excerpts from the book

When China Rules the World

The End of the Western World and the Birth of a New Global Order

by Martin Jacques

Penguin Books, 2012, paperback


From the sixteenth century to the 19305 European nations, in a remarkable display of expansion and conquest, almost uniquely (the nearest similar example being Japan) built seaborne empires that stretched around the world. The colonies, especially those in the New World and, in the case of Britain, India and the Malay Peninsula were to be the source of huge resources and riches for the imperial powers. Without them, Europe could not have achieved its economic take-off in the way that it did.

The British fought the Chinese in the First Opium War of 1839-40 over the right to sell Indian-grown opium to the Chinese market, which proved a highly profitable trade both for Britain and its Indian colony. The increasingly widespread sale and use of opium following China's defeat predictably had a debilitating effect on the population, but in the eyes of the British the matter of 'free trade' was an altogether higher principle. China's ensuing inability to prevent the West from prying open the Chinese market hastened the decline of the Qing dynasty, which by the turn of the century was hopelessly enfeebled, with foreign rule entrenched in the numerous so-called treaty ports. When European and American expeditionary forces invaded China in 1900 to crush the Boxer Uprising, it was evident that little, other than imperial differences, stood in the way of China being partitioned in a similar manner to Africa.

... Stalked by the threat of Western invasion and fearful that it might meet the same fate as China, following the Meiji Restoration in 1868, Japan embarked on a carefully calculated process of rapid modernization. It sent teams of specialists to study the European systems of education, their armies and navies, railways, postal systems and much else. It rejected the idea that it was any longer a meaningful part of Asia and instead coveted acceptance as a Western power. It even emulated the Western model of colonialism, occupying Taiwan, Korea and part of China. The Meiji project of modernization was testament to the comprehensive character of European hegemony. Every other country lived in the shadow of Europe and was obliged, willingly or unwillingly, to adapt to and adopt some of its characteristics, or face the threat of colonization.

It has been estimated that the slave trade may have reduced Africa's population by up to a half as a result of the forcible export of people combined with deaths on the continent itself.

By 1790 the total population of the United States was 3, 929,000, of whom 698,000 were slaves.

The American economy hugely out-performed the European economies in the period 1870-I950 and this underpinned the emergence of the United States as the premier global power after 1945. Largely eschewing the formal colonies which had been the characteristic form of European global influence the United States became the first truly global power: the dollar was enshrined as the world's currency, a new constellation of global institutions, like the IMF, the World Bank and GATT, gave expression to the US's economic hegemony, while its military superiority, based on airpower, far exceeded anything that had previously been seen. The United States succeeded in creating a world system of which it was the undisputed hegemon but which was also open and inclusive, finally reaching fruition after the collapse of the Soviet bloc and with the progressive inclusion of China. By 1960, if not earlier, the United States had supplanted Europe as the global exemplar to which other societies and peoples aspired. It demonstrated a new kind of cultural power and influence, through Hollywood and television soaps, and also through such icons of its consumer industry as Coca-Cola and Levi jeans. Its universities increasingly became magnets for the best scholars and students from all over the world. It dominated the list of Nobel Prize winners. And it was the power and appeal of the United States that lay behind the rise of English as the world's first true lingua franca.

For roughly two thousand years, China has been united.

By 1949 China had suffered from an increasingly attenuated sovereignty for over a century. After 1911 it had experienced not only limited sovereignty but also, in effect, multiple sovereignty, with the central government being obliged to share authority with both the occupying powers (i.e., multiple colonialism) and various domestic rivals. Most countries would have found such a situation unacceptable, but for China, with its imposingly long history of independence, and with a tradition of a unitary state system dating back over two millennia, this state of affairs was intolerable, gnawing away at the country's sense of pride. The Communists were confronted with three interrelated tasks: the return of the country's sovereignty; the reunification of China; and the reconstruction of the state and the restoration of unitary government... In 1949, with the defeat of the Nationalists by the Communists in the Civil War, the country was finally reunified (with the exception of the 'lost territories', namely, Taiwan, Hong Kong and Macao). he key to the support enjoyed by the Communist regime after 1949 - and, indeed, even until this day - lies, above all else, in the fact that it restored the independence and unity of China. It was Mao's greatest single achievement.

It is estimated that 25 million died as a result of the famine and malnutrition consequent upon the Great Leap Forward in i958-60. The Cultural Revolution between 1966 and 1969 - although its effects lasted into the mid seventies - led to the death of around 400,000 people as a result of maltreatment and was to deprive a whole generation of their education.

... The Communist Party directed its venom against many Chinese traditions, from the long-standing oppression of women to Confucian notions of hierarchy, and carried out a sweeping land reform in the name of class struggle.

China was only finally able to begin the process [of modernization] after the 1949 Revolution. The building blocks of modernization were numerous: the restoration of China's unity and sovereignty, the establishment of a viable and effective state, sweeping land reform, the destruction of many of the old class and elitist divisions, and the emancipation of women from their previous subjugation.

In contrast to Europe and the United States, [the countries of East Asia] are characterized by a form of hyper-modernity: an addiction to change, an infatuation with technology, enormous flexibility, and a huge capacity for adaptation.

... Turbo-charged growth means a continuing revolution in the living standards of most of society, huge shifts in employment patterns, rapid urbanization, sweeping changes in the urban landscape and accelerated access to a growing range of consumer products, all within less than a generation.

