What happens when China becomes No.1?

What happens when China becomes No.1?

Let me begin with three incontrovertible facts. First, China will become the No. 1 economic power in the world.

Second, most Americans, like most Westerners, view China's rise with great foreboding.

Third, the role that China will play as the No. 1 economic power has not been cast in stone.

How the world, especially America, reacts to China's rise will help to influence China's behaviour in the future.

If we make the right decisions now, China could well emerge as a benign great power (even though most Americans find this virtually inconceivable).

At the same time, many Americans are not aware that some recent American actions have set bad precedents for China to follow when it becomes No. 1.

The first such American action was to launch quantitative easing (QE).

Until the onset of the crisis, Chinese leaders were happy that the United States and China had settled into a comfortable pattern of mutual dependence. China relied on the US markets to generate exports and jobs.

The US relied on China to buy US Treasury bills to fund US deficit spending.

This Chinese confidence of mutual interdependence was shattered when the US Fed announced the first round of QE measures in November 2008. The Fed's actions demonstrated that the US did not have to rely on China to buy US Treasury bills.

The second American action was to engage in extraterrestrial application of domestic laws. It did this when it prosecuted several banks, including HSBC, RBS, UBS, Credit Suisse and Standard Chartered.

In 2012, the US fined Standard Chartered US$340 million (about S$450 million) for making payments to Iran. Most Americans reacted with equanimity to the bank being fined for dealing with the "evil" Iranian regime.

But Standard Chartered, domiciled in the United Kingdom, had broken no British laws. Nor had it violated any mandatory sanctions imposed by the United Nations Security Council.

However, since almost all international payments have to go through the US payment mechanism, Standard Chartered was fined for violating American laws.

In short, the US was applying American laws to non-American citizens and non-American corporations operating outside America.

The third American action was to threaten countries by denying them access to the Swift system.

Since all international payments have to go through the Swift system, any country denied access to the Swift is thrown into a black hole and denied access to any kind of international trading and investment.

In a recent column, Fareed Zakaria described well the Russian reaction to the possibility of being denied access to the Swift system.

In Western media commentaries, President Vladimir Putin is often portrayed as the bad guy and Prime Minister Dmitry Medvedev is portrayed as the good guy. Yet, it was the "good guy" who said: "Russian response - economically and otherwise - will know no limits."

China's dream of renewal

I tell these three stories upfront because as Americans ponder how China should behave as a No. 1 power, they should also reflect on the question of whether America has served as a good role model of a No. 1 power.

This is the big question I raise in my conclusion.

To get to the conclusion, let me address the first key question: What are the goals and ambitions of China's leaders as China emerges as No. 1?

Unlike the leaders of the erstwhile USSR, the Chinese leaders have no desire to prove the superiority of the Soviet communist system.

So if it is not communism that they are trying to promote, what is it? And the simple answer is that they would just like to revive Chinese civilisation.

If there is one thing that motivates China's leaders, it is their memory of the many humiliations that China has suffered over the past 150 years.

If there is a credo that drives them, it is a simple one: "No more humiliation". This is why they want to make China a great and powerful nation again.

President Xi Jinping explained this goal well in his address to Unesco on March 27 last year. He said: "The Chinese people are striving to fulfil the Chinese dream of the great renewal of the Chinese nation.

"The Chinese dream is about prosperity of the country, rejuvenation of the nation, and happiness of the people. It reflects both the ideal of the Chinese people today and our time-honoured tradition to seek constant progress.

"The Chinese dream will be realised through balanced development and mutual reinforcement of material and cultural progress. "Without the continuation and development of civilisation or the promotion and prosperity of culture, the Chinese dream will not come true."

However, many in the West will not rest easy till China transforms itself into a liberal democracy.

They assume that if China's system is changed and a Western-style democracy emerges in China, this will be an unmitigated good. This is a dangerous assumption to make.

A more democratic China is likely to be a more nationalist China. A more nationalist China could well be a more assertive and aggressive China. In this sense, the Chinese Communist Party is delivering a major global public good by restraining nationalist forces and voices in China.

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