In today's China, the battle of ideas has become entwined with the pursuit of raw power. Behind its monolithic facade, the Communist hierarchy has been caught up in an increasingly rancorous struggle for the soul of the party, with two political gangs associating themselves with the ideas of the 'New Left' and the 'New Right'.

The 'New Leftist' Cui Zhiyuan draws on a surprising source to explain these shifting political dynamics: mediaeval Europe. Many Western observers, he says, struggle to make sense of China because they see politics as the relationship between governors and the governed, between the state and civil society. But Cui Zhiyuan claims that the struggles which so baffle modern Europeans would have been immediately recognizable to inhabitants of-mediaeval Europe like Niccolo Machiavelli:

For Machiavelli power was not divided between two levels: the state and the people. Florentine politics was split between three groups: the prince (the 'one'), the nobles (the 'few') and the people (the 'many'). In today's China, the 'one' is the Communist Party, the 'few' are the super-rich, and the 'many' are the people. Machiavelli shows how the 'one' and the 'few' can collude against the 'many', but also how the ruler can make common cause with the people against nobility.

According to Cui Zhiyuan, Chinese politics in the 1980s was a protracted love affair between the party and the super-rich, as Mao Zedong's plea to 'serve the people' gave way to Deng Xiaoping's alleged injunction that 'to get rich is glorious'. Deng Xiaoping's chosen successor, the former Shanghai party boss Jiang Zemin, went even further with his so-called 'three represents' theory that invited private entrepreneurs to join the Communist Party on the grounds that it should represent economic production as well as social and cultural forces. Jiang Zemin assembled around him a clique from the affluent coastal regions that continued to hold power after he retired. Because Jiang Zemin's powerbase is in Shanghai, they are often known as the 'Shanghai set', which also reflects their fascination with the most avant-garde experiments in Chinese capitalism. Like their 'New Right' friends in academia, such as Zhang Weiying, the Shanghai set supports fast economic growth, a relatively high degree of provincial autonomy in economic affairs, loose controls on investment and bank lending and close ties between the party and the country's rising class of private businessmen.

However, since 2002 the 'New Right' consensus has been challenged by President Hu Jintao. He has built an alternative powerbase around the Chinese Communist Youth League (CCYL); the so-called tuanpai who cut their teeth in the less developed inland provinces. They sing more from the 'New Left' hymn sheet, advocating slower and more stable growth, greater attention to social inequality and pollution, and an expansion of state support for education, medical care and social security. Hu Jintao's catch-phrases of 'Harmonious Society' and 'Scientific Development' stand for a range of policies intended to restore a balance between the country's thriving market economy and its neglected socialist past.

Instead of cosying up to big business, President Hu Jintao together with Prime Minister Wen Jiabao, has made overtures to the workers, peasants and the dispossessed; trying to ally himself with the 'many' against the 'few'. Through a series of media stunts - such as sleeping in the houses of peasants and interceding on behalf of workers who were not getting paid - he has differentiated himself from the 'elitist policies' of Jiang Zemin. Most worrying for the 'New Right' is the shift away from growth as the overriding objective for China. At a heated meeting of the Politburo in July 2004, the former party boss of Shanghai Chen Liangyu allegedly pointed his finger at Wen Jiabao and warned him that he would be held responsible if policies designed to slow growth in the eastern coastal provinces - in order to redistribute money to the western inland provinces - led to political turmoil. Chen Liangyu, an enthusiastic free-marketer, set out the 'New Right' credo when he said that 'when the Sun rises, it shines first on the East. It doesn't shine on the East and West at the same time ... Balanced development does not mean robbing the rich to help the poor; robbing the rich to help the poor would leave all equally poor, not equally rich ... Our party-state's historic experience with economic building proved long ago that egalitarian thinking will only strangle development.'

China's political system is not one where the winner takes all. Each of the two factions needs the other to define itself, and power is finely balanced between them. Hu Jintao seemed to be in the ascendant when he engineered the high-profile sacking - on corruption charges - of Chen Liangyu in 2006. But when it came to elections to the Politburo's Standing Committee at the five-yearly Party Congress in October 2007, the two factions got roughly the same number of slots, and Hu Jintao failed to get his protégé Li Keqiang anointed as his successor.

In policy terms, however, the balance of power is subtly shifting towards the Left. At the end of 2005, Hu Jintao and Wen Jiabao published the '11th Five Year Plan', their blueprint for a 'Harmonious Society'. This report - based on the research of dozens of teams of party officials sent to examine social policy in Europe, the USA, Latin America, East Asia and Africa - marked a clear shift in the way the country thinks about its economic future. For the first time since the reform era began in 1978, economic growth was not described as the overriding goal for the Chinese state. In its place was a broader goal of 'development' which China's leaders now define as 'putting people first' (yiren weiben) while respecting the natural environment. They talked about introducing a Scandinavian model of social welfare with promises of a 20 per cent year-on-year increase in the funds available for pensions, unemployment benefit, health insurance and maternity leave. For rural China they promised a 'New Socialist Countryside' where arbitrary taxes would be cut, and health and education improved. They also pledged to reduce energy consumption per unit of GDP by 20 per cent, and to introduce new performance indicators for party officials that stress social and environmental indicators as well as economic growth. China's shift in policy orientation was further sealed when the 2007 Party Congress enshrined Hu Jintao's Left-leaning 'Scientific Development Concept' in the party's constitution at the same level as Mao Zedong Thought and Deng Xiaoping Thought, an achievement that eluded his predecessor Jiang Zemin while he was in office.

Although the details are still being worked through, the 11th Five Year Plan is a template for Yellow River Capitalism. From Zhang Weiying and the early reformers, it preserves the idea of permanent experimentation - a gradualist reform process rather than shock therapy. It accepts their belief that the market rather than the state will drive economic growth. From the 'New Left', it draws a concern about inequality and the environment, and a quest for new institutions that can marry co-operation with competition. By stressing the state's obligation to divide the proceeds of growth and deliver social services, it mounts a direct challenge to the 'flat world' philosophy of laissez-faire capitalist development. This promise of delivering rapid economic growth whilst maintaining state control is turning Yellow River Capitalism into a beacon for developing governments around the world. China may not have set out to overturn the dominance of AngloSaxon economics, but if the next phase of the Chinese economic miracle takes off it could once again turn the world's thinking about economic development on its head. Ping chang is a city in the clouds. Over five hours' drive· down meandering mountainous roads from the Sichuanese capital Chengdu, it floats at 600 meters above sea-level in the Daba mountain range. The countryside around it is stunning - a luxuriant palette of greens embodied in trees, grasses, bamboo and crops. Terraces have been carved out of the mountainside to grow rice and grain. The roads weave in and out of the mist, revealing the contours of a town perched on the edge of a deep ravine. The brutalism of its concrete housing blocks hits arriving travelers like a slap in the face. Its shabby silhouette juts out from the rock of the mountain like a socialist realist pastiche of the Disney Castle. Prince Charles would have called it a carbuncle, but I was moved by the utopianism of its already anachronistic vision of modernity. Even in its dilapidated condition it signaled man's ambition to impose his will on nature.

Most of Pingchang's residents live in villages connected to the town centre by muddy tracks. In Nun Chao, the first village I came to, peasants laden with makeshift yokes and wicker backpacks walked under large red street banners proclaiming the creation of 'a new socialist countryside'. But Nun Chao did not seem to be very new. Its decaying houses - inhabited only by the old, the frail and the sick - reminded me of TV footage of war zones. Without any introduction, an elderly lady came up to tell me that the village had been a shell since the able-bodied men emigrated to work as laborers (those left behind to tend the fields, she said, make just RMB 900  a year).

While we were talking, a crowd of world-weary, ruddy-faced peasants gathered around us speaking in excited tones of their problems: falling incomes from fields, rising fees for doctors and schools, the lack of male role models for the children, the loneliness of their dislocated lives. Within minutes there were dozens of villagers shouting louder and louder in a chorus of impotent rage. They all entreated me to carry their messages of anguish back to Beijing. Little did they know that my friends in Beijing had sent me to study Pingchang as a model for the future of China.

Ping chang County is attracting a lot of visitors these days - but they are not coming to see the beauty of its architecture, or the success of its economic model. They come because Pingchang is the first county in China where party members have been allowed to elect the party secretaries of their townships in competitive ballots. The experiment is pretty novel in a party where advancement depends more on loyalty and personal connections than the preferences of ordinary members. In normal circumstances, each layer of government simply appoints the leaders on the next rung down - the national party picks the leaders of the provincial parties who, in turn, recruit the leaders of the prefectures, who choose county leaders, who can appoint township leaders, who themselves are responsible for selecting the leaders of the village parties .. pingchang threatens to turn this process on its head. It is the most advanced experiment of what Chinese thinkers call 'inner-party democracy'. When I went to investigate it in 2006, the county's party secretary, Liu Qian Xiang, proudly explained that the elections have put Pingchang on the map: 'Our economy is not well developed but our experiments in democracy are.'