Confucian-based societies of China, Japan, Korea, Taiwan and Vietnam... Confucian rule was based on the idea of an ethical order. Rulers were required to govern in accordance with the teachings of Confucius and were expected to set the highest moral standards. There was an elaborate political hierarchy that presumed and required an ascending ladder of virtue on the part of office-holders. The political structure was seen as synonymous with the social order, the overall objective being a harmonious and balanced community.

... The Confucian family was possessed of two key characteristics. The first was filial piety, the duty of the offspring to respect the authority of the father, who, in return, was required to take care of the family. As the state was modeled on the family, the father was also the role model for the state, which, in dynastic times, meant the emperor. Second, although the Chinese were not by and large religious, they shared with other Confucian societies a transcendental belief in ancestral spirits: that one's ancestors were permanently present. Deference towards one's ancestors was enacted through the ritual of ancestral worship, which served to emphasize the continuity and lineage of the family and the relatively humble nature of its present living members. The belief in ancestral spirits encouraged a similar respect for and veneration of the state as an immortal institution which represented the continuity of Chinese civilization. The importance of the family in Chinese-culture can be gleaned from the special significance - far greater than in Western culture - that attaches to the family name, which always comes before the given name.

Socialization via the family was and remains a highly disciplining process in Confucian societies. Children learn to appreciate that everything has its place, including them. People learn about their role and duties as citizens as an extension of their familial responsibilities. It is through the family that people learn to defer to a collectivity, that the individual is always secondary to the group. Unlike Western societies, which, historically at least, have tended to rely on guilt through Christian teaching as a means of constraining and directing individual behaviour, Confucian societies rest on shame and 'loss of face' discipline in Confucian societies is internal to the individual, base on the

Socialization process in the family, rather than externally induced through religious teaching as in the West.

... Such is the power of this sense of belonging - to one's own family, ) but then by extension to society and the state - that it has resulted in a strong sense of attachment to, and affinity with, one's race and nation - and, by the same token, a rejection of foreigners as 'barbarians', or 'devils', or the Other. All the Confucian countries share a biological conception of citizenship. The strong sense of patriotism that characterizes all of these societies - China, Japan, Korea, Taiwan and Vietnam - has generally been ascribed to a reaction to overbearing Western pressure, including colonialism. But this is only part of the picture, and the rather less important part: the power of identity, the rejection of outsiders and the strength of native racism is primarily a consequence of the nature of the indigenous process of socialization."

For the Chinese leadership, the objective of economic reform was never Westernization, but rather a desire to restore the Party's legitimacy after Mao through economic growth, and thereby build a strong nation and state. Political stability was accorded the highest priority.

The Chinese leadership has displayed great patience and considerable competence at tackling a succession of difficult and elusive problems. At the end of the nineties, for example, the government was faced with three extremely difficult domestic issues: closing a very large number of loss-making state enterprises; overhauling the state banks, which were saddled with a large and rising proportion of non-performing loans, mainly to indebted state enterprises; and strengthening the weak fiscal position of central government. A decade later, the government had fundamentally overcome these problems, having greatly reduced the problem of indebted state enterprises, transformed the condition of the banking system and improved its own finances.

Given its scale and speed, China's economic transformation is surely the most extraordinary in human history... The government's economic strategy, shrewd and far-sighted has been very successful, resulting in stellar economic growth an rise in per capita income from $339 in 1990 to over $4,000 in 2010. Economic growth is no longer confined to a few 'islands' but has spread out in waves to most provinces of China... In a remarkably short space of time, China has become the centre of global manufacturing... In 2011, China became the world's largest manufacturing country in terms of output, bringing to an end a period of 110 years during which the United States had occupied that position.

[China] has borne witness to the greatest poverty-reduction programme ever seen, with the number of people living in poverty falling from 250 million at the start of the reform process in 1978 to 80 million by the end of 1993, 29 million in 2001, and 26 million in 2007, thereby accounting for three-quarters of global poverty reduction during this period.

Confucius's life (551-479 BC) preceded the Warring States period (403-221 BC), when numerous states were constantly at war with each other. The triumph of the Qin dynasty (221-206 BC) brought that period to an end and achieved a major unification of Chinese territories, with the emergence of modern China typically being dated from this time. Although Confucius enjoyed little status or recognition during his lifetime, after his death he was to become the single most influential writer in Chinese history (though his ideas were not always dominant; between AD 500 and AD 850, for example, they were largely eclipsed by Buddhism. For the next two thousand ears China was shaped by his arguments and moral precepts, its government informed by his principles, and the Analects became established as the most important book in Chinese history. Confucianism was a syncretic mode of thinking which drew on other beliefs, most notably Taoism and Buddhism, but Confucius's own ideas remained by far the most important. His emphasis on moral virtue on the supreme importance of government in human affairs, and on the overriding priority of stability and unity, which was shaped by his experience of the turbulence and instability of a divided country, have informed the fundamental values of Chinese civilization ever since. Only towards the end of the nineteenth century did his influence begin to wane, though even during the convulsions of the twentieth century - including the Communist period - the influence of his thinking remained persistent and tangible.

The [Chinese] state has, ever since Confucius if not earlier, been perceived as the embodiment and guardian of Chinese civilization, which is why, in both the dynastic and Communist eras, it has enjoyed such huge authority and legitimacy. Amongst its constellation of responsibilities, the state, most importantly of all, has the sacred task of maintaining the unity of Chinese civilization. Unlike in the Western tradition, the role of government has no boundaries; rather like a parent, with which it is often compared, there are no limits to its authority. Paternalism is regarded as a desirable and necessary characteristic of government.

