Part One: Power
The Trajectory of American Power in the Era of Financial Crisis
(and its implications for big power relations)
June 2, 2010
 

The subject of my talk today is the role of power in U.S.-China relations. I am speaking for myself and not for others. This is the first of two lectures I have the honor of delivering at the Shanghai Institutes of International Studies. This two-part endeavor explores “Power and Trust in U.S.-China Relations,” this being the first on power.

I note on the wall to my right the picture of Wang Daohan, a great figure in U.S.-China relations over the decades, particularly at times of crisis in our bilateral ties. Indeed, this Institute has had great presidents with Li Chuwen, Chen Qimau, Chen Peiyao, Yu Xintian, and of course my friend of long standing President Yang Jiemian. I have been privileged to know all these presidents. I have always viewed the Institute as being at the forefront of the open and reform policy.

I will start by giving my conclusions, and then I’ll build my case for them. You may judge whether those conclusions follow from my evidence. I will start by defining power and suggest that the intelligent conception and use of power involves obtaining a balanced portfolio of power and using the mix of power that most efficiently achieves one’s objectives.

Among my other conclusions are these: Don’t underestimate the United States, even though America has a number of big problems at the moment and it’s not self-evident yet whether or not the U.S. will be able to solve them all. Don’t underestimate our capacity for self-renewal because we have a lot of resources. Inevitably, we will not remain as dominant in the future as we have been in the post-World War II era. In some sense, the second half of the Twentieth Century was like a football game with China and India in the stands watching the game below. In the Twenty-First Century, China now is on the field, along with India (altogether 40% of the world’s people), and the game will never be the same again. The American team cannot continue to dominate in the future the way it has in the past, but we will remain a very important factor. If you put the U.S. and China together, we account for nearly 40% of the world’s GDP, a percentage which will rise as China continues to grow. Therefore, it is absolutely essential that we cooperate.

Today, my messages are clear—we must conceive of power in a sophisticated manner, don’t underestimate the U.S., and recognize the ongoing need for cooperation. In the following remarks, I will discuss four questions, building toward my final conclusions.

First question: How might one think about power? You can go back to Plato in Western civilization, or Sun Tzu in your history. It’s a question we’ve both been thinking about for well over 2000 years. In Professor Nye’s treatise on soft power, he defines power as the capacity to achieve your objectives. It’s a most useful, simple definition. I would add only that power is also the capacity to “define” your objectives, as well as to achieve them. In modern, complex societies, one of the problems is how to define what we want. We face numerous difficulties in defining what we want to achieve. It is truly impressive that, over the past 30-plus years, China has done a great job in defining its objectives and moving in an organized way to achieve them. Our country has some difficulty in defining its goals. Don’t take for granted that it’s easy for a society like the U.S. (or China in the future, as it becomes more pluralized and complex) to define what it wants to achieve.

Secretary of State Clinton and Professor Nye have talked about “smart power,” which I define as the capacity to use different types of power in the most efficient combination, with the lowest total expenditure of power. The sociologist Amitai Etzioni wrote his classic, An Analysis of Complex Organizations, in which he provides a typology of three kinds of power: coercive, economic (or what he called “remunerative”), and persuasive (“normative” or “ideational”) power. Smart power is like orchestral music and highlights to role of the conductor. Without instruments of different types (woodwinds, brass, and percussion) integrated and employed in a skilled fashion, the music would not be a harmonious whole. It is the job of the conductor in music, and the leader in policy making, to employ the different forms of power most efficiently to achieve a harmonious outcome. The skilled political leader, a statesman, knows how to use coercive, economic, and ideational power in the most effective combination and change the combination as circumstances shift.

Power, the ability to achieve your objectives, is influenced by two things, beyond leadership capacities and societal foundations: the scale and scope of the problems one is addressing and the capacity of others to achieve their objectives—power is relative to ambitions and the strength of others. The problem faced by the U.S. is not so much that we are declining as it is that others are getting better, bigger, and stronger. Brazil, India, China, all of you, are rising in power. Also, the problems that we face are global in scale. Take global warming, for example; even though the US is very powerful, compared to the scope of the problem our capacity to achieve our objective alone is quite limited.

