US-China Competition: Nature, Sources, and Prospects

By Bilahari Kausikan

December 14, 2021

It is privilege to publish, with permission, this guest lecture given by Secretary Kausikan at the Graduate School of Public Policy at the University of Tokyo on 26th November 2021.

I was asked to speak about ASEAN views of US-China relations. Southeast Asia is an extremely diverse region. I do not pretend to represent the views of the ten very different countries that make up ASEAN. Mine is a view from Singapore – and please note that I said ‘a’ Singapore view not ‘the’ Singapore view. 

I am going to deal with three aspects of US-China relations: the nature of their competition, the sources of their competition, and the probable outcome of their competition. 

It is obvious that US-China competition is now in a new phase. Since 1972 when China and the US reestablished contact after the communist victory in 1949, until around 2010, there had been periodic disagreements and tense episodes, particularly over Taiwan and human rights issues, but the overall emphasis was on engagement. Even the Tiananmen massacre in 1989 did not permanently derail engagement. But now the emphasis has flipped around. Engagement will not entirely cease, but the overall emphasis is now on competition. 

Competition will wax and wane at different times and on different issues, but competition of some degree will be the leitmotif of US-China relations for the foreseeable future. We are all going to have to live with this – I cannot predict how for how long exactly – but I think it will be measured in decades. 

The recent virtual meeting between President Xi Jinping and President Biden was a good start to stabilizing the competition. But it was only a start and while stabilizing competition — making it less dangerous — is all to the good, it is not the same thing as ending competition. It is therefore vital that we understand the nature of US-China competition accurately.

This new phase in US-China relations has often been called a ‘new Cold War’. This is an intellectually lazy and inaccurate trope. There are some similarities between US-China competition and Cold War US-Soviet competition but calling this a ‘new Cold War’ fundamentally misrepresents the nature of US-China relations. 

Let me get the similarities out of the way before going on to the much more crucial differences. 

First, US-China competition is a new structural condition of international relations as was the Cold War. We tend to forget that the period when US dominance of the international order was unchallenged was in fact short and historically exceptional – only about twenty years from 1989 when the Berlin Wall came down to 2008 when the global financial crisis broke out. For most of the post-World War II period – 45 years or so – global order was contested, sometimes violently, both internally within countries and internationally between countries. We are now returning to a more historically normal period of a contested international order. 

Second, as during the Cold War, there is an ideological element which the US has characterized as between democracy and authoritarianism. On its part, China has claimed – on the basis of its management of the global financial crisis of 2008-2009 and the Covid-19 pandemic — that its governance model is superior to the US model or, more generally, the western model. We should be aware of this ideological element without being distracted by it. 

But the similarities with the Cold War are superficial. Much more crucial are the differences. While we have returned to a more historically normal period of a contested international order, the nature of the contest has fundamentally changed.  

The US and the Soviet Union led two entirely different types of economic systems which were connected only tangentially at their margins. The US-Soviet competition was to determine which system would prevail. Their competition was essentially a binary game.

Except for the energy market, the Soviet Union was never a significant global economic player. By contrast, the US and China are both vital and irreplaceable components of one global economic system. The US and China compete within this single global system. They and other components of the global system are connected to each other by a web of supply-chains of a scope, of a density, and of a complexity, never before seen in history. These supply-chains are what distinguish 21^st century interdependence from earlier periods of interdependence. 

To restate the point in another way, while globalization is under stress, and the stresses within key countries and between countries will continue, it is highly improbable that globalization will be reversed entirely.

Capitalism has triumphed everywhere and calling it ‘Socialism with Chinese Characteristics’ is only a transparent face-saving device. Today, Chinese peasants and workers want nothing more than to join the bourgeoisie, not overthrow it. That is the goal of China’s leaders too and what they mean by building a ‘modern socialist country’. China’s middle-class is now some 400 million or more strong, including many Party members. 

The same is true of all countries everywhere. Every economy is now a mixed economy, the primary differences being in the balance between market and state elements and in what social protections are in place. As an aside, ironically, social protections are generally stronger in the West than in any country that calls itself ‘socialist’. This is not to say that there are no other important differences between different types of mixed economies, but they are mainly political differences and I will return to that later.

