As China and the United States enter the most contentious period of their relationship in this decade they are more conscious than ever of the degree to which each has become significant  to the other’s interest. The White House views China as central to its concerns in East Asia even as the domestic US political consensus over “comprehensive engagement” and a “strategic partnership” with China comes under attack. Therefore, the US seeks not the redefinition of policy painstakingly established over the last two decades but its "successful management". For China, this is even more crucial given its very high stakes in the security and economic dividends from the "strategic partnership" and "comprehensive engagement" with the  US. Management could mean different things for the two, however. For the US it is increasingly likely to mean responses that contain as well as engage China in East Asia. The Chinese would prefer to manage bilateral relations in the interests of their own economic growth and strategic Management, however, becomes increasingly difficult in the face of the breakdown of consensus on  key security and economic issues.

In the graph of Sino-US relations 1998 was the year of shocks. Despite the superbly publicised visits of the Chinese and US Heads of States to Washington and Beijing, events from the margins forced a review of regional security and economic issues. Pokhran II not only sent the world into nuclear shock but also linked South Asian security to China’s nuclear proliferation record in the region. Reports of the use of US high technology for military purposes by China, its Defence White Paper which outlined an ambitious programme of military modernisation to bring China on par with the Western world, and the increased significance of the unresolved North Korean nuclear issue in the post-Pokhran II environment set alarm bells ringing. The establishment of a US Congressional investigative committee into allegations that China may have stolen American nuclear secrets, enabling it to target its intercontinental ballistic missiles more accurately, implied that a review of the “strategic partnership” was necessary. The most critical fault line in this partnership has emerged since 1996 over the break down in the Sino-US consensus on the “peaceful reunification” of Taiwan within the “one country, two systems” formula. As Taiwanese political opposition to reunification grows, China has been more than willing to use military coercion . The US insists on “peaceful reunification” whilst following an ambiguous policy of arms sales to Taiwan this upsets China’s tactical advantage in the Straits and provides Taiwan with the military backing to negotiate reunification. The most recent US Theater Missile Defense (TMD) proposal, likely to be extended to Taiwan, has prompted Chinese warnings of a regional arms race to counter new regional military alliances that threaten its interests in East Asia.

While China and the United States engage in defusing the North Korea and South Asian nuclear issues, the Theatre Missile Defence (TMD) proposal is clearly aimed at China’s containment. China’s ambitions as a regional power opposed to "hegemonies" and its preference for a multipolar world, conflict with US interests in the region. In recent months Chinese leaders have affirmed that China’s military defense industry has narrowed its technical gap with the West placing it on "par with top world capabilities", forcing the State Department and the Pentagon to cancel sale of high technology to China. However, the Chinese are aware that the US defense industry, which is unable to depend on the Pentagon as a major buyer, has a high commercial stake in an expanding Chinese market. The Chinese response to American pressures has, therefore, been to play the China market card. Jiang Zemin’s ongoing visit to Europe, where he is likely to look seriously at European defense industry options, is an effort to diversify the sources of China’s military procurements, and encourage the US defense industry to lobby for a change in the American position.

The Asian economic crisis has also fractured the consensus on the economic model for Asia. IMF prescriptions for opening financial markets in particular have failed, as did the neo-authoritarian political model of the Asian tigers, leading to differences between the US and China both on the pace of economic and democratic reforms in China. These have manifested in American insistence that China opens its markets to US imports to bring down the increasing trade deficit with the US, and to pressure China to fulfill its human rights commitments. China’s response has been to meet the American position halfway by announcing a deepening of  domestic enterprise and financial reforms and by enunciating its own human rights position and record at length at the time when it was to come up for review at Geneva this year.

Much of the criticism of China in the US over the last year has come not from the White House which enunciated China policy, but from the US Congress and from Departments that have been on the fringes of the new economic relationship with China, the State Department and the Pentagon. As Bill Clinton heads into the weakest phase of his final term in office the focus of China criticism, if not China policy, will shift to these institutions constraining the executive’s flexibility to policy. From the Chinese perspective the stability of its political elite and its increasing engagement with economically weakened Asia provide it the flexibility to move closer to attaining its objectives.