BEIJING - During the Cold War, Soviet generals would line up their toy tanks, missiles and nuclear warheads on the strategy map and compare them with the number on the other side of the fence - the ones that belonged to the hated Western world. When the count showed their advantage they would gleam, chuckle, and think they were winning the battle.

In fact, they were being defeated just when they started counting tank for tank and missile for missile because the real battle, the one that would lose or win the war, was the one fought between economies. The dismal performance of the Soviet economy compared with that of booming America bankrupted the Soviet Union and brought to an end to the Cold War without a shot being fired.

China, sitting on the sidelines of this conflict, decided never to get trapped in an arms race that would undermine Beijing's power and benefit only the stronger economy - the United States.

So, in the past 30 years, Beijing has tried to avoid conflicts, attributing the strategy earlier to Deng Xiaoping's theory of "tao guang yang hui" ("hide capacity, bide time") or later to Zheng Bijian's theory of "peaceful development".

Now, with US$2.5 trillion in reserves, the second-largest industrial capacity in the world, a 10% gross domestic product (GDP) growth a year, and one of the largest trade balance sheets, China is simply "invading" neighbors with its capital and goods. In this, it is also enjoying the poor challenge coming from America, mired knee-deep in an epic economic crisis.

John Pomfret [1], in a brilliant recent article, details the Chinese "takeover" of Cambodia and the plans for dams and railways that are an attempt to firmly hook Indochina to China. Similar stories could be written about most of China's neighbors.

South Korea and Japan weathered the economic crisis thanks to better trade ties with Beijing, India is actively boosting all types of exchanges with China, and Vietnamese workers flock to Guangdong replacing inland migrant workers unwilling to move out of the countryside for the same low salary. To all of these, Beijing pledges investment, buying, and selling. And those promises look solidly buttressed by the iron reinforcements of a hot economy.

Surely, China is showing signs of inflation: its local governments went on an investment rampage wasting a lot of money, and its wide-ranging infrastructure plans may not be economically viable for years. All of this is poking huge holes in the economy, but the speed of growth could take care of those holes and things overall, including the popular mood, which looks less bleak than in America. There, spending plans after the crisis brought state debt to GDP ratio from 40% to 60%, and it could easily go to 80% in the next couple of years.

These numbers impose huge servicing fees and interest paid on the debt, which will require higher interest rates and/or higher taxes, something any political leader in any country is reluctant to apply. But this could especially be true in America, which was born out of a rebellion against taxes imposed by the British government. Moreover, there is a brewing movement around the newly born Tea Party, ideologically opposed to the ideas of higher taxes and heavy-handed central government intervention.

It is possible that for a few years at least, America will be short of cash to offset Chinese economic expansion, and China will have a little more time to puff up its economic weight in the region.

Then, America's glad acceptance of Vinh Cam Ranh as a base in Vietnam for the US Navy makes little strategic sense. Yes, for the US Navy it is the safest mooring in Southeast Asia, and Hanoi will not charge a penny for it, saving a lot of US taxpayers' money, but strategically it does not make sense against Chinese expansion. This is simply because China is expanding economically not militarily.

Surely, one can see growing Chinese activity in the South China Sea, more military hubris, and a more vocal attitude about the many territorial (mostly maritime) disputes. But it is not militarily that China is making footprints in Asia, it is with its currency, the yuan. If the dollar's value drops and the value of the yuan rises, this will automatically boost the strength of the Chinese "invasion" of its neighbors. The weaker American dollar will buy less, and the stronger yuan will buy more.

Then, strategically, in more than one way, American pressure to revalue the yuan will help to further Chinese penetration in the region and will support the US being expelled from it. A military base in Vietnam could easily become a cathedral in the desert, an empty monument to the failing US ambition in Asia. Or it could be a transfiguration of the American role, from that of an economic dynamo in the region to that of some kind of armed referee in potentially dangerous but really distant territorial clashes.

This will happen only if China does not take the new American military presence in Vietnam as a challenge and Beijing feels no urgency about its territorial claims. That is, only if China is not dominated by its hubris, and it takes care to not antagonize its neighbors but involve them in a regional framework, and it bides its time to grow politically and militarily stronger.

If it does not and Chinese hubris takes over, then a whole different scenario could unfold. It would be as if the Americans during the Cold War had agreed to play against the Soviets according to Soviet rules - a tank for a tank, a missile for a missile - a strategy that could have beaten America and now could self-defeat China.

If China doesn't take the bait of this neo-Metternichian move by America in Vietnam, then there is the problem of what the future role of the US in the region should be. An Asia without America is something hardly conceivable, but an America simply playing chess with the different Asian pieces, without any money, is an even weaker proposition.

If, in a few years, America recovers and has plenty of money to throw around in the region, it will be another scenario. But it is more likely, even after the recovery, America will not have the same economic might and size it had 10 or 20 years ago. In that case, the US should reinvent itself in Asia if it wants to be there. This is perhaps the real challenge America faces in Asia.

Note
1. China's billions reap rewards in Cambodia (http://www.washingtonpost.com/wp-dyn/content/article/2010/11/20/AR2010112003850_pf.html) Washington Post, November 20, 2010. (2010-12-02 Asia Times)