China’s Path to World Leadership

Since assuming office in 2012, President Xi Jinping has given increasing expression to leading China into a ‘new era’ as a premier global power. The manifestations of this ambition are far-ranging and include an increasing assertiveness in territorial disputes, ambitious international investments, taking greater roles in existing multilateral initiatives and leading in the creation of new ones, indicating that China’s bid for increasing global leadership is both comprehensive and multi-dimensional. However, given the increasingly aggressive stances of the current US administration as it implements its ‘America First’ agenda, China will need to make a choice: to either seize the moment and accelerate its bid for leadership or to play for time and allow the momentum of its size to carry it to an indisputable world leadership position. Both paths will require China to execute a series of chess moves; some will be feints and some will be direct blows to the position of America as the incumbent power. While the general assumption is that the Trump Administration has been withdrawing from global leadership, it may well be that the administration is laying out the canvas of how it intends to run a world in which China is seen as the primary rival to subdue. Depending on how China responds to the administration’s current moves, America may need to develop a complex counterstrategy of its own, which may well require it to undo many ‘America First’ policies and form a coalition of allies that agree with America’s instinct to contain China, and to reshape the new world order.

Introduction

We are living in a time of transition of the western-led liberal order, which having provided 70 years of nearly global and continuous development and stability, appears to be at the end of its lifespan. Long term trends like the ageing populations of most Western countries, the rise and rise of emerging markets, and the transition from industrial to post-industrial economies and societies are disrupting many of the principles that underpinned the outgoing order. Further, with former certainties called into question, the shape of the world order that will emerge remains unclear, as does the answer to the question, who the leaders of the eventual order will be.

The presidency of Donald Trump is occurring at what appears to be a critical time in this long-term transition. President Trump stood on an election platform of tearing up the world order and utilising the power of the United States to focus on American self-interest, as he defined it, and he appears to be acting accordingly, to the dismay of the opposing majority at home and much of the world at large, who believe that President Trump’s pronouncements and actions to date are accelerating and amplifying the demise of the world order. American multi-lateral and institutional leadership appears to have been replaced by a ‘doctrine’ of bilateral transactionalism and ‘extreme asymmetric risk’, where America uses its leverage to push disproportionate risk on its smaller partners. The president’s more aggressive moves - supporting Brexit, undermining the EU, NAFTA, and the G6, launching trade wars, changing the security net in Asia, praising dictators – seem more likely to hurt and alienate America’s longstanding friends and allies abroad and leave its strategic rivals and enemies better positioned in the longer term global transition underway, and global confidence in the United States and the president in particular has dropped significantly since the end of the Obama Administration. The president’s proponents on the other hand argue that the president’s blunt and tough style, coupled with his approach of praising rival regime’s strongmen, is turning out to be the most effective way to challenge hardened military, political and economic positions and the status quo on major issues such as trade and security. Under this view, they feel, it is premature to judge the outcome and only after many more rounds will it become clear that this will ultimately improve the position of America and its allies. Even if this were true, such a view would need to accept that American policies risk triggering regime-change among its closest historical allies much as it once did in say, South American and South East Asia during the Cold War, albeit through economics and signaling of intent rather than military means. This signaling leaves the impression among the incumbent leaders of America’s allies that regime change may in fact be the objective of the recent targeting by President Trump of the current heads of Germany, the UK, Australia and Canada, in particular. Irrespective of which view of the end game reflects America’s true intentions, its actions today are undermining confidence in the US, as international surveys show, and creating a series of vacuums that will inevitably be filled. Today, there is only one credible candidate for this, China. The EU lacks both the unity and the will to lead, India despite its growing ambitions lacks the levers of global power, and Russia’s ambitions are limited to being sufficiently disruptive to ensure a seat at the table on global issues rather than being a leader of the world per se. But while China has come a long way in the past 30 years and is certainly exhibiting the will to lead it remains unclear whether it is doing enough to succeed, and it is also unclear what its path to leadership might look like. It is important to also consider that President Trump may not actually intend to leave a permanent vacuum, focusing first on complex global issues that he feels have eluded past administrations (North Korea and Iran feature high on his initial list), before homing in on the ‘Big Issue’ for US leadership, managing China’s rise. While the US may well have tired of world leadership and is ready to vacate the ground, Trump may also see his place in history as the president that contained China, a country he has railed against since long before he became president.

The Global Great Game

Since assuming office in 2012, President Xi Jinping has given increasing expression to leading China into a ‘new era’ as a premier global power. The manifestations of this ambition include the New Silk Road ‘One Belt – One Road’ (OBOR) development strategy, the launch of the Asian Infrastructure Investment Bank (AIIB) as an alternative to the World Bank, taking leadership roles in international institutions and initiatives where America has withdrawn or chooses to play a confrontational role (such as the Paris Agreement on climate change, the WTO and the Iran nuclear deal), the actions to secure disputed territory along China’s periphery and creating military bases in the form of ‘islands’ in the South China Sea. China’s bid for increasing global leadership appears to be ambitious and multi-dimensional. However, building out a sustainable leadership position in a fast-changing world, will likely require an even grander plan, phased to hit key milestones that gradually reveals a new China to the world. While the general trend of the Trump Administration is vocally one of withdrawal, the administration has proven itself to be erratic in terms of follow through on the president’s rhetoric, as evidenced by policy reversals on a range of global leader power and leadership issues, including troop withdrawals from Afghanistan, the authorisation of air strikes in Syria, declining to label China a Trump is not merely neglecting the liberal world order; he is…rapidly destroying the trust and sense of common purpose that have held it together and prevented international chaos for seven decades. The successes he is scoring—if they are successes—derive from his willingness to do what past presidents have refused to do: exploit the great disparities of power built into the post-war order, at the expense of the United States’ allies and partners.
Robert Kagan, June 2018
currency manipulator, indicating the potential to re-join the TPP and reaffirming America’s commitment to NATO. While the administration’s intentions arguably may be more to destabilise opponents than to actually withdraw, the current absence of American leadership still creates a vacuum. And while America itself may intend to (re-)fill this vacuum when it is ready, China is regularly being presented with a huge number of opportunities in which to exercise global leadership. Given the scale and diversity of these leadership currency manipulator, indicating the potential to re-join the TPP and reaffirming America’s commitment to NATO. While the administration’s intentions arguably may be more to destabilise opponents than to actually withdraw, the current absence of American leadership still creates a vacuum. And while America itself may intend to (re-)fill this vacuum when it is ready, China is regularly being presented with a huge number of opportunities in which to exercise global leadership. Given the scale and diversity of these leadership opportunities, China must feel it has a one-time offer to leap to great power status Trump is not merely neglecting the liberal world order; he is…rapidly destroying the trust and sense of common purpose that have held it together and prevented international chaos for seven decades. The successes he is scoring—if they are successes—derive from his willingness to do what past presidents have refused to do: exploit the great disparities of power built into the post-war order, at the expense of the United States’ allies and partners. Robert Kagan, June 2018 overnight. However, without prioritisation among the Aladdin’s Cave full of opportunity, China is more likely to overstretch and fail than to make tangible progress. And that assumes that the Trump administration and its allies allow China to seize the apparent opportunities on offer.

