How Not to Deal With China

A more confident China isn't necessarily a threat.

Photographer: ChinaFotoPress/ChinaFotoPress via Getty Images

China's creation of the Asian Infrastructure Investment Bank and the bungled U.S. response have given Beijing a nice diplomatic win. Not hugely consequential in itself, the episode is a case study in how not to deal with the world's biggest emerging power. Before it happens again, the U.S. and its friends ought to pause and reflect.

QuickTake China's Pain Points

China has two goals in building this new international lender. First, it wants an additional conduit for its surplus of savings -- a way to lend abroad that deflects resistance from borrowers worried about being under China's thumb. (Lately, Chinese-led construction projects have prompted protests from Sri Lanka to Zambia.) Second, China's rulers crave the respect of other nations and seek the global standing they believe should come with their growing economic strength.

Neither goal is unreasonable. Neither needs to be resisted by the West as a strategic imperative -- and there'd be little prospect of long-term success in that effort anyway. The worst thing, though, is to oppose China's plans and then fail, especially in a way that divides the West against itself. That is what just happened.

The U.S. asked its friends in Europe not to become members of the AIIB. With an eye to business opportunity, and apparently more eager to ingratiate themselves with China than with the U.S., they competed to sign up as founding members. So China's leaders not only get their AIIB, they have also split the U.S. from its allies, boosting China's standing more than they had dared hope.

The West can't expect, and shouldn't want, to slow China's growth and suffocate all its leadership ambitions. It should aim instead to give China and other big developing countries their fair share of power in global governance -- through institutions such as the International Monetary Fund and the World Bank -- while insisting that China remains bound by global rules even as it plays a larger part in making them.

Foot-dragging by the U.S. and European Union on reform of the multilateral institutions encouraged China to build the AIIB to begin with, and that was a mistake. Failure to coordinate their response to China's new plans compounded the error. The U.S. miscalculated, to be sure, but Europe is also much at fault. Bringing China into a fully functioning system of global cooperation -- ensuring that China is a good citizen and not merely an increasingly powerful one -- calls for a united West. Europe, unwilling and unable to lead, expects the U.S. to take on that role, and within reason must therefore let it.  

By embarrassing the U.S. over the AIIB, Europe's leaders have weakened themselves. Their scramble for national advantage can only encourage China to press further. Divide and rule worked well this time, Beijing will note: Where else might it work?

The best course now is to make the most of the new institution. It could be valuable. A little competition might spur the World Bank and Asian Development Bank to do better. (Both are rightly criticized for becoming top-heavy and sluggish.) China's success should also push the U.S. and Japan to clear the remaining roadblocks to the Trans-Pacific Partnership trade deal, reminding China’s neighbors that close economic ties with the U.S. are still worth a lot. At the same time, though, the U.S. should be clear that China's unilateral efforts to redraw the map of the South China Sea or limit the airspace above the East Sea are unacceptable: They undermine the security of the U.S. and its allies. Cyber-attacks designed to impede the free flow of information on the Internet are equally inconsistent with the kind of partnership China says it wants.

A more confident China isn't necessarily a threat. But it isn't necessarily benign, either. The U.S. and Europe need to know the difference and start acting like allies.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.