Turning to China’s power strategy, I believe that you have been very intelligent to make the acquisition of economic power the core of your national power strategy. This is the form of power that can be converted into both coercive power and soft, or ideational power. Economic power is the most useful, fungible, form of power, because you can buy many (but not all) elements of the other two with this one. For instance, the United States has five treaty allies in Asia--almost all of them have China as their no.1 export market now. I think money talks here. You are in a region where everybody has many reasons (not the least economic) to get along with you. Last year, world exports fell by 20%, but by how much did your imports from the US fall? 0.2%! The fact is, as the fastest-growing major economy in the world, everyone wants to be your friend. Thus, I have high admiration for Deng Xiaoping’s strategic wisdom in putting the emphasis on the acquisition of economic strength. One of the worries I have about the U.S. now is that we are not performing well economically, and this could undermine our coercive and ideational (soft) power.

One of my colleagues at John Hopkins--SAIS, Professor Charles Doran--is the author the “power cycle” theory, which I find to be very useful. The basic idea is that rising powers and the previously dominant powers are at different stages in the power cycle. For rising powers, the concern is that they want a voice, they want to be heard, and they want their interests and desires taken into account by the previously dominant powers in the system. They’re tired of being “pushed around.” For example, China wants a bigger voting share in the World Bank, more voting power in the IMF, and the G8 to be replaced by the G20. The previously dominant powers, on the other hand, tend to want to hang onto their previous roles and voices and are reluctant to give up their preexisting benefits, even though their power might not entitle them to such an exalted position looking ahead—we see this with the smaller European powers in the G-7, for example. This suggests a built-in conflict between aspiring powers and previously dominant powers. Rising powers can be impatient and preexistent powers slow to adjust to new realities. To resolve this tension, my colleague Doran offers a more sensible answer than the neoconservatives who suggest that war (or at least severe friction) is a likely (almost inevitable) outcome. Doran says that we need better management and diplomacy--it does not have to end in war and chaos. I think the U.S. is trying to recognize this and accommodate your legitimate needs in a relatively intelligent fashion, but of course changes take time and what is reasonable accommodation is in the eye of the beholder.

Power is a complicated thing. It is the capacity to define and achieve objectives and to do so as efficiently as possibly. How powerful you are also depends on your objective(s) and standing in relation to other powers. I think that the U.S. and China are not handling all this too badly. Recognize that there are tensions but also that we need to manage them diplomatically.

Second question: What are some of the indicators of global trends in power? I will draw upon three studies from three different places: one from China, one from Europe, and one from the US. Interestingly, they all end up with the same basic conclusion.

Chinese scholars Hu Angang and Men Honghua have a study in which they looked at five countries’ Comprehensive National Power (CNP), including China, India, Russia, the United States, and Japan. Their study shows that China’s CNP has gone up significantly from its low level in 1978. There has been a lot of progress, but China still has a long way to go to achieve a global share of power proportionate to the size of its population. The US share of total global power is going down, but in a VERY gradual way. So China is going up from a very low level and the US is going down from a high level at a gradual angle--although we have yet to see what happens after the global financial crisis. Given that Americans account for only about 4% of the world’s total population, American power is disproportionate to other nations’. This aside, India is moving up, but not nearly as significantly as China. Russia’s figure doesn’t amount to too much except in the areas of petroleum and nuclear weapons. Japan is sliding down at a significant rate. Thus, the conclusion is that the U.S. and China are the singularly most significant powers in Hu and Men’s study.

There’s another study by Angus Maddison, done for the OECD, entitled, The World Economy: A Millennial Perspective. Sadly, Maddison died earlier this year. Maddison shows that through most of recorded human history, China has been a major economic presence in the world. From the beginning of the Christian Era until 1840, China controlled between 25% and 33% of world GDP. Then, from 1840 through 1978, this figure was in the 3%-5% range of global GDP. However, after 1978, that is after Deng’s “reform and opening-up” policy was put into place, China started going up. Now, China stands somewhere between 11%-12% in terms of its share of world GDP. But, given the fact that you represent 20% of the world’s population but control only 11-12% of world GDP, you have made tremendous progress but still have a long way to go. And moreover, adding each new percentage point to your global share becomes harder than adding the previous percentage point.

The third study comes from the Economic Research Service of the U.S. Department of Agriculture--the most interesting to me. It shows that Europe (EU15) reached its “high water mark” of global GDP share in 1969. Their highest percentage was 35.78% but by 2009 it had slipped to 27%. Hence, Europe has been losing share of GDP since 1969. Japan reached its high water mark of 11.08% of global GDP in1982, but now it is down to 8.69%, so Japan has been generally going down (by this measure) since 1982. The US reached its high water mark in 2002, when it accounted for 30.67% of world GDP; by 2009 the US was at 29.26%, which means we dropped about 1%-plus. That’s a gradual rate of loss, though we need to see what the full impact of the global economic crisis may be. The Japanese and Europeans are really losing share, not the US. What genuinely worries me is the downward trend of America’s allies. The US has benefitted enormously by having strong friends; but now our friends are weakening--that’s a problem, in my view.