In the post-Cold War era, China presents us with an intriguing and unforeseeable paradox: the most extraordinary economic transformation in human history is being presided over by a Communist government during a period which has witnessed the demise of European Communism.

In the Confucian view, the exclusion of the people from government was regarded as a positive virtue, allowing government officials to be responsive to the ethics and ideals with which they had been inculcated.

The Confucian system constituted the longest-lasting political order in human history and the principles of its government were used as a template by the Japanese, Koreans and Vietnamese.

[The Chinese] state has consistently been seen as the apogee of society, enjoying sovereignty over all else. In European societies, in contrast, the power of government has historically been subject to competing sources of authority, such as the Church, the nobility and rising commercial interests. In effect government was obliged to share its power with other groups and institutions. In China, at least for the last millennium, these either did not exist (there was no organized and powerful Church) or were regarded, and saw themselves, as subordinate (for example, the merchant class); the idea that different sources of authority could and should coexist was seen as ethically wrong.

[In China] only two institutions were formally acknowledged and really mattered: one was the government and the other the family. The only accepted interest was the universal interest, represented by a government informed by the highest ethical values, be it Confucian teaching or later Marxism-Leninism-Maoism.

Given [the] lack of any kind of independent tradition of organization either in the Confucian period or more recently in the Communist period, it is hardly surprising that China has failed to develop a civil society, certainly in any recognizable Western form.

Chinese politics has traditionally placed a very high premium on the importance of moral persuasion and ethical example. Public officials were required to pass exams in Confucian teaching. They were expected to conform to the highest moral standards and it was to these, rather than different interest groups or the people, that they were seen as accountable.

The commitment to ethical standards as the principle of government has combined with a powerful belief in the role of both family and education in the shaping and moulding of children.

Through a combination of filial piety, on which the Chinese place greater stress than any other culture, a sense of shame, and the fear of a loss of face, children learn about self-discipline. In a shame (rather than a Christian guilt) culture, Chinese children fear, above all, such a loss of face.

One of the most fundamental features of Chinese politics concerns the overriding emphasis placed on the country's unity. This is remains by far the most important question in China's political life. Its origins lie not in the short period since China became a nation-state, but in the experience and idea of Chinese civilization. The fact that China has spent so much of its history in varying degrees of disunity, and at such great cost, has taught the Chinese that unity is sacrosanct.

In the Chinese mind, stability and social order rank far higher than civil and political freedoms.

[China] lost as much as a third of its population (around 35 million people dead) in the overthrow of the Song dynasty by the Mongols in the thirteenth century. It has been estimated that the Manchu invasion in the seventeenth century cost China around one-sixth of its population (25 million dead). The civil unrest in the first half of and mid nineteenth century, including the Taiping Uprising, resulted in a population decline of around 50 million.

The underlying reason for the legitimacy of the Chinese state is that it is seen by the people as the embodiment and guardian of Chinese civilization, enjoying, as a consequence, something akin to a spiritual significance.

The attitude of the Chinese towards the state is very different to that of Westerners. For the latter, the state is an outsider, a stranger, even an interloper, whose presence should, as far as possible, be limited and confined... In China, in contrast, the state and society are seen as on the same side and part of the same endeavour: the state enjoys the status of an intimate and is treated like a member of the family, not just any member but the head of the family - the patriarch himself. We can only understand the immense authority of the Chinese state in these terms, an authority which has been reinforced by the fact that, unlike in the West, it has had no serious rivals for over a millennium.

For developing countries in particular, the ability to deliver economic growth, maintain ethnic harmony, limit the amount of corruption, and sustain order and stability, are equally, if not rather more, important considerations than democracy.

The right to vote was not established in the developed world, except for a very small and privileged minority, until well after their industrial revolutions had been concluded (with white men in the United States constituting the nearest to an exception).

The European powers never granted the vote to their colonies: it was still seen as entirely inappropriate for the vast tracts of the world that they colonized, even when it had become an accepted fact at home. The only exceptions in the British case were the so-called dominions like Australia and Canada, where shared racial and ethnic characteristics were the underlying reason for the display of latitude... Much hypocrisy attaches to the Western argument that democracy is universally applicable whatever the stage of development.

Much hypocrisy attaches to the Western argument that democracy is universally applicable whatever the stage of development.

Japan did not achieve anything like widespread suffrage until well after its economic take-off. None of the first Asian tigers - South Korea, Taiwan, Hong Kong and Singapore - achieved take-off under democratic conditions: South Korea and Taiwan were governed by far-sighted military dictatorships, Hong Kong was a British colony bereft of democracy, while Singapore enjoyed what might be described as a highly authoritarian and contrived democracy. All, though, were blessed with efficient and strategic administrations.

There is little demand for democracy from within China. Indeed, if anything, there has been a turn away from democracy since Tiananmen Square. A combination of a fear of instability following the events of 1989, the disintegration of the Soviet Union, and what are seen as the difficulties experienced by Indonesia, Thailand and Taiwan as democracies - and also the Philippines and India - have reinforced the view of most Chinese that this is not an immediate issue: that, on the contrary, it is liable to represent a distraction from the main task of sustaining the country's economic growth. Implicit in this is the not misplaced view that any move towards democracy is likely to embroil the country in considerable chaos and turmoil. This is a key reason why democracy, for the great majority of Chinese, commands little support.

The contrast between the level of satisfaction faction of the Chinese in their economic situation and with the economic competence of their government as compared with that of the populations in all the other countries polled: the Chinese are hugely more satisfied than anyone else.