A previous Sign of the Times had looked closely at the patterns of rise and decline that all great powers inevitably have followed throughout history and had examined US leadership through the lens of economics, innovation, military, alliance and institutions and soft power. Applying the correlates of previous empires in history led to predictions under various scenarios modelling the decline of American power. The relative decline of America’s GDP has already set in and on this basis, by the middle of the century, the math would suggest that the US would no longer be a superpower. On a pure GDP basis, China will surpass the US between 2025-2030. However, global power consists of more than just GDP, it includes broader economic leadership, technology, military and alliance leadership. On this basis, US power is set to decline only around the middle of the century or later, and America will continue to be superpower until the end of the century or later (barring any unforeseen internal or external disruptions and reinventions). China’s path to leadership will therefore most likely be a long one if it is not thwarted by a determined and enduring American counter-strategy. Indeed, a careful long-term plan to build leadership would require China to execute a series of connected chess moves – building on its existing positions - that reinforce its leadership along the way. The key potential steps in China’s path seem evident.

These steps, of successively increasing scope and international impact, have the potential to cumulatively transform China from a global power aspirant into a global leader over the next decade or so. Key power positions in the plan include the following:

  1. Safeguard the Homeland by ensuring domestic security, stability and control. While other nations have done this through systems of checks and balances embedded into strong institutions and the diversification of civil society, the Communist Party of China (CPC) has taken the opposite approach, centralising increasing political, security and economic power in its own hands. Further, to date, China has also sought to maintain barriers to entry, creating regulations and practices that prevent foreign domination (or even meaningful participation) in key industry sectors, particularly in strategic sectors including banking and finance and the internet. Under a global leadership plan, China would continue to lure others in to share in its scale, while ensuring that they remain irrelevant in terms of actual share.
  2. Deepen Dependencies created by China’s existing relationships to date. China’s merchant trading and investing strategies in the developing world have positioned it as a key partner for development across many of the world’s poor and developing countries, many of which are resource rich. Under an expansion plan, China would continue to deepen these relationships and the dependencies they create as many developing nations’ leaders continue to demand ‘no-strings’ capital and seek to sell their natural resources and trade with partners that are willing to overlook the transparency and governance requirements imposed by the West.
  3. Occupy Abandoned Territories left by America’s withdrawal. As America retreats from its existing alliances and obligations, China can carefully step in and take its place, both in international institutions and on issues where it is already involved as well as positioning to lead on new initiatives, for example taking an outsized role in the next round of negotiations in the Paris Agreement on climate change, bringing WTO actions against the US in partnership with the US’s former European and Asian allies and aligning with the EU and Russia on the continuity of Iran’s nuclear programme.
  4. Stake Out New Territories that expand China’s influence using both tried and tested engagement strategies and leveraging its newfound influence in international bodies. For example, further building out the One Belt One Road strategy, which is already snaking down the East African coast, or applying the ‘String of Pearls’ port strategy from the Indian Ocean in the Pacific or South America are potential examples of new physical territories that can be developed over time to exert economic and military influence. Staking out new territories would also include stepping up the engagement of China sponsored international bodies like the BRICs bank, the AIIB, and the security focused Shanghai Cooperation Organisation, institutions that help spread Chinese influence to new areas around the world, more indirectly.
  5. Build Global Positioning through structured engagement with the world’s leading countries and regions. China will need to identify key economic pressure points in infrastructure, technology and finance for major players such as the EU, Russia and Japan and develop partnerships that are perceived as strategic and win-win in nature, rather than the more limited engagements it has preferred to date. China has the investment capital, the operational execution capability and is increasingly acquiring the technology to be an alternative to an America that makes itself too unpopular. A more radical next step could even go beyond economic to political solutions: providing assistance to embattled leaders in the EU struggling with migrants and low growth economies and to the UK struggling with Brexit.
  6. Change Perceptions and Influence through addressing global issues and other soft power initiatives. China remains at best misunderstood and at worst deeply mistrusted by large tracts of the world, particularly in North America, Europe and East Asia where unfavourable views of China predominate. Changing these perceptions will require engaging internationally on shared values that allow China to present itself to the world in a favourable light. Championing global issues like climate change, disease eradication or global poverty are potential high visibility initiatives China can leverage in this respect.

These chess moves are not strictly linear, of course and China will need to switch its focus back and forth between moves as opportunities arise and events unfold, particularly in a dynamic world in which others are vying for improved positions of their own and/or ceding territory. While these chess moves are critical components to China building out its leadership over time, they will not be sufficient to create a real global leader with willing followers. The big questions for others is what type of leader China will be and therefore what the nature of its relationships with the rest of the world will be. The answers to these questions depend of course not on China’s ambition but its values. And this poses a series of difficult soul-searching choices for its leaders.

