The financial crisis has seen the global economy turned on its head. And it is China, rather than America, that is set to dominate through both soft and hard power

The 2008 financial crisis marked a fundamental shift in the relationship between China and the United States. Nothing could or would be quite the same again. The management of the US economy was revealed to have been fatally flawed, a lightly regulated financial sector almost allowed to shipwreck the entire economy. In a few short months, the crisis served to undermine a near-universal assumption of American, and western, economic competence; in contrast, China’s economic credentials have been considerably burnished. The crisis at the same time exposed the huge levels of indebtedness that have sustained the American economy, accentuated since by the financial rescue package, while underlining the financial strength of the Chinese economy, now the world’s largest net creditor with its massive foreign exchange reserves. Although hardly new, the crisis finally woke Americans up to the fact that China had become their banker, with all this meant in terms of the shifting balance of power.

But this was only the beginning. Immediately after the financial meltdown, the American economy contracted, and when it began to grow again, it was at a very slow rate. The Chinese economy, on the other hand, confounded expectations and continued to expand at a barely reduced rate, thereby emphasising the success of the government’s stimulus package and the ability of the Chinese economy to withstand the worst western financial crisis for seven decades. To compound matters, it is now abundantly clear that the financial crisis raised the curtain on a new and protracted period of painfully low growth and greatly reduced expectations in the west, with the American economy – like its European counterparts – facing the prospect of years of austerity, with swingeing reductions in both government and personal expenditure, combined, for Americans at least, with the urgency of greatly reducing its trade deficit. Burdened by sovereign debt crises in Greece, Ireland, Portugal, Spain and Italy, the European integration project threatens to unravel, condemning the euro to oblivion in the process. Meanwhile, the western economies continue to teeter on the brink of another recession, with a further banking crisis and a full-scale slump not to be excluded. In contrast, the Chinese, buoyed by huge foreign-exchange reserves, large trade surpluses and a high level of savings, can look forward to many more years of fast economic growth. All this adds up to an extraordinary and irreversible shift in power from the west in general, and the US in particular, to China.

As the outstanding example of the economic transformation of a developing country, and the largest trading partner of many nations in Africa, East Asia, Latin America and elsewhere, China already enjoys considerable respect and influence among developing countries. In contrast, notwithstanding its modest recent inroads in southern and eastern Europe, China enjoys very little soft power in the west. There are two main reasons for this: f­irst, China is still a relatively poor developing country and second, the absence of a multi-party democracy.

The significance of the former has been greatly underestimated: economic wealth is a fundamental determinant of a country’s wider appeal. This is especially true in a globalised world in which people, wherever they live, are now far more knowledgeable than before about conditions elsewhere. There is a natural desire on the part of people in developing countries to escape poverty and improve their living standards. This creates what might be called an unwritten global hierarchy in which people aspire, at least in terms of living standards, to be like those in societies that are richer than their own while looking down upon those in societies that are poorer. The reason why the Taiwanese have not hitherto wanted to be part of China has not simply been its lack of democracy but, even more potently, the fact that the Chinese have been and still are much poorer than they are. Similarly, the reluctance of the Hong Kong population prior to 1997 to become part of China was mainly because the mainland Chinese were regarded as poorer and less civilised. In a similar vein, the Germans would not wish to exchange their living standards for those of the Greeks, let alone the Zambians, though both would aspire to enjoy those of the Germans. Clearly, China’s relative poverty hugely limits its appeal as far as western societies are concerned. There is, moreover, one further advantage that wealthy countries enjoy in terms of their appeal, namely the means to project themselves to others: Silicon Valley, great sporting events, magnificent museums and Broadway, with isolated exceptions, only lie within the capacity of a rich and developed society. It was not until 2008 that China succeeded in staging the Olympic Games, by which time they also had the wherewithal to do so with great success.