Competition within a single system is fundamentally different from competition between systems. It is not binary. The global web of supply-chains is unlikely to bifurcate entirely across all sectors, although partial bifurcation has already occurred in some sectors such as the internet and 5G telephony. More bifurcation of some degree is likely, particularly in sectors that have national security implications such as data flows. But complete across-the-board bifurcation is highly improbable.

The dynamics of competition within a single system are complicated. For example, high-end semi-conductors have emerged as a serious vulnerability for China. The three major high-end semi-conductor fabricators, as well as critical nodes in the semi-conductor supply-chain, are all held by the US and its allies and friends. But China is about 40% of the global semi-conductor market. You cannot cut off your own companies and those of your friends and allies from 40% of the market without doing them serious damage.

Both the US and China have benefited from the system of which they are both vital parts. But neither the US nor China are entirely comfortable with it because globalization creates and exposes mutual vulnerabilities. Thus profound interdependence coexists uneasily with profound mistrust in US-China relations.

Some Americans still harbor hopes of ‘decoupling’ the US and its allies from China’s economy. This is a forlorn hope that is bound to fail. Even the staunchest American ally will not play this game. It is not going to be easy for the US and its friends and allies to determine how to position themselves in this new environment.  China faces much the same difficulties. The choices facing the two principals and third parties are no longer straightforward binary choices. 

It is easier to talk about diversifying supply-chains to avoid over-reliance on China than to actually do so. Japan has for many years tried to pursue a ‘China plus one’ strategy but without much success in identifying a really viable ‘plus one’. 

It is also easier for China to talk about ‘dual circulation’ and becoming more self-reliant in technology and boosting domestic household consumption to sustain growth, than to actually do it. There are a number of reasons why China’s efforts to increase domestic household consumption have plateaued and why overcoming this is not straightforward,  that I do not have time to elaborate. Perhaps we can discuss this during question time. For now just note that ‘dual circulation’ has two wings and the other is continued reliance on exports to drive the growth China needs to maintain social stability. 

This means that, like it or not, China must accept the risks and vulnerabilities of remaining connected to its arch-rival and its rival’s friends and allies. So too must the US and its friends and allies accept the parallel risks and vulnerabilities of remaining connected to China. Competition within a single system is about achieving a position that will enable you to benefit from interdependence, while mitigating your own vulnerabilities and exploiting your rival’s vulnerabilities. It is not about one system displacing the other.

What drives this new phase of US-China competition? The obvious explanation is lack of a common enemy after the collapse of the Soviet Union. That common enemy was what brought them together in the first place in 1972. This is true but trite. More fundamentally, the competition is driven by parallel perceptions or misperceptions by the US and China. — or perhaps delusions are more accurate way of describing the situation. 

There is a very strong ideological element in American political culture. This is the belief that democracy is not just a desirable goal, but that history tends towards some variant of the western type of democracy. Americans are also pragmatic and pragmatism is what drives American foreign policy most of the time. But the idea that it is America’s responsibility to nudge history in the right direction, never entirely disappears. This makes the Chinese Communist Party (CCP) chronically suspicious of American intentions, and not without cause.

I do not think the mainstream in the American foreign policy establishment ever thought that the prospects of China becoming a democracy like Japan or South Korea or Taiwan were very high. But after Deng Xiaoping’s reform and opening up, and in particular after China joined the WTO in 2001, many Americans allowed themselves to hope that economic reforms would eventually lead to at least some degree of political reforms. Towards the end of the Jiang Zemin period and at the beginning of Hu Jintao’s administration, China did in fact cautiously experiment with limited political reforms at the local level.

But Americans discounted or under-weighed a fundamental fact about China: China is a communist country. Of course, post-Maoist China’s ideology no longer emphasizes class-struggle. The CCP legitimates its rule by a strongly nationalist and revanchist historical narrative of humiliation, rejuvination and realizing the China Dream under CCP leadership. But the structure of China’s political system is clearly still communist in that the CCP, as a Leninist-type vanguard party, insists on control not just over politics, but over economics, culture, social behaviour; control over all aspects of state and society. Technology has given contemporary China the means to exercise tighter control than any previous communist system.

