THE BLOG

The Middle Kingdom and the Coming World Disorder

Eric X. Li is Chairman of Chengwei Capital and Chunqiu Institute and a senior fellow at Fudan University's Center for China Development Model Research. His comments here are adapted from a lecture at the Asan Institute for Policy Studies in Seoul. A fuller version of this article appeared in www.theasanforum.org, the Open Forum, Issue 2.

SHANGHAI -- Many analysts argue that China has stumbled recently in the South China Sea and East China Sea in its aggressive territorial disputes with its neighbors, alienating so many of them that it is now viewed as a threat by the region. This in turn has resulted in America's much-touted "pivot" (now renamed "rebalance") to the Asia-Pacific. Such judgment is misplaced.

On the contrary, history will probably prove that China has dealt with these situations with agility unmatched by the great powers of our time. China's strategic objective in the region is to change the status quo -- the establishment of which it did not have enough power to participate in or influence -- to its advantage without resulting in actual military conflicts.

In both the South China Sea against several Southeast Asian nations -- most notably the Philippines, and in the East China Sea against Japan -- China has accomplished that goal. Its naval presence near Huangyan Island, the now frequent visits by Chinese vessels to the areas of Diaoyu (Senkaku) Islands, the growing international focus on the disputes and the recently established Air Defense Identification Zone attest to that achievement.

At the same time, China has sought to balance its tough stance with accommodating and even generous policies to build common interests with those neighbors who are not hostile to it. Its warm and improving relations with both Indonesia and Malaysia, both bulwark states within ASEAN, are enhancing China's hard and soft power in the region.

China's most notable accomplishment in the past three decades is, perhaps, its success in engaging, and in many cases mastering, the international economic system setup and maintained by the U.S.-led West without being absorbed by it.

China's most notable accomplishment in the past three decades is, perhaps, its success in engaging, and in many cases mastering, the international economic system set up and maintained by the U.S.-led West without being absorbed by it.

China did not participate in setting the rules of international economic engagement. The system was built by the United States and its Western allies over many decades. By the end of the Cold War in the 1990s, it was firmly believed in the West that capitalism was going global; and a global economic infrastructure anchored by the WTO and IMF with the U.S. Navy patrolling the sea lanes would deliver a globalized world economy consistent with the inevitable universalization of Western values.

It turns out that capital has indeed gone global, but the "ism" part did not.

China adopted a market economy, but not capitalism. It effectively negotiated its way into the WTO on preferential terms by taking advantage of the West's illusion of the eventuality of a globalized economic order. In one generation's time, it has gone from a negligible player in the global economy to an 800-pound gorilla within it.

It has done so by taking maximum advantage of the system to benefit its own interests without foregoing much of its political and economic independence. Preferential trade status protects its domestic industry while its exports flood the world market. In exchange for market access, multinational companies were required to invest and create jobs in China with continuous technology transfers.

A closed capital account has kept its financial infrastructure from the devastations of the ongoing global financial turmoil. On the issue of intellectual property protection, China has deftly outmaneuvered developed countries, allowing its businesses and consumers to benefit from Western investments in R&D on the cheap while avoiding any meaningful penalties. China's game is in marked contrast to many developing countries that have allowed the global system to overwhelm their national interests.

MIRAGE OF A SUPERPOWER

Just as no commercial contracts can be meaningful without a court to adjudicate disagreements and a police force to enforce its decisions, no international arrangements can be sustained without an ultimate guarantor to enforce the rules and punish those who break them, by force when necessary -- what Thomas Hobbes called "Leviathan."

In the decades since the end of the Cold War, the United States has played such a role, issuing security guarantees to a large number of nations, patrolling the world's sea lanes, underwriting the international trading and financial systems, punishing those whom it judges to be rogue players -- sometimes even at the expense of breaking the very rules it is supposed to uphold, such as in the instance of the Iraq War.

A strange set of numbers demonstrates the magnitude of this arrangement: The United States has 4.5 percent of the world's population and generates 20 percent of its production, yet accounts for half of all military expenditures.

A large part of the world has prospered under such an arrangement. The relative peace around the globe and the systems that govern international trade and finance have facilitated rapid economic growth in many developing nations and the sustenance of welfare states in more developed ones. These nations are essentially free riders, of which China is the biggest and most successful one. Who can blame them?

There is only one problem: the American leviathan is rapidly becoming a mirage. It is being sustained at the expense of the American nation. A "Leviathan" by definition is a disinterested ruler and god who is above the world it rules, not a participant in it.