The task of the [Chinese Communist] Party is to govern, while the people are left free to get on with the business of transforming their living standards and enjoying the rewards of rising incomes and a growing variety of consumer goods. Money-making, meanwhile, has replaced politics as the most valued and respected form of social activity, including within the Party itself. The Party has actively encouraged its officials to enter business, not least as a means of galvanizing economic growth. Political loyalty has in some degree been replaced by money as the measure pf political worth of Party cadres, resulting in a decline in the Party's identity, a loss of its spiritual appeal and a process of internal decay.

[The Party] prioritizes technical competence, entrepreneurship and knowledge over, as previously, revolutionary credentials, military record and class background, with a technocratic class rather than revolutionaries now in charge of the Party.

There have been drastic changes in the social composition of the Party leadership over the last twenty years. Between 1982 and 1997 the proportion of the [Chinese] central committee who were college educated rose from 55.4 per cent to 92.4 per cent. By 1997 all seven members of the standing committee of the central committee's political bureau (the top leadership) were college-educated in technical subjects like engineering, geology and physics, while eighteen of the twenty-four political bureau members were also college-educated.

The large-scale shift of [Chinese Communist] Party and government officials into the private sector has almost certainly been the biggest single reason for the enormous increase in corruption as some exploited their knowledge and connections to appropriate state property, gain access to cash reserve, and line their own pockets. The problem poses a grave challenge to the Party because, if unchecked, it threatens to undermine its moral standing and legitimacy.

[The United States] was a country established by European settlers who, by war and disease, largely eliminated the indigenous population of Amerindians; who, having destroyed what had existed before, were able to start afresh on the basis of the European traditions that they had brought with them; who engaged in an aggressive westward expansion until they came to occupy the whole of the continent; and who were to grow rich in important measure through the efforts of their African slaves.

White racism has had a far greater and more profound - and, deleterious - effect on the modern world than any other. As white people have enjoyed far more power than any other racial group over the last two centuries, so their influence - and their prejudices - have reached much further and have had a greater impact, most dramatically as a result of colonialism.

There are relatively few surnames in China ... according to some estimates, 100 surnames cover 85 per cent of Chinese citizens - the three most common being Wang (92 million), Li (91 million) and Zhang (86 million) compared with 70,000 surnames covering 90 per cent of Americans.

Tibet was originally brought under loose Chinese influence by the Qing dynasty in the early decades of the eighteenth century, but its rule grew weaker until towards the end of the century the Qing intervened again and established a form of tributary rule. In the nineteenth century Chinese influence slowly waned until the Qing eventually reasserted control in 1910. Tibet enjoyed considerable autonomy in the decades after the 1911 Revolution, when China was in a state of division. Following the Chinese invasion in 1950 a new agreement was reached, but the promised autonomy never materialized and the resulting tension culminated in a major uprising in 1959 which was crushed by China, with the Dalai Lama, together with some 80,000 Tibetans, going into exile. Most countries now recognize Chinese sovereignty over Tibet.

Since 1950, Tibetan living standards and life expectancy have been transformed, with annual economic growth averaging 12 per cent over the last seven years and incomes rising by more than 10 per cent annually over the last six years. The Tibetans are widely viewed by the Chinese as a backward and primitive people who should be grateful for the fact that the Chinese are seeking to bring them civilization and development.

Xinjiang is a huge desert region some 2,000 miles to the west of Beijing, fragmented by large mountain ranges. Although it accounts for one-sixth of China's surface area and is three times the size of Texas, it is sparsely populated, only 4.3 per cent of the territory being inhabitable, with the consequence that less than 2 per cent of China's population live in Xinjiang. Historically it is home to a diverse range of ethnic groups, including the Uighur, Han, Kazakh, Hui, Kyrgyz and Mongol. In 1949, more than 90 per cent of the population was Uighur, a Turkic people of Islamic faith who have more in common in terms of culture, language and religion with the peoples of what we now know as the Central Asian republics than with the Han Chinese to their east. Over the last sixty years there has been a steady migration of Han into Xinjiang which has accelerated rapidly in recent years after the government introduced a drive to open up the western regions, and especially the oil and gas industry, almost a decade ago. The oil and petrochemical sector now accounts for 60 per cent of the Xinjiang economy, Xinjiang being China's second largest oil producer, with abundant reserves of oil and gas.

The Xinjiang economy has been growing at around 11 per cent per annum for the last six years, which is above the national average. During this period, large numbers of Han have been encouraged to settle in the region, with an inflow of 1.2. million workers in 2008 alone.

In the Chinese perception there is a clear racial hierarchy. White people are respected, placed on something of a pedestal and treated with considerable deference by the Chinese; in contrast, darker skin is disapproved of and deplored, the darker the skin the more pejorative the reaction.

Though once comprised of countless races, China is now dominated by what the Chinese regard to be one race, the Han Chinese, with the other races - described as 'nationalities' - accounting for less than 9 per cent of the population (though this is still 105 million people).

Taiwanese writer Lu Liang

Deep down the Chinese believe that they are superior to Westerners and everyone else. No other people from a developing country possess anything like this sense of supreme self-confidence bordering on arrogance.


The fact that the Chinese regard themselves as superior to the rest of the human race, and that this belief has a strong racial component, will confront the rest of the world with a serious problem. It is one thing to hold such attitudes when China is relatively poor and powerless, quite another for those attitudes to inform a country when it enjoys huge global power and influence. Of course, there is a clear parallel with European and Western attitudes, which have similarly been based on an abiding sense of superiority rooted in cultural and racial beliefs. There are, though, two obvious differences: first, China's hubris has a much longer history and second, the Chinese represent one-fifth of the world's population, a far larger proportion than, for example, Britain or the United States at their zenith have ever constituted. Precisely how this sense of superiority will inform China's behaviour as a global superpower is a crucial question.