The Building Blocks of China’s Leadership Transition

Leadership on a global scale takes many guises and stretches across many fields. One of the strengths of American leadership has been the fact that it has been comprehensive and interlinked, and therefore self-reinforcing, for much of the past 70 years. China, befitting its ambitions, is active across nearly all these fields, but with vary degrees of success to date unsurprisingly given how recently it has appeared on the world stage. If, America withdraws from major geopolitical power positions, as its allies and so many analysts think it is, or undermines its position by torching its key relationships, as it appears to be doing, China may be able to move much more quickly to seize power and this gambit would be aided if it decided early in its bid on the role it wishes to play, and how quickly and how overtly it wishes to play it.

The Long and Patient Path vs. The Architect of the New World Order.

These choices, which determine how China engages with the world, are as important as its choices where and when to engage. At one end of the spectrum lies business as usual, the ‘Long and Patient Path’, with China continuing to engage as a transactional merchant trader, preferring bilateral to multi-lateral engagements where its scale provides it with an edge (much like America now seems to be doing), focusing on one issue at a time and avoiding entanglements in regions such as the Middle East (where America is embroiled and where issues seem intractable) or on topics such as governance and human rights where it feels it has little to gain and much to lose. This is a path that China has been on and has the advantage of avoiding large conflicts and yet gaining ground. In contrast, at the other end of the spectrum “China will be a global leader in terms of composite national strength and international influence.”
President Xi Jinping, 2017
lies a more inclusively and comprehensively engaging China, focused on integration and partnership, sharing actions and accountability, promoting common values and ultimately underwriting a new sustainable international order, the path of the ‘Architect of the New World Order’. This type of leadership will result in a more comprehensive and more stable leadership position for it, anchored by allies and international institutions that share both the burdens and rewards of the order China would help bring about but is a far, far more difficult one to execute. The building blocks that will determine the shape of China’s leadership broadly span six major fields including trade, finance, investment, security, the environment, and soft power influence. Given the current inflection point that the world faces, China has the opportunity to shift from one style of leadership to another across all six fields, but this would require implementing potential radical changes at home and abroad, which China is not showing signs of being ready for.

The Choices in Leadership Style for China as a Superpower

  1. Trade - From Scaled Merchant Trader to Constructive Engagement.

    The Status Quo. China today is the clear global leader in trade both in volume and value terms but has yet to extend this leadership to domination of the global system of trade. China ranks a paltry 61st on the WEF’s Enabling Trade ranking, indicating a country that is far from being a benchmark in terms of international trade standards, policies and openness.

    The Opportunity. With America out of the TPP and currently re-negotiating NAFTA, the US appears ready to cede the initiative in terms of setting the next generation of global trade rules in favour of bilateral deals. Even if it succeeds in wining this round of bilateral deals, its allies will remember they were treated as mere counterparties and will seek a better deal in the future. Further, the current trade war instigated by Trump, which is in danger of escalating from c.US$100bn to over US$1 trillion in value, covers most of the US’s major allies and, destabilising the global free trade order that has been carefully crafted over decades under the leadership of the US. This creates an opportunity for China to step in and take a leading role in shaping the future terms of trade.

    The Challenges.

    • Reputational Challenges. China’s own reputation as a transactional trader hinders its credibility to assume the mantle of free trade leadership. In places like Africa, China’s modus operandi has been to buy resources and sell finished goods, with no skill transfers occurring, leading to lopsided terms of trade in its favour. Accordingly, China today is not perceived as a proponent of the win-win trade regimes most other countries have recognised as necessary for sustainable development
    • Narrow Scope of Trade Engagement. Sustainable trade leadership requires broader leadership, or at least engagement, in other areas too. In democracies and countries with strong civil societies issues like transparency, human rights, or environmental protection matter, and China has faced a series of setbacks in places like Malaysia and Africa where its trade policies have received push-back for their perceived shortcomings in these areas.

    China’s Potential Transition. China continuing down its current path will leave it the biggest trader, but not make it a leader. By virtue of its size it will dictate terms bilaterally, much as the US is seeking to do today, but this will leave China in much of the same role in which America finds itself today: that of a ‘big bully’. A more constructive approach would see China using the current trade war to build momentum for its own free trade initiatives , the scope of which it would need to widen over time beyond transactional trade, shaping and setting the rules of the next generation of IP, digital and services led trade. In this model, China would need to incorporate the views and priorities of other countries but would still position as the leading rule maker that ensures the terms of trade remain in its favour by and large (much like the US did in the past.)

  2. Finance - From Global Trade Currency to International Financial Integrator.

    The Status Quo. China holds the largest sovereign reserve of US$ and its own currency has been upgraded to reserve currency status by the IMF. Further China’s equity and bond markets are the world’s 2nd and 3rd largest respectively, providing it with many of the inputs needed to become a leader in international financial markets.

    The Opportunity. China’s trading position and growth as well as the scale of its own domestic economy position it as a potential leader in the global financial system, with the renminbi becoming a key global reserve currency and China’s capital markets a core destination for international investment.

    The Challenges.

      • Reserve Currency Challenges. Effective reserve currencies require several features that the RMB still lacks, many of them by design, including (i) deep and liquid investing markets open to international capital, (ii) market and regulatory transparency, (iii) a floating f/x rate, and (iv) trade deficits on the part of issuing country to facilitate the currency’s international circulation.
      • China Capital Market Access and Scale. Capital markets in China remain largely closed and non-transparent. Foreign investment liberalisation schemes like the HK Connect program or the Qualified Foreign Institutional Investor scheme remain tiny relative to the total market size. China’s capital markets remain only 1/4th the size of America’s providing limited depth for global investors.
      • Need for Institutions and Private Sector. US financial leadership is built not just on its economy but on the dominance of its financial services industry. China’s financial services industry remains state owned and driven and is not ready to compete with the US’s talent, entrepreneurship and international scale and sophistication.

