Ian Bremmer’s article in the March 2010 issue of Prospect is well worth reading.  The world’s two great powers are growing dangerously hostile to one another. Could this be worse than the cold war?

Previous posts have raised the increasing conflict between China and the US.  President Hu Jintao’s attendance at the nuclear disarmament conference and his meeting with President Barack Obama indicate a desire to cool down the increasingly hostile rhetoric.  However, the danger of conflict cannot be controlled by government alone. 

There appears to be a domestic battle in China those between those who still adhere to Deng Xaoping’s advice and the assertive protagonists.  The Chinese understandably believe, as Ian Bremmer points out, “that their country’s resilience in the face of America’s meltdown has vindicated a Chinese model of development, one that rejects US-style free markets in favour of a ‘state capitalist’ system.”

“Put bluntly, the Chinese leadership no longer believes that American power is as indispensable as it once was for either China’s economic expansion or the Communist party’s political survival. Nor does it accept that access to US capital or commercial know-how is quite so important for the next stage of China’s development—or that its growth depends on the spending habits of American consumers.”

The article argues that, while there is still considerable mutual dependence, grounded mainly in commercial ties, the unfolding conflict is in many ways more dangerous than the cold war.  China is decoupling politically from the west, and US policymakers must ensure that American power remains indispensable to China’s rise.  This will not be easy with US politicians wanting to shift the blame for the country’s woes onto someone else.  And Beijing’s new assertiveness is feeding a growing insecurity in the US.

The ultimate Chinese motive, says Bremmer, is not economic but political: “to maximise the state’s control of development and the leadership’s chance of survival. It is a model that has so far been strikingly successful—to the extent that China no longer needs to keep a low profile and let the US take the lead. But it is not a system that offers a level-playing field to foreign companies and investors.”

“Any cold war-type conflict is much more likely to develop over issues of economic security than military confrontation. Charges of Chinese corporate espionage will complicate the efforts of Chinese companies to invest in the US. China will respond with investment restrictions of its own. And western companies will find themselves competing for natural resources across the developing world with Chinese state-owned companies, armed with subsidies and political backing.”

Bremmer believes that ensuring a continuation of today’s “mutually assured economic destruction” should be America’s response – America needs China to help finance its debt:  China needs access to US consumers to keep unemployment in check and foreign investment to continue.   This interdependence can force some degree of cooperation even as political, economic and security disputes simmer.

Foreign companies doing business in China, maintains the article,  must “invest more heavily in products with a blazing-fast product cycle, like advanced electronics and videogaming. By the time their Chinese rivals have broken the code on this intellectual property, they will already have a newer model. And given the greying of China’s population, foreign investment will remain welcome in healthcare innovations.   It is also important for the US government and American companies to invest in those areas where their comparative advantage is most likely to endure.”

Finally, Bremmer recommends that the US coordinate more closely with the EU on ways to create a unified front in trade disputes with Beijing.  There is a common feeling that China is practising unbridled mercantilism – market leaders are being built indifferent sectors, exploiting western open markets and intellectual property, while preventing full access for the western companies in China.

Europe’s moderating role is badly needed but first it has to get its own act together.