I first heard about Pingchang from a friend who works for the Central Compilation and Translation Bureau. The unpromising name belongs to an august institution which was established in the 1930s to introduce socialist thinking to the Chinese: translating classical texts such as Das Kapital, the Communist Manifesto and Lenin's What is to be Done into Chinese. It was one of the key organs of the Communist Party even before the People's Republic itself was established. After the reform era started in 1978, the Bureau struggled to find a new role. Unlike the well-funded think tanks with sparkling new buildings, the Bureau is located next to a grocery store with fruit and vegetables that pour out on to the street and a Chinese greasy spoon that has become a Mecca for local workers breakfasting on red-bean dumplings and eggs. But now the Bureau has found a new sense of purpose. Its shabby buildings house a powerhouse of ideas, the 'Local Government Innovation and Excellence Award'.

The Bureau's deputy director, Yu Keping, is a rising star who is spoken of as an informal adviser to President Hu Jintao. After completing a PhD at Beijing University, he became head of a new institute within the Bureau - part university, part think-tank, part 'McKinsey' for government reform. He has an easy manner, an open and informal style and a good command of English, picked up on his many visits to the West, including a spell as a visiting fellow at Duke University in the USA. Yu Keping is like the Zhang Weiying of political reform - painting political horses all over the country in the hope that experiments in grass-roots democracy could one day "eclipse China's dictatorship. He hopes that grassroots experiments like Pingchang will become the Shenzhens of democratic politics.

His centre's flagship project is an award programme for innovations in local democracy: 'Many think-tanks and groups of experts are brainstorming on reform inside the Communist Party and within government institutions. Local and spontaneous initiatives are numerous. We try to survey, assess and compare them. The best ideas are rewarded with prizes.' Since the programme started in 1999, some 800 projects have been nominated and thirty prizes have been handed out to reward market-oriented reforms, elections of township leaders and democratic consultations. The winners attract national attention. For example, when the Pingchang County elections won a prize in 2006, the county found itself overrun by eighty-six groups of researchers who came to study the experiment. China's deputy president even asked for a personal briefing on the county's elections.

Yu Keping caused waves in December 2006 when he wrote an article in the Central Party School's newspaper called 'Democracy is a Good Thing' which claimed that 'even if people have the best food, clothing, housing and transport but no democratic rights they still do not have complete human dignity'. But Yu Keping has avoided getting swept up in crackdowns on political dissent by focusing on specific, small-scale projects, rather than indulging in grand rhetoric about freedom and human rights. His big idea is the modest-sounding 'incremental democracy', which rejects a big bang of political reform in favor of gradualist change from the bottom up. Drawing a direct analogy with the economic realm, he says that overnight reform would be as damaging to China as economic 'shock therapy'. For many years, Yu Keping has instead promoted the idea of a democratic cascade that would see democracy gradually work its way up from successful grassroots experiments. Elections should be held first in the 700,000 villages, and then at the higher levels of government - the 38,000 townships, 2,500 counties, 330 prefectures and the thirty-four provinces - before impinging on the politics of central government.

Yu Keping's cascade got off to a promising start when the Chinese commune system was dissolved in the 1980s, and elections were introduced for village committees. By 1994, half of Chinese villages had held elections. In 1998, elections were made compulsory for all villages through the Organic Law for Village Committees (OLVC). In the same year, a small township in Sichuan called Buyun made history by becoming the first township - the next level of government up from a village - to hold a direct competitive election for its leaders that was open to all residents. In 2001, the election for the head of the township was repeated (although this time the candidate chosen by citizens had to be ratified by the township 'People's Congress'). Yu Keping argues that the election had a profound impact on local life. When he presented Buyun with a prize in 2004, he claimed that 'village voters have recognized their democratic rights ... the township leader has a much improved sense of responsibility and accountability ... Promises made when running for election have largely been realized by the time of the term election.' Every month in Buyun, he explained, there is a 'Township leader reception day' where people can raise concerns on local issues, and once a year, on the eve of the lunar new year, the township leader gives a progress report to all the citizens of the town.

But since the heady days of the late 1990s, the onward march of democracy has stalled, with only a handful of other townships following Buyun's lead. And what is more, even at a village level many elections have a single candidate rather than a genuine competition. Among Chinese intellectuals there is widespread cynicism about, the importance of village elections. They claim that village committees have very few resources, no public money and are only responsible for trivial matters. Yu Keping and his colleagues retort that this is metropolitan snobbishness: although local elected officials in Beijing have little impact on citizens' lives, in the countryside they are responsible for crucial policy objectives such as family planning, taxation and land acquisition. Yu Keping's claims are backed up in research by the economist Yang Yao of Beijing University, which shows that elections can help to tackle corruption and improve public services. In a study that looked at forty-eight villages over sixteen years, Yao Yang found that the introduction of elections had increased spending on public services by 20 per cent, while reducing the proportion spent on 'administrative costs' (bureaucratic speak for the entertainment budgets and salaries of local bosses and their families) by 18 per cent.

The biggest problem for these elections is the role of the Communist Party. In China, every government post is shadowed by a party position which ensures that the office-holders stick to the party line. According to the critics, this parallel structure makes direct elections meaningless because village committees are forced to serve two masters: the people that elect them, and the party. When the two conflict, the interests of the party usually win out. Yu Keping accepts that this is a more valid criticism. That is why he has recently become so excited by the Pingchang election - an attempt to introduce democracy into the heart of the Communist Party. Because the party controls everything, he argues, there is hope that if it can be made democratic it will change the nature of the country. Yu Keping's assessment may be a little over-optimistic, but his idea of 'inner party democracy' is catching on.

Pingchang County is Yu Keping's equivalent of the village of zebras. It shows how closely his ideas for the political realm resemble Zhang Weiying's theories on economic reform. Yu Keping hopes that by promoting democracy first within the party, it will then spread to the rest of society. Just as the coastal regions were allowed to 'get rich first', Yu Keping thinks that party members should 'get democracy first' by having elections within the Communist Party. Where the coastal regions benefited from natural economic advantages such as proximity to Hong Kong, Cantonese language and transport links, Yu Keping sees advantages for party members - such as their high levels of education and articulacy - which make them into a natural democratic vanguard. In his eyes, the Pingchang experiment could point the way for an incremental reform of party structures.

So what would inner party democracy mean in practice? In broad terms it would mean strengthening the rights of ordinary party members to stand for election, vote for their representatives and scrutinize elected officials. The idea would be to rejuvenate the party from the bottom up by insisting on competitive elections for all party posts. In recent years this has begun with the votes for provincial and national party congresses where the electoral slates have had 15-30 per cent more candidates than positions, but these congresses are more rubber-stamping bodies than serious centers of power. In the long run, 'inner party democracy' could be extended to the upper echelons of the party, including competititive elections for the most senior posts such as party chief. The logical conclusion of these ideas on inner party democracy would be for the Communist Party itself to eventually split into different factions that competed on ideological slates for support. It is not impossible to imagine informal 'New Left' and 'New Right' groupings one day even becoming formal parties within the party.

There was a lively debate about inner party democracy in advance of the 2007 Party Congress because the Vietnamese Communist Party - whose structure has historically been modeled on China's - decided to introduce competitive elections for their own party chief earlier that year. Although the Chinese Communist Party decided not to follow suit this time, the 17th Party Congress did move in the direction of greater participation. According to newspaper reports, the anointment of the Shanghai party boss Xi Jinping as the front-runner to become Hu Jintao's successor was influenced by a secret poll of Communist Party officials. Although Hu Jintao had been grooming the Liaoning party boss Li Keqiang to take over, his favoured candidate was apparently roundly defeated in the poll by Xi Jinping.

Yu Keping's ideas could have a profound impact on China: if the Communist Party were a country, its 70 million members would make it bigger than the UK. And yet, his political project seems a long way from reality. It is hard to imagine the remote, impoverished county of Pingchang becoming a model for the gleaming metropolises of Shanghai, Beijing or Shenzhen. And, so far, none of the other 2,499 counties of China have followed its lead. What is more, the very fact that political reformers such as Yu Keping have to trawl the most obscure parts of rural China for experiments in grass-roots democracy shows how inhospitable the climate for discussing political reform within China has become. From the public discussions of China's intellectuals you would never guess that less than two hours' flight from Shanghai there is a Chinese society - one which the Chinese state even claims is an integral part of China - that has multi-party elections, freedom of speech, a growing human rights culture and a per capita GDP of $30,000 a year. However, because of official propaganda and the sensitivity about Taiwanese independence, it is more acceptable for scholars such as Yu Keping to draw on indigenous experiments within China than lessons from Taiwan.