Soft approach

This brings us to the nature of soft power and how it works. The main proponent of the idea of soft power has been Joseph S Nye. In Soft Power: The Means to Success in World Politics, he sees hard and soft power in discrete and separate terms. He defines economic power (together with military power) as constituting hard power and asserts that “soft power does not depend on hard power”. Nye argues that “the soft power of a country rests primarily on three resources: its culture . . . its political values . . . and its foreign policies . . .” But economic power – that is, the economic wealth of a country – is a fundamental pre-condition for most soft power. This is true for two reasons: first, people aspire to be like those in wealthier societies rather than poorer ones; and second, most soft power is based on and made possible by economic wealth. Nye writes, “Much of American soft power has been produced by Hollywood, Harvard, Microsoft, and Michael Jordan.” But each of these, in varying ways, is based on or assumes huge national wealth. Which other country in the world could sustain even two of these, let alone four? It would certainly be inconceivable for Brazil, or Angola, or even China, to possess such a constellation. Only the US, as still the richest and most advanced economy in the world, is capable of doing so. It follows that hard power and soft power cannot be treated as separate compartments as Nye argues. They may be different forms of power, but they are intimately interlinked as expressions of the overall power of a country, its ruling system and its elites. The difficulty with the concept of hard and soft power is that it treats power as fragmented and disconnected, rather than organic and integral. By chopping it up into separate parts, its dynamic nature, including the subtle interaction between different forms of power, is lost.

China’s growing influence will be based on a range of different but interconnected forms of power. Of these, unquestionably the most important is its ever-expanding economic power, which is creating the conditions for it exercising much greater cultural and ideological influence – its soft power – as well as providing the wherewithal for a major increase in its military capacity. Hegemonic nations must develop an all-round capacity to lead, influence, attract, subordinate, persuade, bully and cajole other nations; and they must be able to project a view of the world that other nations are prepared to accept, whether willingly or reluctantly, including their acquiescence in the primacy of the hegemonic nation and their own subaltern relationship to it. Realising this capacity, as we have seen with the US, depends on a combination of economic, military, political and cultural power. These processes are already underway in China’s case, albeit still at a very early stage. We are presently witnessing, for example, the extremely rapid restructuring of east Asia on the basis of China’s growing regional economic dominance. As yet, however, China is still to develop a genuinely hegemonic capacity in the region.

Meanwhile, China’s rising wealth will in time enable it to project itself in a variety of different ways to the world. The Beijing Olympics, the Shanghai Expo, the growing number of impressive international channels offered by CCTV, the many hundreds of Confucius Institutes established around the world, largely dedicated to the teaching and promotion of Mandarin, and the growing output of international blockbuster movies are part of what might be described as China’s “going out” cultural strategy. A poor country cannot afford such a global cultural infrastructure, but as it climbs the development ladder, China can and will.

Only in America?

In its heyday, America’s most attractive feature for many people was that, because of its sheer wealth and dynamism, it was able to set the benchmark of modernity in so many areas. People around the world looked to the US as a way of understanding and anticipating what the future would be like. The examples over the past 60 years have been countless: the rise of the car, suburbia, shopping malls, space exploration, the PC, skyscrapers, affordable air travel, the internet, Facebook, the iPod, fast food, Ivy League universities, jeans and Hollywood, to mention but a few. It has been able to do this because it is an extremely wealthy nation. No other country has been vaguely able to match America’s performance as the exemplar of modernity. With relative economic decline, however, the US’s capacity to lead in the manner of old has started to wane, while China has begun to show some small but significant signs of playing such a role, albeit still in a very limited way. The most obvious example is its infrastructure, which is becoming the envy of the world: great airports, an excellent network of expressways, the Beijing–Lhasa railway (traversing the “roof of the world”), the Pudong airport–Shanghai maglev rail link, the Three Gorges Dam, the Bird’s Nest Stadium and the world’s largest high-speed rail network, which will transform China economically and socially and, ultimately, its links with the rest of East Asia. In a similar manner, China is boldly embracing a greener future with its huge investment in the manufacture of solar panels and wind turbines.

The US, with its ageing infrastructure – antiquated railway stations, abysmal and slow rail network, indifferent airports, a ground-tracking system for air travel that dates back to the 1950s and a stubborn addiction to the private car – already pales in comparison. Its public spending on transport and water stands at 2.4 per cent of GDP, compared with 9 per cent in China. The contrast in sheer will and foresight on such matters is sobering. True, President Obama has set the aim of bringing high-speed rail to 80 per cent of Americans and broadband internet to 98 per cent of them: in his State of the Union address in 2011, he said America needs to “out-innovate, out-educate and out-build the rest of the world”. But such projects will require the investment of enormous sums of money at a time when the US is, in effect, broke, unlike during the so-called “sputnik challenge” of the early 1960s when the country was still able to call upon what were, for the time, huge resources. The world will increasingly look to China in imagining the infrastructural future. Indeed, this can already be counted as part of China’s emergent soft power, not only in the developing but also the developed world.

