Brahma Chellaney: How China's guns protect the yuan from Uncle Sam

SUCCESS breeds confidence, and rapid success produces arrogance. That, in a nutshell, is the problem that both Asia and the West face in China, and which has been demonstrated once again at the G20 summit in Canada.

Rising economic and military power is emboldening China's government to pursue a more muscular foreign policy. Having earlier preached the gospel of its "peaceful rise", China is now beginning to take the gloves off, convinced that it has acquired the necessary muscle.

That approach became more marked with the global financial crisis that began in 2008. China interpreted that crisis as symbolising both the decline of the Anglo-American brand of capitalism and the weakening of American economic power. That, in turn, strengthened its two-fold belief - that its brand of state-steered capitalism offers a credible alternative, and that its global ascendance is inevitable.

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Chinese analysts gleefully point out that, after having sung the "liberalise, privatise and let the markets decide" song for so long, the United States and Britain took the lead in bailing out their financial giants at the first sign of trouble. By contrast, state-driven capitalism has given China economic stability and rapid growth, allowing it to ride out the global crisis.

Indeed, despite perpetual talk of an overheating economy, China's exports and retail sales are soaring, and its foreign-exchange reserves now approach $2.5 trillion, even as America's fiscal and trade deficits remain alarming. That has helped reinforce the Chinese elite's faith in the country's fusion of autocratic politics and state capitalism.

The biggest loser from the global financial crisis, in China's view, is Uncle Sam. That the US remains dependent on China to buy billions of dollars worth of Treasury bonds every week to finance its yawning budget deficit is a sign of shifting global financial power - which China is sure to use for political gain in the years ahead.

Against that background, China's growing assertiveness may not surprise many. Deng Xiaoping's advice - "Hide your capabilities and bide your time" - no longer seems relevant. Today, China is not shy about showcasing its military capabilities and asserting itself on multiple fronts.

America shies away from exerting any kind of open pressure on China. US policy today is a study in contrast relative to America's unabashed exercise of leverage in the 1970s and 1980s, when Japan emerged as a global economic powerhouse. Japan kept the yen undervalued and erected hidden barriers to foreign goods, precipitating strong pressure - and periodic arm-twisting - by the US for Japanese concessions.

Today, the US cannot adopt the same approach with China, largely because China is also a military power.

It matters greatly that China became a global military player before it became a global economic player. China's military power was built by Mao Zedong, enabling Deng to focus on rapidly building the country's economic power.

Before Deng launched his "four modernisations," China had acquired global military reach by testing its first intercontinental ballistic missile, the DF-5, with a range of 7,500 miles, and developing a thermonuclear warhead.

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Without the military security that Mao created, it might not have been possible for China to build economic power on the scale that it has.

China's rise is thus as much Mao's handiwork as it is Deng's. But for Chinese military power, the US would treat China like another Japan.

l Brahma Chellaney is the author of Asian Juggernaut: The Rise of China, India and Japan.

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