Interestingly, however, all three studies point to the same broad conclusions: the US and China are the two most significant, dynamic economic forces in today’s world, as we together make up about 40% of the world’s GDP and 24% of the world’s population. We need to cooperate to solve problems and conflict would be catastrophic to ourselves and prospects for the world.

Third question: What are some of the challenges that the U.S. faces? As a matter of fact, we face a number of serious difficulties in the United States. But, we will remain the single most powerful country for a long time; it’s just that we will become less dominant as the National Intelligence Council’s GLOBAL TRENDS, 2025 said in November 2008 (p. iv). It’s very important to remember that there is a difference between losing dominance and declining.

Challenges the United States faces are all fundamental challenges—they have to do with the allocation of resources between security, investments in future productivity, and social safety net kinds of expenditures—another way to put it is that we must consider the balance between consumption and investment. In my view, and in the view of much of the rest of the world, we have not made highly intelligent choices about the allocation of our resources in recent decades. First, with only 4% of world’s population, the U.S. accounts for almost half of the world’s military spending. This situation is exacerbated by Iraq, Afghanistan, etc. It’s very burdensome for America. Remember, I said that “smart power” requires a balanced portfolio of economic, coercive, and intellectual (persuasive or ideational) power. Leaders should strive for a balanced portfolio of coercive, economic, and intellectual power. Deng made a wise decision to cut military spending back in 1978 and your country has been kept at a fairly low percentage of GDP in military expenditures since that time, though military expenditures are absolutely growing significantly now, and they have been since 1990. Since 1990, you’ve been building up your military budget, and one has to be careful that as this occurs you do not upset the balance between coercive and other forms of power and that your capacity to be reassuring to neighbors and powers at greater distance does not diminish as a result.

Second, the US spends too great a percentage of GDP on healthcare. Our healthcare expenses claim about 16%-17% of GDP. In contrast, China seems to be spending too little in this area—about 5%. President Obama was right to see the health care system as in need of reform—unfortunately, I don’t think the current reforms will effectively address the cost problem.

Third, our spending on research and development has stagnated. The US needs to invest more in fundamental scientific research. We’ve been an inventive country, because we spent a lot of money (and human talent) on research and development, but we’ve got to keep doing that and increase expenditures in this regard. President Obama wants to do that, but because so much money has to go to other places, where’s the money going to come from?

Fourth, our excessive level of debt is another problem. In 2008, China’s household debt was about 15% of your GDP, a low level, while the US’s was about 100% of our GDP. That means, for all American households to pay off this debt, we would have to spend absolutely nothing of our total national production for a year. In terms of government debt, in 2008, China had 15% of GDP in government debt while for the US the figure was between 90%-100% of our GDP—Japan was 170%. The US is heavily leveraged; we pay a lot of interest; and the interest rate has been kept low for a long time. When that rate goes up, our debt burden will rise, perhaps dramatically.

After the financial crisis, trade protectionism also becomes an issue, and both the US and China are guilty of a certain amount of protectionism. You have your “indigenous innovation” policy here, and we have “buy American” there. American businesses are very concerned, indeed upset, about your indigenous innovation policy. You are concerned about our protection of paper, steel, and chicken. However, maybe the miracle is that we have not had more protectionism given that world exports fell by more than 20% in 2009. Protectionism could have been worse.

All these problems are limiting our capacity to invest in productive ways. These problems are deeply embedded in society and not easy to solve. In terms of our military spending, for example, it is a production system that involves all of America’s 50 states (through system subcontracts), which means there is political strength behind the current pattern of expenditures. Even though we, at one level, agree among ourselves that our military spending is too high, no one wants to cut it--really.

In terms of our demographic situation, we’re getting older as a society and our public social security arrangements are a pay-as-you-go system, which means that the ever-smaller percentage of young workers has to pay for the expanding older cohort, and this becomes an ever-bigger burden upon the young.

Making our domestic problems worse is the fact that our allies are slipping in capacity even more severely. Our allies are in a worse shape than we are and that means they are in a less advantageous position to share burdens with us.