The purpose of reform in a communist system is always to strengthen the dominant position of the vanguard party and tighten its grip on the state. Reform is not intended, as in the western idea of political reform, to limit the power of the state so as to empower the individual. This simple fact is not always understood in the West. When Xi Jinping first came to power, not a few American and other western observers of China actually thought that he would be a reformer in the western sense of ‘reform’. Xi is indeed a reformer, but in the Leninist sense of ‘reform’.  What we are now witnessing in US-China relations is, at least in some measure, a counter-reaction in the to this delusion.

I am not sure that Xi is a Marxist in the classic sense. He has his own understanding of Marxism. But he is undoubtedly a Leninist who believes in the primacy of the Party. 

Xi has not entirely discarded market reforms in search of economic efficiency. After all, the 18^th Party Congress in 2012 that saw Xi ascend to the ultimate heights of power, also acknowledged that the model of state enterprise led investment in infrastructure that underpinned the spectacular growth of the 1990s and first decade of the 2000s, was unsustainable. In 2013, in the first year of Xi’s watch, the CCP adopted the outlines of a new model that envisaged ‘a decisive role’ for the market in the allocation of resources. 

Still, Xi is a dedicated apparatchik who regards the market only as the servant or instrument of the Party and who believes that stronger Party control and Party discipline must be at the centre of solutions to China’s challenges. In any case, not much of the 2013 plan – some scholars estimate not more than 15 to 20 percent – has so far been implemented.

Xi’s current emphasis on ‘common prosperity’ is in my opinion less an ideological commitment to egalitarianism than an attempt to deal with an issue with which many other countries are also grappling: growing inequality. This is a legitimate concern. But coming on the heels of his efforts to assert greater Party control over a slew of sectors from technology to property to private education, it has aroused great uncertainty and raised fundamental questions about the social compact on which CCP rule had been based. In its essentials that compact was : I will deliver fast growth to allow you to become rich in return for obedience to the Party. Most Chinese were happy with the deal.

Tolerance of inequality – some getting rich before others, to paraphrase Deng Xiaoping — was the price of that compact for three decades. But inequality had grown too stark and possibly destabilizing. A new compact seems to be emerging – slower but more equitable growth in conjunction with tighter Party control, stronger Party discipline, and strict adherence to Xi Jinping Thought. 

Emphasizing control at a time when slower growth raises the risks of social instability is perhaps only prudent. But some very basic questions remain unanswered: What will be the new drivers of growth and will they be compatible with tighter Party control and compliance with Xi Jinping Thought? Will the Chinese people accept this new compact?  

The Resolution on History adopted earlier in November 2021 at the 6^th Plenary Session of the 19^th Party Congress, emphasizes the continuity of the direction that Xi has taken the CCP with China’s long history and that China’s future under CCP rule as the inevitable outcome of this historical process. Will it work? The insistence on continuity and inevitability could suggest some uncertainty to the outside observer. But stressing continuity has always been a characteristic of Chinese historiography and it is too early to come to definitive conclusions.

Still, it is the privileged position of the CCP, and the revanchist narrative by which it justifies its privileged position, that is the fundamental driver of the assertive geopolitical and mercantilist economic behaviours that have aroused concerns about China in many countries. Revanchism, by the way, is an often-misunderstood concept. It does not only mean ‘revenge’ although that is its root in French, but more generally, the recovery of what was lost. ‘Recovery’ need not mean physical recovery, but also recovery of status or position. That is what lies at the heart of the ‘China Dream’.

It has become clear that the global financial crisis and Beijing’s experience of the second Obama administration, led to a serious miscalculation about the US, and the West generally, as being in absolute decline. This misperception began towards the end of the Hu Jintao era but Xi certainly doubled down on it. In reality, the changes in the global distribution of power are relative not absolute, and while China has made tremendous progress, the US is still ahead in many indices of power, not the least of which is military. 

I do not know whether Xi still really believes that the US is in absolute decline. But what Xi really believes is perhaps now somewhat beside the point. He has made his choices and cannot reverse them without looking weak. As great as is his authority within China, Xi is nevertheless riding a tiger of his own creation and will not want to admit mistakes.

Western democracy has its weaknesses, and the US in particular, is currently facing very serious domestic challenges. Decision-making in all democracies is dysfunctional by design to prevent an over-concentration of power. This is especially pronounced in the US, where distrust of the state and its institutions was ingrained at its founding. US politics is fiercely partisan. This makes it difficult for Washington to react quickly and steer a steady long-term course without raucous debates and compromises that mix wheat and chaff into less than coherent policies. 