Yu Keping's technocratic approach is a sign of the times. In the 1970s students built a 'democracy wall' in Beijing by creating big character posters that called for free elections. In the 1980s, they would argue over which political system China should embrace when it eventually became a democracy. Would it adopt an American Presidential system with a strict division of powers between a legislature, an executive and a judiciary? Or would a Westminster model of democracy - with the government being elected by the parliament - be more appropriate to the Chinese situation? Others wanted to plump for a hybrid system - maybe based on the French model. This debate reached its apotheosis with the student demonstrations in Tiananmen Square in 1989. There are many reforms being canvassed, but since Tiananmen the hope of China moving towards multi-party elections has all but disappeared. The propaganda department stops the media from using words like 'human rights' and 'freedom'; and debates about separating the party from the government have been more or less banned.

Yu Keping explains that the debate on political reform of the 1980s - which focused on multi-party elections, liberalization and the separation of power - is giving way to a new one which is much more modest. In the past, intellectuals were divided about the sequencing of reform - should economic follow political reform, or should it be the other way around? But today they argue about what the ultimate destination should be. Reform is seen less through the prism of human rights and freedom, than the question of how to increase the legitimacy of the ruling Communist Party. Instead of trying to develop a Chinese variant of liberal democracy, many intellectuals are looking for a different model altogether.

'You talk about democracy as if it were a religion which needs to be spread around the world. But elections will not solve any of the problems facing China today.' This is how Pan Wei, a rising star at Beijing University, greeted me at our first meeting, castigating me for paying so much attention to the experiments in grass-roots democracy that have sprung up around China. 'The Sichuan experiment will go nowhere; he says, 'the local leaders have their personal political goal: they want to make their names known. But the experiment has not succeeded. In fact, Sichuan is the place with the highest number of mass protests. Very few other places want to emulate them.'

Unfortunately Pan Wei is probably right. In the 1980s and 1990s many scholars argued that democracy was the necessary prerequisite for wider political and economic progress. In particular, it was seen by many as a precondition for growth. But in recent years - not least because of China's own economic success - this link has been increasingly questioned. It is this instrumental view of democracy - as a route to prosperity or political stability rather than a goal in itself - which allows Pan Wei to attack it head on. He argues that elections will not fix any of China's most pressing Gorbachev was ejected from power the Soviet empire dissolved into its constituent parts, mafia capitalism shared out the spoils of the economy and the country's GDP was halved. The Chinese ruling elite are in no doubt about why this happened: the mistake of embracing political reform before the economy had been liberalized. They have vowed not to make the same mistake.

Even more painful is the memory of the Cultural Revolution. Launched by Mao in 1966, this attempt to purge China of its bourgeois elements plunged the country into a decade of violent chaos, crippling its economy, destroying its social infrastructure and killing at least half a million people. Many of today's intellectuals spent those years in the countryside - down mines, in factories, or on farms - robbed of their childhood and their educations. Recently I had dinner with a leading Chinese public intellectual who is liberal by inclination and educated in the West, but because of his experiences of the Cultural Revolution - terrified of the consequences of democracy. His account of his experiences is all too typical for his generation:

I was very idealistic when I was young ... I wanted to be a noble revolutionary. I went to the countryside and spent ten years doing hard labor in a factory. I did really dirty jobs, risking my life. Sometimes I had ten blisters on my hands. I thought the peasants were masters of history, that they were noble and that we should reform ourselves to be like them (I came from a family of intellectuals). But I found that they are just human like the rest of us. I saw groups of pupils torturing their teachers to death to punish them for giving them bad marks. I had to organize classmates to protect our own teachers from attacks. If you loosen up and open the box, the people will become an uncontrollable mob. So the only hope is top-down reform. This is very difficult but it is possible. In England during the Glorious Revolution and Victorian times there were powerful vested interests, but they realized that reform was in their long-term interests.

Pan Wei, too, fears that elections would let the genie out of the bottle again - pitting impoverished peasants against the country's growing middle class, and causing the country to dissolve into its constituent parts: 'In China, class struggle in the 1960s and 70s turned out to be a Hobbesian war of all against all. None of the involved parties respected or accepted any legal procedure, and the losers would not gracefully accept their failure but fought to the  end.’

It is, however, Taiwan which brings out Pan Wei's most colorful language. This island, which China views as a breakaway province, was run under autocratic rule by the anti-Communist Kuomintang for almost fifty years before holding its first free Presidential elections in 1996, thereby showing that Chinese culture and democracy are compatible. But against the evidence, Pan Wei repeatedly represents the country as an economic and political basket -case, brought to its knees by these very elections. He talks about recent corruption scandals involving President Chen Shui-Bian and his family, about how China is rapidly catching up with its neighbor in economic terms, and about the heavily personalized, tabloid politics of this young democracy. He claims that it is democracy that has driven the creation of a Taiwanese national identity. What makes the Chinese so neuralgic about Taiwan's political system is the correct assessment that the Taiwanese would vote for independence were they not living under the Damoclean sword of a Chinese military threat. And what is true of Taiwan could turn out to be true of each of the other Chinese minorities. Would Tibetans vote for independence? What about the Uighurs of Xinjian?

China, like the former Soviet Union, is more of an empire than a nation state. And the experience of the USSR is seen as proof that democracy could lead to the break-up of the nation. For Pan Wei, like many in the Chinese elite, democracy means chaos: 'In the West there is a tradition of power politics. But I don't support a political system that encourages different interests to fight a political struggle where each group tries to grab power. In China the losers would never accept this system.'

It is hard to make out how much of his discourse stems from his instinct for self-preservation and how much is a product of absorbing the government's relentless propaganda. Either way, I find it hard to recognize the vibrant young democracy with a per capita GDP ten times the size of China's from his remarks. Taiwan has many problems, but its political turbulence is not dissimilar to that experienced by other young democracies such as the countries of Central and Eastern Europe. Even the colorful corruption scandals that have enveloped the president and his entourage are a sign of improvement - under the old autocratic systems they would have been kept firmly under wraps. The spread of the rule of law may be lagging behind democracy in Taiwan, but the infrastructure of democracy and the transparency of a free media are powerful antidotes to corruption.

Meritocracy vs. majority rule Pan Wei berates Westerners for misunderstanding their own political systems. We assume, he says, that our countries are stable and prosperous because of democracy. But we confuse the benefits we get from democracy with those that we get from the rule of law. Pan Wei argues that democracy and the rule of law do not need to go together - in fact, like 'Ying' and 'Yang' they are in constant conflict with one another. Democracy is about giving power to the people, but the rule of law is about putting limits on that power. Democracy creates governments, but the rule of law regulates them. Democracy is about making laws, the rule of law about enforcing them. The powerbase of democracy lies in the officials we vote for - parliamentarians, ministers, prime ministers and presidents. But the power of the rule of law comes from people .who are deliberately not elected - independent civil servants, judges and auditors. Where democracy draws its legitimacy from populism - elections and votes in parliament - the rule of law draws it from entrance exams and performance reviews: 'the former is about majority, and the latter about meritocracy'.

In the West, according to Pan Wei, we can enjoy both because we have reached a level of material wealth and modernity that allows the two to live side by side, balancing each other in permanent tension. On the other hand, developing countries do not have that luxury. They have to choose one or the other. Many developing countries from Yugoslavia and Rwanda to Angola and Lebanon have chosen democracy without the rule of law. The result has been chaos, as populist regimes have exploited ethnic tensions to get their hands on power. According to Pan Wei it is the premature introduction of democracy that has undermined the rule of law and modernization, forcing leaders to pander to popular sentiment rather than making painful reforms for the long term. On the other hand, Pan Wei claims, a handful of developing countries like Singapore and Hong Kong adopted the rule of law without democracy. They have known nothing but success: their economies have grown steadily, they have attracted investment, wiped out corruption and developed strong national identities.

It is no surprise that the Communist authorities are taking notice of Pan Wei's idea of 'demythologizing democracy' and separating it from the rule of law. Under his vision, a neutral civil service system would strictly and impartially enforce laws, and propose legislative bills. It would be held in permanent check by judges who would be the guardians of the Chinese Constitution. Although it is a long way from reality, Pan Wei has a vision of a high-tech consultative dictatorship, where there are no elections but decisions made by a responsive government, bound by law, and in touch with its citizens' aspirations.

The 'New Leftist', Wang Shaoguang, agrees with Pan Wei that China's senior leadership will try to pioneer a new model of politics that is the 'mirror image of the West', based on the rule of law and citizen participation rather than elections. Wang Shaoguang argues that all developed democracies are facing a political crisis: turnout in elections is falling, faith in political leaders has collapsed, parties are losing members and populism is on the rise. As they try to restore trust in the political process, Western leaders are increasingly pioneering new techniques to reach the people - going over the heads of their political parties. At a national level, referendums - like the ones held in France and Holland on the European Constitution - have heralded a return to direct democracy. At a local level, mayors and councils are increasingly organizing public hearings, conducting surveys or convening 'citizens juries' to help them make controversial decisions on issues ranging from major planning decisions to bus routes. In the West, he argues, multi-party elections are still the central part of our political process, but they have been supplemented by a vast array of these new types of deliberation.

