Many Chinese believe that this represents a shift in the global balance of power, and that China should be less deferential to other countries, including the US. Certain Chinese academics are now writing about the decline of the US, with one identifying the year 2000 as the peak of US power.
This overconfidence in foreign policy, combined with insecurity in domestic affairs, may combine to explain the change in Chinese behavior in the latter part of last year. If so, China is making a serious miscalculation.
First, the US is not in decline. Americans and others have been predicting decline regularly over the years: after the Soviets launched Sputnik in 1957; again when former US president Richard Nixon closed the gold window in 1971; and when the US rust-belt economy seemed to be overtaken by Japanese manufacturers in the 1980s. But when one looks at the underlying strength of the US economy, it is not surprising that the World Economic Forum ranks the US second (just behind Switzerland) among the most competitive, while China ranks some 30 places below.
Second, that China holds so many US dollars is not a true source of power, because the interdependence in the economic relationship is symmetrical. True, if China dumped its dollars on world markets, it could bring the US economy to its knees, but in doing so, it would bring itself to its ankles.
China would not only lose the value of its dollar reserves, but would suffer major unemployment. When interdependence is balanced, it does not constitute a source of power.
Third, despite Chinese complaints, the dollar is likely to remain the major global reserve currency, owing to the depth and breadth of the US’ capital markets, which China cannot match without making the yuan fully convertible and reforming its banking system.
Finally, China has miscalculated by violating the wisdom of Deng Xiaoping (鄧小平), who advised that China should proceed cautiously and “keep its light under a basket.”
As a senior Asian statesman told me recently, Deng would never have made this mistake. If Deng were in charge today, he would lead China back to the cooperative relations with the US that prevailed early last year.
Joseph Nye, a former assistant US secretary of defense, is a professor at Harvard University.
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