The intensifying rivalry between U.S. and China since Donald Trump presidency has brought into the headline many ideological conflicts between Western and Chinese version of capitalism and ideal society. In this book, Kishore Mahbubani laid out thinking process of leaders in the West and in China, each justifying their past actions and future plan, which is useful for investors in thinking the most likely economic and political development of both society.

The big lesson I learned from Singapore’s three exceptional geopolitical masters (Lee Kuan Yew, Goh Keng Swee, and S. Rajaratnam) was that the first step to formulate any long-term strategy is to frame the right questions. If one gets the questions wrong, the answers will be wrong. Most importantly, as Rajaratnam taught me, in formulating such questions, one must always “think the unthinkable.”

Professor Wang Gungwu has observed that while the world has had many ancient civilizations, the only ancient civilization to fall down four times and rise again is China. As a civilization, China is remarkably resilient. The Chinese people are also remarkably talented. As the Chinese look back over two thousand years, they are acutely aware that the past thirty years under CCP rule have been the best thirty years that Chinese civilization has experienced since China was united by Qin Shi Huang in 221 BCE. For most of the past two thousand years, the large pool of brainpower available in the Chinese population was not developed under the imperial Chinese system. During the past thirty years, for the first time in Chinese history, it has been tapped on a massive scale. Cultural confidence, which the Chinese have had for centuries, combined with what China has learned from the West have given Chinese civilization a special vigor today.

Chinese culture values social harmony over individual empowerment. American culture is the opposite. This sense of individual empowerment has enabled American society to produce some of the most powerful individuals on planet earth. In many societies, the tall nail that stands out is hammered down. A Chinese saying is: “A tall tree catches the wind” (shù dà zhāo fēng, )—a person in a high position is liable to be attacked. In America, the tall tree is worshipped. Hence, the most admired and respected Americans are successful individuals like Bill Gates of Microsoft, Steve Jobs of Apple, Jeff Bezos of Amazon. Even Mark Zuckerberg and Elon Musk remain admired figures, even though their companies, Facebook and Tesla, are facing a lot of criticism. No society has as powerful an ecosystem as America for producing strong individuals. Our society cannot replicate this great strength of America. China stood up again after a hundred years because of a towering figure like Mao Zedong. American society produces many Mao Zedongs.

Throughout the long history of humanity, the most successful societies have always been those that fostered diverse schools of thought. In China’s most creative period, many schools of thought emerged simultaneously: Confucian, Taoist, Legalist. Today, America leads the world in fostering diverse views. The American universities have created the most powerful intellectual ecosystems in the world. This culture of challenging and criticizing conventional wisdom in turn generates creativity and innovation. Hence, in field after field, America produces more Nobel Prize winners than any other country.

One big mistake that the central party leadership made in the 2000s was to not check carefully how the provinces and cities were treating foreign investors. Yet, even if Beijing wished to do so, there are limits to how much day-to-day control the center can impose. A well-known Chinese saying is: “The mountains are high, and the emperor is far away” (shān gāo, huáng di yuǎn, ). For millennia, the provinces of China, even under strong emperors, have always had strong local autonomy. Often, even when a problem encountered at the provincial level was raised in Beijing, little could be done.

many Chinese officials are familiar with Marxist literature and its derivatives. Such literature contains many derisive views of businessmen. For example, Lenin once famously remarked that businessmen would happily sell for a profit the rope that would later be used to hang them. As an aside, let me mention that I have actually seen this happen in real life. When I served in Phnom Penh in 1973 to 1974, the government in charge was a pro-American government supported by the American military. The American military would, at great expense, fly in artillery shells to defend the capital city, Phnom Penh. The corrupt generals in the pro-American government would then immediately sell these artillery shells to middlemen who would then sell them to the Khmer Rouge, even though these artillery shells would then be fired into the city and endanger the lives of the families of these pro-American generals. In short, it is true that many businessmen can be opportunistic and corrupt.* Yet, if the Chinese government had held such a one-dimensional Leninist view of business communities, it would have been a major mistake. Businessmen and businesswomen, if they are made to sign agreements under duress, even agreements that are profitable to them, will carry in their hearts deep resentment toward Chinese officials who make them sign such agreements. This may well be true even if all the procedures are perfectly legal. Yukon Huang, a former World Bank economist who served in China for many years, has pointed out that under WTO rules, it is perfectly legitimate for a developing country like China to ask for technology transfer as a condition for investing in China.