Fourth question: What are some of the U.S. strengths as we deal with these problems? This part of my lecture is about why I am hopeful, cautiously optimistic, despite the magnitude of the problems that we face as a society. In the film Tora, Tora, Tora, one Harvard-educated Japanese naval officer, Admiral Yamamoto, said something to this effect to his superiors as they contemplated attacking Pearl Harbor: “Americans will wake up. When they wake up, I’m not sure we can win in the end.” It means crises have the capacity to provide Americans a clearer view of our problems and increase our resolve to effectively deal with them. The US still has all three forms of power I mentioned in the beginning, and for both of us to thrive, we have to figure out how to cooperate rather than how to exhaust each other fighting.

Remember, in the war between Athens and Sparta, the Athenians committed an essential mistake, which is that they didn’t grasp the essential character and strengths of the Spartans. The Greek historian Thucydides wrote about this in The History of the Peloponnesian War. That’s why I think we both need to study each other’s culture and society—learn about the characters of our people.

For example, demography may be a problem for us, but it is also a problem China faces—a bigger problem for China. In 2050, 33% of your population will be aged, older than the Americans by a substantial margin. Americans have one way of dealing with this aging problem that China does not. We are a country of immigrants; we have this unique ability to soak up all different kinds of people. In other words, we are quite good at competing for brains. Our society gives people a chance to get to the top of the social and economic hierarchy fairly quickly. That’s a big plus for us. It’s a huge resource for us if we use it properly.

The U.S. also has advantages in natural resources. We are lucky, we live on a continent the size of China with 1/5 of your population. Geographically, we historically have been protected by two oceans—it still helps, compared to having fourteen land neighbors and lots of maritime neighbors as well. Geopolitically speaking, we do not have to deal with a neighborhood as complicated as yours. We have 400 million acres of arable land for 4% of the world’s population and you have 250 million acres of arable land for 20% of the world’s people. We have a lot of resources; maybe that’s why we tend to be so wasteful. We must become much more efficient.

Moreover, compared with the Europeans, our advantage lies in the fact that American capitalism is tougher than the European breed of capitalism. We let the market determine more things, we give more incentives for market growth, we encourage primitive capitalism, and we are also tilted very much toward de-regulation. Our productivity is still growing at a good speed. We have really big problems, but we also have huge resources and assets, both physical and social capital.

Speaking of social capital, our economic strength also comes from our social and cultural foundations. We attach great importance to public education, our higher education system is still very strong, but we frankly have let public education at the K-12 levels slide dangerously. Culturally, we are an individualist and innovative society. To a certain degree, it could be said that we tolerate a lot of off-beat behavior, a lot of social deviance, to produce the kind of innovations that we generate. 70% of the world’s transformative technology still comes from the U.S.

The formula that undergirds our economic strength combines education, immigration, investment in research and development, individualism, out-of-the-box thinking, and rewards for innovations. We pay a lot of collateral prices for all this, in inequality and anti-social behavior, not to mention disasters caused by insufficient regulation, but its pays off handsomely in terms of competitiveness and productivity.

Finally, we come back to my conclusions.

First, I often tell my fellow Americans that we have to look at how China is reforming and what the implications of those reforms may be for us. Reforming China requires America to reform; the challenge is whether we can reform ourselves.

Second, for China, the question is how long will you be able to keep the growth at the current pace? How successful will you be in the future? I tend to be optimistic on this question, because you’ve made decisions that have been bringing you success for 30-plus years.

Third, concerning China’s “Tao Guang Yang Hui” (keep a low profile) policy, that’s a very smart policy—you haven’t thus far repeated the Soviet Union’s mistake. You’re becoming more powerful without becoming noticeably more threatening. That serves you very well.

Fourth, the United States and China are the two biggest players in the world. If we become enemies, we can cause each other enormous difficulties. If we can be cooperative we can help the world and ourselves to solve problems. Perhaps the biggest danger that we face is that we underestimate each other’s strengths and the necessity for cooperation.

Part Two: Trust
Sources of Mutual Strategic Suspicion in US-China Relations
June 9, 2010

How many of you in this room were alive when President Nixon met Chairman Mao in 1972, February? [Only three hands were raised--those of President Yang Jiemian, Susan Lampton, and Dr. Lampton]. I can see, therefore, that only three of us in this room know what really bad Sino-American relations were like during the Cold War Era—the costs of conflictual relations can be extremely high.

As a preamble to what I have to say today let me share with you something I told the students graduating this year in China Studies from SAIS. The generation of scholars that President Yang and I represent, and the generation that was our mentors, had a comparatively easy job compared to the challenge facing you. Our generation just had to end what was a highly unintelligent policy of not speaking to one another and fostering a certain degree of cooperation—laying the foundation for, and practice of, what we came to call “engagement.” Your generation, however, has the more complex task of making engagement work in a world of great interdependence and complexity—engagement on everything from our respective economic management, to global supply chains, to global climate change, to proliferation, to space competition and cooperation, to management of the Internet. It is important that you and the students graduating in the United States meet these challenges—together. It will not be easy.