When it comes to China’s soft power in a more strictly cultural sense, we need to think beyond the confines of popular culture, such as Hollywood, basketball and pop music. One of the most fundamental issues concerns parenting. Chinese values of parenting are very distinct from the values that inform parenting in the west. One of the best discussions of the two models can be found in Howard Gardner’s To Open Minds, which, while avoiding making value-judgements, well describes the striking contrast between the two traditions. There are many characteristics that differentiate them: in China, parental authority is considered sacrosanct rather than negotiable as it is in the west; Chinese parents have very high expectations of their children, much higher than in the west, and consequently demand much more of them in terms of study and achievement; likewise, Chinese parents lay down much clearer moral guidelines in terms of behaviour and responsibility, in contrast to the more laissez-faire western mentality; and the Chinese family, both nuclear and extended, is accorded much greater importance and status within society, with parents expected to assume responsibility not only for their children but also for their own parents.

Even if it was deemed desirable, it would be impossible to transplant Chinese traditions of parenting into western societies. Nonetheless, just as the west has exercised great influence on other cultures over the last two centuries, there is no reason in principle why China could not do the same in the future, especially in an increasingly globalised world in which distance of all kinds, including cultural, has steadily contracted. The furore in the US in response to the publication of Amy Chua’s Battle Hymn of the Tiger Mother in early 2011 illustrates the heightened sensitivity to these issues as a result of growing misgivings about American parenting, concern about China’s rise, and the superior performance of Chinese-Americans and Asian-Americans in US schools. There is a new sense of insecurity and a reluctant admission that perhaps Americans might have something to learn from Chinese culture. The mood is far from being one of moral panic but these signals could prove early symptoms of such a condition. So far, western interest in the relative merits of the two traditions has mainly concerned educational achievement, but the potential ramifications are much wider, including social cohesion, social inclusion, crime, delinquency and the care of the elderly.

The focus on education is not surprising. An awareness of the importance of education for national economic performance has a long history, going back to the 1870s, when Britain found itself under growing challenge from Germany. Globalisation, however, has produced a much greater awareness and knowledge of relative national educational performance, not just between western societies, where there is a long history of comparison, but between all societies, including those of East Asia. Major surveys of comparative levels of educational attainment around the world have been attracting serious media interest for several decades and for some time there has been an awareness that children in East Asia tend to out-perform their counterparts in the west. In December 2010 the latest OECD survey of the performance of 15-year-olds in mathematics, science and reading not only further confirmed this but saw the US languishing well behind East Asian countries, and also some European ones, in what could best be described as a middling position. Not only did Shanghai head the rankings in all three areas but Singapore, South Korea, Hong Kong, Taiwan and Japan – all Confucian-based societies – generally came near the top as well, notably occupying the next five places after Shanghai in maths.

Of particular note, indeed, in the latest survey was the extremely impressive performance of Shanghai, whose lead over everyone else was very large in all three areas and which has recently instituted a successful educational reform, based on giving much greater initiative to teachers, who are now better paid, better trained, and encouraged to participate in shaping the curriculum. The success of East Asian countries, however, cannot solely be explained in terms of their educational systems: it is also a product of the way in which those systems interact with the wider culture.

As mentioned earlier, Confucian societies place much greater emphasis on education than western societies, as exemplified by the high performance levels that parents expect and demand of their children. The explanation for their present level of educational attainment is thus to be found in part in their cultural traditions. One of the underlying strengths of the US is the quality of its Ivy League universities, but in the long run the school system is far more important because it is responsible for educating the whole population rather than a tiny elite.

By taking a rather more expansive view of soft power – in this instance, infrastructure, parenting and education – it is possible to see how China could come to exercise a significant influence on western opinion even while it is still only a relatively poor developing country. The reality of its continuing relative poverty, however, will continue to constrain its wider appeal to the much richer west far into the future.

Jasmine revolution

Since 2008, linked to a number of what were deemed to be “sensitive” events, there have been a series of arrests of people associated with human rights in China. These events included the riots in Tibet in 2008, the Beijing Olympics later that year, the unrest in Xinjiang in 2009, the 20th anniversary of Tiananmen Square, the Shanghai World Expo in 2010 and the installation of a new party and government leadership in 2012, which is seen by the authorities as the most delicate of them all. In early 2011, various anonymous online calls for a “jasmine revolution” along the lines of the Arab spring led to a further wave of arrests by the security apparatus. Although the past decade has been characterised by growing openness to the outside world, increasing awareness of individual rights and a heightened concern about the need for a fair legal system, the arrest of high profile figures such as Ai Weiwei and Hu Jia have seemingly contradicted this process. To add a further dimension to this picture, the Great Firewall of China, a filtering system that blocks websites hosted outside the country, began to disrupt a much larger number of sites in the early months of 2011.