Yan Xuetong, one of China's leading international relations experts

The rise of China is granted by nature. The Chinese are very proud of their early achievements in the human history of civilization. In the last 2,000 years China has enjoyed superpower status several times, such as the Han dynasty, the Tang dynasty and the early Qing dynasty... This history of superpower status makes the Chinese people very proud of their country on the one hand, and on the other hand very sad about China's current international status. They believe China's decline is a historical mistake which they should correct.

... The Chinese regard their rise as regaining China's lost international status rather than as obtaining something new.

Lucian Pye

The most pervasive underlying Chinese emotion is a profound, unquestioned, generally unshakeable identification with historical greatness. Merely to be Chinese is to be a part of the greatest phenomenon of history. The rise of China and its restoration as the number one nation in the world is widely regarded as a matter of historical inevitability.

The roots of China's sense of difference, superiority and greatness lie not in its recent past as a nation-state but in its much longer history and existence as a civilization-state. There are two key elements to this. First, there is China's belief in its cultural superiority, which dates back at least two millennia. Second, there is the idea of China's racial superiority, which is closely linked to its cultural hubris and which anchors that hubris in nature: that to be born Chinese, rather than as a 'foreigner', 'barbarian' or 'foreign devil', carries a special status and significance. Together they constitute what might be described as the Middle Kingdom mentality.

The most likely motif of Chinese hegemony lies in the area of culture and race. The Chinese sense of cultural self-confidence and superiority, rooted in their long and rich history as a civilization-state, is utterly different from the United States, which has no such legacy to draw on, and contrasts with Europe too, if less strongly. The Chinese have a deeply hierarchical view of the world based on culture and race. As a consequence, the rise of China as a global superpower is likely to lead, over a protracted period of time, to a profound cultural and racial reordering of the world in the Chinese image. As China draws countries and continents into its web, they will not simply be economic supplicants of a hugely powerful China but also occupy a position of cultural and ethnic inferiority, or subordination, in an increasingly influential Chinese-ordered global hierarchy.

An important characteristic of the Chinese model has been the idea of strong government and the eschewing of the notion of democracy... In contrast to the now discredited Washington Consensus, it rejects shock therapy in favour of a process of gradual reform based on working through existing institutions. It is predicated upon a strong developmental state capable of steering and leading the process of reform.

The economic zones that Chinese firms are building in Nigeria and elsewhere ... are designed to encourage Chinese investment in African manufacturing while also seeking to persuade China's older industries to move to Africa. A recent Chinese government survey of 1,600 companies shows the growing use of Africa as an industrial base: in fact, manufacturing's share of total Chinese investment is now 22 per cent, which is not far behind mining's share of 29 per cent. Some African countries, furthermore, have made Chinese industrial investments a precondition for resource deals: in Ethiopia, two out of three Chinese firms are now in manufacturing. There has also been talk of a Chinese Marshall Plan, with a fund of $500 billion drawn from the country's vast currency reserves, that would lend money to Africa and other developing countries.

In late 2009 China became a larger importer of Saudi oil than the United States while over ninety Chinese companies were active in the kingdom, employing around 20,000 Chinese workers, with the China Railway Construction Corporation, as part of a China-Saudi consortium, winning a contract to build a high-speed rail line between Mecca and Medina.

At the heart of China's strategy in the Middle East lies Iran, with which it has long enjoyed a close relationship. The two countries have much in common. They are both very old civilizations with rich histories of achievement and a strong sense of superiority towards other states in their respective regions. They have also both suffered at the hands of the West, which they deeply resent, believing they would prosper rather more in a world no longer dominated by it.

The US regards Iran as an alternative power broker in the region and a major potential threat to its interests - hence its long-running hostility towards Iran.

In the mid 1990s, the EU's share of global trade was over 25 per cent, now it is around 20 per cent, and by 2030 it will be roughly 10 per cent; only nine European multinationals feature in the world's top fifty companies.

By the end of 2010 China had become Germany's largest non-European export market, overtaking the United States, and it is predicted that China could become Germany's largest single export market by 2015.

Volkswagen sells more cars in China than it does in Germany.

Germany's economic resilience owes much to it that it has maintained a highly competitive manufacturing sector that has increasingly orientated itself towards the developing world and, above all, China. This contrasts sharply with the experience of the other main European economies, namely France, UK and Italy, which have singularly failed to achieve this.

The failure of the European Union to recognize the fundamental reconfiguration of the global economy, and realign itself accordingly, has been replicated by the failure of the major national economies, bar Germany, to reorient themselves towards the developing world, above all China. This suggests that most European economies will find it extremely difficult to resume a robust growth path, given that their trading relationships are dominated by the stagnant economies of the developed world rather than the developing economies which are driving global economic growth and likely to continue to do so in the future.

The Western financial crisis marked a precipitous and irreversible decline in Europe's position. Its place in the world will never be the same again. A combination of the financial crisis and the sovereign debt crisis has divided and fragmented the Union. Most countries face an era of austerity, low growth and reduced public provision. The future of the eurozone remains in doubt. The EU - and its member countries - will experience a diminished role in the world: other countries are already less keen on becoming trading partners, with alternative and more attractive suitors on offer; European influence and representation in international bodies is steadily declining, as the recent reforms in the IMF illustrate; and their aid and assistance will be less sought after by developing countries as wealthier and more generous donors, notably China, take their place.