America can be bewildering to the outside observer. But the deep and fundamental well-springs of American resilience and creativity have never been overly dependent on what happens in Washington DC. More important are what happens in American corporations, in American universities, in American research laboratories, and on Wall Street and the main streets of the fifty states. 

In the decentralized US system, consensus is difficult to reach,  but once established, it is enduring. The US is often slow to react—but once roused, it acts, and can act relentlessly and ruthlessly. After all, the US pursued competition against the Soviet Union for 45 years, often while engaged in partisan political debates that were no less bitter and divisive than those that today embroil the US. Whatever else they may disagree on – and that is almost everything — there is a bipartisan consensus on China. Political debate about China is only over the best means to compete, not whether the US should compete.

I do not think China’s leaders have a deep understanding of western democracy and tend to underestimate its resilience. The highly decentralized nature of western democracy and its distrust of an overly strong state is not only alien to China’s historical experience and political culture, but it is in the CCP’s interest to discount western democracy’s strengths to its own people. 

Centralized, authoritarian systems do have some advantages. Such systems are better placed to make quick and clear decisions and pursue them relentlessly over the long term. I do not think China could have made such tremendous progress under any other system. But the ability to take and implement long-term decisions is an advantage only if the decision was correct in the first place. 

Deng Xiaoping’s decision to reform and open up China was correct; Mao Zedong’s Great Leap Forward and Cultural Revolution were immense mistakes that cost millions of lives. Xi is not a Maoist, but his concentration of power, his discarding of term-limits, his insistence on party control and discipline,  and his demand for compliance with ‘Xi Jinping Thought’, has reintroduced something akin to a neo-Maoist single point of failure into the Chinese system whereby a single bad decision can have system-wide effects which are difficult to correct. 

Time will tell what the consequences will be. We should not assume failure. The CCP is far more adaptable than the Communist Party of the Soviet Union and China is a far more viable economy than the Soviet Union ever was.

But it already seems clear to me that China misjudged America and that the premature abandonment of Deng Xiaoping’s sage approach of ‘hiding strength and biding time’ was a fundamental mistake. Once revealed, ambitions cannot be easily concealed again. Talking about a “community of common destiny for mankind” or promoting trade and investments will not lead other countries to ignore China’s ambitions. It is not the ambitions per se that are problematic – it is only natural that big countries will have big ambitions — but the overly assertive way that Beijing has chosen to pursue its ambitions that is the problem. Furthermore, China’s political culture and historical experience leads Beijing to conceive of ‘community’ as hierarchy with China at the apex. This naturally arouses resistance. 

Of course, no country will ever ignore or shun China. Today, many surveys show that while China’s importance is widely acknowledged, distrust of China is also at record highs. You would be hard-pressed to identify a country without at least some concerns about Chinese behaviour, including countries that are very dependent on China. A few months ago, Xi Jinping called on his officials to make China more “lovable”, more “credible” and more “respectable” and to widen its circle of friends, which is a tacit admission that Chinese foreign policy has been less than a stellar success.

At the same time, China does not pose the same kind of existential threat to the US as did the Soviet Union. China is a ‘peer competitor’, a formidable rival, but that is not the same thing as an existential threat. China certainly poses very serious challenges to the US and the West. But how can the China challenge be existential when their competition occurs within a common system? To call China a ‘systemic competitor’ or a ‘revisionist power’ is an exaggeration. It has been a very long time since anyone could seriously hope or fear that global revolution would replace capitalism with communism. Beijing may dream of reclaiming its place at the apex of a global or regional hierarchy, but that is not the same thing as wanting to kick over the table and start anew.

Without an existential external threat, there is no longer any reason why Americans should alone bear any burden or pay any price to uphold international order. Time to focus on long neglected domestic issues.  When Obama captured the White House with a promise of ‘Change’, voters did not understand him to be promising change abroad but change at home, or in other words, to ‘Put America First’, as Trump proclaimed with his characteristic lack of subtlety. Biden’s promise to ‘Build Back Better’ is only a more sophisticatedly phased expression of the same political mood. 