    China’s Potential Transition. China’s current policy driven approach to financial markets will continue to hamper the RMB as a global currency in matters other than goods and services trading – extrapolating current trends, the RMB will become a global currency of convenience for transactions, but nothing more. If on the other hand, China were to let go of its current financial and monetary policy goals, float the RMB and let its financial industry and markets develop more organically, the massive scaling of markets and the influx of capital that would enable would lead China to become the undisputed No. 2 (or the No. 1 in waiting) global financial market, representing the only viable alternative to the US dollar and US markets.

  3. Investment - From Neo-Colonial Asset Gatherer to Inclusive Financier of Growth.

    The Status Quo. China today is already one of the world’s top three foreign direct investors by capital flows, with its investing strategy historically linked closely to its trade strategy and objectives. It’s One Belt One Road infrastructure development strategy envisages a total investment volume of over US$2 trillion, covering 65 countries and a third of the world’s population. In order to facilitate this strategy and its own investments China has also become more active in shaping international investing rules and policy, forming the Sino-dominated AIIB to compete with more established international development finance institutions. In addition, Chinese corporations are seeking to become active in international acquisitions, with outbound M&A reaching US$76.9bn in 2017

    The Opportunity. The Opportunity. With American policy currently more focused on securing inbound investments to create jobs than on securing its position as the world’s leading investor, China has an opportunity to expand its role as a global investor. Previously China was the investing partner primarily of countries seeking to avoid “Washington Consensus”-type prerequisites for financing, China now can step in as a major investor in more developed countries to build out its position and global portfolio

    The Challenges.

      • Generating Sustainable Returns. One of the most significant China’s overseas investments, OBOR, appear to be more about keeping its historical development model (infrastructure and construction led growth driven by SOEs and state-backed debt) in place rather than about generating real investing returns. Sustainable and scaled overseas investing that includes private capital alongside the government’s will require long-term and sustainable returns and letting go of the main aim being something more political and domestic.
      • China Credibility Gap. China’s reputation as a ‘fair’ partner is coming under pressure as a number of borrowers of Chinese funds fall into debt traps and see their strategic assets restructured according to Chinese interests. Further, Chinese investments are facing similar criticism as Chinese trade in many parts of the world: that ‘no-strings’ investments enable corruption and graft.
      • Security Pushback. A significant trust gap over the intentions of Chinese investors (and often the source of their funds) has driven significant security-based push-back against major China led FDI in the developed world using levers such as the FTC, the EU Competition Commission and CFIUS, at least partially driven by the closed nature of China’s own market to foreign investment.

    China’s Potential Transition. China continuing on its current path would see it step up funding OBOR investments for its own growth, securing strategic assets super-regionally along the way, while continuing to buy at scale such international corporate assets as they are allowed to acquire. On the other hand, a China with a more comprehensive overseas investing strategy could become a global engine for development and growth. By ensuring that Chinese investments are made in strategic areas around the world (much as America did post WWII) in telecoms, internet infrastructure, security, power and utilities, etc. China would not only become increasingly central to the global economy but also position it as the investor of choice for the restructuring of global industries.

  4. Security - From Regional Strongman to Partner for Regional Stability

    The Status Quo. China is rapidly rising to project super-regional power in Indo-Pacific. Defence spending has grown 330% over the past 15 years, with China’s navy now the world’s second largest by tonnage, including two aircraft carriers, with a third under construction. China continues to prosecute sovereignty disputes with nine countries across the Himalayas as well as the East and South China Seas, where its island militarisation and building program remains ongoing despite having been ruled to contravene international law. Its naval ‘String of Pearls’ strategy (of financing, building and sometimes owning ports in the Indian Ocean to control the sea lines between the Middle East and China) has raised alarm bells in New Delhi. In North Asia, China’s underwriting of North Korean security continues to complicate regional denuclearisation.

    The Opportunity. The South China Seas lie at the start of China’s OBOR project, with US$5 trillion of merchandise passing through the region each year, while North Asia remains the continent’s industrial nexus. Both regions would benefit significantly from long-term peace and security underwritten by the region’s key countries. China has the opportunity to position as a constructive partner in region, both creating and underwriting a sustainable regional security architecture.

    The Challenges.

      • International Mistrust and Opposition. China’s neighbours generally have a much a less favourable view on the country than the global average. This is particularly true of countries with territorial disputes underway, where China’s strategy of combining both threats and incentives to gain the upper hand (e.g. threatening to attack Vietnamese oil operations in the Paracel Islands) have alienated populations and their governments across the region despite the need for them to trade with China.
      • National Security Concerns. Support for the North Korean regime is a matter of national security for China, which would bear the brunt of any atomic fallout in an eventual nuclear war as well as face millions of North Korean refugees streaming across its borders. Further, North Korea remains an important strategic buffer against US and allied troops, which if stationed at the Korean-Chinese border would be less than 48 hours away from Beijing, at the tank speed.
      • Political Risks. The CPC has staked the continued legitimacy of its leadership on nationalism and the unassailability of its own sovereignty. Given the party’s strong and unequivocal rhetoric in this regard, any compromises on China’s sovereignty claims in the interest of resolving border disputes have been set up to be seen as a sign of weakness by wide parts of the population. This in turn limits the CPC’s ability to solve these territorial disputes, or so the CPC would have their counterparties believe.