It is likely that the United States and Europe will slowly drift apart.

China needed the US to a far greater extent than the US needed China. The United States possessed the world's largest market and was the gatekeeper to an international system the design and operation of which it was overwhelmingly responsible for. China was cast in the role of supplicant ... the United States acted towards China 'like a self-appointed Credentials Committee that had the power to accept, reject, or grant probationary membership in the international club to an applicant of uncertain respectability.

The [George W] Bush administration abandoned the previously consensual multllateralist US foreign policy in favour of a unilateralist policy that, amongst other things, embraced the principle of pre-emptive strike. The US turned away from its previous espousal of universalism and towards a nationalism which denied or downplayed the need for alliances. The new strategy placed a priority on military strength and hard as opposed to soft power, a position made manifest in 2003 with the invasion of Iraq. The principle of national sovereignty was subordinated to the desirability of intervention for the purpose of regime-change. A new and aggressive America was borne.

According to Financial Times research, in 2009-10 China lent more money to the entire developing world than was lent by the World Bank: specifically, the China Development Bank and China Export-Import Bank (often known as the China Exim Bank) signed loans of at least $110 billion to other developing country governments and companies during those two years, while the equivalent arms of the World Bank made loan commitments of $100.3 billion. Already, in other words, the China Development Bank and the China Exim Bank are becoming more important institutions in the funding of the developing world than the World Bank. Meanwhile the WTO, with the demise of the Doha round - effectively torpedoed by China and India - together with the growing popularity of the various ASEAN-related agreements, presently looks rather less important than it did a decade ago when trade liberalization was in full swing. The process of trade liberalization in East Asia since 2000, indeed, has largely bypassed the WTO, with China playing a key role through the various ASEAN-related agreements.

The Chinese are in a Catch-22 situation: if they start selling US Treasury bonds, or cease buying them, the dollar will plummet and so will the value of their dollar assets. So a Faustian pact lies at the heart of the present relationship between the US and China, which is neither economically nor politically sustainable. In the first few months of 2011, there was evidence to suggest that the Chinese had begun to diversify their purchases away from the US dollar, probably by buying European government debt rather than US dollar assets...The United States' position as the global financial centre and the dollar as the dominant reserve currency are on a Chinese life-support system.

A World Bank report in 2011 predicted that the dollar's predominance would come to an end some time before 2025, to be replaced by a monetary system based on the dollar, euro and renminbi.

Las Vegas, the once unchallenged gambling capital of the world, has been overtaken by Macao: in 2010 the latter's gaming revenues were four times greater than those of Las Vegas.

Mainland Chinese made 54 million trips overseas in 2010 compared with 28 million in 2004, and the Chinese government expects this to rise to 100 million by 2015, though HSBC predicts 130 million. The World Travel and Tourism Council estimates that by 2018 the value of Chinese tourism will almost be as great as that of the United States. The impact will be greatest in East Asia, especially South-East Asia, and Australia where destinations will seem as if they have been taken over by Chinese tourists, a phenomenon that hitherto has been a most exclusively Western, but which will happen on a far grander scale with the Chinese.

China has already become the largest trading partner of a growing number of countries around the world, including Brazil, Argentina, Chile, Russia, South Africa, India, and Egypt.

With 6.3 million undergraduates and 0.5 million postgraduates studying science, engineering and medicine, China already has the world's largest scientific workforce.

By 2020 the renminbi could enjoy full convertibility, enabling it to be bought and sold like the dollar. By then, most, if not all, of East Asia, perhaps including Japan, will be part of a renminbi currency system. Given that China is likely to be the main trading partner of most if not all East Asian nations, it will be natural for trade between them to be conducted in the renminbi, for the value of their currencies to be fixed against it rather than the dollar, which is often the case now, and for the renminbi to be used as the reserve currency of choice. As the dollar continues to weaken with the relative decline of the US economy, it will steadily, perhaps even rapidly, lose its global pre-eminence, to be replaced by a basket of currencies, with power, perhaps initially being shared by the dollar, euro and yen, together with the renminbi, depending on when it acquires convertibility. When the renminbi is made fully convertible, it will become one of the three major reserve currencies, along with the dollar and the euro, and is likely to rapidly replace the dollar as the world's major currency.

The main political impact of China on the world will be its Confucian tradition, its lack of a Western-style democracy or tradition, the centrality of the state and the relative weakness of any civil society that is likely to develop. Even a more democratic China will be profoundly different from the Western model.

China will act as an alternative model to the West embodying a very different kind of political tradition - a post-colonial society, a developing country, a Communist regime a highly sophisticated statecraft, and an authoritarian Confucian rather than --democratic polity.

The profound differences in the values of China (and other Confucian-based societies like Japan and Korea) and those of Western societies - including a community-based collectivism rather than individualism, a far more family-orientated and family-rooted culture, and much less attachment to the rule of law and the use of law to resolve conflict - will remain pervasive and, with China's growing influence, acquire a global significance.

In a desperate attempt to remain a global power with a metaphorical seat at the top table, [Britain] has tenaciously hung on to the coat-tails of the United States, constantly walking in its shadow, seemingly always prepared to do its master's bidding. Its foreign policy has long been a clone of that of the United States and its defence and intelligence policies are almost entirely dependent on and deeply integrated with those of the US. The UK's dependence on the US is a measure not simply of its own weakness and of its failure to find an independent place in the world following the collapse of its imperial role, but also of how traumatic it has found the idea of no longer being a great power. The relationship with the United States has been a surrogate for its lost past. Even now, though the palest shadow of the fighting machine it once was - its increasingly threadbare military resources testament to its rapid historical decline - Britain still seems to find the need to intervene militarily whenever and wherever it can, Iraq, Afghanistan and Libya being classic recent examples: the imperial mentality lives on regardless of shrunken means or changed circumstances.

