Meeting the China Challenge: Responding to China’s Managed Economy

Brass door handle, Beijng, China. Source: Fung.leo’s flickr photostream, used under a creative commons license.

China’s rise has been long predicted and is often accompanied by a corresponding prediction of American decline. Ascendency and decline are relative terms, but managing China’s ascent is the fundamental challenge for American foreign policy in this century. Military tensions are dangerous but the greatest test is economic, and will come from China’s industrial policy and its effect on the global economy and American security. While China’s economic size does not necessarily threaten the United States, China’s willingness to use its economic leverage to forge a global economy closer to its image raises complicated questions considering its lack of transparency.

There is a growing consensus in Washington that Beijing operates a highly discriminatory economic system that has produced an increasingly unbalanced relationship detrimental to the interests of the United States and China’s other trading partners. As a result, there are calls for America and others to take steps to tame China’s industrial policy and take actions to serve American interests. Recently, CSIS scholars published Meeting the China Challenge: Responding to China’s Managed Economy. The essays in this volume, written by a diverse group of CSIS scholars and edited by James A. Lewis, address some of the key issues that currently vex the U.S.-China economic relationship.

These essays make clear that the optimal strategy in the current political environment has three elements. The United States should make targeted investments in infrastructure, research, and new technology, perhaps linked to defense goals to make spending more palatable to Congress. It should combine these investments with an increased use of regulatory tools, to manage risk from American exports and Chinese investment and acquisition. Finally, it should develop a multilateral and cooperative strategy of engagement with China accompanied by concerted pressure on China to change its behavior. This is a minimalist strategy, but politically achievable. To learn more, you can download the report here.
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