    China’s Potential Transition. If China continues on its current course of using threats and incentives to resolve regional security issues, particularly in the South China Seas, the regional security environment risks hardening into a Cold War type scenario rather than one of regional economic integration and development. With China’s westward expansion stopped by Russia, itself impervious to bullying, and eastward expansion stymied by the US, which will draw a line in the sand somewhere in the Pacific, an aggressively expansionist China will likely be forced to remain a regional player. If on the other hand China were to engage multi-laterally on solving (or at least agreeing to put aside) its sovereignty disputes, abide by international law and play a leadership role in Korean nuclear disarmament, it would build significant credibility as a reasonable and responsible power.

  5. Environment - From Every Man for Himself to Scaled Champion of Change.

    The Status Quo. China is the world’s largest producer of coal and its second largest emitter of CO2. Despite being a signatory to the Paris Accords, investing US$360bn in green energy by 2020 and seeking to be a leader on climate change, China has missed the environmental targets laid out in its last two five-year plans, indicating that further improvement is needed on the country’s part for the ambition to match reality.

    The Opportunity. Environmental leadership is set to become a critical area of leadership in the emerging post-industrial world – where sustainability will become equally if not more important that the scale of output in determining a country’s long-term success. The US under Trump has abandoned any semblance of leadership in this area and appears to be heading in the direction of an environmental rogue stake, leaving the leadership field wide open for potential contenders. While other countries are clearly more advanced technologically (e.g. Scandinavia, DACH), China has the scale to make a difference and the credibility as a middle-income country to serve as a realistic benchmark for others in environmental protection. Given the increasingly all-pervasive nature of environmental issues – from product specifications to every construction project- the leader the in the field (especially with the scale of China) can expect to set a wide array of global industry standards, create whole markets and be the leading provider to the world.

    The Challenges.

      • Domestic Pollution. Credible international leadership will require China to clean up its own backyard first: air pollution kills over 1m people per year, 2/3 of its ground water is unfit for human contact and 20% of its arable land contaminated with heavy metals.
      • Scaling Innovation to Resolve Issues. Given the scale of China’s environmental issues, significant technological innovation will be needed to adequately address these. For example, 70% of China’s energy needs are still met by coal, given the current practical and technological limitations on alternative energy sources. Similarly, the scale of China’s air, water and soil pollution means that next generation technologies will be required if these issues are to be addressed in timely fashion.
      • Working Through Institutions. China is not yet perceived to be a constructive leader in institutions not of its own making, having historically been the country that was courted by institutions to join and extracting concessions for participation. China leading on global climate change and other environmental issues would see these roles being reversed.

    China’s Potential Transition. Given the scale of China, any solutions it adopts have the potential to prove their scalability and become the world standard. However, if China continues to focus only on environmental issues through the lens of its own national interest, and the lack of leadership will further reduce the effectiveness of global initiatives as other countries adopt similar approaches to get the best deal for themselves at the expense of others. On the other hand, if China were to identify and partner with major organisations like the EU on the next wave of global issues to be attacked – marine salinity, plastic waste, etc. – its scale alone would allow it to shape the agenda while increasingly ensuring participation by third countries.

  6. Soft Power – From Feared to Respected

    The Status Quo. China has been quietly pushing its soft power for the number of years now and has built a multi-pronged strategy for increasing global influence, including 1,500 Confucius Institutes and classrooms worldwide teaching Chinese and Chinese culture to 1.5m students, significant media investments in Hollywood to help shape and create China content, as well as more traditional lobbying and PR activities spending US$10-12bn per year.

    The Opportunity. The manner of America’s current global engagement and withdrawal has left it increasingly unpopular throughout the world, even among established allies. While China will certainly not replace Coca Cola, rock n roll, and the American Dream the world over, the void left by the US provides it with the potential to establish a counter-narrative to the former’s withdrawal, building a more constructive image in the world and the ability to influence others.

    The Challenges.

      • Propaganda vs Soft-power. China’s soft power pushes remain government orchestrated and are perceived as such. Confucius Institutes are managed by the propaganda arm of the CCP and have faced criticism over censorship and free speech matters abroad. And even if they were more open, they lack, for example, the attraction of India’s yoga, which also has the advantage of not being an initiative of the Indian government. Further, China has been accused of buying political influence through donations in places like Australia and New Zealand, seriously tarnishing its credibility.
      • Constraints on Civil Society. Soft power ultimately comes from civil society, not governments, and the CPC has clamped down on bottom-up content and influence at home, leaving it without the key tools required to build compelling and effective soft power en-masse.
      • Lack of Share Values. Further, China faces accusations that it seeks to exercise ideological or political control over people outside of China whenever it has leverage, e.g. the CEO of Mercedes had to personally apologise to China for the company running an Instagram advertisement abroad that contained a quote from the Dalai Lama. Actions like this make China look like someone the world does not want to work with.

    China’s Potential Transition. Should China continue to fail to engage with its own civil society on the premise that it is better to be feared than loved, it will hamper broader engagement with the rest of the world and a meeting of minds on shared values. This type of China will continue to see resistance and scepticism abroad, with people engaging transactionally, regardless of, or even in spite, of America’s emerging stance. While China is unlikely to be ‘loved’ around the world, particularly in the short term, it can very much be respected. This would require it in turn to respect others – promoting and abiding by shared value that China will defend on its own and others’ behalf. This type of China will see its other power initiatives enhanced and more widely supported.

These building blocks have the potential to create strategic dependencies around the world, dependencies that China will need to leverage as it positions and repositions for an enhanced global leadership role. What is clear is that China’s ambition has shifted, from a country professing a ‘peaceful rise’, preaching non-interference in other countries’ affairs to more proactive participant in global affairs pursuing its own priorities with increasing vigour and which may lead it to conflicts for which it is preparing naval bases and weaponry. But while China clearly has the willingness to lead, the question of how it will do so remains unanswered.