Why did the Chinese economy, which was on par with the rest of the world from the year 1 to 1820, fall so far behind? Why couldn’t the brilliant minds in the Chinese emperor’s court discern that the world had changed dramatically? The common cause of the massive blindness of the Chinese officials in the nineteenth century was a huge Chinese philosophical assumption that China was a great self-sufficient Middle Kingdom that did not need to engage the world. As the Chinese emperor Qianlong famously told Lord Macartney, China had everything it needed. It didn’t need the rest of the world.

America would present a formidable challenge to China if it were a united, strong, and self-confident country. Kennan emphasized this dimension in his Mr. X essay, when he argued that American power depended on its ability to “create among the peoples of the world generally the impression of a country which knows what it wants, which is coping successfully with the problems of its internal life and with the responsibilities of a world power, and what has a spiritual vitality capable of holding its own among the major ideological currents of the time.”

In recent decades, this trust has begun to erode because America has occasionally used the privilege of having the global reserve currency as a weapon against other countries. Here are two examples of how the US dollar has been weaponized; both involve American efforts to isolate Iran. In 2012, a British bank, Standard Chartered, was fined $340 million because it had used the US dollar to finance a trade transaction with Iran. This fine clearly represented an extraterritorial application of American domestic laws. As a British bank, Standard Chartered had broken no British laws. Neither had it violated any sanctions imposed by the UN Security Council. Yet, the dominance of the US dollar in international financial transactions enabled America to punish a British firm for breaking American laws—a clear weaponization of the US dollar.*

The US dollar could continue to reign supreme over the coming decades. However, it doesn’t take a strategic genius to figure out that it is not in America’s long-term interest to jeopardize one of its largest global strategic assets (the US dollar) by using it to extract small gains from one relatively small country, Iran. The strategic competition with China is going to be a long-term game, not a short-term one. By creating a dent in global trust in the US dollar, America is putting a pebble in its own running shoe, just as the race with China is about to become more competitive. This is what happens when America fails to develop a comprehensive global strategy to deal with the return of China. As Fareed Zakaria observes, “INSTEX is a warning sign, the canary in the coal mine. The United States’ closest allies are working hard to chip away at a crucial underpinning of U.S. global power.”

Americans fundamentally believe that they should stand for universal values and sincerely believe that the world would be a better place if the rest of humanity absorbed and implemented American values. Hillary Clinton said in a 2016 speech: When we say America is exceptional, it […] means that we recognize America’s unique and unparalleled ability to be a force for peace and progress, a champion for freedom and opportunity. Our power comes with a responsibility to lead, humbly, thoughtfully, and with a fierce commitment to our values. Because, when America fails to lead, we leave a vacuum that either causes chaos or other countries or networks rush in to fill the void.* The Chinese believe the opposite. They believe that only Chinese can be Chinese in culture, values, and aesthetics. I have long lived in a Chinese-majority society of Singapore. None of my Chinese friends would have expected me to become like them, even if I were fluent in the language and adopted Chinese customs habitually.

The Chinese are even more puzzled that America has allowed its involvement in unnecessary Middle East conflicts to undermine its more fundamental national interests. Such involvements have drained resources and taken away the possibility of using the same resources to improve the lives of relatively poor Americans instead. The Chinese are privately delighted because each unnecessary involvement in a Middle Eastern conflict reduces American ability to deploy resources against China. Having seen the folly of wasteful American military involvements, the Chinese have learned one wise lesson: refrain from getting involved in unnecessary fights. It is not an accident that China has not fought a major war in forty years and has not fired a bullet across its borders in thirty years. This lack of military action reflects both a powerful civilizational impulse and a deeply pragmatic view of power.