As I said in last week’s lecture, this is a two-part series on “Power and Trust” in U.S.-China relations. Last week was “power” and this week is “trust.”

My talk today will address the role of strategic suspicion in US-China relations. Let me start by recapitulating three observations from my first lecture of last week: First, China and the U.S. account for about 40% of the world’s GDP, a fact that makes our countries the two most significant players in the world. This does not mean that we will be able to solve all the world’s problems between the two of us. But, it certainly means that if we do not cooperate we likely will prevent solutions to these problems from being developed. Second, the United States has great powers of revitalization, although whether America will be able to surmount its challenges depends on whether the U.S. makes the right decisions. I have some uncertainties, but we certainly have the capability to make the right decisions and I am cautiously optimistic. Third, neoconservatives are right in pointing out that frictions necessarily exist between a previously dominant power and rising powers. However, they are wrong in suggesting that those frictions necessarily will end in war or intense conflict. We can manage frictions diplomatically; indeed, the U.S. and China have done a fairly good job in this respect over the past nearly forty years.

The message is that we need to cooperate. For cooperation to thrive, we need to have mutual strategic trust. However, periodic troubles in the South China and East China Seas, our disputes over Taiwan arms sales, and the issue of the defense appropriations bill of 2000 are all manifestations of mistrust in US-China relations. These and other manifestations of our suspicion of each other are rather symptoms of a deeper disease. I want to talk about the manifestations of this mistrust and what I believe are some of the more fundamental underlying causes.

Manifestations of our mutual distrust have been evident in popular literature in both our countries over the last decade-plus, just to examine the most recent era. To give a few examples, we have had the book entitled The Coming Conflict with China (1997) in the United States, while you have had the 1996 book China Can Say No in your country. There also have been China is Unhappy (2009), Unrestricted Warfare (2002), and so forth on your side. More recently in the U.S., we have had The Coming Collapse of China by Gordon Chang (2001), and even more recently When China Rules the World by Martin Jacques (2009), who incidentally is not an American. In the U.S., we can have best sellers simultaneously arguing the opposite conclusion—one that China is so weak it is going to collapse and the other arguing that it is so strong it is going to dominate the world. For more academic examples, you can look at the works of John Mearsheimer and Robert D. Kaplan. Popular and academic literatures in both nations simultaneously reinforce and reflect the mistrust in US-China relations. Having said this, I believe that through the contention of ideas, sound concepts eventually will prevail in the free marketplace of discourse. I therefore want to take some of these ideas on in a straight-forward way.

Other manifestations of this mutual strategic distrust can be found easily in our security establishments and in our bilateral relationship. The disruptions in our military-to-military talks provide one example. The recent interactions at the Shangri-La Dialogue are one example. I think we should not only work on restoring talks between our military high levels, but we also need to find ways to engage our lower and middle-rank military personnel and create opportunities for them to meet and talk. Other indicators of mistrust exist as well. In 2007, there was China’s not fully explained destruction of an aging weather satellite, there was a seeming U.S. response the next year, and China’s 2010 anti-ballistic missile test points to our tensions in the heavens. Such tensions have actually led to what seems to me to be the very early stages of an arms race between the US and China, although our competition is not as intense or as serious as that which characterized Soviet-American contention during the depths of the Cold War.

Moreover, public opinion polls show that our publics don’t fully trust each other. In a 2009 poll conducted in the United States by Gallup, when asked about their level of “concern” about various security issues, 74% of polled Americans were “very concerned” or “moderately concerned” about China as a security problem, with 39% of them reportedly “very concerned” about China and 35% reportedly being “moderately concerned.” Of course, this does not mean that China is the most alarming subject to Americans. Americans have other issues such as terrorism and Mexican drug violence that concern them more--we need to keep this in perspective. But the polls show that, when Americans think about security problems, China is high on their list. In China, similar dynamics seem to be at work, as the Americans are often viewed by the Chinese public as one of the most “unfriendly” countries. Our public opinion toward China certainly is not at its nadir as it was in the late 1980s, but it is not very good.

We can discern a lot of indicators of our mutual strategic distrust. But the central question here is: What are the core underlying reasons for this distrust? In my analysis I shall specify four reasons: Defining our relationship in a “no-win” way; miscalculating U.S. and Chinese power; an excessive “change the game approach” to bilateral relations; and, challenge and response dynamics.