Throughout history, empires (and their modern-day equivalents, superpowers) have risen and fallen on their ability to exploit resources and technology better than their neighbours, manage governance and growth and when necessary to bring their superior capabilities to bear in conflicts that challenge their position. This mode of leadership is well understood, and history demonstrates it is comparatively easy to execute for those nations with sufficient relative scale. China, today, is on the path to this mode of ‘strongman’ leadership. With President Trump himself appearing to validate this mode of leadership, in a reversal of decades of US foreign policy, China continuing to follow this path would not be out of sync with the new America.

However, the past century has seen the creation of a new type of empire, starting with the British and fully implemented by the American empire (prior to Trump) in the form of the liberal world order, that has proven to be both less violent and arguably more benign than any of its predecessors in history. Rather than seeking to dominate friends and foes “China seeks to displace the United States in the Indo-Pacific region, expand the reaches of its state-driven economic model, and reorder the region in its favor.”
2017 United States National Security Strategy
alike, the liberal world order sought to co-opt other countries to participate economically and politically through the propagation of shared values and an emphasis on joint action and alliances. This strategy has culminated in the creation of a rules-based order overseen by supranational institutions by whose rulings even the dominant power abides. This system has allowed for remedies to smaller nations, censure of the transgressor and alignment of the weak against the strong. And while the current rules-based order may be under pressure and in need of reform, it is indisputable that it has overseen the largest period of wealth creation and one of the longest periods of effective global peace the world has ever seen.

It is against this backdrop that China will need to decide whether to emulate historical empires, focused on overwhelming force and rent seeking behaviour or whether it can build on the achievements of the 21st century and create a more inclusive form of leadership. Depending on what choices it makes and how it executes them, its position and style of leadership will fall somewhere between the two extremes of global dictator and global first citizen. Indeed, as Trump takes America from its position on the right as the leading global citizen to a more dictatorial strongman model, any move China makes in the opposite direction should be welcomed by the world at large.

The price of this transition is not an easy one for China. As the analysis of the six building blocks demonstrates, leadership requires the willingness to “let go” of rigid social and economic control and China has just leaned the other way in favour of greater control.

Challenging the Path to Leadership

In China’s path to great power status, it is also important to recognise that American world leadership was built on America’s role as savour in two world wars, and that is a very high bar to beat. China, today, clearly has big choices to make. Maintaining the status quo in terms of its role and positioning while increasing its relative scale and leverage may seem the path of least resistance and hence the easier option, requiring China to simply do more of the same and to let gravity and momentum do the work. Moving its leadership to a more comprehensive and integrated strategy, however, requires driving real change and making difficult choices and trade-offs on matters such as sovereignty, economic and financial control, and the control of society, each of which have been non-negotiable features of the CPC’s rule to date. Further, China will need to reconcile the conflicting priorities inherent in different facets of global leadership, for example recognising that its increasingly hard power approach in building influence on security, trade or investment will damage the building of trust and therefore increasingly constrain the effectiveness of any soft power it looks to build. This is of course a challenge that the US has also struggled with during its nearly century-long leadership, and one it generally uses multi-lateral institutions and rules to solve, avoiding the need to demonstrate its own hard power capabilities.

As China builds out its own leadership position, the rest of the world will not simply stand still, of course; during this period other contenders such as India will continue to rise and seek to increase their own influence, the EU will have a big say on how open they choose to be to China, and Russia will also continue to disrupt and influence events in its own There is much to be said in principle for an international order based on explicit rules…But if, in practice, your liberal international order allows China to overtake you, first economically and then strategically, there is probably something wrong with it.
Niall Ferguson, June 2018
favour. Each of these, and many others too, will impact China’s ambitions. Most relevant to China’s rise globally is the US itself though, which may well reverse its current stated positions to play a much more proactive international role. The spectrum of views on what America’s intentions are and its ensuing actions will be is wide. Towards one end of the spectrum, ‘America First’ offers China perhaps the greatest opportunity afforded to any country since the Second World War to stake out a position as a global leader. It is certainly true that ‘America First’ has led to America fighting the world on multiple fronts – its neighbours on NAFTA, its Asian allies on the TPP, a combination of the EU, China, Russia and Japan on North Korea and Iran’s nuclear programmes, and both allies and opponents on tariffs – and therefore America looks less like the captain of the free world and more like a debt collector or pirate. Under this view, China has a great opportunity to take leadership in the world, with its transition being increasingly made ready by America itself. There is also a growing view that China is already at a point where it cannot be stopped and will win irrespective of momentum or strategy because of its very scale, unless America changes its course and unites the world to prevent China’s rise.

Towards the other end of the spectrum, America, despite having worked hard to integrate China into the world order, has become increasingly uncomfortable with China’s position, realising that its own policies – opening its market to Chinese goods, welcoming China into international institutions, transferring or losing intellectual property to Chinese partners, establishing multinationals in China and so many other things - have created a strategic rival that does not share its values and indeed is no longer under its influence. President Bush called China a ‘strategic competitor’, Obama declared China a ‘rival [that] bullies smaller neighbours’ and the Trump Administration has labelled China a ‘revisionist [power] trying to shape a world antithetical to US values and interests.’. In this view, Trump has accelerated what has been a slowly escalating confrontation with China, a conflict that American will champion and win, with the prevailing president being written into history much as Reagan was for defeating the Soviet Union. For proponents of this view, the question is only what the right way is to secure that victory.

