Upside of US-Chinese competition How institutional balancing promotes stability in Asia

During the G-20 summit in Bali last November, U.S. President Joe Biden and Chinese President Xi Jinping emphasized the importance of responsibly managing the competition between their countries. “I absolutely believe there need not be a new Cold War,” Biden said. For his part, Xi stressed that the two countries share a common interest in “no confrontation and peaceful coexistence.” Recognizing the devastating consequences of military conflict, both leaders pledged to avoid it. Nevertheless, even if they can avoid conflict, the two countries are locked in a competition that will extend into the foreseeable future. As they navigate it, the rest of the world will look on nervously.

But there is a potential silver lining to U.S.-Chinese competition: the rise of “institutional balancing.” Unlike in traditional military balancing, whereby countries seek to equalize their power through arms buildups and defense alliances, institutional balancing involves countries seeking advantage by using the rules and norms associated with international institutions.

Some scholars have begun to characterize institutional balancing as yet another alarming axis of confrontation, even a form of war. But this approach to competition is not only less violent than warfare. It can, in fact, be healthy—strengthening international cooperation, forcing multilateral institutions to become more relevant and dynamic, and prompting more investment in public goods. Institutional balancing provides a way to compete responsibly without resorting to military conflict.

American leaders can be particularly tempted to think of any aggressive competition with the United States within a Cold War frame, wherein all jockeying is hostile or destabilizing. If Washington and Beijing pursue institutional balancing in the right way, however, they could make the coming bipolar age even more peaceful than the previous, unipolar one.

A new kind of battlefield

Institutional balancing is not a new concept in global politics. Since the end of the Cold War, both the United States and China have pursued it to enhance their power. As a strategy, it has two varieties: inclusive and exclusive. Inclusive institutional balancing entails a state incorporating a rival into an international institution whose norms constrain the rival’s behavior. One example is the successful effort by the United States, in 2001, to incorporate China into the World Trade Organization. China’s accession required it to liberalize parts of its economy and allowed countries to lodge complaints against it within the WTO’s framework.

Exclusive institutional balancing, by contrast, is when a state seeks to exclude a rival from an agreement or an institution, undermining its influence or pressuring it to engage on less advantageous terms. The United States used exclusive institutional balancing when it intentionally excluded China from the 2008–15 negotiations that resulted in the Trans-Pacific Partnership. By excluding China, the United States significantly limited China’s access to over 40 percent of the global economy.

The last 30 years of institutional balancing between the United States and China can be understood in two phases. The first phase spanned the early 1990s up to the 2008 global financial crisis. Although that era was characterized by deepening economic interdependence and accelerating globalization, it was essentially unipolar: the general assumption was that the United States would remain more influential than China.

During that phase, both the United States and China mainly used existing multilateral institutions, especially the Association of Southeast Asian Nations, to pursue inclusive institutional balancing. The ASEAN Regional Forum, in which the United States participates, was particularly useful to China. By insisting on a principle of noninterference, China has effectively blocked the ARF from addressing the matter of Taiwan since 1994.

The United States has also deepened its relations with ASEAN, developing a strategic partnership with the organization in 2015 and hosting U.S.-ASEAN summits in 2016 and 2022. As of 2019, ASEAN has become the favored U.S. diplomatic partner in its “Free and Open Indo-Pacific” strategy. The United States also used the ARF as a specific means to engage China with the hope of socializing China into international society. In 1998, with the United States and ASEAN’s encouragement, China published its first white paper on national security in order to fulfill the ARF’s requirement to increase military transparency.

The second phase of U.S.-Chinese institutional balancing is still ongoing. After the 2008 global financial crisis exposed the weaknesses of U.S.-led free-market capitalism, non-Western and emerging economies began to challenge U.S. hegemony more aggressively. This changed landscape led the United States and China to focus more on exclusive institutional balancing, creating new institutions to exclude and target each other. In 2017, the United States revived the Quad (Quadrilateral Security Dialogue) with Australia, India, and Japan, which had failed to gain traction a decade earlier. Thanks to this revitalized dialogue, in the last five years, Quad countries have ramped up their joint military exercises and announced a variety of initiatives in vaccine diplomacy, climate change, technology, and infrastructure.

China, meanwhile, pursued exclusive institutional balancing by creating or expanding security institutions that leave out the United States. A chief example is China’s 2013 launch of the Belt and Road Initiative, a massive network of projects and investments to upgrade infrastructure in more than 100 countries at a projected total cost of up to $8 trillion. The Conference on Interaction and Confidence Building Measures in Asia, a long-standing intergovernmental forum to promote cooperation, peace, and security in Asia, was moribund for years until China rebooted it in 2014 to advocate for “Asia for Asians,” a direct challenge to the U.S.-led bilateral alliance system in Asia.

To counterbalance U.S. power in Eurasia, China also sought to expand the influence of the Shanghai Cooperation Organization, which it originally founded with Russia in 2001 to fight terrorism, ethnic separatism, and religious extremism in the region. In 2017, with China’s encouragement, the SCO admitted India and Pakistan, making it the world’s largest regional organization in terms of the population it covers. Iran was admitted in 2022, and Belarus is expected to join this year.

The battle's yield

On the surface, these moves might seem like worrying steps down a road that ends with a U.S.-Chinese confrontation. But in East Asia and Southeast Asia, institutional balancing has increased, not reduced, stability and security.