The first problem is the definition of U.S.-China relations in such a way that there’s no “win-win” solution. Robert D. Kaplan’s recent article in Foreign Affairs magazine is one example, as it defines our relations to exclude possible “win-win” solutions. In Kaplan’s piece is one sentence that really jumps out at me--he asserts that “limiting the emergence of a Greater China” should be defined as the strategic goal of the U.S. To me, this is an unachievable and undesirable objective, and it is not in our interest to do so, particularly given that Kaplan is totally unclear what “greater China” even means in operational terms. We should hope for a stronger China to help solve the problems that the world and region face. The issue is not power, but how we use our power. Kaplan’s standpoint suggests that whatever you win, we lose. Such a view certainly is not going to increase our mutual strategic confidence. Also, what does “a Greater China” mean here? A Greater China may include Hong Kong, Taiwan, the Chinese Diaspora, Chinese companies, and so on-- where do we draw the line? What does this phrase mean and what are the implications of such viewpoint? There seems to be an unwarranted focus on China as a destabilizer at the expense of giving due recognition to China’s actual and potential contributions as a stabilizer.

For instance, if we want to stabilize the world economy, we have to ask ourselves who are the two biggest engines for economic growth in the world at the current time? The answer is China and the United States. China reported more than 11% growth in the last reporting period, while the U.S. was at around 3-4%. In the 1997-1998 Asian Financial Crisis, China took a lot of credit for stabilizing the regional economy by measures that included not devaluing your currency. You played a major role then and also helped the Hong Kong economy remain stable. In the Gulf of Aden, you have escorted about 1500 ships in that area since late-2008, which is a positive example of the cooperation between your navy and other international navies. My understanding is that the communications between the Chinese Navy and the ships of other navies operating in the area have improved over time. And, strange to say, the United States and China actually implicitly cooperated to stabilize the Taiwan Strait in the Bush Administration. The U.S., indeed, played a useful role in restraining Chen Shui-bian starting in late-2003. President Hu Jintao and President Obama now are both trying to encourage cross-Strait dialogue.

Another problem with the Kaplan-like approach is that many of the most central security problems we face are no-longer simply traditional big power frictions. China’s rise should not be seen as a problem only in the realist sense; it’s also an opportunity, an opportunity we ought to make good use of. The no-win definition is a Nineteenth-Century, big-power, bilateral definition of international relations, but the truth is that many of our security problems stem from interdependence and are global in character. They have to do with global issues, such as climate change, the environment, transnational terror networks, piracy, cyber security, global production chains, fisheries, and so forth. At present, terrorism is near the top of Americans’ problem list and terrorism has its origins in diffuse transnational networks, rather than traditional states, for the most part. We can’t solve any of the global issues mentioned above unless we have cooperation. Incidentally, I electronically searched Kaplan’s article and found that the word “cooperation” does not appear once in the text. That’s why we should challenge those who advocate the “no-win” position. If we subscribe to this mentality, or if we don’t educate our people in a balanced approach, such a view will create enormous difficulties in our relations. Our job should be to find the “win-win” solutions, not to promote “no-win” approaches.

Second, miscalculating each other’s power is another problem, and something I addressed at greater length in my first lecture. On the one hand, the U.S. is seen as much weaker than I believe it to be. On the other hand, we begin to see China portrayed as much stronger than actually is the case. We must understand our power relationship properly. If you search with the keyword “China” on www.gallup.com , you will come up with a series of polls asking Americans what they perceive to be the world’s leading economy today, and twenty years from today. These questions have been asked in 2000, 2008, and 2009 respectively. The results are very interesting. In May 2000, 10% of polled Americans thought China was the world’s leading economy, which wasn’t true by any meaningful measure. 55% of polled Americans thought the U.S. was the leading economy. In February 2008, after the onset of the financial crisis, suddenly 40% of Americans now thought China had become the world’s leading economy compared to 33% saying that the U.S. was the world’s leading economic power. Obviously, the financial crisis had a huge impact on popular American views and the U.S. economy faced a number of serious problems. But, the fact remains that by any comprehensive set of measures we had not slipped that dramatically compared to China. However, it was exactly at this moment that Americans suddenly looked to China as the global no.1 economic power. We perceive you to be a very strong and powerful player at the moment when we are somewhat insecure about our own strengths. In the February 2009 poll, 39% believed China to be the economic no. 1 while 37% said the U.S. was, reflecting a recovering confidence in the U.S. as our economy improved. But, still more people thought China was stronger than the United States.