Periodic clampdowns of this kind are not uncommon in China and it is often difficult to fathom the precise reasons for them, though the events listed probably provide the proximate cause. Western commentary generally interprets such behaviour as a sign that the regime feels fragile and paranoiac. While it is certainly a manifestation of the age-old preoccupation of Chinese leaders with “stability”, the two are not the same. All Chinese governments down the ages, however strong andsecure, have been deeply preoccupied with  stability because ruling such a vast country has always been a hugely difficult act of governance requiring unusual attentiveness to the causes and sources of opposition. In other words, such a repressive response may be a sign of weakness, but not necessarily.

Not Egypt

In this instance the evidence is thin to non-existent. Although the security apparatus responded with a heavy hand to the calls for a jasmine-style rebellion, there was no sign whatsoever of any popular response: in fact, more journalists and police than would-be protesters responded to the online calls for demonstrations in February 2011. The lack of support was hardly surprising: China is not Egypt. Apart from a lack of democracy, the two examples have nothing in common. According to a Pew poll in spring 2010, while 87 per cent of Chinese expressed satisfaction with their country’s direction, only 28 per cent of Egyptians felt the same way. Two-thirds of Chinese believed that their lives were better than five years ago but only 18 per cent of Egyptians; almost three-quarters of Chinese expressed optimism about the future compared with 23 per cent of Egyptians.

There is a very widely held western view that the Chinese government suffers from a chronic lack of legitimacy. The reasoning is straightforward: the authority of the state is a function of democracy and, as China lacks a western-style democracy, it follows that the Chinese state is bereft of legitimacy. Given western assumptions and values, this is a perfectly reasonable and robust argument. It is, however, contradicted by empirical evidence. According to a survey conducted by Tony Saich of Harvard’s Kennedy School, in 2009 no less than 95.9 per cent of Chinese were either relatively or extremely satisfied with the central government (although this figure fell to 61.5 per cent at the local level). By any criteria, this indicates
an extraordinarily high level of satisfaction and represents prima facie evidence that the legitimacy or otherwise of the Chinese state cannot be reduced to the absence of democracy; if that was the case, these figures would be drastically lower.

In fact, democracy is only one determinant of a state’s legitimacy; nor does it of itself ensure legitimacy, as the palpable lack of legitimacy of the Italian state since the Risorgimento serves to illustrate. Contrary to western conventional wisdom, the Chinese state enjoys greater legitimacy than any western state, even though western-style democracy is entirely absent. The reason is that the authority of the Chinese state derives from an entirely different source: it is regarded by the Chinese as the protector, guardian and embodiment of Chinese civilisation, its primary task being to ensure the unity of that civilisation or, to put it another way, of the civilisation-state. Its legitimacy has been further enhanced by the fact that, for around a millennium, the Chinese state has had, unlike western states, no serious rivals to its authority: as a result, over this whole period there have not been any major boundaries to its powers. All this helps to explain Saich’s findings. The Chinese perceive the state differently from westerners. The latter see it as an outsider, an interloper, or even a necessary evil that must be constantly held to account and justified. The Chinese, on the other hand, view the state as an intimate, as part of the family, even as the head of the family.

It is not only the nature of its legitimacy that distinguishes the Chinese state. Its historical evolution and construction have also been profoundly different from that of any western state. It acquired a modernised form, with a centralised administration recruited by means of the imperial examination system that was capable of governing a vast country, long before this was the case in Europe; and developed a range of powers over the economy, population and the military, such as the capacity to move grain around the country and undertake huge infrastructural projects, again much earlier than Europe. And these traits are still manifest in a multitude of different ways today. In fact, there is no Chinese institution that is more distinctive – or indigenous – than the Chinese state.

Notwithstanding its highly distinctive history and circumstances, the Chinese experience has much to offer other developing countries, including, most obviously, the need for a proactive, competent and strategic state, the virtue of competition, a constant process of learning and experimentation, openness to ideas from outside and relatively open markets. There are, however, two fundamental characteristics of China’s development that no other developing country can conceivably hope to copy: first, the Chinese state itself, and second, the sheer physical and demographic size of China (with the exception of India, of course, which has a similar population).