America’s Choices on China. In reality however, America has a much wider set of choices to make and President Trump may cast the die in several ways that help or hinder the ability to succeed, namely:

  • Ready for a 21st Century Cold War, Winner Takes All. This entails preparing for a prolonged Cold War-style fight that fully co-opts all the allies and international resources of America to restrain China. Success would see China fully contained within its boundaries and playing within acceptable limits of international rules, potentially even paying the equivalent of ‘reparations’ for its past transgressions. A key angle of attack would be trying to push China’s GDP growth below 3.5%, this most likely being below the threshold where China’s population would question the tacit ‘economics-for-freedom’ deal with the CPC. China would have the choice to either cede to US demands or fight this fight and risk massive civil unrest.
  • Trade Economics for Territory, Art of the Deal. In this scenario, America guarantees that China is left as the master of the East in exchange for economic benefits and security guarantees. China may well be willing to handover, say, US$300bn in trade benefits for that mastery – its territorial disputes mostly solved in its favour, Taiwan under its control, Hong Kong free of student protests, Japan isolated, its South China Seas islands programme expanded, the OBOR free to expand, no more QUAD or TPP II, among others – and agree a limited engagement in the rest of the world. This has sometimes been called ‘Splendid Isolation”. While this approach would clearly mark the end of trust in America across the world, it could play well at home as US elections loom, especially if the “give” was not made explicit.
  • Purely Trivial Transactions, Sound and Fury. If America is bought off with concessions that appear to open segments of China’s market - which China will manage well, either by opening truly irrelevant segment of its market or by ensuring that any foreign companies remain irrelevant in more critical segments - then the moment has been lost for domestic political gains in the US. The fight may well be re-initiated by a subsequent president who will no doubt face an even stronger China and the same constraints of an electorate at home, hungry for easy solutions.

America’s Path to Containing China. The biggest risk to China’s rise therefore is a thoughtful and thorough campaign by America that systematically positions and repositions America in the world to renew its leadership. The key steps of this campaign would likely include the following key components:

  1. Rally Allies and Resources. During the Cold War, Presidents Truman and Kennedy, and George Kennan (the architect of the containment of the Soviet Union), understood well the need to build a wall of coalition partners that would contain their enemy. The first step in America’s renewed containment effort would need to lay out the logic, costs and consequences of the campaign against China. Importantly, though America will need to rebuild trust among its erstwhile allies: America under Trump has previously appeared to exacerbate many of the issues facing developed countries including aggravating populist and divisive politics, anti-immigration sentiment and adding tariffs to damaged post-austerity economies, in an apparent bid to undermine incumbent allied leaders. A clear reversal would be required if America is to gain the support it needs.
  2. Confront and Block China’s Moves to Curtail their Strength. A determined US would need to actively block China’s position across key areas, and trade and finance are key to this. Trump’s escalating trade war has the potential to hold back China’s economic trade and finance ambitions, but the US will need allies to play fully in sync with it, increasing the pressure on China rather than creating collateral damage in its allies’ homelands. This would require reversing Trump’s current statements and approach of seeing the EU, Canada and Japan as a target of his trade war rather than an ally.
  3. Rejuvenate Leadership and Offering to the World with a New Mission. It takes a mission that is seen as a force for good and/or a desperate fight for survival to rally the world to action. The US will need to decide which it will offer the world or whether both are required, depending on the region or the ally. This of course presumes that America can articulate a new world order that its allies will sign up to. It will also need America to continue to let go of and reverse much of the initial phase of ‘America First’, in favour of a much broader and ambitious ‘Free World First’ mission.
  4. Focus by Abandoning Peripheral Missions. President Trump has launched major initiatives on multiple fronts, some of which play to the domestic popular or populist agenda and some of which follow an international agenda of shaking the world order. If the path to a peaceful transition of the world order, with America still at the helm and containing China, were to be the main mission, then other initiatives - such as Iran-Israel-Saudi; North Korea; NAFTA; the QUAD/TPP-II, global tariffs and trade wars; Brexit and the break-up of the EU - will need to be re-examined in the light of the main agenda and whether they help or hinder the campaign of containing China.
  5. Reshaping of International Institutions. Success will require institutions that determine or endorse and importantly enforce allied decisions. Existing multi-lateral institutions, many of which are in need of reform, will need to be examined for their fitness for purpose and new ones added. America will need to become once again the arbiter of a strengthened set of allied institutions that can meet the mission of securing the success of America’s vision for a new world order.
  6. Disrupt China and its Allies. An America committed to its own hyperpower status in the world, would actively need to undermine competitors – China and its allies - both on their home front and abroad. This would require America at a minimum to bring issues such as human rights and democracy to the forefront of its engagements with China again, if not rise to the level of Cold War-style interference in foreign territories, thereby diverting China’s attention and resources from direct competition with the US. Internationally, this would also require America to engage comprehensively with China’s allies in Africa and Central Asia, either collaboratively or confrontationally to deny China access to otherwise assured sources of natural resources and customers that it requires for its own development.
  7. Maximise the Value of the Home Base. A resurgent America would need to rebalance the US economy to stabilise the domestic political situation and to diversify the dependency on individual economic partners. While Trump’s promise to bring jobs back industrial jobs home to the American heartland may not make much of a difference in a post-industrial world, a conflict with China may well be the perfect reason for US corporations to repatriate jobs to the US (and other allied nations).
  8. Transition to the Information Age. America is the natural leader of the information age and would need to expand its advantage rapidly to re-create its industries with information as a key value driver, which in itself would undermine the value of China’s industrial age economy. Although this transition promises to be highly disruptive for all parties, no major country is better placed to weather this shift: America leads the world in terms of technology, innovation and global R&D, and more importantly has the financial and social ecosystem to rapidly commercialise innovation. Much as the US has occupied the commanding heights of the industrial economy, so will it need to build leadership positions in nanotechnology, AI, bio-and 4D printing, alternative energy and quantum computing to lead in the generation of technology and industry.
  9. Decide the Price and Terms of China’s Re-entry Upfront. Knowing what success looks like will most likely allow the waste of prolonged conflict to be avoided. America will have to decide what level of participation it wants from China and on what terms. And knowing the value of China’s participation in the world order will more easily enable a fair price to be extracted upfront. The lessons of the Cold War of post-Soviet Russia point to the need to allow for a face-saving solution to emerge and for post-victory engagement, too. Failure to do this well will lead to two major enemies for future generations: Russia, which bears the scars of losing the USSR and seems to define itself by thwarting the West, is already proving too difficult to handle without the complexity of an additional even larger and more powerful adversary to manage in the form of China.

