But instead of marginalizing or supplanting U.S. influence, China’s expanding power is pushing most Asian countries closer to Washington — and elevating America’s status. Uncle Sam’s presence is still welcome because it prevents a regional power from dominating its neighbors and promotes strategic balance. Today, the more power China gains, the more critical the U.S. commitment to the region becomes, and the greater influence Washington exercises.
No surprise, then, that when the Obama administration recently announced a strategic pivot toward Asia, China bristled, while most countries in the region felt reassured and applauded quietly. Today, U.S. security ties with key Asian nations — India, Australia, Japan, Korea and even Vietnam — are better than ever.
2. China’s massive foreign exchange reserves give it huge clout.
China owns roughly $2 trillion in U.S. Treasury and mortgage-backed debt and $800 billion in European bonds. These massive holdings may cause anxiety in the West and give Beijing a lot of prestige and bragging rights — but they haven’t afforded China a lot of diplomatic sway.
The much-feared scenario of China dumping U.S. sovereign debt on world markets to bend Washington to its will has not materialized — and probably won’t. China’s sovereign wealth fund, which invests part of those reserves, has favored low-risk assets (such as a recent minority stake in a British water utility) and has sought to avoid geopolitical controversy. And in the European debt crisis, China has been conspicuously absent.
China’s hard currency hoard adds little punch to its geopolitical power because its stockpile results from a growth strategy that relies on an undervalued currency to keep exports competitive. If China threatens to reduce its investment in U.S. debt, it will either have to find alternative investments (not an easy task these days) or export less to the United States (not a good idea for Chinese manufacturers). Moreover, with so much invested in Western debt, China would suffer disastrous capital losses if it spooked financial markets.
3. The Communist Party controls China’s Internet.
In spite of its huge investments in technology and manpower, the Communist Party is having a hard time taming China’s vibrant cyberspace. While China’s Internet-filtering technology is more sophisticated and its regulations more onerous than those of other authoritarian regimes, the growth of the nation’s online population (now surpassing 500 million) and technological advances (such as Twitter-style microblogs) have made censorship largely ineffective. The government constantly plays catch-up; its latest effort is to force microbloggers to register with real names. Such regulations often prove too costly to enforce, even for a one-party regime.