Events

The United States and China: What Next?

April 28, 2009 // 2:00pm6:30pm
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Panel I: "Working Towards Economic Recovery and International Balance"
Panel II: "Can China and the United States Cooperate over the Long Term: Overcoming Historical and Military Challenges"

The United States-China relationship is commonly acknowledged to be among the most important in the world. A major research project organized by the Harvard Kennedy School and the China-United States Exchange Foundation invited distinguished scholars from China and the United States to analyze a variety of issues in this relationship. The result was Power and Restraint, edited by Richard Rosecrance and Gu Guoliang, comprising over a dozen essays by scholars from both countries, many jointly authored. The essays explore a range of issues with the aim of identifying common interests and narrowing gaps in perception At an April 28, 2009 event organized by the Kennedy School and the Kissinger Institute on China and the United States, Rosecrance, Gu and several the contributors commented on the themes of the book.

Panel I: "Can China and the United States Cooperate over the Long Term: Overcoming Historical and Military Challenges"

Richard Rosecrance of the Harvard Kennedy School opened the first panel by examining the historical and military challenges facing the relationship between China and the United States. He noted that historically the strains between a rising power and a great power have not infrequently led to military conflict. Thus, both China and the United States need to be aware of the potential for confrontation, and exercise great care and constant effort to avoid it.

Gu Guoliang of the Institute of American Studies at the Chinese Academy of Social Sciences stated that military relations between China and the United States face many challenges. The two particularly worrisome problems are the mutual lack of strategic confidence and Taiwan. To overcome suspicion, prejudice and misunderstanding about each other's strategic intentions and military capabilities the two countries should stress confidence building and joint activities. According to Gu, China's military modernization is commensurate with its economic development and is focused on protecting its sovereignty and its maritime interests.

Ezra Vogel of Harvard University explored recent points of high tension in Sino-U.S. relations: the 1989 Tiananmen Square incident and the U.S. response; former Taiwanese President Lee Deng-Hui's visit to his alma mater, Cornell University; the bombing of the Chinese embassy in Yugoslavia; the plane collision over Hainan Island; and U. S. visits of the Dalai Lama. Vogel cautioned against likely worrisome situations: possible internal adjustment and protectionism from an economic slowdown in China in the coming years, greater equality in military power between the United States and China, and the revival of Chinese pride. In the new era where the public will be much more involved, more exchanges and greater openness of the part of both countries are needed.

Jia Qingguo of Peking University assessed prospects for Sino-U.S. cooperation. He noted several historical precedents when the rise of one power did not lead to military confrontation—not challenging the world order, rejection of territorial expansion, reliance on trade for prestige and resources, and similar values. He contended that China's rise exemplifies these preconditions. It has accepted the world order, albeit with a desire to influence it. It has rejected territorial expansion yet succeeds in acquiring resources through trade and investment. Furthermore, it shares many basic values with the United States such as free market, rule of law, and increasingly, human rights and democracy (though differences remains in understanding and practicing these values).

Graham Allison of the Harvard Kennedy School discussed current aspects of the relationship. The Chinese leadership has bet its future on its ability to deliver rapid economic growth which is a result of open markets (i.e. the United States) for China's exports and transcontinental energy imports. Additionally, China holds 2 trillion dollars of reserves, mostly in U.S. dollars. Allison believes that these linkages make the Chinese-American relationship "MADE"—Mutually Assured Destruction of Economies. The Chinese-U.S. failure in North Korea derives from China's short-sightedness and focus on abetting economic growth while the United States is misguided and focused on regime change. The crisis, according to Allison, is an opportunity, if leaders in both countries perceive that what each needs to do in their own interests can equally benefit the other.

Joseph Nye of the Harvard Kennedy School examined the U.S. perception of China's rise versus its actual rise. Focusing on rapid growth rates distracts from the importance of absolute levels. China's military expenditures are growing each year, but there is a long way to go between talking about having an aircraft carrier and having a full fleet of a dozen aircraft carrier battlegroups. The United States is still ahead of China even in terms of soft power. Regarding economic power, Nye asserted, if the United States were brought to its knees, China would be brought to its ankles. China is rising, but the United States cannot submit to fear. If it treats China as an enemy, it guarantees an enemy; treat China as a friend and it may or may not be a friend. With two countries seeking stability, a positive sum relationship can develop.

Steven Miller of the Harvard Kennedy School spoke on arms control and non-proliferation. China has connected to the world order, and has incorporated its international commitments under the nonproliferation regimes in a constructive manner. In regards to Iran and North Korea, the United States and China have the same objectives, but disagreements exist in regard to differences of their relationships with the parties, perceptions of acuteness of the problem, and preferred approaches. Miller proposed three goals for building on cooperation: first, do not allow specific issues with great potential for friction damage the broader convergence; second, create mechanisms for finding common ground on the difficult issues; third, promote U.S.-China cooperation in specific crises that helps resolve them.

Panel II: "Working Towards Economic Recovery and International Balance"

Antony Leung of the Blackstone Group gave an overview of the current debates concerning the China-U.S. economic relationship, which he describes as contentious with room for cooperation. Blame for the current financial crisis has been attributed to both sides. Also, many say that with China's rapid growth rates, it may be that China that can help save the world, and perhaps overcome the United States as the largest economy. It is important to note, cautions Leung, that China's per capita GDP is still a fraction of that of the United States. The relationship faces multiple adversarial situations—China mixing its foreign currency holdings; the internationalization of the RMB; and large capital flows in and out of China.

David Richards, an independent investor from California, analyzed the nature of the global economic crisis in terms of the U.S.-China relationship. He maintained that the current crisis has been caused by policy mistakes of both China and the United States. The Central Bank of China fed credit into the US system and its policy obscured U.S. inflationary and monetary problems. On the other side, American policymakers and academics believed that markets should never be overly regulated. As a result, credit was under-priced, leverage was too great, and there were no reserves. The U.S. government stimuli packages have increased the amount of collateral in the system to offset the liabilities from credit default swaps. Now, the gap between low-quality and high-quality debt is narrowing and stock markets around the world have recovered. If the experience of 1933-36 is any indicator, it is entirely possible that things will rapidly recover around the world.

Zhang Yunling of the Chinese Academy of Social Sciences outlined what the United States and China are doing and can do to recover from the economic crisis. The roots of the crisis are an accumulation in "three grand imbalances"—producers are not consuming and consumers are not producing; the virtual economy became large beyond the need of the real economy; and the gap between financial innovation and monitoring widened. The stimulus package of the Chinese government concentrated on increasing internal demand and infrastructure. China would also like to see a strong international monetary system with a mechanism to monitor and regulate cross-border capital flows, and hopes that the United States will change and improve its own system.

Steven Clemons of thewashingtonnote.com commented on the China-U.S. economic relationship in the global system. China is a fast, "high-promise," "high-rising place" with a weight and value probably greater than its core underlying features. It therefore runs the risk of its mercantilist behavior making it a market destabilizer. Meanwhile, America is a well-branded under-performing asset. Moving forward, it is important for surplus countries like China to work with deficit countries like the United States. Americans will not revert to a 72% consumption rate, so a reflation strategy of the United States will not get the world economy back on track. Furthermore, China's mercantile growth and the unregulated Wall Street market should be dismantled.

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