You wonder why the U.S. is asking China to assume more international responsibilities. One reason is because we see you as a lot richer and stronger than you perceive yourself to be. But at the same time, many Americans are worried--they’re ambivalent. We aren’t perfectly consistent. We want you to play a leading role--sometimes.

Third, in my interviews earlier this year in China, I sometimes ran into this operative phrase--“We [China] want to change the game.” Among many Chinese citizens, the power relationship is perceived to have changed, and they seemingly want to use more tools for positive outcomes now. Many Chinese people have been explaining to me over the last 6 months that China now has a new younger generation. Every generation comes to possess its own perspective, and this new generation has grown up thinking China has made enormous progress and, therefore, should play a greater role in world affairs, particularly in those issue areas of consequence to China. This generation also thinks that the United States has made many mistakes, such as deregulating our markets too much and playing a key role in the global spread of the financial crisis. The U.S. has certainly made some mistakes. The thinking here in China seems to be that since the U.S. has made mistakes, therefore, it is inappropriate for Washington to instruct China. China doesn’t need to acquiesce to disadvantageous arrangements from the past that no longer accord with its current power. That’s what I keep hearing in China.

I believe things will change in a gradual way, if we do it properly. But, if we want the change to come fast, that may cause problems. I spent a decade trying to stop the U.S. from adopting sanctions against China in the wake of 1989. Now, I’m surprised that some people in China are proposing to impose sanctions on the U.S., an approach I don’t agree with. Remember that our former President Bill Clinton had to back down from sanctions he proposed in 1993-1994? The reason he did so was because imposing sanctions was not in U.S. interests and could not achieve U.S. objectives. The U.S. and China do business because it is in our mutual interest and sanctions require us, therefore, to hurt our own interests, which we both are reluctant to do. Making threats, and then not carrying through, hurts one’s credibility. It is better not to make idle threats in international relations.

The fourth aspect of the problem relates to challenge and response dynamics. We’re at an early worrisome stage where we should work on minimizing this dynamic. Why is China building its military? In my view, the 1985 Central Military Committee’s meeting was a very important meeting. In the times of the Japanese invasion and the subsequent civil war, Mao’s theory of grand land armies and guerrilla warfare made perfect sense. He built the third front in the 1960s. Mao expected future wars not to be so different from past wars—fought inside China. Deng Xiaoping was a very practical man. He began the open and reform policy which led to the growth of China’s GDP in the coastal cities at first. Then, the question became, if another war were to happen, where would it be fought? His answer was, “not in China, not in the coastal cities.” Rather, the next war, were there to be one, had to be fought offshore, on the seas, in the air, and in space. So he shrank the land army and invested in China’s military power in the air, seas, and space. It’s a totally understandable strategy, with a “but.” Where has the U.S. dominated historically? It’s the sea, the air, and space. Deng and his successors made sensible decisions that moved you toward zones where we were dominant. Consequently, our two countries need to develop rules of the road and procedures to avoid accidents and problems in this now potentially conflictual space. Let me say that had the United States faced your defense circumstance we almost certainly would have reacted very similarly.

You have had an intelligent policy in keeping your military spending at a low percentage of your GDP, even granting that there are various estimates of that spending. However, you also have been keeping it at a relatively constant fraction of GDP, and since your GDP is growing so rapidly, your military budget keeps going up rapidly, but the expenditure is still relatively low in terms of the GDP percentage. Nevertheless, that sets the stage for a potential arms race cycle.

For example, there was the 2007 incident where China destroyed one of its weather satellites and created significant debris; we had to move the space station into a new position. The U.S. was somewhat surprised as well because China had not demonstrated this capability before. We are very dependent on our space communications, so the moment we perceived ourselves vulnerable, we considered possible countermeasures. Our countermeasures will no doubt produce Chinese reactions, thereby potentially generating an upward cycle of mutual interaction leaving us both more insecure and poorer.

Another area of such challenge and response is cyberspace. If you follow our press, and the world press, you would have noticed numerous allegations against China. There’s a competition in cyberspace, which is a concern to us, because that could make our banking, public utility, and other operations of fundamental systems vulnerable to attack. It is an area of competition our two countries don’t want to get into, granting that it is hard to document, control, and reassure one another about.

Now that I have addressed the deeper origins of the mutual strategic suspicion in U.S.-China relations, we can talk about what can be done about the phenomenon.

