China's New Economic Strategy

The tiny desert town of Abeche, in eastern Chad, offers a curious sight: Sandwiched between the mud huts that most people call home and the compounds belonging to international aid workers is a humble Chinese restaurant catering to Chad's growing population of Chinese engineers and managers. Significantly, no equivalent American-style restaurant is to be found.

The same holds true across the resource-rich, institution-poor developing world, in countries as remote as East Timor and as dangerous as Somalia. While much of the military establishment in Washington continues to plan for a possible conventional war with China, Beijing is studiously avoiding a direct confrontation, instead expanding its influence through means other than traditional warfare. Principal among them is the deployment of Chinese technocrats abroad on profit-seeking missions for the world's third-largest economy.

A series of events in Washington in March and April highlighted the ways in which the U.S. is struggling to come to terms with a rising China, whose greatest strength -- even during a global recession -- is not military, but rather economic in nature. Therein, too, lies its greatest threat to U.S. interests.

Two weeks ago, Defense Secretary Robert Gates announced a series of military reforms meant, in part, to prepare the U.S. for asymmetric threats, including economic warfare. Supporting these reforms, the Pentagon hosted a war game in March to test how Beijing might use its financial clout as a weapon by leveraging its global investments and huge portfolio of U.S. debt to destabilize the American economy. The exercise coincided with the release of the Defense Department's controversial annual report on old-fashioned Chinese military power: its ships, tanks, airplanes and missiles.