Compared with developing countries, it is much less clear what the west can learn from the Chinese state. It seems inconceivable that western societies would wish to imitate its model of governance. On the contrary, China’s lack of democracy offends the sensibilities of most westerners, who believe that their own experience of democracy offers a universal model for others, not least China itself.  China’s increasing power and influence, however, will oblige the west over time to seek a better understanding of how and why China’s governance is different, including recognition of its strengths as well as its weaknesses, even though it will continue to be antipathetic to China’s lack of democracy.

There are, furthermore, various other aspects of the Chinese state from which the west will be required to learn. The first is “state competence”, a concern which has virtually disappeared from the western agenda over the last 30 years in the face of the neo-liberal revolution and its overwhelming preoccupation with the market and privatisation. A growing anti-state mentality has diverted and distracted attention from the need for a state that is competent and able to deliver. The second concerns the strategic capacity of the state, its ability to think and act in ways that address the long term. This is one of the great strengths of the Chinese state. In contrast, one of the great weaknesses of western states is their fixation with the short-term. With the rise of China they will face the challenge of seeking to combine democracy with a different and much longer run notion of time, which will require a serious rethinking of the nature and forms of political governance.

All this might sound a little far-fetched, at least to many western readers. So let us put these considerations in a wider context. The west is in the midst of its worst economic crisis since the 1930s and already, several years after the financial meltdown, it is abundantly clear that no end is in sight. Indeed, such is the gravity of the systemic crisis now afflicting western capitalism that in all likelihood it is still only in its early stages: several years on we still have little understanding of its deeper causes and how to deal with them. Inevitably the crisis brings into question many of the underlying assumptions of the past few decades. In the face of the economic turmoil, the west has been intellectually paralysed, with little or no sign of any creative response and a constant recycling of old attitudes and remedies.

Power shift

In the longer run, the political consequences are likely to be profound, especially as the crisis, unlike that of the 1930s, coincides with a fundamental shift in global power away from the west and towards China and the developing world. Over the last two centuries the west has enjoyed a highly privileged relationship with the developing world, first as colonies, then as weak post-colonial societies. As a result, the west has enjoyed privileged access to their natural resources on very favourable terms. But the growing economic power of many developing nations, combined with their own increasing demand for commodities, means that commodity prices have risen substantially, with the result that they have become increasingly
expensive for the developed world. This trend is likely to continue and become more pronounced in the future.

The profundity of the crisis will, in a variety of ways, bring into question the forms of governance and political assumptions that inform western society. Economic crises of this kind are not acts of nature but man-made events – the consequence of policies, priorities, philosophies and interests. They reflect on the competence, attitudes and ideology of the ruling groups. Like wars, such crises are a brutal and unforgiving measure of the competence, relevance, integrity and suitability of these groups.

In this light, history seems likely to judge America’s political system extremely harshly. The political class (as also in the case of Britain) allowed itself to become the captive of the financial sector and its interests. The American government has since found itself in a state of near paralysis, beleaguered by a polarised society, its authority constantly questioned and impugned, decision-making too often bought by powerful lobbies, of which Wall Street remains by far the most influential. It is difficult to think of a time when the American government has seemed less capable of responding to and dealing with the profound challenges that the country faces. Of course, it boasts a democratic system that has been the envy of much of the world, but that is little compensation if it is unable to deliver what is the sine qua non of a state, namely the ability to govern, cohere and lead society.

Meanwhile, the failure of European governments has, if anything, been even more spectacular. The contrast with the competence and foresight displayed by the Chinese government in its stewardship of the country’s transformation over the last three decades – surely the most remarkable performance by any state since the late 1970s, and bearing comparison with the achievement of any state over the last two centuries – is sobering. This is not to gloss over or ignore the very serious weaknesses of Chinese governance, not least large-scale corruption, but we should not allow these to distract us from recognising its formidable achievement. The longer this contrast is sustained, the greater the likelihood that the west will find itself obliged to learn from China.

The second edition of Martin Jacques’s When China Rules the World: the End of the Western World and the Birth of a New Global Order has just been published by Penguin as a paperback (£12-99). It is a greatly expanded, updated and revised version of the first edition which has been a global best-seller, having been translated into 11 languages.