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How US Monetary Policy Has Tamed China

In any emerging economy, there is an important connection between the health of the capital account and that of the domestic economy. A fragile capital account, and the economic self-doubt it can create, are hardly strong foundations for aggressive Chinese foreign policy.

LONDON – Chinese leaders do like their slogans, and where foreign policy is concerned, two have reflected Beijing’s thinking in recent times. The first is the cautious principle of tao guang yang hui, usually rendered in English as “hide your light and bide your time,” which guided Chinese policy for decades after Deng Xiaoping established it in the 1980s. In late 2013, though, President Xi Jinping coined a new slogan to define a more assertive, muscular approach: fen fa you wei, or “strive for achievement.”

The drift toward a more assertive foreign policy under Xi has been evident everywhere, from China’s declaration of an air defense identification zone over the East China Sea in late 2013, to the creation of “facts on the ground” in the South China Sea, to the development of the Belt and Road Initiative.

But recently there have been signs that China might be having second thoughts about its ability to keep striving for achievement. Xi’s government seems clearly to have entered concession-making mode in its relations with the United States, and some prominent Chinese academics have begun questioning whether China has been guilty of strategic overstretch. For example, Yan Xuetong, a doyen of Chinese foreign-policy scholarship, has recently argued that Xi has gone too far, and that China should limit its ambitions to a narrower, regional sphere. Another Beijing-based expert, Shi Yinhong, calls for “strategic retrenchment” in Chinese foreign policy.

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