more control than his predecessors. But experience has shown that imposing tight political oversight and relying on top-down commands have usually backfired for Beijing. For example, in an attempt to save falling stock prices in 2015, Xi’s administration rolled out a series of dictates, such as making state banks pledge to buy stocks and not to sell them. In the end, these efforts not only failed, they wasted billions of dollars. For the ruling elites, this was a fresh reminder that markets can be guided, but they cannot be precisely controlled. 

THE REAL CHINA MODEL

The greatest risk for U.S. strategy, accordingly, lies not in doing too little but in overreacting to fears of Chinese ascent and American decline. Instead of hyping China’s rise and gearing up for a new Cold War, Washington should take more modest steps to reinforce the existing balance of power in East Asia and reinvigorate the U.S. economy. To keep the peace, U.S. leaders should seek to engage rather than alienate Beijing, safe in the knowledge that long-term geopolitical trends will favor the United States.

MEASURING WHAT MATTERS

The main piece of evidence typically cited for China’s supposedly inexorable rise is its large gross domestic product (GDP), along with various other statistics that are essentially sub-components of GDP, including industrial and manufacturing output; trade and financial flows; and spending on military, research and development (R&D), and infrastructure. These gross indicators, however, are terrible measures of a country’s power. As I show in a new book, they fail to track the rise and fall of great powers over the past 200 years and perform little better than a coin toss at predicting the winners and losers of international disputes and wars. 

In fact, by these very measures, China was at the top once before: in the nineteenth century, China had the world’s largest economy and the largest military. It also ran a trade surplus with other great powers. Yet many Chinese citizens today think of this era as a “century of humiliation” during which their country lost huge chunks of territory and most of its sovereign rights to smaller rivals, most notably the United Kingdom and Japan. Similarly, nineteenth-century Russia had Europe’s largest GDP and military, but it suffered a series of crushing defeats by the United Kingdom, France, and Germany that culminated in the collapse of the Russian empire in 1917. In the last century, the Soviet Union outpaced the United States by most measures of gross resources, including industrial output, military and R&D spending, and the number of troops, nuclear weapons, scientists, and engineers. It still lost the Cold War.

Gross indicators, such as GDP, are terrible measures of a country’s power.

These and hundreds of other cases illustrate a simple but crucial point: gross indicators such as GDP and military spending exaggerate the power of populous countries, because they count the benefits of having a large workforce and a big military but not the costs of having many people to feed, police, protect, and serve.

A big population is obviously an important asset. Luxembourg, for example, will never be a major power, because its economy is a blip in world markets and its military is smaller than Cleveland’s police department. But a big population is no guarantee of great power, because people both produce and consume resources. One billion peasants will produce immense output, but they also will consume most of that output on the spot, leaving few resources left over for power projection abroad.

To become a superpower, by contrast, a country needs to amass a large stock of economic and military resources. To do this, in turn, it must be big and efficient at the same time—not one or the other. It must not only mobilize vast inputs but also extract as much as possible from these inputs. In short, a nation’s power stems not from its gross resources but from its net resources—the resources left over after subtracting the costs of making them.

MIGHT MAKES RIGHT, BUT WHAT MAKES MIGHT?

The list of these costs is long. For starters, there are production costs, which include the raw materials consumed to generate wealth and military capabilities, as well as any negative byproducts of that process (think pollution). Then, add welfare costs—the expenses a nation pays to keep its people from dying in the streets, including spending on food, health care, education, and social security. Finally, there’s the price of security: the government has to police and protect its citizens from enemies foreign and domestic. Needless to say, these costs add up. In fact, they usually consume most of a nation’s resources.

To get an accurate sense of a country’s overall power, then, analysts need to account for these costs. In recent years, the World Bank and the United Nations have taken up this task and published rough estimates of countries’ net stocks of resources. Their analyses focus on three areas: produced capital (man-made items such as machines, buildings, fighter aircraft, and software), human capital (the population’s education, skills, and working life span), and natural capital (water, energy resources, and arable land). In addition, the investment bank Credit Suisse has published data on countries’ net stocks of privately held wealth. Although these three databases use different data and methods, they largely paint the same picture: the United States’ net stocks of resources are several times the size of China’s, and its lead is growing each year, possibly by trillions of dollars.

It gets even more astonishing. These numbers are conservative estimates, because they rely on Chinese government statistics, which exaggerate China’s output by as much as 30 percent and ignore numerous costs that erode its wealth and military capabilities. Chinese businesses, for instance, use roughly two times more capital and five times more labor than U.S. companies to generate the same level of output. More than one-third of China’s industrial capacity is wasted. More than half of its R&D spending is stolen. Nearly two-thirds of its infrastructure projects cost more to build than they will ever generate in economic returns. China also spends hundreds of billions of dollars more than the United States every year to feed, police, and provide social services to its population.

The United States’ net stocks of resources are several times the size of China’s, and its lead is growing each year, possibly by trillions of dollars.

These same inefficiencies and barriers drag down China’s military might. On average, Chinese weapons systems are roughly half as capable as those of the United States in terms of range, firepower, and accuracy. Chinese troops, pilots, and sailors lack combat experience and receive less than half the training of their American counterparts. Moreover, border defense and internal security consume at least 35 percent of China’s military budget and bog down half of its active-duty force, whereas the U.S. military enjoys a secure home base and can focus almost entirely on power projection abroad.  