America, with 300 million people, is a nation state that is and always will be an interested party in the world. For a brief period since the Cold War's end, America was able to be both a leviathan who rules the system and a national player within the system because a case could be made that its national interests coincided with the world's interests. In reality, America had indeed benefited tremendously from its hegemony. Its companies expanded their markets around the globe and the dollar's reserve currency status has underwritten a dramatic expansion of its consumption driven economy. But that moment has passed.

The attempt to play the dual role of a ruler and a participant is now costing America dearly and could very well bankrupt the country, economically and socially, if it continues.

After just one generation, it has fallen deeply in debt; its middle class is crumbling; its industries have been hollowed out; its infrastructure is in disrepair, its education system is badly underfunded; its social contract is in shambles and its political governance is paralyzed.

It is a matter of when, not if, the American people will ask for their country back.

For the first time since the Great Depression, a structural threat to American social cohesion has emerged. The weight of free riders is crushing the one participant who also wants to be ruler. America's elite classes have been steadfastly propelling forward the nation's role as the global hegemon partly because of their vested interests the globalization project. At the same time, they have relegated America's role as an interested participant to a lower priority. As a result, the fortunes of Americans have irreversibly declined and their future has been mortgaged. But it is a matter of when, not if, the American people will ask for their country back.

A DIFFERENT FUTURE AS LEVIATHAN RETREATS

The case of Syria may prove to be a watershed event. America's hesitancy and eventual reversal on military action was unprecedented in the post-Cold War era. The American people have forced the hands of their political elites to erase their presidential "red line."

The pivot the American people want and need and are now demanding is a pivot to Ohio.

We now live in a world that is in transition, yet the American elites still adhere to the old paradigm of the global order where everyone ends up with a liberal democratic capitalist system in their image.

Teleological narrative can be an extraordinarily powerful weapon when it suits its time. However, it is a prison when its time has passed.

CHINA'S APPROACH: KEEPING THE BARBARIANS OUT, NOT INVADING OTHERS

Will China seek to supplant the United States and be a new superpower? Some have gone so far as to proclaim that the 21st century will be a Chinese century.

China became the largest beneficiary by taking maximum advantage of globalization. Yet, China does not, and probably never will, subscribe to the universal ideology of democratic liberalism, and its vibrant market economy is pointedly not capitalism. Many Westerners are surprised by this as it was widely believed that China's economic development and integration into the world order would necessarily turn it into a convert of the Western religion of modernity.

China has, and always will, act in its own best national interests. Its worldview is consistent with the cultural roots of the Middle Kingdom -- keeping out barbarians, not invading them. This outlook of centrality is directly opposite to the 20th century Soviet and American notions of universality.

China appears to be a natural in this post-ideological century -- exploiting the international system for its own benefit while defending against external encroachments on its sovereignty. With or without sufficient capacity, it will never seek to lead the current global system let alone invent, and pay for, a new one to run the world.

China will never seek to lead the current global system let alone invent, and pay for, a new one to run the world.

In essence, the Americans have built a global system with a universal plan. China has ridden that system but would not subscribe to the plan -- to be fair, China never said it would. Furthermore, its success is showing new possibilities to many other developing nations that never embraced the plan but were told by the West they could not prosper without it.

So we are in somewhat uncharted waters. The world is not coming together under a unified system. Its underlying narrative is dead. Its underwriter is no longer able to pay for it. The most significant rising power is not interested in making a new one.

Perhaps "warring states" is a proper metaphor of our time in which no one is in control.
The Chinese seem to be looking ahead and beginning to formulate a new framework -- what Xi proposed to Obama during their California summit as a "new type of great power relations" -- seeking positive-sum solutions that benefit all based on the equality of the top powers lest competition slide into disruptive conflict.

More importantly, the Chinese see, rather wisely, that, although it is not possible to sustain the current global architecture as is, China's rise must be peaceful. Otherwise the consequences are unimaginable. China's sheer size makes this so.

Its acquiescence to U.S. leadership in many aspects of international relations and its many compromises with its Asia-Pacific neighbors against its own short-term interests point to such a realization. Perhaps, a more sustainable international architecture will emerge, not by design as was the passing one, but by the participation of nations acting independently.
China will continue to rise. America will surely renew its strength and prosperity and remain a great power -- but not necessarily top dog. Europe? Who knows?

Japan and Korea are greater unknowns. Perhaps this coming era is the most troubling and risky for smaller states that have depended on the patronage of American hegemony for their survival and welfare.