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For the past decade, China has been experiencing phenomenal rates of economic growth. Its continuing development, however, is closely tied to its ability to keep its goods competitive in the international market. Thus, China has kept the value of its currency comparatively low by exporting many of its profits to the industrialized world. In particular, China has used some of its excess financial gain to purchase American treasury instruments and other American dollar assets. This has helped to finance the growing American national debt. China is one of the United State?s major creditors. At the same time that China is helping to artificially maintain the American economy, the US is engaging in security policies which seem to cast China as a threat to American hegemonic power. Considerable time and energy has been spent in the US in evaluating China as a potential threat, and a great deal has been written on how and when the US should respond to this perceived threat. The paradoxical relationship between the US and China is the subject of this paper. In particular, the paper evaluates the mutually-reinforcing economic relationship of the two countries and attempts to evaluate how this affects the evolving security relationship. Theoretically, the paper compares realist and liberal approaches to these questions with more complex constructivist arguments. The paper argues that the US perception of itself as the premiere world power is coming into conflict with the China?s perception of itself as a relatively weak country that is only now starting to attain the level of global prominence that it deserves. These self-identities strongly influence the operation of economic and security factors when the two states assess how to deal with each other. ..PAT.-Conference Proceeding [ABSTRACT FROM AUTHOR]

In a world in which the United States holds a preponderance of power, how does China design a grand strategy to advance its security interests? In this article, I make two sets of argument. First, I argue that the logic of balancing still holds in international politics. Critics of balance of power theory have missed the other piece of the puzzle—internal balancing. Although states have not resorted to external balancing by forming a counterbalancing alliance, they can still undertake internal efforts to mitigate the power gap with the dominant state. Second, to balance American power, China is pursuing a grand strategy that combines elements of internal balancing and external “soft balancing.” The strategy of internal balancing aims to increase China’s relative power through economic development and military modernization with an emphasis on asymmetric warfare, whereas the strategy of external soft balancing is designed to limit or frustrate U.S. policy initiatives deemed detrimental to Chinese interests through diplomatic efforts in multilateral institutions and bilateral partnerships. The logic of such a grand strategy is to maintain a stable external environment for China to concentrate on economic growth and accumulate relative power, without provoking a vigorous U.S. response. ..PAT.-Conference Proceeding [ABSTRACT FROM AUTHOR]