At the precipice of a new cold war, China has more instruments of power than it has ever had, but challenges and missteps mean that the world’s democratic countries still have the upper hand—at least for the moment, says Elizabeth Economy, director for Asia studies at the Council on Foreign Relations.

While that may seem reassuring to China’s strategic competitors, Economy’s most recent book, The third revolution: Xi Jinping and the new Chinese state, warned that Western democracies have yet to fully come to grips with the nature of Xi’s transformation of China, and to formulate cohesive strategies to counter and exploit its burgeoning economic, political and technological influence.

In conversation with journalist Stan Grant as part of ASPI’s ‘Strategic Vision 2020’ conference series, Economy outlined the contours of the third revolution in the context of recent Chinese history. Xi sees his agenda as an extension of the Chinese Communist Party’s first two revolutions, she explained. Mao Zedong’s revolution was about China standing up, and Deng Xiaoping’s was about China growing rich. Xi’s revolution is about China moving to centre of the global stage, replacing the narrative of humiliation with a narrative of China as a determining force in world affairs.

The other part of Xi’s revolution is about restoration—restoring the CCP’s centrality to the economy and society, restoring the moral legitimacy of the party by rooting out corruption, and making China whole again by restoring territorial sovereignty over Hong Kong, Taiwan and the South China Sea.

It is the protean and paradoxical nature of China’s expansion of national power that creates confusion. According to Economy, the central paradox of Xi’s leadership is in his positioning of China as a champion of globalisation and the free movement of capital, information and trade, while at the same time restricting the flow of those exchanges.

Another paradox is Xi himself and the mystery at the heart of his psychology—why would a person whose family suffered so greatly at the hands of the CCP in the Cultural Revolution go on to join the party and become its great champion? Economy says she has no answers here, but she does note that Xi has always had concerns about moral delinquency in the CCP and its transformation from a socialist vanguard to an enrichment cartel for cadres—evident for many years before his elevation to China’s top job. If nothing else, Xi appears to be a true believer, trying to return the party to an idealised form.

What, then, does Xi’s revolution mean for the rest of the world? For Economy, first and foremost Xi’s revolution has been profoundly destabilising as he pursues more aggressive policies on Taiwan, the South China Sea and Hong Kong.

Economically, Xi’s insistence on making China’s large corporations bend to CCP interests has injected distrust into the centre of the global economic system. Far from being a champion of globalisation, Xi is helping erode its foundational norms.

The scope of China’s political influence has also evolved over the past decade. Economy explains that while China is no longer exporting Marxist–Leninist ideology in toto as it did in the last cold war, it is now exporting techno-authoritarianism to governments in the developing world. China’s telecommunications exports are also a potential power lever. Economy gives the example of Africa, where decades of Chinese activity have paid dividends. Huawei currently enjoys 80% of Africa’s 4G market, Star TV content is flooding African screens, and various authoritarian governments are buying mass-surveillance products from China. And, of course, these newer instruments of power are complemented by Xi’s substantial upgrades to the Chinese military and defence industries.

If the nature of China’s power has morphed under Xi, how should Western democracies be responding? Economy notes that Washington’s move from ‘engage but hedge’ to ‘compete, counter and contain’ began with President Barack Obama but has found a fuller expression in Donald Trump’s administration. The US pivot was probably inevitable, but what has been lost, says Economy, is the diplomatic engagement necessary to manage inevitable miscalculations and crises.

As a trigger point for military conflict, Taiwan worries Economy much more than the South China Sea. Taiwan is a central preoccupation for Xi. As Grant notes, the phrase ‘peaceful unification’ has disappeared from CCP rhetoric. China now just talks about ‘unification’.

Economy recommends that the US adopt a more sophisticated approach on Taiwan and refrain from poking the dragon. ‘If it breathes, Taiwan will get engulfed … Now is not the time to push back publicly on Taiwan’, she cautions.

China is also grappling with structural challenges, the most discussed of which are its slowing economy, ageing population, and pollution and climate crises.

But we should also be paying attention to Chinese citizens, argues Economy. Social unrest and dissent are still present. ‘Just because we’re not seeing it, doesn’t mean it is not happening’, she says, pointing to events in Wuhan at the onset of the Covid-19 pandemic. There was a real mobilisation of civil society, both online and off, and a sharp increase in criticism of Xi and the CCP.  So much so, that Beijing quickly scrambled strategic communication shock troops to regain control of the narrative.

Beijing seems to have wrested back control, but Xi probably worries that authentic ruptures to official lines can resonate long in shared memory; the public outcry about the Sichuan earthquake in 2008 is one recent example. But the crisis in Wuhan showed that, contrary to stereotypes, Chinese citizens retain the impulse to think critically and act independently.

There’s also evidence that Chinese citizens are getting fed up with punitive omni-surveillance. Xi’s moves towards greater social control may be driven by fears of widespread distrust of the party by the public, but the CCPs heavy-handedness could backfire domestically in unexpected ways.

This heavy-handed approach may backfire abroad, too. Take Beijing’s Covid-19 diplomacy. China’s dispatch of face masks around the globe was a public-relations win, but it was cancelled out by Beijing’s demands for public gratitude and its stepping up of ‘wolf warrior’ diplomacy. However, Economy also notes that the Chinese narrative has won support in some parts of the globe. And the chaotic US response to the pandemic has helped China as a point of comparison.

But, ultimately, this battle of narratives and China’s rise are much bigger than a rising power/status quo power dynamic. This framing is far too narrow, argues Economy. For her, the fight is less about the contest for power between the US and China, and more about values and whether the authoritarian or democratic system will prevail. In this fight, all democratic nations have a stake.