The China challenge

The 1957 orbiting of the Soviet Sputnik satellite woke up Americans. It signaled that the United States could no longer take its technological and military superiority for granted. Today we hear fevered expressions of anxiety that China is going to over-consume strategic raw materials, suck up global manufacturing and investment, and build a military behemoth that is a new threat. China has become this generation's Sputnik. However, the challenges are very different; the possibilities are much more positive.

Sputnik represented principally a military challenge. In contrast, China's rise presents a comprehensive challenge, in part military, but principally economic and intellectual. China's challenge is an unfolding, multidimensional development that will last decades and could prove far more productive than the earlier Soviet-American contest. China is becoming an increasingly able competitor on the global playing field America did so much to build. China wants to play ball with America. The question is: Will America perform well in a game and on a field it long dominated?

To address this question one must examine the building blocks of national power and competitiveness: national investment and savings, education, health, and sound, legitimate governance. China is doing comparatively well in the first three -- far less well in the last. If Chinese competition can push America to make its own needed adjustments, this is to be welcome, albeit painful.

In 2003 the Chinese had an investment to gross domestic product ratio of between 32 and 42 percent. Looking at domestic savings alone, the International Monetary Fund says China's ''gross national savings" rate that year was 47.6 percent. These rates make high economic growth very likely.

Chinese performance contrasts sharply with America's. Harvard University President Lawrence Summers was right when he said, ''In the last year [2003], the net savings rate of the United States has been between 1 and 2 percent . . . It represents the lowest net national savings rate in American history . . . In fact, net investment has declined over the last four to five years in the United States, suggesting that all of the deterioration of the current account deficit can be attributed to reduced savings and increased consumption rather than to increased investment." The United States cannot long compete when it borrows for current consumption while China invests using its own savings. America must rebalance its saving, investment, and consumption priorities. If we do, Beijing's competition will have done us a big favor.

Examine the second building block -- education. US higher education is excellent. Nonetheless, considering its low current income levels, China has done well in bringing primary school education to 93 percent of the nation's population; the percentage of secondary school-age children enrolled has risen rapidly in the last decade; and the percentage of China's population in tertiary education has more than quadrupled since 1991-92.

Many people say China is attracting foreign manufacturing investment because of cheap labor. In fact, the attraction is the combination of relatively inexpensive and relatively skilled labor. Take a field that is highly germane to economic modernization as an example -- engineering. China and the United States in 2002 granted approximately equal numbers of graduate-level engineering degrees, though China granted almost 3.5 times as many undergraduate engineering degrees. Moreover, US engineering schools have substantial enrollments of noncitizen students. More startling still, entering class sizes in engineering schools in China are growing very rapidly. Looking to the future, and even discounting for quality differences, China will have enormous and growing human resources in technology.

Go to most US graduate schools in the hard sciences and you will see highly capable students from China in profusion. And, while the number of Americans studying in China is in the low thousands each year, China for more than a decade has had about 60,000 students matriculated in American institutions of higher learning studying science, technology, as well as business, economics, and international affairs. China is turning out language proficient, culturally adept, and scientifically and technically capable people at home and abroad in ever-greater numbers. We must do the same. If Chinese competition motivates us to do what we should be doing, this is positive.

Public health is a tricky third building block. There are millions of people in China with virtually no medical care; the system is vulnerable to infectious diseases, as the world saw with SARS in 2002-03, and maladies once reduced to very low levels are increasing in incidence -- not to mention a looming HIV/AIDS catastrophe. Nonetheless, China had a life expectancy in 2002 of 71 years, which compares favorably with the life expectancy in a much richer United States -- 77, according to the World Bank. And yet, in 2002 China only consumed about 5.5 percent of its still modest GNP on health expenditures while the United States consumed 13.3 percent. By 2004, this had risen to 15.4 percent and is projected to reach a whopping 18.7 percent by 2014. The point is not that Americans should prefer Chinese healthcare, but rather that if the United States is to remain competitive it must control health expenditures.

Turning to the security implications of China's rise, the trends merit vigilance. China's official, non-inflation-adjusted defense budget has increased in the double-digit range every year from 1990 through 2004, placing China's estimated expenditures in a league with Russia, Japan, and the United Kingdom. Second, China has an active space program, the dimensions of which would surprise most Americans, and emphasis is being placed on modernizing air, missile, and naval forces, as well as enhancing cyberspace, communication, guidance, and reconnaissance capabilities. China is developing these forces and capabilities to have military options if it determines Taiwan is moving unalterably toward independence, to deter Washington from entering a Taiwan Strait conflict, to safeguard China's nuclear deterrent, and to secure its resource lifelines. Washington and Beijing could end up in conflict in the Taiwan Strait if the situation there is not handled well.

Beyond Taiwan, however, the US security situation in Asia is changing less as a consequence of China's growing military power than of Beijing's economic growth. America's post-World War II allies in East Asia (Australia, Japan, the Philippines, the Republic of Korea, and Thailand) are becoming increasingly dependent on exporting to China and/or receiving increasing investment from it. Consequently, most US allies will not allow themselves to be drawn into what they view as unnecessary friction with Beijing. Japan is the ally most tightly aligned with Washington. As China's economic power grows, therefore, the United States cannot count on most allies following its lead without question. We see this clearly with a South Korea that now exports more to China than to the United States. The amorous effects of China's economic aphrodisiac on our allies is nowhere more apparent than in NATO's likely decision to resume arms sales to China in the face of US opposition.

Amid these dangers there also are positive possibilities. The most productive way to enhance security in Asia over time would be to work with China, Japan, and others to build new security structures to supplement the post-World War II bilateral alliances.

The China challenge, therefore, is not destined to put America out of business or cause war. What China's rise means ultimately depends on how both nations respond. A colossal misstep would be for America to respond to a predominantly economic and intellectual challenge militarily. If Americans make the needed corrections at home, adjust security structures abroad, and all parties manage to avoid war in the Taiwan Strait, China's gains can push America and Asia forward.

David M. Lampton, dean of faculty at Johns Hopkins School of Advanced International Studies and director of Chinese studies at the Nixon Center, is writing a book about the rise of China.