Having been burnt in Iraq and Afghanistan, the logical response of America, if it were supple, flexible, and rational, would be to walk away from getting involved in unnecessary conflicts in the Islamic world. The inability to make this U-turn demonstrates that, like the old Soviet Union, America has become rigid, inflexible, and doctrinaire. Quite amazingly, the major strategic minds inside the administration and outside continue to support American military intervention in various Islamic countries, including Libya, Syria, Yemen, Somalia, and so on.

One scholar who has tried to provide some intellectual justification for America’s involvement in military conflicts is Robert Kagan. He argues that the world would descend into chaos if America withdrew. His book title, The Jungle Grows Back, says it all. If America withdraws from the world, the world can only regress back toward becoming a jungle, dominated by primitive savagery and chaos. This is what Kagan says: What we liberals call progress has been made possible by the protection afforded liberalism within the geographical and geopolitical space created by American power. […] The question is not what will bring down the liberal order but what can possibly hold it up? If the liberal order is like a garden, artificial and forever threatened by the forces of nature, preserving it requires a persistent, unending struggle against the vines and weeds that are constantly working to undermine it from within and overwhelm it from without.

In Chinese political culture, the biggest fear is of chaos. The Chinese have a word for it: luàn (). Given these many long periods of suffering from chaos—including one as recent as the century of humiliation from the Opium War of 1842 to the creation of the People’s Republic of China in 1949—when the Chinese people are given a choice between strong central control and the chaos of political competition, they have a reflexive tendency to choose strong central control. This long history and political culture may well explain Xi Jinping’s decision to remove term limits. The conventional Western view is that he did so to reap personal rewards by becoming dictator for life. Yet, his decision may have been motivated by the view that China faced a real danger of slipping back into chaos. Two major challenges emerged that could have undermined the strong central control of the CCP. The first was the emergence of factions in the CCP led by Bo Xilai and Zhou Yongkang, two powerful members of the CCP. The second was the explosion of corruption.

It can be argued that strong central control of China by the Chinese Communist Party under Xi Jinping is producing at least three “global public goods” that the world is indeed benefiting from. And if Max Weber were alive today, he would be astonished to see the absence of strong Western voices observing and documenting how the West (and the rest of the world) is benefiting from the stable and rational rule of China by the CCP. The first global public good that the CCP is delivering is to rein in a strong nationalist dragon that is clearly alive and well within the Chinese body politic. There are many reasons for nationalism in China. Most Chinese are aware that China was badly trampled upon and humiliated during the century of humiliation after the Opium War. China’s recovery today has buoyed their national pride. Many in the West were shocked when in 2001 the Taliban destroyed the precious antique Buddhist statues in Bamiyan, which had survived fourteen centuries. Yet, those shocked Westerners, outraged by the Taliban’s behavior in 2001, failed to remember or mention that barely a hundred and fifty years earlier British and French troops had behaved just like the Taliban in Beijing in 1860.

Since the Chinese Communist Party is constantly vilified in the Western media, very few people in the West are aware that the members of this Communist Party have delivered the best governance China has ever enjoyed in its entire history.

There is political oppression in China. Any government that is based on an authoritarian model has no choice but to suppress political dissent. Chinese emperors had to do so for millennia. Yet, if repression were the sole goal and instrument of Chinese government rule, it would not and could not last. A wise Chinese government in the twenty-first century knows that it has to balance three partially contradictory goals to ensure a healthy Chinese society. The three goals are growth, stability, and personal freedom.

Western political theory teaches us that the development of a large middle class leads to demands for greater political participation. If a government ignores their demands, there could be a revolution on the streets, and the government would be overthrown. So now that China has the world’s largest middle class, why has it not revolted against the authoritarian nondemocratic rule of the CCP? The conventional Western answer is that repression has prevented this from happening. Certainly, repression is a factor. Many revolts are nipped in the bud. Yet, every Chinese government has known for millennia that if the vast majority of the Chinese people choose to revolt, no amount of repression can hold them down. This is why in traditional Chinese political theory, when a broad-based revolt breaks out, the Chinese emperor is deemed to have lost “the mandate of heaven.”

So repression is not the sole reason why the Chinese middle classes are basically calm. Most of them accept an implicit social contract between the Chinese people and the Chinese government. As long as the Chinese government continues to deliver economic growth (with improvements in living conditions, including better environmental living conditions) and social and political stability, the Chinese people will accept the rule of the CCP.