First, it has encouraged existing regional institutions to improve, lest they become marginalized. For example, in the first decade of this century, ASEAN finally addressed one of its long-standing weaknesses: its failure to include member countries’ defense secretaries in regional security dialogues. In 2006, ASEAN established a Defense Ministers’ Meeting, and in 2010, it expanded that forum to include eight dialogue partners: Australia, China, India, Japan, Korea, New Zealand, Russia, and the United States. In 2017, ASEAN made this meeting a standing annual forum, significantly strengthening security cooperation among participating countries.

And new multilateral organizations have emerged, seeking to take advantage of Washington’s and Beijing’s hunger for influence. One is the Shangri-La Dialogue, an annual Singapore summit hosted by the International Institute for Strategic Studies, a think tank based in the United Kingdom, with the support of the Singaporean government. There, top defense officials from the Asia-Pacific and beyond gather, engaging in discussions and debates on regional security matters.

Institutional balancing between the United States and China has directly benefited individual countries in the region, as well. Both China and the United States have had to offer incentives to ASEAN states to maintain or gain leadership in the region. For example, for 25 years, Southeast Asian leaders have longed for a legally binding international code of conduct to resolve conflicts in the disputed waters of the South China Sea. And for many years, China simply resisted though it signed the nonbinding Declaration on the Conduct in the South China Sea in 2002. But in the mid-2010s, as China sought to wield institutional power through ASEAN, the organization also pressed China to accelerate negotiations toward a code of conduct, yielding a draft negotiating text in 2018. And early this year, against the backdrop of China’s increasing rivalry with the United States, Beijing signaled that it is ready to move even faster.

The United States has also deepened its cooperation with ASEAN. In 2009, then President Barack Obama became the first U.S. president to meet with all ten ASEAN heads of state as a group. That same year, the United States joined the Treaty of Amity and Cooperation in Southeast Asia, a framework for the peaceful resolution of disputes in the region, and three years later, it officially joined the annual East Asia Summit. The Biden administration has collaborated with ASEAN on new health, transportation, women’s empowerment, environment, and energy initiatives and greenlighted a Department of Defense investment of $10 million annually to train emerging Southeast Asian defense leaders and foster connections between them and their U.S. counterparts.

Finally, this institutional balancing game has contributed to infrastructural improvements throughout Asia. Building on the Belt and Road Initiative, in 2015, China established the Asian Infrastructure Investment Bank as a tool to boost its regional influence. To counter those developments, the United States proposed infrastructure initiatives such as the 2019 Blue Dot Network with Australia and Japan, a project to promote the development of trustworthy standards for infrastructure. Washington followed that with the 2021 Build Back Better World initiative and the 2022 Partnership for Global Infrastructure and Investment (PGII); both seek to provide comprehensive alternatives to the BRI.

Developing countries have benefited immensely from this competition. Through engagement with ASEAN, and following PGII frameworks, Washington committed in 2021 to investing $40 million in emerging Southeast Asian economies to help make the region’s power supply cleaner and more efficient. That investment is expected to generate $2 billion in financing.

With loans from the BRI, Laos began construction that same year on a massive $6 billion railway project, the largest public works initiative in the country’s history. More recently, a few months ago, Pakistan received a $10 billion loan from Beijing to upgrade its main railway network. That upgrade forms part of the China-Pakistan Economic Corridor, a BRI centerpiece with an estimated total cost of $60 billion. Although some critics have expressed concern that these loans will create debt traps for recipient countries, they are nevertheless essential for their economic development, given their limited options for infrastructure financing. The resulting economic growth contributes to peace in the region, too.

A silver linings playbook

In the last few years, bilateral relations between the United States and China have degraded, recently pushing them toward the brink of a hot war over Taiwan. The task for their policymakers is to manage their rivalry so it is less tense and risky. Guiding the competition further toward institutional balancing instead of military buildups and alliance confrontation is the best way forward.

Institutional balancing is almost always more peaceful than military standoffs. It is true that institutional balancing can spark diplomatic tensions among states. But these almost never flare up into conflagrations. Institutional balancing can be beneficial, however, only if it sticks to three preconditions, none of which have been adequately followed so far.

First, it must remain limited by the logic of nuclear deterrence. No matter how vigorously they pursue institutional balancing, the United States and China will likely continue to compete for military power. But they cannot cross this competition’s redline. It would be extremely dangerous for either side to miscalculate the other side’s capabilities or resolve or to engage in nuclear brinkmanship.

Next, it is essential for both countries to emphasize strengthening, not weakening, their economic interdependence. So long as the United States and China are interdependent, their economic ties and the relationships between their citizens serve as guardrails against military escalation. These countries will compete vigorously. But their leaders must not vow to end their reliance on each other to score domestic points, as former U.S. President Donald Trump did repeatedly. They must ensure that their rhetoric and actions do not seem to support decoupling.

Finally, it is crucial for the two countries to avoid framing their competition in ideological terms. Biden has often described the contemporary world as embroiled in “a battle between democracy and autocracy.” Although the Chinese Communist Party is exceptionally ideological at home, when Xi speaks to other countries, he never characterizes China’s competition with the United States as an existential battle between irreconcilable worldviews. If Biden has, at times, tried to be an ideological boxer in foreign affairs, Xi prefers tai chi, avoiding direct contact.

Xi’s approach in this regard is the better one, and U.S. leaders should emulate it. The reality is that a number of Asian countries—such as Singapore and Vietnam—neither have nor want systems modeled on that of the United States. Chest-beating about democracy can alienate people who have watched U.S. democracy falter at home. Xi’s rhetoric avoids suggesting that other countries must ally themselves ideologically with China in order to cooperate with it, leaving space for them to benefit from and keep the peace with both Beijing and Washington.

Tension is a given between the two most powerful countries in the world. But if they can both stick to a strategy of institutional balancing, the rewards of competition should outweigh the risks.