China, he claims, will do things the other way around. The government is increasingly finding ways of involving the people in its major decisions about policy. Public consultations, expert meetings and surveys are becoming a central part of Chinese decision-making. He says that the old days when senior leaders like Mao Zedong or Deng Xiaoping would make momentous decisions alone are long gone. In the future 'deliberative democracy' will be the central part of Chinese politics, with grassroots elections playing a supplementary rather than a central role.

This. idea was described to me even more pithily by Fang Ning, a political scientist at the Chinese Academy of Social Sciences, who used a culinary metaphor. He compared democracy in the West to a fixed-menu restaurant where customers can select the identity of their chef, but have no say in what dishes he chooses to cook for them. Chinese democracy, on the other hand, always involves the same chef - the Communist Party - but the policy dishes which are served up can be chosen 'fl la carte'.

Fang Ning, who first became prominent when he co-wrote China's Road under the Shadow of Globalization with the nationalist maverick Wang Xiaodong, has become an increasingly influential figure. He helped to draft the government's 'White Paper on Democracy' in 2005. He shares Pan Wei's opposition to elections, which he also believes would lead to the break-up of China: 'Westerners hope that elections will go up to township level, but I think that competitive elections should be restricted to villages because they are not part of the power structure.' However, this desire to restrict elections, he concedes, does put the onus on China to find other ways of legitimating its policy decisions: 'the most important question is not an independent judiciary, but that the people should have a right to participate'. When I ask him whether there are any examples of his ideas happening in practice, he points me in the direction of another political experiment that won an award from Yu Keping: 'If you want to see the future of Chinese politics,' Fang Ning says, 'go to Chongqing.'

The undulating glass roof of Chongqing airport echoes the curve of the Wulong (Black Dragon) mountain range. Its cutting-edge design testifies to the growing affluence and ambition of this city authority. An advertising hoarding reinforces the message in pidgin English: 'Chongqing already have had the champagne flavor'. Most Western people have not even heard of it, but with 30 million citizens Chongqing is bigger than twenty-two out of the twenty-seven states of the European Union. And it is swelling by 500,000 every year. The city nestles in the hills at the confluence of the Yangtze and Jialin Jiang rivers, acting as a bridge between China's past and future. Many Chinese come here to visit 'Zhou Gong Guan', the simple house where the Communist leader Zhou En Lai and his wife settled from 1939 to 1947 in order to publish an underground newspaper and organize rebels to fight the Japanese. However, just a few minutes away is a vision of China's future. Like a cross between Rome and Manhattan, Chongqing stretches out in a forest of skyscrapers that climb up the slopes of its many hills. At night they light up to form a galaxy of red, green and yellow that radiates out from Independence Square, a monument built in 1950 to commemorate the end of the war with Japan.

Chongqing is trying to become a living laboratory for the ideas that Pan Wei, Wang Shaoguang and Fang Ning described: strengthening the rule of law and consulting the public over major decisions. Li Dianxun, the director of the city government's legal affairs office, has spearheaded the process. He is young and dynamic with a sharp suit and snappy tie. At just forty, he has been promoted twelve times in the last fourteen years, spending spells in the State Council, the government of Shanghai and at the Central Party School before settling into his current post (one of the party elders at dinner says only half in jest, 'If you come back to meet him again he will probably be running the place'). Li Dianxun has gathered around him a group of equally supercharged high-flyers: all with law degrees, some experience of living abroad and a good command of the English language.

Li Dianxun proudly tells me about his new 'freedom of information clause: and his 'regulation on accountability' which allows the local heads of government offices to be questioned and investigated if they make questionable decisions. But the most eye-catching measure that his team have introduced is the decision to make all significant government rulings subject to public hearings - in person, on television and on the internet. So far he has organized over 600 public hearings - involving 100,000 citizens - on compensation for peasants whose land has been requisitioned; on the level of the minimum wage; and on the setting of prices for public utilities like water, electricity, natural gas, roads, bridges, education, public health, public transport, sewage and refuse disposal.

The authorities are proudest of the public hearing on the price of tickets for the light railway, which saw fares reduced from 15 to just 2 Yuan. Another example was a hearing on fireworks before the last Spring Festival which overturned the blanket ban that had been introduced after a horrific accident some years earlier in favor of a licensing system. 'If the government innovations can't keep up with economic development there will be problems: Li Dianxun claims. 'We need to give more rights and benefits to all the people; and to borrow some advanced experience from abroad.' The Chongqing experiment has attracted national attention. There have been 60,000 stories about it on web sites around the country. Li Dianxun tells me that the 'senior leadership' (short-hand for President Hu Jintao, Prime Minister Wen Jiabao and the Politburo) invited him to make a presentation at the government's headquarters in Zhongnanhai. And the experiment is being emulated in other cities around China.

Chongqing is a whopper of a city. Its bewildering scale - even by China's standards 30 million inhabitants is impressive - gives its experi:nents with public consultation national significance. However, the real potential for public consultation - as an alternative to elections - can best be gleaned from smaller-scale experiments in the more prosperous parts of China. The most interesting one was carried out in the township of Zeguo in Wenling City, which is situated in the wealthy eastern province of Zhejiang.

What made the Zeguo consultation unique - not just in China but in the world - was the fact that it used a novel technique called 'deliberative polling' to decide on major spending decisions. This method, the brainchild of a Stanford political scientist called James Fishkin, is designed to help policy-'makers consult their citizens: 'It harks back to a form of democracy quite different from modern western style party competition - Ancient Athens. In Athens, deliberative microcosms chosen by lot would make important public decisions as part of the official operations of the government:

Deliberative polling is designed to solve a dilemma which authorities like Chongqing or Zeguo inevitably face. On the one hand, if they organize a consultation like the ones in Chongqing, only the most vocal people will turn up. They tend to represent their own interests, and are not necessarily representative of their fellow citizens. On the other hand, if Chongqing tried to consult the population directly through opinion polls, they would find that citizens knew very little about the details of particular public policy questions. As a result, they would often choose options at random, rather than ticking the 'don't know' box in a questionnaire. Deliberative polling tries to solve this conundrum by randomly selecting a sample of the population but then involving them in a consultation process with experts, before asking them to vote on their decisions. Zeguo used this technique to decide how to spend its 40 million Yuan 'public works' budget. Two hundred and seventy-five people - chosen at random - were invited to take part in a charmingly named 'democratic heart-to heart talk: In exchange for a free bus-pass and 50 RMB, these citizens agreed to spend a day being briefed on the pros and cons of thirty potential building projects - from sewage plants and parks to roads and a new town square. At the end of the day, they were asked to whittle the wish-list down to twelve projects that the government could actually afford to build. Their wish-list was then presented to the local People's Congress which voted the plan through in its entirety.

So far the Zeguo experiment is a one-off, but Fishkin and the Chinese political scientist He Baogang, who advised the Zeguo government on the mechanics of the consultation, believe that 'deliberative democracy' could provide a template for political reform in China: 'it shows how governments, without party competition or the conventional institutions of representative democracy as practiced in the West, can nevertheless realize, to a high degree, two fundamental democratic values at the same time - political equality and deliberation'.

There has been less conspicuous progress on other democratic values such as freedom of expression, freedom of association, or even the one that Pan Wei has promoted so vigorously, the rule of law. Over the centuries, petitions to the powerful have become a surrogate for due legal processes in China - a pattern that harks back to imperial times, but is still very much in vogue. When I walked back from my meeting with Li Dianxun in the Chongqing government offices in 2006, I stumbled upon a Mrs Wang. She was dressed in her Sunday best - a tailored jacket and skirt, shiny shoes and a touch of lipstick - because she wanted to make the right impression. She told me that she had got up early - as she does every day - to catch the officials on their way into the Chongqing Municipal Affairs Office. She was part of a small throng - all elderly and smartly dressed - that was standing opposite the building's gates. Most were former broadcasters who - after working for the party for thirty years - were laid off with only 4,000 renminbi in compensation. They were asking for more money for themselves and an 'old age foundation' to pay a fair reward to all pensioners. They clutched their tattered 'files: showing me the official stamps that signal their complaint has been lodged. Some of them had been seeking redress for four years, coming regularly to demonstrate outside the municipality's office. Mrs Wang, herself, has been to Beijing three times to present her petition to the central government. But there was no response to her or the other protesters' complaints. The authorities seemed immune to the low murmur of protest outside their offices.