All this is not so much the retreat from the world that some commentators claimed, but an on-going recalibration of the terms of America’s engagement of the world. Absent an existential threat, the US now insists on more help to uphold international order. With Obama it took the form of a greater emphasis on multilateralism which is another way of describing collective action; Trump made crude demands; Biden talks about consultation with allies and partners. The intent is much the same. If the Biden administration consults you, it is not for the sheer pleasure of your company but to determine what you are prepared to do for it. It is a more polite form of Trump’s transactionalism. 

It is going be difficult for the US and China to rectify their perceptions of each other because the relationship has become entangled in the domestic politics of both sides. Neither Xi nor Biden – or any of their successors – will want to look weak. More fundamentally, the perceptions and misperceptions that drive competition are rooted in core aspects of American and Chinese political culture and therefore will never entirely go away, regardless of what policy adjustments either side may make to manage their competition and reduce immediate tensions.

So what can we expect for the future? Competition within a system is unlikely to result in the kind of clear-cut denouement that ended the Cold War competition between systems. For either side to gain clear dominance over the single system of which they are both vital parts would be to fundamentally change the nature of the system with unpredictable consequences, if not to break it entirely.  That is too high a cost for either to bear. 

For the foreseeable future, we are all going to be confronted with two strategic realities:  a more assertive if not downright aggressive China, and a more transactional America. Everyone needs to have relations with both the US and China; no one entirely trusts either. Consequently, no country – not the staunchest American ally or the most servile Chinese dependent — is likely to put all its eggs in either the American or Chinese basket. Nobody will neatly align all interests across all policy domains all the time with either the US or China. This is really what we mean when we say we do not want to choose between them. 

The very complexity of US-China relations, their multi-dimensional character, and the new world economy that has evolved after the Cold War, makes it unnecessary for any country to align all its interests along one axis. I do not say this will be easy, I only say that it is possible. This reluctance to neatly and permanently align all interests in one direction or another encourages and entrenches what is already a naturally multipolar Southeast Asia and is promoting the emergence of a multipolar world. Not all the poles will be of equal weight. Still, in multipolarity there is agency because multipolarity broadens manoeuvre space for everyone. 

In my judgement, neither the US or China is likely to  achieve their strategic objectives in entirety. What we can expect is continuing US-China competition within a fluid and highly complex multipolar system where different coalitions of states emerge, dissolve, and reconstitute themselves in different configurations around different issues, tilting this way or that as interests dictate. Some coalitions may well include both the US and China. No alignment will be entirely set in stone; no advantage or disadvantage by either side will be decisive. Navigating this system will require great alertness and agility. It is going to be very confusing for everyone.

We can however take some comfort in that war by design – that is, war by conscious policy choice; war as an instrument of policy –  is highly improbable due to nuclear deterrence. Nuclear deterrence kept the peace between the US and the Soviet Union, it will keep the peace between the US and China. The general level of tensions in the contest between the US and China have in fact been lower than between the US and the Soviet Union, at least so far. Accidents can always happen, but if they do, I think both sides will try to contain accidents and limit their consequences. Neither is reckless. In the South China Sea, dangerous incidents between the US and China have been infrequent.

Limiting the consequences of accidents will be most difficult to do in the case of Taiwan which directly intersects the CCP’s legitimating nationalist and revanchist narrative. But even in the Taiwan Straits, notwithstanding fiery rhetoric and provocative actions by both sides, war by design is also improbable, at least for the next decade or two. So far at least, China has not fired missiles over the island as it did in 1995-1996. That adventure backfired and contributed to the pro-independence Democratic Progressive Party coming to power for the first time. During his recent meeting with Biden, Xi said China was in no hurry to reunify with Taiwan. That was reassuring. Nevertheless, I do not think time is on China’s side in Taiwan and that hard fact injects a dangerous element of long-term uncertainty into the Taiwan equation and US-China relations.  

Secretary Bilahari Kausikan served for almost thirty years in the Government of Singapore during which time he was Singapore’s Ambassador to Finland and the Russian Federation, Permanent Representative to the United Nations with concurrent postings as High Commissioner to Canada and Ambassador to Mexico.  In the Ministry of Foreign Affairs, Secretary Kausikan was assigned as Deputy Secretary, Second Permanent Secretary and Permanent Secretary.  Following his retirement from government, Secretary Kausikan holds a number of academic positions, in the National University of Singapore and elsewhere.  He is widely regarded as one the most perceptive, clear eyed and candid commentators on foreign affairs.