Can China Win the Contest of the Century?

June 11, 2014

Geoff A. Dyer, The Contest of the Century: The New Era of Competition with China – and How America Can Win (New York: Alfred A. Knopf, 2014)

 

The security competition underway between China and the United States might very well have baleful consequences. In his speech last weekend to the Shangri-la Dialogue, Asia’s most important annual security conference, U.S. Secretary of Defense Chuck Hagel made note of China’s “destabilizing, unilateral actions asserting its claims in the South China Sea.” Hagel listed China’s seizure of Scarborough Reef from the Philippines in 2012, its pressure on the small Filipino garrison at Second Thomas Shoal, its land reclamation at several other nearby islands (preparing them for permanent Chinese military garrisons), and China’s installation of an oil rig in disputed waters near Vietnam. He also mentioned China’s air defense identification zone (ADIZ) over the Senkaku/Daioyu Islands in the East China Sea, which overlaps Japan’s ADIZ and is now the site of close encounters between Chinese and Japanese military aircraft.

Major General Zhu Chenghu, a member of China’s delegation to the conference, had a clear response for Hagel: “The Americans are making a very, very important strategic mistake right now. If you take China as an enemy, China will absolutely become the enemy of the U.S.

The rapid rise of China over the past three decades, the expansion of its perceived interests, and its search for security has made a collision with the United States and its partnership network in East Asia inevitable. In The Contest of the Century, author Geoff Dyer, a Financial Times journalist and recently its bureau chief in Beijing, attempts to reassure U.S. readers that, for all of China’s bluster and displays of power, China’s authoritarian political system and its centrally-planned financial structure will forever limit Chinese power. He argues that China cannot replace the United States as the world’s top power, so long as the Chinese Communist Party insists on retaining these essential levers of its authority. But danger still looms. Dyer’s street-view descriptions of China’s burning nationalism and its flashes of anger and frustration directed at Japan and the United States portend an ominous period ahead.

Dyer’s discussion of China’s growing sense of nationalism in particular must be read by policymakers, diplomats and military leaders. Based on his years of reporting in China, Dyer describes the hatred much of Chinese society harbors toward Japan, along with the joy expressed by student groups when they sporadically form mobs to stone Japanese stores and overturn Japanese cars. He then discusses growing popular resentment against the United States, increasingly viewed by many in China as an instigator and enabler of the regional backlash now rising up against the country. Dyer describes the Chinese government’s explicit policy, beginning early in the education system, of reinforcing China’s culture of victimhood and history of humiliation at the hands of foreign powers. Indeed, it is a regular practice of China’s Foreign Ministry to announce that a particular government has “hurt the feelings of the Chinese people” (the United States has received this official designation twenty-three times), all 1.3 billion of them. Having sidelined Mao and largely abandoned Marxist ideology, China’s leaders now brandish nationalism in an attempt to maintain their legitimacy and social control, an experiment that seems bound to go badly awry.

Dyer also masterfully examines China’s investment in soft power. In 2011-2012, the Chinese government spent $8.7 billion on its overseas media operations in an attempt to promote the “China brand” to the global audience (by comparison, the annual budget for the BBC World Service is $400 million; the budget in 2013 for the Voice of America totaled $196 million). But it all might be for naught. By Dyer’s reckoning, these sums are wasted so long as China remains a one-party police state that hauls off political dissidents and its most creative artists, censors all media, maintains an armed occupation of Tibet, and uses its paramilitary and military power to slowly gobble up the East and South China Seas.

Turning to economics, Dyer explores growing frustration inside China due to the fact that its massive currency reserves cannot be employed as leverage against the perceived U.S. containment of China. This is simply because these reserves reportedly include around $2 trillion in U.S. Treasury securities. China’s dollar reserves are the consequences of its currency manipulation policy, aimed at driving the yuan down in value in order to increase sales of Chinese manufactured goods inside the United States. If China attempted to employ its dollar reserves as a financial weapon, it would cripple its export policy and threaten potentially millions of Chinese jobs – a dangerous move for a one-party state that bases its domestic legitimacy on a growing economy.

As Dyer explains, the yuan cannot replace the dollar as the world’s leading currency so long as the Chinese government prevents the yuan and yuan-denominated assets from moving freely in and out of China. Chinese authorities resist giving up control over the yuan-dollar exchange rate (a requirement of China’s export strategy). Nor will they give up control over China’s domestic interest rates, which are now kept artificially low in a form of “financial repression” that transfers wealth from trapped domestic savers to the Party’s favored industrialists. It also provides no comfort to global investors who might otherwise be interested in investing in China that the one-party state sustains an ambiguous and arbitrary legal system that keeps property rights in question. For China to displace the United States as the leader of the global financial system, the Party would have to surrender its control over these levers, something that seems out of the question as stresses build up in and around the country.

Oddly missing from Dyer’s otherwise excellent economic analysis is a thorough discussion of China’s grossly unbalanced economy, its squandered investments in empty “ghost cities,” and the resulting house-of-cards banking system suspended by dodgy collateral. Here Dyer has missed an opportunity to explain how the Party creates an incentive for ambitious provincial leaders to toss farmers off their land to make way for unproductive development that temporarily gooses the province’s economic growth figures, while simultaneously adding more bad debt to the financial system.

After examining China’s rapid two-decade build-up of missile and naval power and the looming threat these present to America’s military position in East Asia, Dyer seems flummoxed on how the United States should respond. For this and other reasons, Dyer’s analysis of military trends in East Asia is the book’s least satisfying section. He explores ideas currently under discussion in Washington such as Air-Sea Battle, a distant blockade, and drastically reshaping the U.S. fleet away from aircraft carriers toward small agile combatants. After finding serious flaws with all these concepts, he escapes by concluding “there are no straightforward answers to the headaches China will cause the Pentagon in coming years.”

Easy answers to the military problem are indeed elusive. But Dyer betrays an unfortunate aversion to the value of military power in sustaining deterrence. In his introduction, Dyer declares, “If the U.S. strives to maintain the kind of military dominance it has enjoyed for the last two decades, installing China as the new enemy to scare up budgets, it will be in big trouble.” Why this would be so, Dyer does not say. More crucially, Dyer does not explain why the trouble would be bigger compared to alternatives – namely the collapse of the American-sponsored system of alliances and deterrence in Asia.

While addressing a Chinese language broadcaster at the Shangri-la conference Major General Zhu described the U.S. as a declining power. He then wondered whether U.S. security commitments to allies in Asia are now essentially a bluff. Are Zhu’s views an outlier or are they increasingly shared among China’s policymakers? Should such views proliferate in Beijing, accelerating Chinese assertiveness and a decline in the cohesion of America’s security partnerships in the region would seem inevitable. Dyer correctly asserts that these partnerships are America’s best asset. But given the increasingly reckless and neurotic China that Dyer describes, stability in the region will surely require the U.S. to maintain a military capacity sufficient to deter any challenge. Dyer’s aversion to this conclusion is puzzling.

That said, Dyer’s skilled blend of journalism, access inside China, and astute examination of China’s development and growing challenges provides a worthy analysis of the emerging great power competition in East Asia. China will struggle to achieve its loftier goals and will put stress on Asia as it tries. Readers should get Dyer’s Contest of the Century to find out why.

 

Robert Haddick is an independent contractor at U.S. Special Operations Command. He writes here in a personal capacity. In September 2014, U.S. Naval Institute Press will publish “Fire on the Water: China, America, and the Future of the Pacific,” Haddick’s book on the rise of China’s military power and U.S. strategy in East Asia.

 

Photo credit: Paul Downey