Mrs Wang's demonstration was just one of the 250 demonstrations that took place in China on that very day. Statistics from the Ministry of Public Security show that these so-called 'mass incidents' - which include strikes, demonstrations, sit-ins, traffic blocking and building seizures - have grown ten-fold in just over a decade: from 8,700 a year in 1993 to 87,000 in 2005. The numbers of demonstrators have grown too: from an average of ten protesters in the mid 1990s to over fifty today. In the first half of 2005, there were seventeen that involved more than 10,000 people. Not all of them were peaceful and good-natured. In the first half of 2005, 1,700 people were injured and 100 killed in these organized demonstrations. All of the demonstrations are triggered by feelings of injustice: for better working conditions, unpaid wages and pensions, and compensation. A report from the Chinese Academy of Social Sciences showed that 40 million peasants had had their land confiscated to build airports, roads, dams, factories and for private land deals. Every year, a further 2 million people will lose their homes and lands to make way for new developments (in deals that often see local party bosses lining their pockets at their expense).

In a country whose political system is ruled according to the whims of party officials, these incidents are too often resolved on the streets. However, it is the fear of instability that is leading the theorists of 'deliberative dictatorship' to look beyond the system of petitioning which Chinese people have used to vent their grievances since imperial times. Pan Wei urges China to trade its corrupt and unpredictable 'rule by man' for the 'rule of law'. He hopes that China will do this by separating politics from government and establishing a truly independent civil service, judiciary and anti-corruption agency. But when pressed how these revolutionary changes could happen, Pan Wei is much less surefooted.

There is still a long way for China to go before it develops the rule of law - and Pan Wei's vision will certainly not be realized so long as the Communist Party remains above the law. However, Pan Wei can point to some progress. China is one of the only one-party states to allow citizens to sue the state in court. The number of law suits of citizens against the government has increased from 10,000 five years ago to 100,000 last year. And the rate at which citizens win cases against the government has also changed dramatically, from single digits to over 40 per cent. According to Pan Wei, the quality of the proceedings is slowly improving: 'Fifteen years ago most of the judges were retired officials or military officers. Today they all have legal training.'

The government seems to realize that developing institutional ways of dealing with grievances can make the state more stable. If there is a system of legal redress, citizens can be compensated for ills rather than punished for dissent. This is in line with the authorities' so-called 'flexible approach' of conceding legitimate complaints from ordinary people, while punishing the ringleaders. The senior leadership has already intervened several times in high-profile cases. For example, in April 2005, Prime Minister Wen Jiabao personally intervened to stop the construction of a dam in the Nujiang River; in Zhejiang, workers were allowed to negotiate collectively with their employers; in Yinchuan, a cab strike ended with an unusual compromise with the government. So far, the protests have been isolated local events - and President Hu Jintao and Prime Minister Wen Jiabao have managed to deflect criticism on to 'corrupt local authorities', thereby allowing themselves to take the side of the 'little guy'. But this may prove more challenging in the long run.

The debate about political reform -like the one about economics - sometimes pits the 'New Left' against the 'New Right'. Although some members of the 'New Right' are convinced democrats, many are more focused on promoting the rule of law, to reduce the size of the state and restrict its impact on the market. On the Left there is more support for elections as a way of endowing the government with enough legitimacy to take on vested interests and redistribute wealth. They fear deliberative dictatorship would lead to an impoverished, consumerist model of politics.

The 'New Leftist' Wang Hui argues that it will be impossible to develop the 'New Left' agenda without wider political reform, because China's new rich have a stranglehold on politics. 'You need democracy in order to empower the state to take money from special interests to pay for public goods. In the 1990s there was a dichotomy between a free market and an authoritarian state. People thought that the economic reforms were working and that we could reform the state later. Now we see that many of the problems we are facing are a product of economic reforms and we need political reform to correct them:
Pan Wei, whose political sympathies are closer to the 'New Right', admits that his attachment to the 'rule of law' reflects his pro-market agenda: 'democracy is rooted in the belief in the eventual election of "good" leaders ... rule of law is rooted in the disbelief of "persons", it trusts no one who holds power'. The central feature of Pan Wei's model, therefore, would be a very small government. Its main role would be enforcing rather than producing laws, because the checks and balances would deliberately make it very hard to pass any laws.

Wang Hui, on the other hand, argues that the 'rule of law' is meaningless without democracy. Every year, he says, the people's congresses pass hundreds of laws that have no impact at all: 'We are all for the rule of law; he says, 'but whose laws will be listened to? Compare labor law and intellectual property. Both laws have been on the table for a decade, but on labor law nothing has happened, while on intellectual property everything is happening. Without popular participation, only the interests of capital will be listened to: In fact, it is precisely because the affluent middle classes fear their assets could be appropriated by the masses that they are lukewarm about democracy.

Many observers talk about Chinese politics as if it had been kept in the deep freeze for the last thirty years, while everything else changed around it. In fact, China's politics has changed almost as much as the economy - just not in a direction that the West is comfortable with. What has emerged in the place of the liberal democracy that the West predicted is a more sophisticated variant of dictatorship.

Wang Shaoguang argues that Chinese politics is almost unrecognizable from the Mao Zedong and Deng Xiaoping eras. The age of 'strong men politics' where rulers would take decisions on their own has given way to a style of policy-making that is remarkably open to the influences of experts, the media, and even public opinion (usually mediated through opinion polls). For example, Prime Minister Wen Jiabao commissioned research from over 100 academic institutions for his 11 th Five Year Plan - involving officials from every branch of central and local government. The Communist Party's favourite terms for this new style are'scientific' and 'democratic', but in the West we would probably call it 'technocratic' because it empowers technical experts rather than the public or political leaders.

Few of these changes have been noted by Western observers. Wang Shaoguang says: 'the analytical framework of authoritarianism from the West is completely unable to capture these deep changes in Chinese politics. In the past several decades, this label has been casually put on China from the late Qing era to the early years of the Republic, the eras of warlords, Jiang Jieshi, Mao Zedong, Deng Xiaoping and Jiang Zemin. Chinese politics has made world-shaking changes during this period, but the label put on it made no change at all:

The reason that few Westerners have acknowledged the changes to China's political system is that the reforms have been geared towards preserving the one-party state, rather than embracing liberal democracy. Western theorists tend to fall back on wellworked-out theories to explain why China's democratization is inevitable. Some say that it will be democratic when its GDP per capita reaches $5,000. Others think that the rise of its middle class will make democracy irresistible. Others again - such as Will Hutton - say that the functional needs of an advanced modern economy (freedom of inquiry, free flow of information, rule of law) will soon make China have to choose between going bust or becoming democratic. Finally there is the school of thought that the rise of civil society will bring political liberalization in its wake.

These theories may well prove to be correct in the long term, but the assumption that political change can only lead in one direction has blinded many observers to the remarkable political changes that China has already implemented. After three decades of reform, China has made steady improvements in developing the rule of law and professionalizing its civil service but it has developed very few of the tenets of liberal democracy. With remarkable ease, the Chinese authorities have been able to co-opt each political reform to entrench the power of the ruling Communist Party.

Nowhere is this truer than when it comes to the internet. The internet was one of the forces guaranteed to change China. However, in the event it is China that has changed the internet: forcing internet giants like Google, Microsoft and Yahoo to play by its rules. Most dictatorships see the internet as akin to the weather. You can cover yourself when it rains, but you cannot control the seasons. For example, the Zimbabwean leader Robert Mugabe shuts down domestic websites when they criticize the government - the equivalent of opening an umbrella - but his crude intimidation does not change the flow of information in and out of the country. Burma, Iran, Vietnam and Tunisia have tried to build a wall around their countries, but their protection is more like a sieve than a barrier. Saudi Arabia has had more success, bringing all traffic on to a single internet provider and screening out sites that offend its clerics with a web-link that describes the content as 'un-Islamic'. China is sixty times the size of Saudi Arabia, and most experts agreed that the sheer volume of traffic would be impossible to police. However, Beijing has risen to the challenge, throwing people, money and technology at the problem. The more lurid accounts talk of an e-police force of 100,000 people employed to scour the net, blocking sites and checking e-mails. The numbers are probably exaggerated, but analysts agree that teams of computer scientists run a firewall with at least four different kinds of filter.

Much of the commentary about this censorship suggests that China is an iron-clad Stalinist state, shielded from global events by the 'great firewall of China'. However, analogies with Russia and Eastern Europe in the 1980s are misleading. The governments of the Soviet bloc looked on powerlessly as their grey world of propaganda was eclipsed by Technicolor images of a better life in the West. China, on the other hand, is already part of the capitalist world. It is awash with information, products and all the baubles of consumer society. With every year that passes, the number of people with access to these goodies grows.

 Falun Gong

China's interference is very tightly targeted on issues that could undermine the regime. Internet providers mainly censor the perennial political taboos: articles on Tibet, Taiwan, Tiananmen Square and the Falun Gong religious sect as well as pieces criticizing the Communist Party's rule. This kind of censorship is not aimed at shutting China off from the world, but rather at zeroing in on political controversy. Google, for example, estimates that less than 2 per cent of internet searches will be affected by censorship.

