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HOLMES: When China rules the world? Sorry, not likely

- - Thursday, February 4, 2010

ANALYSIS/OPINION:

There's lots of loose talk these days about how China will some day "rule the world." Some people who look forward to a "post-American world" seem to assume that China will either emerge as a great power equal to the United States or take on sole outright leadership of the world.

China is indeed on the rise. Its economy grew at an 8.7 percent rate last year. It is modernizing its military with a vengeance, thanks to double-digit growth in defense spending each year since the early 1990s. And its official holdings of around $800 billion in U.S. Treasuries lead some to fear that China has become America's banker.

But China has a long way to go to replace America as a world leader. Concerns about its influence and control over the U.S. economy are overblown. So, too, are predictions that its rising military power will lead to world leadership.

Yes, China may someday surpass the U.S. as the world's largest economy, but this does not mean that it would become the world's economic leader. China's economy is as large as it is because it has well over a billion people, not because it has unlocked any great secret to economic prosperity. Its economy remains largely closed, as indicated in its abysmal ranking of 140 out of 179 countries graded on this year's Heritage Foundation/Wall Street Journal Index of Economic Freedom. Its undervalued currency, state-controlled export policies and closed domestic economy are wholly out of step with what truly makes a global economic leader - namely, economic liberalization.

Nor should we fear China's ownership of U.S. debt. As my colleague, Derek Scissors, explains, there is little danger that China will be able to control America's economy. Official Chinese holdings of Treasuries amount to less than 7 percent of U.S. Treasury debt. That's a lot of money, unfortunately, but it's hardly enough to exercise control.

Not only that, China's ownership of our debt is actually a sign of dependence on us, rather than the other way around. The Chinese have no choice but to buy U.S. bonds, because ours is the only market sound enough and big enough to park their excess funds. Since China's currency is tightly controlled, they can't spend those dollars on their own economy. They invest even more in the U.S. economy, thus funneling billions of dollars we spend on Chinese goods right back to us.

If anything, China's investment in U.S. bonds reflects domestic weakness. If Beijing's economy were freer, the Chinese could invest in their own economy instead. But they know this is bad idea under current conditions. China's authoritarianism is like a yoke around its own neck. It both fosters investment in the U.S. economy and blocks domestic reforms that would enable China to compete in an open economic system.

China's authoritarianism is, in fact, its Achilles heel as a potential world leader. The recent crackdown on Google and the Internet shows its paranoia about the outside world. It also shows how out-of-sync China is with the future. No nation can lead others in the information age by warring against the globalization of information and technology.

However, with its growing military power, China could make an actual war on its neighbors. At worst, its threats frighten people; at best, they do not engender trust or attract friends and allies. These days, military power alone is not enough to attain great leadership status. China can bully its neighbors and throw its weight around Asia, Africa and the United Nations, but it will never create a system of trusted allies as the United States has done.

Put simply, China is too authoritarian, insular and untrustworthy to be a world leader. It's one thing to push others around in an old-fashioned assertion of brute power and influence. It's another to lead by example and to attract friends and allies who share your values. In the end, only a democracy can lay true claim to world leadership.

This is not merely an academic question. Most believers in China's rise to global leadership also think that means it must be accommodated. Were it to bully Taiwan or prevent tough sanctions on Sudan, or Iran, Burma and North Korea, the thinking goes, well, that's a small price to pay to win favor with the potential new masters in Beijing.

This approach is unnecessary and extremely unwise. China does not need "strategic reassurance," as a senior Obama administration official put it. Rather, the rest of the world needs accountability from China - for its irresponsible international behavior, its increasingly belligerent attitudes, its human rights abuses and its alarming military modernization.

The rest of the world can trust China only when the Chinese leadership becomes accountable to its own people. Until that day, don't count on China for global leadership. It may become a force to reckon with. But it will not inspire the kind of trust that made the United States the leader of the free world.

Kim R. Holmes, a former assistant secretary of state, is a vice president at the Heritage Foundation (Heritage.org) and co-author of the "2010 Index of Economic Freedom."