John Rawls, the political philosopher, wrote in A Theory of Justice that the most just society is one that one would choose to be born into if one didn’t know whether one would be born among the most or least advantaged in society. A rational choice would be to pick the society where the least advantaged are better off.

The relative comfort of the 1.4 billion people of China with a social and political order that is vastly different from the Western order ought to encourage the West to undertake a deep process of introspection. Is it wise to believe that there is only one road for all societies to travel on if they want to grow and progress? Are we now turning a new corner of human history where alternative models of social and economic development are emerging? It was an Indian political scientist, Pratap Bhanu Mehta, who alerted me to a significant difference between the democratic Indian society and communist Chinese society. He shrewdly observed that India was an open society with a closed mind, whereas China was a closed society with an open mind. The same observation may well apply to American society.

At the same time, in contrast to the bureaucracy of the former Soviet Union, which was rigid and inflexible, the Chinese bureaucracy has become responsive and accountable. This is how Yuen Yuen Ang, a political science professor at the University of Michigan, Ann Arbor, describes the reforms that China has undertaken: Since opening its markets in 1978, China has in fact pursued significant political reforms—just not in the manner that Western observers expected. Instead of instituting multiparty elections, establishing formal protections for individual rights, or allowing free expression, the CCP has made changes below the surface, reforming its vast bureaucracy to realize many of the benefits of democratization—in particular, accountability, competition, and partial limits on power—without giving up single-party control. Although these changes may appear dry and apolitical, in fact, they have created a unique hybrid: autocracy with democratic characteristics. In practice, tweaks to rules and incentives within China’s public administration have quietly transformed an ossified communist bureaucracy into a highly adaptive capitalist machine.

Bert Hofman, the former World Bank Country Director for China, was also quoted as saying: “China has made rapid progress in improving its business climate for domestic small and medium enterprises in the past year. This progress, which now puts China among the top 50 economies in the world, signals the value the government places on nurturing entrepreneurship and private enterprise.”* The World Bank report also observed that “since last year, three procedures were removed and consequently it now takes 9 days to start a business, on par with most OECD high income countries. In addition, Beijing is now one of only two cities in the world where the process of starting a business is completely free.”* An obvious point needs to be emphasized here. No entrepreneurship can happen unless people feel that they have the freedom to take risks and make individual decisions.

So why does America promote the idea of democracy in China? Americans believe that democracies are essentially better than autocracies because they provide freedom to individuals. This freedom in turn enables individuals to thrive and flourish, using all their natural talents to do the fullest. This will result in a society becoming more prosperous and stronger. There is a lot of merit to this belief. Hence, if China does the same, the theory goes that China would emerge as a much more productive society, and its economy would grow even faster. Indeed, if this political experiment works and the average Chinese citizen becomes half as productive as the average American citizen, China would then have an economy that will be twice as large as America’s economy and the potential to become four times as large. But does it really serve US national interests to have a Chinese economy that is twice or four times as large as its own? One key goal of the current American security establishment is to maintain American primacy for as long as possible. So it would then clearly be against America’s national interests to promote democracy in China if democracy was such a growth engine. Since America’s security establishment is full of thoughtful and intelligent people, they might argue that the country should immediately stop exporting democracy to China for fear that it would create an even bigger rival. Yet, the American security establishment continues to promote the export of democracy to China. Why? Because in practice, democracy promotion can have the opposite effect of what the theory suggests. It can destabilize and weaken societies, instead of strengthening them.

Every two to four years Americans go to the polls to elect their congressmen, senators, governors, and state legislative assembly representatives. And yet, under the surface guise of a functioning democracy, with all the rituals of voting, America has become a society run by a moneyed aristocracy that uses its money to make major political and social decisions. As a result, this class has been able to enact the greatest transfer of wealth that has ever taken place in American society.

In the past, the broad middle classes of America had a strong say in determining the fundamental direction of American society. Today, they no longer do. The decisions of the US Congress are not determined by the voters; they are determined by the funders. As a result, America is becoming functionally less and less of a democracy, where all citizens have an equal voice. Instead, it looks more and more like a plutocracy, where a few rich people are disproportionately powerful.