It is of course unclear whether President Trump will turn on a pin and face the world as their friend, and unlikely that he will choose to do so in the comprehensive manner laid out above. The first phase of his leadership has left the world doubting whether the president is a force for good in the world. However, America has earned many credits over two world wars and President Trump can yet utilise those to leave his mark on history, and so his position remains too nascent to be written off as his detractors are doing. Any potential engagement or conflict with China that the US might pursue needs to of course be seen in the context of ‘Big Changes’ reshaping our world and the liberal world order. America’s current actions notwithstanding, the post-war world order is in what appears to be potentially terminal decline, succumbing to internal pressures and contradictions inherent in its own architecture, including inequalities of wealth distribution, the inflexibility of political, economic and security structures to accommodate rising powers and the inability to engage constructively with states who are neither a full ally nor a foe. If the 21st century is to be under the aegis of a liberal world order, it will need to be a fundamentally revamped order, driven either by a China that has radically changed course from its current path, with American acquiescence, or by the only other country with the scale to shape it: America itself.

Conclusion: The Path to Leadership?

Whether China will ultimately follow ‘The Long and Patient Path’ or seek to be ‘The Architect of the New World Order’, remains unclear. To date, China has played what it is best at, a patient if not strategic long-term game of incremental gains and incremental growth, looking for white spaces to fill where it does not compete head-on with the US, joining international organisations when it suits its needs and steadily building out its power position in a reasonably transparent manner designed to avoid surprises over the short term.

China’s path ultimately depends on what its own ambitions are: does China actually aspire to inclusive leadership based on shared values and ideals or will it remain content to simply further shift the current balance of power in its favour, without any fundamental impact on the world order, for now? At first glance, the shift in President Xi Jinping’s power and leadership position to one of an unlimited term suggests that China is moving towards a model that is the antithesis of those of the West and likely to promote values that are in opposition to it. For all the rhetoric at international summits, China’s leader and the CPC remain at the core pragmatic and transactionalist, focused, nearly exclusively, on the continuity of the CPC’s own rule, the security and development of China and the welfare of its people, most likely in that order. These priorities lie at the core of Xi Jinping’s ‘China Dream’ and shape both domestic and foreign policy, including heavy state involvement in economic activity, the aggressive prosecution of territorial claims and any perceived infringement of sovereignty, the subservience of monetary and fiscal policies to political goals, and the repression of civil society with the aim of promoting national unity. The CPC today has arguably greater control over what has become the world’s second most powerful country than at any other time over its 70-years of unbroken rule, demonstrating to those in power that its current model is working. However, as powerful as this model has proven to be domestically, its very strengths limit its ability to work effectively beyond China’s borders, where the party’s rule is not absolute, and it cannot simply lead by decree as it does at home.

If China wishes to lead more than the nearly 20% of humanity that its own people represent, its leaders will need to move beyond control and the threat of force to a more nuanced and multi-faceted approach that combines hard with soft power, threats with incentives and most importantly incorporates shared dreams and values. President Xi’s own domestic popularity notwithstanding, the CPC may have decided that for now it is ‘better to be feared than loved’ at home but they have not indicated that they wish to be seen differently internationally. If China were more like the America of the Liberal World Order, the democratic world would not mind its leadership so much. The problem for the democratic world is that, at this juncture, neither China nor Trumps’ America fit that description.

Notes:-
1. See the June 2018 Sign of the Times (Distribution Version): ‘America First in Asia and the Use of Extreme Asymmetric Risk’
2. E.g. in Germany: “The people of Germany are turning against their leadership as migration is rocking the already tenuous Berlin coalition,” President Trump, 18-June-2018; or in the UK, where Trump was effusive in his praise for the former foreign secretary, whose resignation plunged the government into chaos: “I am not pitting one against the other. I am just saying I think he would be a great prime mini ster. I think he’s got what it takes”.’, 13th July 2018
3. Source: Xi Jinping, Chinese President: Report to the 19th Communist Party Congress (18 October 2017), published in  www.chinadaily.com.cn/china/19thcpcnationalcongress/2017-11/04/content_34115212.htm. (Retrieved January 2018)
4. See the June 2012 Sign of the Times : American Power, Patterns of Rise and Decline
5. Source: Pew Research Center https://www.pewglobal.org/2014/07/14/chapter-2-chinas-image/
6. Sources: e.g. German Chancellor Angela Merkel: “Recent days have shown me that the times when we could rely completely on others are over to a certain extent.” May 2017, Richard N. Haas, President of the Council of Foreign Relations (“Who Will Fill America’s Shoes?” Jun 2017)
7. E.g. the Regional Comprehensive Economic Partnership
8. Describing the standard reform package required by development finance corporations making loans in the developed world, including fiscal policy discipline, tax reform, market driven interest rates, competitive exchange rates, trade liberalisation, deregulation privatisation, et al
9. Source: Pew Global Attitudes Survey https://www.pewglobal.org/2014/07/14/chapter-2-chinas-image/
10. Sources:  National GeographicChinese Ministry of Environmental Protection
11. As evidenced by China’s use of veto’s and abstentions during UN Security Council resolutions on matters such as sanctioning Syria’s use of chemical weapons, democratic transition in Myanmar and Zimbabwe and the civil war in Guatemala
12. Global favourability ratings of the US dropped from 64% to under 50% between the end of the Obama and the beginning of the Trump Administration
13. As evidenced by Trump’s consistent praising of authoritarian strongmen from Recep Erdogan to Rodrigo Duterte and Vladimir Putin.
14. See the Sign of the Times series “The Shape of the World to Come” November 2016 – March 2017
15. President Xi may well be signalling his intent to finish the job that he set out to do of cleaning up corruption in China and that his targets had hoped would end when the normal presidential term would have expired