Europe's continuing existential crisis underlines how difficult it is for countries to adjust, not least psychologically, to a world in which their importance is greatly diminished. Europe's decline, furthermore, will certainly continue into the indefinite future. Its remarkable role over the last 400 years will never be repeated and will become an historical curiosity in the manner of the Greek and Roman Empires, whose present-day incarnations as Greece and Italy reflect the grandeur of their imperial past in little more than the survival of some of their historic buildings.

In a desperate attempt to remain a global power with a metaphorical seat at the top table, it has tenaciously hung on to the coat-tails of the United States, constantly walking in its shadow, seemingly always prepared to do its master's bidding."' Its foreign policy has long been a clone of that of the United States and its defence and intelligence policies are almost entirely dependent on and deeply integrated with those of the US. The UK's dependence on the US is a measure not simply of its own weakness and of its failure to find an independent place in the world following the collapse of its imperial role, but also of how traumatic it has found the idea of no longer being a great power. The relationship with the United States has been a surrogate for its lost past. Even now, though the palest shadow of the fighting machine it once was - its increasingly threadbare military resources testament to its rapid historical decline - Britain still seems to find the need to intervene militarily whenever and wherever it can, Iraq, Afghanistan and Libya being classic recent examples: the imperial mentality lives on regardless of shrunken means or changed circumstance.

Europe's decline will continue into the indefinite future. Its remarkable role over the last 400 years will never be repeated and will become an historical curiosity in the manner of the Greek and Roman Empires, whose present-day incarnations as f Greece and Italy reflect the grandeur of their imperial past in little more than the survival of some of their historic buildings.

The dominant ideological force during the Bush era was neo-conservatism, which was predicated on the belief that the United States could and should assert itself in a new way. In the wake of 9/11, Washington was in thrall to a debate about empires and whether the United States was now an imperial power and what that might mean. The Bush administration represented the most extreme expression so far of an aggressive, assertive and expansionist America, but even after it was widely seen to have failed as a result of the Iraq debacle, there were not many in the United States who drew the conclusion that the country was in longer-term decline, that far from it being on the eve of a new global dominance, its power had, in fact, already peaked; on the contrary, there was a widespread perception that the United States simply needed to find a less confrontational and more consensual way of exercising its global leadership.

America's huge burden of debt will prevent the country at every level of government, especially federal, continuing to live in the manner to which it has become accustomed. The demands of debt will be relentless and unforgiving. If America has enjoyed the intoxication of over-consumption for the best part of three decades, now it faces the prospect of a permanent hangover. The fact that Washington DC is paralysed by the political polarization that presently afflicts the country will make the task of coming to terms with the debt crisis that much more difficult and protracted. These, of course, are still early days in what will be a long process of decline, with many acts to follow over this and future decades.

The West is habituated to the idea that the world is its world; that the international community is its community; that international institutions are its institutions; that the world currency - namely the dollar - is its currency; that universal values are its values; that world history is its history; and that the world's language - namely English - is its language. The assumption has been that the adjective 'Western' naturally and implicitly belongs in front of each important noun. That will no longer be the case.

The 2008 financial crisis marked a fundamental shift in the relationship between China and the United States. Nothing could or would be quite the same again. The management of the US economy was revealed to have been fatally flawed, a lightly regulated financial sector almost allowed to shipwreck the entire economy. In a few short months, the crisis served to undermine a near-universal assumption of American, and Western, economic competence; in contrast, China's economic credentials have been considerably burnished. The crisis at the same time exposed the huge levels of indebtedness that have sustained the American economy, accentuated since by the financial rescue package, while underlining the financial strength of the Chinese economy, now the world's largest net creditor with its massive foreign exchange reserves. Although hardly new, the crisis finally woke Americans up to the fact that China had become their banker, with all this meant in terms of the shifting balance of power.

The financial crisis [2008] raised the curtain on a new and protracted period of painfully low growth and greatly reduced expectations in the West, with the American economy - like its European counterparts - facing the prospect of years of austerity, with swinging reductions in both government and personal expenditure, combined, for Americans at least, with the urgency of greatly reducing its trade deficit. Burdened by sovereign debt crises in Greece, Ireland, Portugal, Spain and Italy, the European integration project threatens to unravel, condemning the euro to oblivion in the process. Meanwhile the Western economies continue to teeter on the brink of another recession, with a further banking crisis and a full-scale slump not to be excluded. In contrast, the Chinese, buoyed by huge foreign exchange reserves, large trade surpluses and a high level of savings, can look forward to many more years of fast economic growth. All this adds up to an extraordinary and irreversible shift in power from the West in general, and the United States in particular, to China.

American ruling circles have only been obliged seriously to entertain the idea that their country might be in decline since the financial crisis [2008]. Although the notion of decline is now widely discussed, there is still little understanding of what it might mean or what should be done in response. As is typical of countries confronting decline, the United States is locked in old ways of thinking. Its intellectual arteries have hardened to the point where imagining a world no longer characterized by American ascendancy - let alone one in which China might be dominant - is, for the present at least, well-nigh impossible.