It is a huge irony that Congress passed the Foreign Corrupt Practices Act in 1977, which specifically prohibits the “authorization of the payment of money or anything of value to any person, while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to a foreign official to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure any improper advantage in order to assist in obtaining or retaining business for or with, or directing business to, any person.”* Effectively, this means that if an American corporation uses money to influence an Egyptian or Indonesian legislator, he will be punished under American law. However, if the same American corporation uses money (through campaign and super PAC contributions) to influence American legislators, it is part of the democratic process.

The fact is that the American social contract has come to rest on one ideological pillar, freedom, instead of the traditional two pillars of democracies, freedom and equality. In functional terms, the American political system is moving from being a democracy to becoming a plutocracy, betraying the ideals of its Founding Fathers.

Rawls goes on to emphasize the following point: “All social values—liberty and opportunity, income and wealth, and the social bases of self-respect—are to be distributed equally unless an unequal distribution of any, or all, of these values is to everyone’s advantage.”

The reverse of meritocracy is aristocracy. In a meritocracy, if you are given a decent start in life, your destiny is determined by your performance in life; in an aristocracy, your destiny is determined at birth. Even though the American system has effectively created a new moneyed aristocracy, many Americans cannot see it. Attackers of this system are often labeled “socialists”—implying that they don’t subscribe to the ideals of America’s Founding Fathers, when in fact it is the system itself that has failed those ideals.

cultural affinity cannot overcome geopolitical realities. Many American thinkers don’t understand the importance of geographic realities because America has been blessed with the best geography in the world. Americans are blessed with a large and productive continent, separated from the populous masses in Eurasia and Africa by two vast oceans, and they have only had to worry about the military threats posed by Canada and Mexico. Given such an environment, Americans don’t understand the real meaning of the word geopolitics, a combination of geography and politics, of which geography may be the more important. Europe is cursed with an unlucky geography. In the twenty-first century, Europe will not be threatened by Russian tanks and missiles. The prospect of a direct war with Russia is practically zero, although proxy wars may take place in territories like the former Yugoslavia and Ukraine. However, the prospect of Europe being overwhelmed by millions of migrants coming in from Africa in little boats is very real. There is one demographic statistic that spells out clearly the number one geopolitical threat the European Union will face. In 1950, the EU’s combined population (379 million)* was nearly double that of Africa’s (229 million). Today, Africa’s population (1.2 billion in 2015)* is double that of the EU countries (513 million in 2018).* By 2100, Africa’s population is projected to be almost ten times larger, 4.5 billion* versus 493 million.*

If Europe wants to preserve its own long-term interests, it should make the development of Africa, in partnership with China, an immediate priority. The country that attracts the largest number of African leaders to summit meetings is China. The most sensible thing for European leaders to do is to join, en masse, the next high-level meeting of Chinese and African leaders in Beijing. A massive turnout of European leaders at such a summit would send a powerful market signal. It could catalyze a powerful wave of new investment in Africa. Over time, with a strong African economy, there will be less incentive for widespread African migration to Europe.

Fortunately, it is currently in China’s national interest to see Japan remain an American ally. If America walks away now from its commitment to defend Japan under the Treaty of Mutual Cooperation and Security of 1951 (revised in 1960), which clearly states in Article V that “each Party recognizes that an armed attack against either Party in the territories under the administration of Japan would be dangerous to its own peace and safety and declares that it would act to meet the common danger in accordance with its constitutional provisions and processes,”* Japan would have no choice but to strengthen its capability to defend itself. Japan could be forced to acquire nuclear weapons.

It is almost certain, even as China opens up and integrates itself with the rest of the world, that it will not become a political or social replica of a Western liberal-democratic society. The cultural gap between China and the West is too great for the Chinese to feel comfortable in replicating Western social and political forms. However, the cultural gap between China and Japan is not as wide.