The U.S. military, of course, disperses its assets around the world, whereas China’s are concentrated in East Asia, making it a formidable regional power. But the United States’ military presence in many far-flung corners of the globe is a matter of policy preference rather than necessity, meaning that Washington can quickly redeploy forces from one area to another without seriously jeopardizing its security. China, by contrast, has to keep most of its military on guard at home. For one, it suffers much higher levels of domestic unrest than the United States. It also shares sea or land borders with 19 countries, five of which have fought wars against China within the last century and ten of which still claim parts of Chinese territory as their own. Crucially, many of these countries have developed advanced air, naval, and missile capabilities that could prevent China from establishing sea or air control in most of the East China and South China Seas.

In sum, the United States maintains a huge economic and military lead over China. To catch up, China will need to grow its power resources faster. This, however, is a long shot, not only given its massive debts, dwindling resources, and rampant corruption but also because of its eroding work force. By some estimates, China will lose a quarter of its working-age population—more than 200 million workers—over the next 30 years, while the number of Chinese aged 65 years or older will more than triple. As a result, China’s ratio of workers to retirees, which today stands at seven to one, will shrink to two to one. In the same period, the U.S. work force is expected to grow by 30 percent and the American worker-to-retiree ratio will remain around three to one.

THE PRICE OF FEAR

On top of being wrong, the conventional wisdom that China is a juggernaut set to overtake the United States as the world’s dominant power has dangerous policy implications. It creates the impression that the United States and China are locked in Thucydides’ Trap, in which a rising power challenges the ruling hegemon, and the two slide into a major war. This misguided notion, widespread in both countries, is already driving a spiral of hostility. Emboldened by the global hype about its rise, China has embarked on the greatest territorial expansion of any nation since World War II, staking claim to roughly 80 percent of the East China and South China Seas and pouring resources into its military. The United States has responded by labeling China a rival, imposing steep tariffson Chinese goods, gutting the State Department to free up funds for the military, inserting U.S. forces into East Asian territorial disputes, and making plans to hit China early and hard in the event of war.

BACK TO THE DRAWING TABLE

To reconsider the merits of supporting China’s WTO membership, we must set the scene. During the 15 years of negotiations leading up to 2001, the United States and other countries set several conditions for China’s admission, including an extensive series of liberalization commitments. These involved concessions such as dropping tariffs on many categories of goods, opening up agricultural trade, and allowing in foreign service providers. In contrast, the United States did not need to make any new market-opening concessions; it just needed to guarantee that it would offer China most-favored-nation status (MFN)—basically, the same levels of tariffs that the United States had been offering Beijing since 1980. Before China joined the WTO, the United States essentially provided Beijing MFN treatment through its regular waiver of the 1974 Jackson–Vanik amendment, a law intended to restrict the trade benefits the United States offered to Communist nations. Thus, when China joined the WTO, the United States Congress voted to discontinue the regular review and made permanent the privileges it had bestowed upon Beijing over the previous 20 years.

What, then, were the policy alternatives at the time?

In early 2014, China’s efforts to assert authority over the South China Sea went from a trot to a gallop.

Time is running out to stop China’s advance. With current U.S. policy faltering, the Trump administration needs to take a firmer line. It should supplement diplomacy with deterrence by warning China that if the aggression continues, the United States will abandon its neutrality and help countries in the region defend their claims. Washington should make clear that it can live with an uneasy stalemate in Asia—but not with Chinese hegemony. 

ON THE MARCH

China has asserted “indisputable sovereignty” over all the land features in the South China Sea and claimed maritime rights over the waters within its “nine-dash line,” which snakes along the shores of the other claimants and engulfs almost the entire sea. Although China has long lacked the military power to enforce these claims, that is rapidly changing. After the 2008 financial crisis, moreover, the West’s economic woes convinced Beijing that the time was ripe for China to flex its muscles.

Since then, China has taken a series of actions to exert control over the South China Sea. In 2009, Chinese ships harassed the U.S. ocean surveillance ship Impeccable while it was conducting routine operations in the area. In 2011, Chinese patrol vessels cut the cables of a Vietnamese ship exploring for oil and gas. In 2012, the Chinese navy and coast guard seized and blockaded Scarborough Shoal, a contested reef in the Philippines’ exclusive economic zone. In 2013, China sent an armed coast guard ship into Indonesian waters to demand the return of a Chinese crew detained by the Indonesian authorities for illegally fishing around Indonesia’s Natuna Islands.

Then, in early 2014, China’s efforts to assert authority over the South China Sea went from a trot to a gallop. Chinese ships began massive dredging projects to reclaim land around seven reefs that China already controlled in the Spratly Islands, an archipelago in the sea’s southern half. In an 18-month period, China reclaimed nearly 3,000 acres of land. (By contrast, over the preceding several decades, Malaysia, the Philippines, Taiwan, and Vietnam had reclaimed a combined total of less than 150 acres.) Despite assurances by Chinese President Xi Jinping in September 2015 that China had “no intention to militarize” the South China Sea, it has been rapidly transforming its artificial islands into advanced military bases, replete with airfields, runways, ports, and antiaircraft and antimissile systems. In short order, China has laid the foundation for control of the South China Sea. 

Should China succeed in this endeavor, it will be poised to establish a vast zone of influence off its southern coast, leaving other countries in the region with little choice but to bend to its will. This would hobble U.S. alliances and partnerships, threaten U.S. access to the region’s markets and resources, and limit the United States’ ability to project military power and political influence in Asia.