How a softer approach by the US to balancing a rising China could pay dividends

America has vowed to continue freedom of navigation operations such as those conducted by USS Lassen to challenge China's island-building activities in the South China Sea under the UN Convention on the Law of the Sea. This is part of America's Asia-Pacific military strategy to maintain freedom of navigation and to "rebalance" against a more assertive China.

The stakes are high on both sides. America wants to pre-empt the risk, however far-fetched, of China imposing a "Monroe Doctrine" in the Asia Pacific. Besides the Malacca Strait choke point controlled by the Seventh Fleet, US power projection has been fortified by stronger regional military alliances. The Asia "pivot" aims to deploy 60 per cent of global US naval assets to the region by 2020. Meanwhile, Japan has revised its pacifist constitution to permit "collective self-defence" with allies including the US. Balancing against China is clearly the unspoken agenda.

For China, the South China Sea is not just about territorial integrity but also about vital sea routes for trade and import of resources, on which national security and regime stability depend. China has long been uncomfortable with perceived encirclement by "island chains" imposed by US navies operating from Okinawa and Guam. Decades of phenomenal economic growth have enabled China to upgrade a wide range of asymmetric military capabilities and Beijing now feels confident in safeguarding vital sea lanes in the Dongsha (Pratas) Islands, the Xisha (Paracel) Islands, and the Nansha (Spratly) Islands, critical choke points in the South China Sea. The intention to project naval power for national defence is clear in China's first-ever white paper on military strategy published in May.

Nevertheless, both sides are wary of dangers of unintended escalation. A major war in the region, let alone nuclear Armageddon, is not something either wants to contemplate. Both agree on the imperatives of crisis management and continuing military-to-military dialogue according to the Code for Unplanned Encounters at Sea.

The other theatre of US-China hard-power tussle is economic. The recently concluded Trans-Pacific Partnership (TPP), of 12 nations representing 40 per cent of the global economy, excludes China. The aim is to form a US-led economic coalition with higher labour and environmental standards. In addition, the US is negotiating the Trans-Atlantic Trade and Investment Partnership to form the world's largest free-trade bloc with the European Union.

China's trump card is its economic centrality, firmly locked into the global production and value chain. Look into any gadget and one will find China embedded. Six of the top eight container ports are located in China, including Hong Kong. Moreover, there is an alphabet-soup of bilateral or regional free trade agreements where China already enjoys a central role. Under negotiation is the Regional Comprehensive Economic Partnership comprising all Asean members and their free-trade partners.