Washington bickers as China ascends

The sunshine of fortune and power continues to move west, rising over China as twilight descends on the United States. The fact that America stumbles badly towards its relative decline, bickering over debt ceilings, suggests a dangerous complacency regarding its future role in the world.

One must not overdramatise America's decline. The country will retain one of the world's largest, most dynamic, creative and adaptable economies for the foreseeable future. Its society, capable of constant renewal as it has repeatedly proved itself to be, will remain a cultural and political pole for much of the planet.

Nonetheless, the International Monetary Fund has recently brought forward its estimate of when China will surpass the US as the world's largest economy, saying it could come as early as 2016. Meanwhile, the US is wrestling with the hangover of the Bush deficits and the financial crisis. These left the country's finances in a state so poor, the rating agencies have given Washington notice.

Pulling in its horns

Mindful of the rough course ahead, the Obama administration has been pulling in its horns, scaling back its military commitments abroad, and planning to tighten spending. Still, congressional Republicans want the White House to do more, going so far as to threaten to bring the government to a halt until they get a budget they like.

However this game of chicken is resolved, it is doing little to shore up America's role in the world economy. While the US dollar remains the world's dominant reserve currency, owing both to the size of the US economy and the fiscal reliability of the US government, nothing is assured. Ten years ago, the greenback accounted for 70 per cent of the world's central bank reserves. Today, that figure has dropped to 60 per cent. The trend remains downwards. Squabbling which brings into question the US's creditworthiness will do nothing to slow this.

Economically and militarily, therefore, the US is losing its edge over China. As its Asian rival becomes the next great superpower, all eyes will be on what changes this produces. So far, China has managed to project a rather benign image of itself in the world, gaining influence not with military muscle, but by spreading aid and trade. That is certain to change. A richer China will have more interests to defend. The US consultancy STRATFOR reports that we are already seeing signs of an increasingly assertive and confident Chinese military.

Sooner or later, the US dollar will lose its status as the world's reserve currency. If no candidate emerges to replace it - and other than the long-shot possibility of a return to gold, no obvious candidate does present itself - the world economy may well become more unstable. We may have bemoaned living in the shadow of a hegemon all these years. But when we see what it's like to live without any hegemon, we may find ourselves nostalgic for the American age.

Fascinating question

Yet perhaps the most fascinating question of all, not to mention the most preoccupying one, is, what will happen to China's internal politics? China's ascent has been based on a dual strategy of economic opening and political closing. As the Chinese Communist Party has loosened its hold over the economy, it has tightened its grip politically.

However, urbanisation, the growth of an educated middle class, and the demand for a fair share of the benefits of growth are all conspiring to raise political pressure on Beijing. China's liberalisation has created a small class of super-rich entrepreneurs and privileged party officials. As it always does, the widening inequality is leading to discontent.

Besides which, the Chinese authorities need to stimulate domestic consumption if they are to effect the transition from an export-led economy to a domestically driven one. But this restructuring will be difficult, and potentially destabilising. On the other hand, if it isn't done, the Chinese economy could face a crisis whose scale could match that of the Western world's financial crisis.

China may look forward to its leading role in the world with some pride, but it probably regards it with a good measure of anxiety as well.

John Rapley is the Bradlow fellow at the South African Institute of International Affairs. Email feedback to columns@gleanerjm.com and rapley.john@gmail.com.