The authorities are less worried about information coming in from outside than they are about Chinese people talking to one another. China's laws on the freedom of assembly are draconian. Charities, trade unions and religious groups are kept under close surveillance and regularly banned. The ferocity with which the Communist Party suppresses the herbivorous and mild-mannered Falun Gong has puzzled many outside observers. But Beijing is not afraid of the content of their meetings; it is afraid of them meeting at all. China's history of revolutions organized by secret societies and religious sects has taught the government to be careful. Its greatest fear is that, in a country where political gatherings are restricted, the net could provide a virtual meeting place for the masses to organize.

The great firewall is full of leaks. For example, when the dissident blogger Michael Anti's site was shut down, its content was copied and distributed across the net. Many Chinese take refuge in the world of digital images, which can be sent between mobiles or e-mailed as attachments, escaping the filters of the censor. Others write to each other in coded language using stories as allegories on message boards. But so far the government has been adept at keeping up with technology - and using it to advance its own agenda.

The big questions are whether the Communist Party can continue adapting, and whether deliberative dictatorship can prove a robust alternative to liberal democracy? Certainly, the authorities seem willing to experiment with all kinds of political innovations. In Pingchang, they have been willing to introduce greater democracy within the party. In Chongqing, they have given up a certain amount of judicial power and allowed public voices to be heard. In Zeguo, they have introduced a form of government by focus group. The main criterion guiding political reform seems to be that it must not threaten the Communist Party's monopoly on power. You could call it 'Anything but National Elections'.

Can -a more responsive form of authoritarianism evolve into a legitimate and stable form of government? The reason that the Soviet planned economy collapsed is that its planners were unable to gather enough information to allocate resources efficiently, and motivate people to maximize the creation of wealth. The conventional wisdom is that as societies become more complex, with more and more interest groups clashing with each other, the planned political system will suffer from the same inefficiencies. But could new technology give leaders access to perfect information? It is possible to imagine that polling, internet consultations and public hearings could allow the authorities in Beijing to keep abreast of the public mood.

As China becomes more complex - and the interests of the poor clash with those of the new rich; urban dwellers with those of the countryside; shareholders with employees - it will be impossible to please all of the people all of the time. In these circumstances it will not be enough to make the right decisions governments need to be seen to have made them in a legitimate way so that the losers accept them as well as the winners. Elections can give that legitimacy because everyone takes part in them. However, will deliberative polls such as the one in Zeguo (where only 275 people out of 120,000 citizens take part) be seen as legitimate?

In the long term, China's one-party state may well collapse. However, in the medium term, the regime seems to be developing increasingly sophisticated techniques to prolong its survival and pre-empt discontent. One of the reasons why it seems to be so resilient is its mixture of pragmatism and responsiveness. The Chinese government is, in some ways, its own sternest critic. It constantly commissions and researches its own vulnerabilities. In fact, whenever Western scholars write reports on the impending collapse of China's one-party state they seem to draw on studies commissioned by the state itself. And when the Communist regime looks for mechanisms to entrench its power, it takes as much inspiration from the practices of advanced democracies as other autocracies. China has already changed the terms of the debate about globalization by proving that authoritarian regimes can deliver economic growth. In the future, its model of deliberative dictatorship could prove that one-party states can deliver stability as well.

In the shadow of the iconic Summer Palace, in a north-west suburb of Beijing, lies the Central Party School of the Communist Party. This inner sanctum - which was run by Hu Jintao until he ascended to the Presidency in 2002 - is filled with official ideologues who act as custodians of the party's doctrine, passing on their wisdom to future leaders.

Before they are promoted all cadres must complete a course at the school - typically lasting 100 days - designed to recharge their ideological batteries. The school is a typically Chinese mix of the grandiose and the mundane, set out like a utopian socialist commune with wide tree-lined avenues and ceremonial buildings sitting alongside high-rise apartment blocks with clothes lines hanging from their balconies.

In early 2005 I found myself sitting inside one of its training rooms, surrounded by some of China's brightest and best foreign policy thinkers, watching a Power Point presentation on China's power by the 'New Leftist' economist Hu Angang. It is commonplace for China's porous government to bring together thinkers to discuss policy and strategy. But what was unusual about this event was the fact that the organizers decided, apparently for the first time in the school's history, to invite some foreign policy experts from abroad. And so it was that I, along with half a dozen handpicked 'international scholars', made the journey to the CCCPS. Under a huge blue banner reading 'China and the world: power, role and strategy: Li Junru, the vice-chairman of the school and an erudite interpreter of party dogma, opened the discussion with a flourish: 'the Central Party School is regarded as mysterious, but today it is open to the whole world. This will be recorded as an important moment in our history.'

Comprehensive National Power

China must be the most self-aware rising power in history. It is hard to imagine advisers to Napoleon, Lord Palmerston, Bismarck, or even George Bush drawing up complex charts to rank their own country's economic, political and military power against the competition. But that is precisely what Hu Angang was trying to do in our seminar. And he is by no means alone. Measuring 'CNP' - short for Comprehensive National Power - has become a national obsession.

'CNP' is more than a cute acronym for Chinese strategists. From the time of Sun Zi onwards, the Chinese have concluded that it is only by looking at your opponent's weaknesses that you can understand your own strengths.

Each of the major foreign policy think-tanks has devised its own index to give a numerical value to every nation's power. The Chinese Academy of Social Sciences (CASS) was first to pioneer the approach - devising an index with sixty-four indicators of power in 1996. Not to be outdone the Chinese Institute for Contemporary International Relations - a vast think-tank banked by China's spooks at the State Security Ministry - developed a rival toolkit, using 'expert surveys, regression analysis, nerve networks and cluster analysis'. In 1999, the military also joined the party, commissioning the Chinese Military Academy to develop its own seemingly scientific formula for measuring national power (P = KxH xS).

In this era of globalization and universal norms, it is striking that Chinese strategists have an unashamed focus on 'national' power. The idea of recapturing sovereignty from global economic forces, companies and groups of individuals such as terrorists is a potentially revolutionary element of the Chinese world-view.

However, perhaps it is the idea of being 'comprehensive' that is most distinctively Chinese. All of the CNP indexes stress political and economic as well as military power. And more recently there have been attempts to find ways of measuring that most intangible form of power - cultural attraction. One academic explains why comprehensiveness is the key to power with an analogy from the past. 'Why,' Professor Yan Xuetong asks, 'was the Soviet Union so much more powerful than Japan in the 1980s?' He points out that in 1985 the Soviet Union's GDP was only $741.9 billion compared to Japan's $1,220 billion. But while Japan was an economic lion, it was a military mouse. The impoverished Soviet Union, on the other hand, had a military machine that was on a par with the USA's. 'Thus,' he argues, 'the comprehensive power of the Soviet Union was of the superpower-level, while Japan was merely a major power.'

The conclusion is clear: in the same way that balanced development is the holy grail of reformers in domestic policy, so too is it vital for China to have what Chinese academics call a 'balanced power-profile'. The Ying of economic power must be balanced with the Yang of military, political and moral heft.

Even· with their complex methodologies for measuring power, Chinese researchers are struggling to keep up with their country's rapid growth. In the league-tables of the 1990s, Beijing languished behind the USA, Japan, Russia and several European countries. However according to the latest calculations on all the different indexes, China has eclipsed them all bar the USA. The curious thing is that the more power their country accumulates, the more cautious its foreign policy thinkers become about flaunting it.

In Bertoh Brecht's play, Galileo, the eponymous astronomer was free to expound on all of his celestial discoveries, except the most important one: the fact that the earth moves round the sun. For almost a generation, Chinese foreign policy makers have suffered a similar predicament: the one topic that has been off-bounds is China's ascent to great power status. The Chinese phrase for 'rise', 'jueqi', became a virtual taboo.

Chinese officials were terrified that the rest of the world would see China's rise as a threat, and therefore gang up against it. They hoped that if they refused to talk about their country's rise, the rest of the world might not notice it was happening. They preferred instead to talk of 'development', a political euphemism which, in Orwell's words, would allow them 'to name things without calling up mental pictures of them'.

China's seemingly inexorable 'development' has been guided by a slogan of Deng Xiaoping's, the injunction to 'tao guang yang hui', which literally means to 'hide brightness, nourish obscurity'. When he first coined the phrase - officially translated as 'bide our time and build our capabilities' - Deng Xiaoping meant that China, as a poor and weak country, should avoid conflicts and concentrate on economic development. In the same way that he had abandoned Mao's commitment to central planning in domestic policy, Deng Xiaoping quietly jettisoned China's revolutionary foreign policy of supporting Communist 'fifth columns' in South-East Asian countries; fighting wars with India and Vietnam; and regarding multilateral institutions with suspicion.

