A flourishing downtown Shanghai in January 2010

At the World Economic Forum in Davos this January, Chinese vice premier, Li Keqiang, gave an entirely unremarkable speech. Steering clear of subjects that make headlines, he instead sung the praises of China’s stability and technological progress. Yet the moment was made extraordinary by Li’s entourage: a group of about 75 subordinates who laughed, cheered and applauded on cue—and all with apparently genuine gusto. This scene brought to my mind Deng Xiaoping’s famous dictum that his country must “keep a low profile and never take the lead.” There was plenty of Chinese exuberance in the room, and the rest of us were meant to notice. Has the need to lie low subsided, I wondered? Does China believe that its time has come?

That was the message many people took from the triumphalist pageantry of Beijing’s 2008 Olympics. But the real game-changer was economic. The financial crisis, global recession, and China’s remarkable recovery have produced a big shift in the world’s most important state-to-state relationship. Chinese officials argue that their country’s resilience in the face of America’s meltdown has vindicated a Chinese model of development, one that rejects US-style free markets in favour of a “state capitalist” system. A relationship until recently shaped mainly by shared interests must now adapt to accommodate the two sides’ increasingly divergent views of capitalism—and a large shift in the balance of confidence.

The list of irritants in US-Chinese relations is growing. Google threatens to quit China over censorship and cyber-attacks. Washington and Beijing are at cross purposes over Iran’s nuclear programme. US lawmakers have again criticised China’s unwillingness to allow the value of its currency to rise and its failure to protect the intellectual property of foreign companies. There are trade disputes over tyres and steel pipes. Yet these problems are merely symptoms of an illness that has progressed further than some observers realise.

Put bluntly, the Chinese leadership no longer believes that American power is as indispensable as it once was for either China’s economic expansion or the Communist party’s political survival. Nor does it accept that access to US capital or commercial know-how is quite so important for the next stage of China’s development—or that its growth depends on the spending habits of American consumers.

China has embarked on a process of economic “decoupling.” The western financial meltdown put millions of Chinese out of work in…

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