China takes a step back
By Zorawar Daulet Singh

The international system, we were told after the 2008 blowback on Wall Street, had entered a "new era". The Eastern hemisphere would henceforth dictate the terms of high politics and geo-economics. Asia's rise was now all but inevitable. While this belief has resonated widely in the international policy community, it was the Chinese leaders who might have taken their great power status a little too seriously.

On the other side of the equation, it appears that the strategic community in the United States overstated its relative decline - a result of the geopolitical woes emanating from its Eurasian military interventions and the financial crisis' adverse impact on the real economy and government finances. The Chinesediplomatic shrill that came to the fore with the January announcement of US arms sales to Taiwan represents a return to an equilibrium in US-China relations, one based on the actual distribution of power between the two protagonists.

Beijing's strident rhetoric in its recent diplomacy is a sign of both exuberance and frustration. To discern the present lack of tranquility in US-China relations, it is worth revisiting the post-crisis phase and US President Barack Obama's initial impulse to exaggerate the China factor.

China's post-crisis massive fiscal expansion and its apparent success combined with a declining confidence in the Anglo-Saxon financial system created an impression among Beijing's rulers that their improvised model of capitalist development, which had cultivated powerful state-owned enterprises, had been vindicated by the financial crisis. Such triumphalism was palpable in Chinese commentary in the months following the crisis.

This optimism, however, quickly gave way to a rising concern over China's dependence on the dollar, which in turn was linked to China's structural dependence on Western consumer markets to sustain its high growth rates. Nothing captured this anxiety more than the laughter the US Treasury Secretary Tim Geithner invited from his Chinese audience last summer when he declared that "Chinese assets are very safe".

By mid-2009, the consensus among Chinese economists was that China's dollar holdings posed great risks to its future economy. Yet, China grudgingly recognized that not only did its dollar holdings provide it with little actionable leverage in a world with a single reserve currency but that the post-crisis US response to revive its economic system via unrestrained fiscal and monetary expansion was tantamount to shifting a major portion of the financial risks of US debt to creditor economies.

American economist, columnist and author Paul Krugman bluntly remarked last April that "China had driven itself into a dollar trap, and that it can neither get itself out nor change the policies that put it in that trap in the first place". This backdrop of Chinese confidence in its fiscal economic strength, which had staved off an immediate collapse of the Chinese economy, but also a deeper fear of the vulnerability of its asymmetric interdependence with Western economies, suggests that the Chinese political economy was itself in a state of flux.

During this time of Chinese introspection, the new American president was signaling a vision for a wider canvas in the US's China strategy.

The Obama administration, unable to accurately gauge the evolving geopolitical and geo-economic situation and overeager to expunge the unilateralist legacy of the George W Bush years, might have inadvertently given a cue to China to assume a more bold posture. On several occasions, Obama's foreign policy team went on to extol the virtues of a broad cooperative arrangement with Beijing. The expansion of the Strategic Economic Dialogue established in 2006 to a Strategic and Economic Dialogue (announced in April 2009) signaled an intention to extend the geo-economic division of labor between Washington and Beijing to the geopolitical realm. The November 2009 Obama-Hu Jintao joint statement was an expression of the Obama global vision vis-a-vis China.

A fundamental weakness of the Group of Two (G-2) image, aside from the comprehensive national power asymmetry between the two potential collaborators, was the fatuous presumption that the national interests of America and China were convergent enough to seriously consider seamless geopolitical cooperation on diverse issues such as North Korea, Iran, Afghanistan, Pakistan, energy security, climate change, non-proliferation and reforms of the international financial system. And since the terms of resolution to most of these strategic questions were largely being conceived in Washington, the G-2 in retrospect was probably a euphemism to extract Chinese concessions.

The Obama administration can be faulted with either trying to be too clever or too naive; the Chinese for misperceiving that a global power-sharing arrangement with Washington was actually possible. Nonetheless, on being presented with a sustained narrative throughout 2009 that glorified a US-China concert system while papering over deeper contradictions, Beijing felt emboldened enough to actually believe it had arrived as a world player.

With Washington now better aware of contemporary geopolitical pluralism, but still incipient multipolarity, other actors including China can hope to receive more coherent policy communications from the Obama administration.

China is still some years away from attaining great-power capabilities. As international feedback mechanisms enlighten Beijing's leadership of this empirical reality, Chinese foreign policy will probably revert to its gradualist mantra of "peaceful development", which has been underpinned by making a virtue out of the necessity of avoiding a geopolitical collision with the United States.

While it may be tempting to over analyze the recent thaw in US-China interactions, none of the recent diplomatic rhetoric implies that the complexities of US-China interdependence have now turned on themselves or changed the fundamental compact between the two - whereby the Chinese maintain a status quo-like rise within a US-constructed economic and security system and in lieu receive internal (single-party rule for the Communist Party) and international legitimacy on the world stage and respect for core Chinese interests.

While the course of the geo-economic portion of this arrangement that manifested in a vast trading system between East Asia (with China as the export conduit) and the Organization for Economic Cooperation and Development world has been questioned - or at least temporarily affected - by the crisis and attendant severity of Western household debt, the broader geopolitical arrangement remains intact. And the costs of "decoupling" from this arrangement will be enormous for China and its leadership.

Zorawar Daulet Singh is an international relations analyst at the Center for Policy Alternatives, a New Delhi-based think-tank (www.cpasindia.org) and co-author of two books on India-China relations. He can be contacted at zorawar.dauletsingh@gmail.com

(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)