This book argues that China must become an innovation-based economy to avoid the middle-income traps, and examines both the opportunities and challenges in meeting this goal.

China has become deeply integrated into the world economy. Yet, gradual marketization has facilitated the country’s rise without leading to its wholesale assimilation to global neoliberalism. This book uncovers the fierce contest about economic reforms that shaped China’s path. In the first post-Mao decade, China’s reformers were sharply divided. They agreed that China had to reform its economic system and move toward more marketization—but struggled over how to go about it. Should China destroy the core of the socialist system through shock therapy, or should it use the institutions of the planned economy as market creators? With hindsight, the historical record proves the high stakes behind the question: China embarked on an economic expansion commonly described as unprecedented in scope and pace, whereas Russia’s economy collapsed under shock therapy. Based on extensive research, including interviews with key Chinese and international participants and World Bank officials as well as insights gleaned from unpublished documents, the book charts the debate that ultimately enabled China to follow a path to gradual reindustrialization. Beyond shedding light on the crossroads of the 1980s, it reveals the intellectual foundations of state-market relations in reform-era China through a longue durée lens. Overall, the book delivers an original perspective on China’s economic model and its continuing contestations from within and from without.

“A standout . . . a balanced, informative, and highly intelligent guide to dealing with China.”—Fareed Zakaria Many see China as a rival superpower to the United States and imagine the country’s rise to be a threat to U.S. leadership in Asia and beyond. Thomas J. Christensen argues against this zero-sum vision. Instead, he describes a new paradigm in which the real challenge lies in dissuading China from regional aggression while encouraging the country to contribute to the global order. Drawing on decades of scholarship and experience as a senior diplomat, Christensen offers a compelling new assessment of U.S.-China relations that is essential reading for anyone interested in the future of the globalized world. The China Challenge shows why China is nowhere near powerful enough to be considered a global “peer competitor” of the United States, but it is already strong enough to destabilize East Asia and to influence economic and political affairs worldwide. Despite China’s impressive achievements, the Chinese Communist Party faces enormous challenges. Christensen shows how nationalism and the threat of domestic instability influence the party’s decisions on issues like maritime sovereignty disputes, global financial management, control of the Internet, climate change, and policies toward Taiwan and Hong Kong. China benefits enormously from the current global order and has no intention of overthrowing it; but that is not enough. China’s active cooperation is essential to global governance. Never before has a developing country like China been asked to contribute so much to ensure international stability. If China obstructs international efforts to confront nuclear proliferation, civil conflicts, financial instability, and climate change, those efforts will falter, but even if China merely declines to support such efforts, the problems will grow vastly more complicated. Analyzing U.S.-China policy since the end of the Cold War, Christensen articulates a balanced strategic approach that explains why we should aim not to block China’s rise but rather to help shape its choices so as to deter regional aggression and encourage China’s active participation in international initiatives that benefit both nations.

To explore what extended competition between the United States and China might entail out to 2050, the authors of this report identified and characterized China’s grand strategy, analyzed its component national strategies (diplomacy, economics, science and technology, and military affairs), and assessed how successful China might be at implementing these over the next three decades.