Assessing China's Power

WHEN CHINA'S President Hu Jintao visits Washington this week, George W. Bush will confront one of the key challenges of his presidency — how to respond to China's increasing economic and military power. Everyone agrees that the rise of China is one of the transformative changes of this century, but Washington is divided between "panda huggers" who welcome it and "China hawks" who express alarm.

Secretary of Defense Donald Rumsfeld, for example, complains that China's defense budget has increased by double digits since the mid-1990s, and will grow this year by 14.7 percent. Senators Charles Schumer, Lindsey Graham, and others believe that China's manipulation of the yuan is costing American jobs, and they threaten retaliation. Democracy and human rights advocates point to China's abysmal ratings in Freedom House's survey of the least free countries in the world.

A recent poll reports that one-third of Americans believe that China will "soon dominate the world," while 54 percent see the emergence of China as a "threat to world peace." Some commentators have argued that China will be as disruptive to the beginning of the 21st century as the Kaiser's Germany was to the 20th century.

But such views exaggerate China's power. Measured by official exchange rates, China is the fourth largest economy in the world and is growing at 9 percent annually, but its income per capita is only $1,700, or one-twenty-fifth that of the United States. China's research and development is only 10 percent of the American level.

If both the United States and China continue to grow at their current rates, it is possible that China's total economy could be larger than ours in 30 years, but American per capita income will remain four times greater. In addition, China's military power is far behind, and it lacks the soft power resources such as Hollywood and world-class universities that America enjoys. In contrast, the Kaiser's Germany had already passed Great Britain in industrial production by 1900, and launched a serious military challenge to Britain's naval supremacy.

The fact that China is a long way from overtaking the United States does not prevent a possible war over Taiwan, which China regards as a lost province. Weaker countries sometimes attack stronger countries — witness Japan at Pearl Harbor. But such a conflict is not inevitable as long as Taiwan does not declare formal independence and China does not become impatient. With time and generational change, this might be one of the rare conflicts that becomes more tractable over time.

We faced these problems a decade ago when the Clinton administration formulated our strategy for East Asia. We knew that hawks who called for containment of China would not be able to rally other countries to that cause. We also knew that if we treated China as an enemy, we were ensuring future enmity. While we could not be sure how China would evolve, it made no sense to foreclose the prospect of a better future. Our response combined balance of power with liberal integration. We reinforced the US-Japan alliance so that China could not play a "Japan card" against us, while inviting China to join the World Trade Organization. In a rare case of bipartisan comity, the Bush administration has continued that strategy.

China is now our third largest trade partner and second largest official creditor. Critics contend this trade with China has made us vulnerable. China could hurt us by dumping its holdings of dollars, but to do so would also damage its own economy. The yuan may be somewhat undervalued, but China accounts for only a third of the increase in America's trade deficit over the past five years, and a revaluation will not remove our deficit. As for jobs, even if America bars low-cost goods from China, we will import them from somewhere else. To solve our economic problems, we must get our own house in order by raising savings, cutting deficits, and improving our basic education.

China's internal evolution remains uncertain. It has lifted 400 million people out of poverty since 1990, but another 400 million live on less that $2 per day. It has enormous inequality, a migrant labor force of 140 million, severe pollution, and rampant corruption. Political evolution has failed to match economic progress. While more Chinese are free today than ever before in Chinese history, China is far from free. Some 110 million Chinese use the Internet, but the government censors the Internet. The danger is that party leaders, trying to counter the erosion of communism, will use nationalism as their ideological glue, and this could lead to an unstable foreign policy.

Faced with such uncertainty, President Bush has offered China a strategic dialogue to encourage it to evolve as a "responsible stakeholder." He can take a lead from Ronald Reagan, who used the phrase "trust but verify." For China, the right strategy is "embrace, but hedge."

Joseph Nye, a Harvard University professor, was assistant secretary of defense for international security affairs in 1994 and 1995. He is author of "The Power Game: A Washington Novel."