A Strategic Economic Engagement

Strengthening U.S.-Chinese Ties

Henry M. Paulson Jr.

From Foreign Affairs, September/October 2008

Summary:  The prosperity of the United States and China depends on helping China further integrate into the global economic system.

Henry M. Paulson, Jr. is U.S. Secretary of the Treasury.

One of the first challenges the next U.S. president will face will be how to respond to China's emergence as a global power. Some people suggest that China is a threat that must be countered or contained. Others argue that its growth is an opportunity for the U.S. economy and that Washington should manage this rising power through engagement. I believe that engagement is the only path to success.

President George W. Bush chose this approach, and it has been successful. U.S.-Chinese relations are more productive today than ever before, partly because President Bush engaged Beijing and did so based on the recognition of China's twin priorities: territorial integrity and economic growth. Even if it were possible to block China's growth, it would not be in the United States' interest to try. China's rapid emergence as a global economic power presents numerous challenges on issues ranging from trade and investment to commodity markets and the environment. But the inextricable interdependence of China's growth and that of the global economy requires a policy of engagement. In fact, the overriding importance of economic growth to China's leaders presents the best means of influencing China's emergence as a global power and encouraging its integration into the international system.

To be effective, however, Washington must first understand Beijing's interests and the challenges it faces. The Chinese see economic growth as essential to their stability. Three decades of economic development have transformed their country, bringing it peace and stability and lifting hundreds of millions of people out of poverty. The Chinese are deeply proud of these accomplishments yet are concerned about their ability to sustain them. Their leaders, meanwhile, realize that China's future growth depends on its increasing integration into global trade, investment, and financial markets.

The United States and China share many interests, but as is inevitable in any broad and complex relationship, they also have significant differences. When it comes to China's military modernization, its enforcement of intellectual property rights, and its human rights record, Washington and Beijing have strongly diverging views and sometimes competing interests. On such issues, Washington must be both direct and vigilant in its efforts to advance U.S. interests bilaterally or, where appropriate, multilaterally. Such an approach will invariably create tensions, as it sometimes does in the United States' relations with other countries. But differences with China must not be allowed to stand in the way of progress and cooperation.

The United States and China -- and, indeed, the international community -- share a powerful interest in China's successful integration into the global economic system. The prosperity of both nations depends on the ability of each to achieve balanced economic growth, on stable and vibrant trade and financial regimes, on diverse and dependable energy sources, and on sustainable progress that protects human health and the environment.

UNDERSTANDING CHINA

In 2006, President Bush and Chinese President Hu Jintao launched the U.S.-China Strategic Economic Dialogue (SED) to manage both immediate tensions between the two countries and their expanding relationship over the long term. The approach has worked, largely because it has recognized China's realities -- seeing the country as it actually is, not as many Americans imagine it to be. Washington understands, for example, that robust and sustained economic growth is a social imperative for China and that Beijing views its international interactions primarily through an economic lens. Hence, approaching Beijing through economic issues of interest to both countries is an effective way to produce tangible results in economic and noneconomic areas.

Perhaps as a consequence of their troubled memories of the central planning, autarky, and mass mobilization of a few decades ago, China's leaders today are committed to reform, at least so long as it improves the country's political and economic stability. Every Chinese official older than the age of 50 experienced the calamities of the Great Leap Forward and the Cultural Revolution. In a country now so dynamic that entire blocks can be demolished and rebuilt in two weeks, people are searching for stability and balance. President Hu has said that it is the Chinese government's job to ensure "harmony," and this belief has reinforced Beijing's tendency toward caution in decision-making. Thus, with every policy, Beijing considers whether it is riskier to move too quickly or too slowly down the path of reform. The challenge for Washington is to understand China's perception of its self-interest, identify opportunities to persuade China that its interests and those of the United States often are the same, and narrow real differences whenever possible.

Despite the two countries' long history of interaction, they frequently display a stunning ability to misunderstand each other. A productive relationship requires that U.S. and Chinese policymakers engage at the highest levels in ways that lessen misperceptions and miscommunications. The SED accomplishes this by focusing on dialogues between top-level officials who treat one another as equals and engage on issues at the strategic level. For example, a bilateral air-services agreement was concluded during the second SED meeting, in May 2007. Lower-level negotiations on such an agreement had been stalled for some time because China was focused on developing the competitiveness of its domestic aviation industry and limiting international competition. But through the SED, I brought this issue to the attention of my counterpart, then Vice Premier Wu Yi, and explained how the increased exchange of people and goods between our two countries would strengthen their relationship. Thanks to the agreement, U.S. passenger flights to and from China will more than double by 2012, and air-cargo companies from both countries will enjoy full liberalization of the industry, including the lifting of restrictions on the frequency and price of flights, by 2011.

EQUALITY AND TRUST