But despite China’s greater sensitivity concerning Taiwan, it could allow pragmatism to trump principles. When China established diplomatic relations with America in January 1979, America dropped its diplomatic recognition of the government in Taipei and switched it to Beijing. Since Jimmy Carter was perceived to have dropped a long-standing ally in Taiwan, the US Congress reacted by passing the Taiwan Relations Act with the intention of defending the government in Taiwan, which China regarded as renegade. Since this was a violation of the spirit, if not of the letter, of the diplomatic agreement signed between America and China, China could have, as a matter of principle, suspended all its economic dealings with America. Instead, China did some careful long-term pragmatic calculations. Having come to realize how backward the Chinese economy had become, the Chinese leaders led by Deng Xiaoping decided to “swallow the bitter pill of humiliation” (a well-known Chinese phrase) and use the massive American economy to boost its own economic growth. Forty years later, we know how wise and shrewd this pragmatic Chinese decision was. The Taiwan Relations Act was passed in 1979. In that year, in PPP terms, the Chinese economy was only about 10 percent that of America’s. By 2014, China’s economy had become larger. This shows the value of being pragmatic over being principled in international relations.

One key message of this book is that while Chinese leaders want to rejuvenate Chinese civilization, they have no missionary impulse to take over the world and make everyone Chinese. China’s role and influence in the world will certainly grow along with the size of its economy. Yet, it will not use its influence to change the ideologies or political practices of other societies. One great paradox about our world today is that even though China has traditionally been a closed society, while America purports to be an open society, the Chinese leaders find it easier than American leaders to deal with a diverse world, as they have no expectation that other societies should become like them. They, unlike Americans, understand that other societies think and behave differently.

Emotions play as important a role as reason in international relations. It would have been easier for America to accept the rise of another power if China had been a fellow Western democratic power, especially a fellow Anglo-Saxon power. This explains why the power transition from the United Kingdom to the United States went relatively smoothly: one Anglo-Saxon power was giving way to another. No dark emotional overtones accompanied this transition. By contrast, China is a very different culture and has always been perceived to be different in the Western imagination. Between America and China, there is a natural and legitimate concern: Will they understand us, our interests and values? Will we understand them? To make matters worse, there has been buried deep in the unconscious of the Western psyche an inchoate but real fear of the “yellow peril.” Since it is buried deep in the unconscious, it seldom surfaces. When senior American policymakers make their decisions on China, they can say with all sincerity that they are driven by rational, not emotional, considerations. Yet, to an external observer, it is manifestly clear that America’s reactions to China’s rise are influenced by deep emotional reactions, too. Just as individual human beings have difficulty unearthing the unconscious motives that drive our behavior, countries and civilizations also have difficulty unearthing their unconscious impulses. It is a fact that the yellow peril has lain buried in Western civilization for centuries. Napoleon famously alluded to it when he said, “Let China sleep; when she awakes she will shake the world.” Why did Napoleon refer to China and not to India, an equally large and populous civilization? Because no hordes of Indians had threatened or ravaged European capitals. By contrast, hordes of Mongols, a “yellow race,” had appeared at Europe’s doorstep in the thirteenth century. As Noreen Giffney recounts: “in 1235, Mongol armies invaded Eastern Europe and the Rus’ principalities between 1236 and 1242. […] The Mongol onslaught was followed by a swift and mysterious withdrawal to the surprise and relief of Westerners.”

the one area where there appears to be a fundamental contradiction between America and China would be in the area of values, especially political values. Americans hold sacrosanct the ideals of freedom of speech, press, assembly, and religion and also believe that every human being is entitled to the same fundamental human rights. The Chinese believe that social needs and social harmony are more important than individual needs and rights and that the prevention of chaos and turbulence is the main goal of governance. In short, America and China clearly believe in two different sets of political values.

The common interest that America and China have in dealing with terrorism and with the troubled parts of the Islamic world reinforces the key message of this book. If America and China were to focus on their core interests of improving the livelihood and well-being of their citizens, they would come to realize that there are no fundamental contradictions in their long-term national interests. In 2010, then prime minister Manmohan Singh and Premier Wen Jiabao captured the positive spirit of Sino-Indian relations in a joint statement: “There is enough space in the world for the development of both India and China and indeed, enough areas for India and China to cooperate.”* Similarly, there is enough space in the world for both America and China to thrive together.