As a result of the huge and growing volume of both its exports and imports, China has, in a remarkably short period of time, become the largest trading partner for a formidable array of countries all over the world, including Brazil, Australia, Japan, India, Pakistan, Russia, Chile, Egypt, South Africa and South Korea. The phenomenon is most marked in East Asia where China is already the largest market for the exports of a majority of countries in the region.

Perhaps as early as 2015, a majority of trade in East Asia could be paid for in renminbi. Given that until now the dollar has been overwhelmingly the currency of choice in the settlement of East Asian trade, its future role in the region would be greatly reduced. Within the same kind of time-frame, the renminbi could become one of the world's three major trading currencies, displacing the yen, and before long overtaking the euro.

In the late 1990s, the Chinese government embarked on a major reform of state-owned enterprises (SOEs) amid widespread speculation in the West that privatization would lead to a huge diminution in their size and role. The outcome was quite different. As a result of the 'grasping the big, letting go of the small' strategy, although the number of SOEs was greatly reduced, the bigger ones were restructured, subsidized, consolidated and enlarged, such that in 2008, SOEs still held 30 per cent of total assets in the industrial and service sectors. The top 150 SOEs, far from being lame ducks, have become enormously profitable. The aim was to create a cluster of internationally competitive Chinese companies, most of which were state-owned.

Unlike in Japan and Korea where privately owned firms overwhelmingly predominate and virtually always have, most of China's best-performing companies are to be found in the state sector.

At the heart of the Chinese model is a hyperactive and omnipresent state, which enjoys a close relationship with a powerful body of SOEs (state-owned enterprises), a web of connections with the major firms in the private sector, and has masterminded China's economic transformation. The Chinese state is a highly dynamic institution that has been subject to a constant process of reform. Based on experimentation and trial and error, it has been continuously restructured, with institutions regularly re-purposed and incentivized. This picture contrasts with the neo-liberal view that is still dominant in the West, which sees the state as inevitably prone to ossification, atrophy and anachronism.

State competence has virtually disappeared from the Western agenda over the last 30 years in the face of the neoliberal revolution and its overwhelming preoccupation with the market and privatization. A growing anti-state mentality has diverted and distracted attention from the need for a state that is competent and-able-to deliver.

The fact that the majority of Americans have experienced declining real living standards for more than three decades - and that this condition also applies, albeit more recently, to an increasing number of West European countries - is likely to undermine the social contract that has underpinned the stability of Western societies for much of the post-war period.

Over the last two centuries the West has enjoyed a highly privileged relationship with the developing world, first as colonies, then as weak post-colonial societies. As a result, the West has enjoyed privileged access to their natural resources on very favourable terms. But the growing economic power of many developing nations, combined with their own increasing demand for commodities, means that commodity prices have risen substantially, with the result that they have become increasingly expensive for the developed world.

The profundity of the [economic] crisis will, in a variety of ways, bring into question the forms of governance and political assumptions that inform Western society. Economic crises of this kind are not acts of nature but man-made events - the consequence of policies, priorities, philosophies and interests. They reflect on the competence, attitudes and ideology of the ruling group.

The political class allowed itself to become the captive of the financial sector and its interests, thereby paving the way for the financial crisis. The American government has since found itself in a state of near paralysis, beleaguered by a polarized society, its authority constantly questioned and impugned, decision-making too often bought by powerful lobbies, of which Wall Street remains by far the most influential. It is difficult to think of a time when the American government has seemed less capable of responding to and dealing with the profound challenges that the country faces.

The failure of European governance has, if anything, been even more spectacular, as illustrated by the crisis of the euro and the potential unraveling of the European project. The contrast with the competence and foresight displayed by the Chinese government in its stewardship of the country's transformation over the last three decades is sobering.

For Americans, the armed forces are the ultimate symbol of their country's status and global power: they are deeply enshrined in American popular consciousness and inspire powerful patriotic emotions. The stars and stripes, the most visible of all national flags, flies proudly from countless buildings and, in middle America especially, outside, many homes.

Declining imperial nations find the process of orderly retreat inordinately difficult. They are so desirous of holding on to past privileges and capabilities, there are so many vested interests committed to preserving the status quo, the idea of greatness is so addictive and beguiling, that the retreat from an imperial role and its associated commitments is almost always hugely reluctant, extremely painful, riven with conflict and, as a consequence, piecemeal and pragmatic.

The Pentagon's huge military budget is no longer, for the most part, fit for purpose, diverting vast amounts of the country's resources into areas which have little value when it comes to he primary task of refurbishing the American economy.

As the pressure of austerity inexorably squeezes the [US] federal budget, it seems entirely safe to predict that the education system will remain starved of resources, while the military-industrial complex will be far better funded than the country's true needs could possibly justify.

The politics of decline in America will lead to dysfunctional outcomes because great powers far from breaking with the imperial paradigm tenaciously seek to hold on to it as a result of the many powerful interests that are bound up with its retention, thereby only serving to hasten the process of decline.

Chinese exports overtook American exports in 2007 and by 2011 exceeded them by a staggering 30 per cent. Similarly, Chinese fixed capital investment overtook that of America in 2009 and already exceeded it by more than 40 per cent in 2011. In 2010, Chinese manufacturing output surpassed that of the United States, as also did car sales, energy consumption and, perhaps most surprisingly, patents granted to residents. China's external financial wealth, of course, already hugely exceeds that of the United States: it enjoys total net foreign assets of $2 trillion, while America has net debts of $2.5 trillion.

It is conceivable that American global power will unravel far more quickly than anyone previously imagined and that within two decades its influence could be a pale shadow of what it is now.

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