Deng Xiaoping's new strategy, of not having a visible foreign policy, meant that China should stay neutral in wars, conflicts about spheres of influence or struggles over natural resources - or as he said, 'don't stick your head out'. In order to do this, Beijing should be humble and 'yield on small issues with the long term in mind'. And it should abandon its Cold War habit of only making friends with other socialist countries. From now on China should open its arms to any country that could assist in its quest for markets, natural resources and political support.

For American strategists like Paul Wolfowitz, Robert Kagan or John Mearsheimer, looking for evidence of a 'China threat: the behavior of the People's Republic can be bewildering. Although they claim that China is looking for a 'place in the sun' like rising powers past, Beijing seems intent on undermining their claims. Rather than mimicking the bellicose behavior of Germany under Kaiser Wilhelm or Imperial Japan, China seems obsessed with avoiding conflict.

The inspiration for this approach is as old as the hills. From the days of Sun Zi's 'Art of War', Chinese thinkers have regarded war as a failure of strategy, preferring to manipulate situations so that they can get their way without a single shot being fired. But if its goals are ancient, the content of China's grand strategy is very modern. Many of the most sophisticated and progressive-sounding ideas in Western strategic thinking have been put to use by Chinese thinkers.

They have discovered that nourishing obscurity is a difficult business, particularly if your country has the largest population in the world, your economy is growing at 10 per cent a year, your defense budgets are growing even faster, and your companies are investing all over the world. In China's universities and think tanks, a growing clamor of thinkers called for Deng Xiaoping's approach to be scrapped. By the end of 2003 the pressure became irresistible.

There could not have been a prettier place to break the taboo on China's rise. Hainan Island, with its straw-hated peasants, water buffaloes and paddy fields, is the kind of pre-modern paradise that Westerners associate with traditional China. Its most glamorous resort, in the town of Bo' ao, stretches out in an archipelago of luxury hotels with palm trees, landscaped gardens, swimming pools disguised as rock pools, and golf courses so perfect that they look like computer animations. It was here - in front of an invited audience that included George Bush Snr and a string of global leaders near if not quite at the top of world politics - that the Orwellian-sounding 'Peaceful Rise of China' was first launched.

Zheng Bijian, who coined the phrase, has been a sort of intellectual ambassador for China's leaders since the late 1970s, when at Deng Xiaoping's request he travelled to the West as part of a group of scholars. As a former vice-chair of the elite Central Party School (when the President of China, Hu Jintao, was its chairman) and a one-time minister for propaganda he is well connected. But it is nevertheless almost unprecedented for a figure outside the government to launch a major new concept on its behalf.

On one of his trips to the USA, Zheng Bijian had been struck by how many people saw China's rise as a threat. Staying silent, he argued, was doing little to defuse these fears. China should get on the front foot and explain its development to the world.

'China's rise; he said at the beginning of the Bo'ao Forum, 'is an entirely new phenomenon unseen in world history.' Warming to his theme he explained that 'China will not take the road of Germany of World War I, or Germany and Japan World War II using violence to pillage resources and seek world hegemony.' Unlike the former Soviet Union whose development was cut off from the rest of the world, China would be integrated into economic globalization, providing markets, and economic opportunities for the rest of the world. And, unlike the USA, he claimed, China will not seek to become a 'hegemonic power' by building alliances like NATO that are directed against other countries. In a direct reply to Kagan, Wolfowitz and Mearsheimer, he claimed that China's rise will create a 'win-win' situation for the world, spreading peace and prosperity in its wake.

Zheng Bijian's idea is supported by a growing group of 'liberal internationalists' in China. These thinkers - such as Qin Yaqing and Shi Yinhong - believe that China should abandon its victim complex and playa more active role in international affairs. The starting point has to be an acknowledgement that China is rising. But in parallel with this admission, Beijing must have a concerted strategy to show that China is interested in joining rather than overthrowing the existing international order. They want China to become more assertive in defending its interests, but to do so within the existing system. Zheng Bijian's theory was not made up as he went along. He had prevailed upon his former colleague at the Central Party School, President Hu Jintao, to finance a major research project - largely carried out by PhD students from Shanghai - that looked at forty case studies of rising powers. Their consensus was that rising powers 'which chose the road of aggression and expansion' have ultimately failed.

The theory of 'Peaceful Rise' immediately provoked a counterattack from the assertive nationalists in Beijing's universities. They are China's neo-cons, or considering their formal affiliation, 'neo-comms'. One of the most vocal is Professor Yan Xuetong, Director of the Institute of International Studies at Tsinghua University. 'Peaceful Rise is wrong,' he told me in his Beijing office, 'because it gives Taiwan a message that they can declare independence and we will not attack them.' Yan Xuetong, like many Chinese strategists, argues that no great nation in history ever rose in peace. While he thinks that China should do all it can to avoid war, he fears that one with Taiwan is probably inevitable if Beijing does not abandon its goal of reunification. He is angry at the influence that liberal internationalists have had on Chinese foreign policy: 'The basic difference between us and them is that they emphasize appeasement and we want containment,' he says. 'This applies to the USA, Japan and Taiwan. Their basic argument is that because China is weak we should make concessions. We think that if you make concessions, they will just ask for more. The problems we are having with Japan and Taiwan are a direct result of years of appeasement:

When I tell him that he has been labeled a Chinese neo-con, he does not demur: 'I do not feel very angry about being called a Chinese neo-con, but I prefer to be called a "realist".' The 'neocomm' label will stick because there are so many parallels between  Yan Xuetong and his analogues in the USA. Yan Xuetong is almost the mirror image of William Kristol, the editor of the Washingtonbased Weekly Standard and founder of the 'educational' Project for the New American Century. Where Kristol is obsessed with a China threat and convinced that US supremacy is the only solution for a peaceful world order, Yan Xuetong is fixated with the USA and sure that China's military modernization is the key to world stability. Like Kristol, he is a keen admirer of ChurchilL Like Kristol, he presents himself as a lone voice in the wilderness. Like Kristol he is media savvy - propagating his ideas through magazines such as World Affairs and Global Times and tapping into a deep seam of popular nationalism.

The swing-voters in this battle of wills are the largest group in Chinese foreign policy: the pragmatists. They were largely unimpressed by the 'Peaceful Rise', pointing to its failure to offer either a comprehensive grand strategy or a reassuring narrative to the world. Wang Jisi, one of the most respected and articulate thinkers on Chinese foreign policy, declared that the idea was still halfbaked and needed more work before being adopted. He attacked the theory's failure to say anything about political reform at home or global governance abroad. At the same time, many pragmatists think that 'Peaceful Rise' fails to reassure the world. They remain opposed to talking about China's rise, fearing that it will fan rather than defuse the idea of a China threat. According to them, China's best strategy is to be modest about the extent of its power, in order to concentrate on economic growth and social development. They think that the government should stick to phrases such as development, which are 'bloodless, less aggressive and much less controversial'.

For a short while the 'Peaceful Rise' caught on. China's president and prime minister used the phrase in public speeches in late 2003 and early 2004, setting off on a tour of Asia to preach its gospel. Then the backlash began. The Ministry of Foreign Affairs, aggrieved that it had been excluded from developing the concept, poured cold water on it. And Jiang Zemin, the former president whose 'Shanghai Gang' are in favour of a more assertive foreign policy, used an attack on the term as a means of re-establishing their own influence.

The 'Peaceful Rise' did not survive these bitter wrangles. When the bureaucratic in-fighting took off, Hu Jintao and Wen Jiabao quietly dropped the phrase, reverting to the Deng-era concept of 'Peace and Development'. Zheng Bijian himself, in an attempt to keep his concept alive, began to qualify his thesis so much that it was eviscerated of much of its content. In later speeches he explained that force was justified to protect Chinese sovereignty, stop Taiwanese independence, and even to get exploitable oil and gas reserves. But although the term has lost its official endorsement, the remarkable debate which the phrase provoked is continuing to rage. The liberal internationalists, who want China to join the Western world and fight for its rights within the system, are continuing to struggle with the neo-comms whose long-term goal is to build an alternative system with China in its centre. And in the middle are the pragmatists who will support any idea that advances China's interests. All three camps are mixing Western theories with traditional Chinese thinking to advance their cause.

They have taken three of the most striking Western ideas about globalization and turned them on their head, transforming concepts used to describe the decline of the nation state into strategies for increasing China's national power. For example, the idea of 'soft power', which is associated in the West with the attractiveness of companies such as McDonald's and Levi's, has been transformed in Chinese hands into a quest by the Chinese state to recapture the 'moral high-ground' of international rela tions. The idea of 'multilateralism' is associated in the West with the dilution of national sovereignty as member states agree to be bound by the rules of supranational institutions like the European Union or World Trade Organization. It has been recast as a tool of national power projection that allows China to develop links with other Asian countries that exclude the USA. Finally the idea of 'asymmetric war' - coined to describe the tactics of guerrilla groups such as the Viet Cong or al-Qaeda - has been rethought by China on an industrial scale. Chinese strategists have explored ways of using military weapons, financial assets and international law to challenge US power rather than seeking to match its might in conventional terms. As the discussion below shows, Chinese liberal internationalists and neo-comms alike are pushing against the barriers of Deng Xiaoping's foreign policy orthodoxy to promote the idea of a 'Walled World'.