First, we need to improve and deepen our military-to-military exchanges, not just on the top level but also at the middle ranks. The current hiatus in military-to-military exchanges is unfortunate and reinforces mutual suspicion.

Second, both sides need to be more transparent about their doctrines and, frankly, I think here the Obama Administration has done a good job in many respects, compared to its predecessor. If we compare three policy documents between the Bush and the Obama administrations, there are positive signs that Obama wants very much to build our mutual trust, not aggravate our mutual suspicion. In the 2002 Nuclear Posture Review, President George W. Bush talked about the contingency of possibly employing nuclear weapons in the Taiwan Strait. When Obama issued a new Nuclear Posture Review in April 2010, this language had been changed. In the recent Quadrennial Defense Review issued in February 2010, the Obama Administration talked about cooperating with China, not limiting China. More recently, on May 27th, Washington issued its Security Strategy report and, again, the Administration talked about working with China. Obama has modified the negative strategic documents of the Bush era producing more cooperative documents. I agree that words do not necessarily translate into actions, but nonetheless, words are important and they have to change first. The U.S. has made these moves and, in my view, it would be good for China to acknowledge that.

Third, space is an area where China and the U.S. ought to cooperate. It’s a very symbolic area in the US. It would be great if your astronaut, Yang Liwei, for example, could tour the U.S. and visit our small towns. If you could get someone from Taiwan on your rockets, that would also be a symbolically important gesture in cross-Strait circumstances. I understand that China may have interest in the International Space Station. As a citizen I would like to see China participating in it. After all, China is one of only three countries to have put people in space and retrieved them safely--the U.S., China, and Russia.

Fourth, the U.S. is fully supportive of the Strategic and Economic Dialogue, but, we both need to make sure that it is not so big and meeting so infrequently that it is hard to produce tangible results. We need inter-plenary session mechanisms to translate general agreements into concrete action on priority items. No matter how many agreements are reached the real test is how many of them are achieved.

A fifth area worth our thinking more about is investing in each other’s futures. As China is going global, it begins to invest in the world, which is a very positive thing. The moment China invests in a factory or facility that employs people abroad, you generally make friends. Our congressmen care about economic growth and social stability just as do your local leaders. If we can see a benefit for the U.S., we will become supportive. Recently, China set up a very far-sighted joint venture in Nevada to work on wind farm technology--that is very smart. And, you have facilities in South Carolina, North Carolina, Minnesota, and Kentucky just to mention a few places. I notice that when congressmen have constituents who are employed in Chinese facilities their attitudes often change. Similarly, I believe that the United States should also invest more in China. Even though we think we have invested a lot already, U.S. investment in China currently is only about 3% of current annual total FDI going into the PRC, though it is true that it is actually difficult to tell where all the money flowing into China is coming from; probably more than 3% is coming from the U.S. if a proper accounting occurred. Irrespective of the actual figure, if U.S. businesses can bring more to China, China will have more reasons to cooperate, and vice versa. It works both ways. We ought to use interdependence to build among our people the realization that we need each other.

Sixth, China has long been complaining about U.S. export control policy. You are dissatisfied because the U.S. is not selling China what it wants to buy, in the high-tech area. The U.S. also complains because of our huge trade deficit with China. Our Commerce Secretary Gary Locke and Defense Secretary Robert Gates are proposing to liberalize our export control policy. It is not certain they will succeed, but it would be a step forward.

Seventh, with regard to the Taiwan issue, we should emphasize the cooperative aspect of our relations in this issue area, strange as that may sound to some ears. That is, we both have an interest in cross-Strait integration. You want unification and we want to remove ourselves from your civil conflict in a way that doesn’t destroy our credibility or legitimize the use of force. Economic diplomacy will serve you well; China will not want to create an unhappy population on the island of Taiwan. The U.S. is willing to nurture where it can, and support good relations between the Mainland and Taiwan. Overall, things are working in a positive direction, weapons sales aside.

Finally, China needs to look for opportunities to exercise its growing strength and influence in ways that are welcome by the world. The world needs to get used to seeing you use your power in a way that all, or most, people of the world can agree with. For example, China’s dispatch of medical personnel during the South Asian Tsunami was very welcome as has been its dispatch of ships to the Gulf of Aden in the multi-nation counter-piracy effort. China’s position on the sinking of the South Korean military ship is another such opportunity. Let’s look for targets of opportunity that are so clear that the whole world can see China is exercising its power on behalf of broad, globally-shared objectives, even though not all people will in all cases agree on a single definition of international responsibility. (Transcribed by Zhang Lu)