The Myth Behind China's Miracle

THE PHANTOM MENACE

China's sudden rise as a global trading power has been greeted with a curious mixture of both admiration and fear. Irrational exuberance about the country's economic future has prompted investors to gobble up shares of Chinese firms with little understanding of how these companies actually operate. Meanwhile, overestimates of China's achievements and potential are fueling fears that the country will inevitably tilt global trade and technology balances in its favor, ultimately becoming an economic, technological, and military threat to the United States. These reactions, however, are equally mistaken: they overlook both important weaknesses in China's economic "miracle" and the strategic benefits the United States is reaping from the particular way in which China has joined the global economy. Such misjudgments could drive Washington to adopt protectionist policies that would reverse recent improvements in U.S.-China relations, further alienate Washington from its allies, and diminish U.S. influence in Asia.

In fact, the United States and China are developing precisely the type of economic relationship that U.S. strategy has long sought to create. China now has a stake in the liberal, rules-based global economic system that the United States worked to establish over the past half-century. Beijing has opened its economy to foreign direct investment (FDI), welcomed large-scale imports, and joined the World Trade Organization (WTO), spurring prosperity and liberalization within China and across the region.