Yang Yi is a military man, a rear admiral in the navy and the head of China's leading military think-tank. But his ideas on power go far beyond assessments of the latest weapons systems. He argues that the USA has created a 'strategic siege' around China by assuming the 'moral height' in international relations. Every time the People's Republic tries to assert itself in diplomatic terms, to modernize its military or to open relationships with other countries, the USA presents it as a threat. And the rest of the world, Yang Yi complains, all too often takes its lead from the hyperpower. According to him 'the United States has the final say on making and revising the international rules of the game. They have dominated international discourse, occupying the "moral highground" of the majority of international public opinions and rules of conduct. Therefore, what often occurs in international affairs is that the United States argues "only we can do this, and you can't do this":

Chinese thinkers are desperately trying to free themselves from this trap. One of the hottest buzz-words in Chinese foreign policy circles is 'ruan quanli' - the Chinese term for 'soft power'. This modish concept was invented by the American political scientist Joseph Nyein 1990, but it is being promoted with far more zeal in Beijing than in Washington DC. Unlike its more aggressive antithesis 'hard power', which is about bribing or forcing other countries to do what you want, 'soft power' is defined as the ability to get others to want what you want. It depends neither on economic carrots nor political sticks, but rather on the attractiveness of your culture and ideas, your legitimacy in the eyes of others, and your ability to set the rules in international organizations.

Chinese scholars, such as Yang Yi and Yan Xuetong, complain that for most of the last twenty years 'soft power' has been the preserve of the West: Western countries had the biggest markets; Western culture and morality were the most aspirational; and the international institutions created after the Second World War were also Western constructs, with membership open to the rest of the world only if they met certain standards of behaviour. But now they are planning to change all that. As Yan Xuetong explains, 'during a period of globalization the sphere of competition is no longer about land, resources or markets but rule-making, setting regulations, norms or customs. After the cold war these rules are changing. Rather than being passive recipients of these changes, we should join the competition to set the global rules:

The starting point has been to study the USA. Chinese thinkers have studied the way that Uncle Sam came to symbolize freedom and affluence, how the Statue of Liberty, the Bill of Rights, Coca-Cola, McDonald's, CNN and Hollywood became far more effective ambassadors for the American world-view than anyone in the State Department. They looked at how American values were enshrined in a series of global institutions, such as NATO, the World Bank and the IMF, which embodied and reinforced the American way of doing things. And they noted how the large number of foreign students at American universities, the ubiquity of American companies and the power of American news services has amplified the transmission of American perspectives on global issues.

China has begun to emulate these techniques. Its Education Ministry will set up 100 'Confucius Institutes' to teach Chinese and promote Chinese culture, in the same way that the British Council and Goethe-Institut do for European culture (it has already set up thirty-two in twenty-three countries). China's international TV station - the sinister-sounding CCTV 9 - is designed to grow into a global news station to rival CNN. Beijing has expanded and professionalized the party-controlled newswire Xinhua in the hope that it will be taken as seriously as Reuters or AP. It plans to quadruple the number of foreigners learning Chinese - to 100 million - by 2010. It has opened its universities to foreign students, attracting twice as many students from Indonesia as the USA every year and 13,000 from South Korea.

The most interesting aspect of China's 'soft power' agenda is the message they are promoting to the world. In April 2006, a conference was organized in Beijing to launch the 'China Dream'. Zheng Bijian was back with a new idea, heading a high-powered cast of speakers - including government ministers, academics and diplomats - that saw 'cultural rejuvenation' as a way of getting greater legitimacy on the world stage. The 'China Dream' they offered to the world was an attempt to associate the People's Republic with three powerful ideas: economic development, political sovereignty and international law.

China has become both a model and a champion for the world's poorest countries, in the process fundamentally changing the way that many think about development. In 1989, Francis Fukuyama argued in a famous essay that 'What we may be witnessing is not just the end of the Cold War ... but the end of history as such: that is, the end point of mankind's ideological evolution and the universalization of Western liberal democracy as the final form of human government.' And for the next decade, it was hard to disagree that economic and political liberalization were two sides of a seamless whole. But China's rise - and its ability to combine a gradual opening of the economy, a large state sector and authoritarian rule - has broken the link. In developing countries - in Africa, the Middle East and Central Asia - elites argue that they should follow the Chinese model of pursuing economic reforms first and political reforms later. And for the first time in a generation, some of their citizens actually believe them. It is no longer axiomatic that liberal democracy is the necessary foundation for development.

China has sought to contrast its belief in the sovereignty and the right of countries to be free from intervention in their internal affairs with the Western penchant for humanitarian intervention. China has been offering political support, economic aid and weapons to regimes that might otherwise be susceptible to international pressure, including Sudan, Iran, Burma, Zimbabwe, North Korea, Uzbekistan, Kazflkhstan and Angola. Its December 2005 Mrica White Paper says it will offer aid with no conditions attached. Beijing has removed all tariffs on trade for forty-five underdeveloped countries. It runs trade deficits with its neighbours in South-East Asia and it has massively increased its Overseas Development Assistance (in 2004 it gave away $1.5 billion to Asia and $2.7 billion to Africa). The way that China disperses its aid and political support is central to the People's Republic's appeal. Where Western donors increasingly tie their aid to demands for the protection of human rights and political reform, Beijing is avowedly non-judgemental about political behaviour in its dealings with Third World countries. It applies only one criterion to the relationship: does it serve China's interests? Although China has been happy to support autocratic regimes, it does not want to become the head of a coalition of failing ones. When China's relationship with regimes in North Korea, Sudan, Zimbabwe and Burma threatened to become an embarrassment, Beijing encouraged them to take steps to become more acceptable to the international community, thereby reducing the chances that the West would take coercive action against them.

Finally, Chinese scholars have noted that the legitimacy of the USA's global leadership has been enhanced by the openness of a political system that gives other nations a chance to have their views heard in the battles between the State Department, Pentagon and the White House. However, in recent years many countries have complained of US arrogance as they have struggled to influence the lonely superpower's decisions. China has taken note and developed a brand of 'listening diplomacy', contrasting its multilateralism with America's unilateralism. As Yan Xuetong argues, 'in the next 10 years, its hegemonic position will drive the United States to continue its unilateralist foreign policy. Meanwhile, China will maintain its multilateral diplomacy to harmonize relationships with her neighbours, the EU and the developing countries of other regions.' He continues optimistically, 'thus they may even forge a strategic alliance against the United States'.

Western observers are sceptical about the extent to which China has acquired soft power, pointing out that few liberal democracies would trade their freedom for China's Communist market economy. Green tea, Jackie Chan and Confucius, they argue, are no match for McDonald's, Hollywood and the Gettysburg Address. However, China has managed to associate itself with a number of big ideas that are potentially very attractive to middle-income and developing countries, particularly those which have been subject to Western colonialism (in other words, 90 per cent of the world's countries). And because China is the largest country to champion these ideas, it can draw a lot of legitimacy from them.

It is hard to argue that China's soft power has not been on an upward curve. Part of the reason is that China started from a very low base. To its neighbours it had been a menace during the Mao years, fomenting revolution and instability in the region. And to the rest of the world it had been a stranger: unaligned and uninterested for many decades. The combination of skilful diplomacy and the lustre of thirty years of double-digit growth has allowed China to turn these perceptions around. A recent BBC World Service poll showed that China's influence in the world was seen as positive by a majority or plurality of citizens in fourteen out of the twenty-two countries that were surveyed (in total 48 per cent saw China's influence as positive - 10 per cent higher than the USA).

In the long term, as some Chinese scholars recognize, Beijing will struggle to achieve global legitimacy without substantial changes at home. Yan Xuetong puts it well: 'If you do not have a good political system at home, you cannot attract support from your neighbors. If China wants to increase its soft power, it must have political reform: But in the medium term, China is likely to be the primary beneficiary of the fall in American soft power after the Iraq War, basing its popularity on an attempt to be seen as America's mirror image. Where American policy-makers champion the Washington Consensus, the Chinese talk about the success of gradualism and the 'Harmonious Society'. Where the USA is bellicose, Chinese policy-makers talk about peace. Whereas American diplomats talk about regime change, their Chinese counterparts talk about respect for sovereignty and the diversity of civilizations. Whereas American foreign policy uses sanctions and isolation to back up its political objectives, the Chinese offer aid and trade with no strings attached. Whereas America imposes its preferences on reluctant allies, China makes a virtue of listening to countries from around the world. Against this backdrop, Chinese diplomats and statesmen have discovered that '80 per cent of success; as Woody Allen said, 'is just showing up.

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