When, over a decade ago, China’s then philosopher-in-chief Zheng Bijian raised the idea, it seemed like the end of Chinese problems. Building a community of interests was the natural consequence of the Zheng’s original concept of China’s peaceful rise (or peaceful development, as it was later translated) and provided the theoretical framework for the wave of hundreds of billions of dollars in Chinese investment that flooded the global markets in the following years.

They would give foreign companies cash and access to the Chinese market; they would provide Chinese companies with technologies and products. These cross-border alliances would bind China and the foreign world together better than any theory or ideal. And so they did, for some time. However now they are starting to backfire.

Actually it all started gradually, as in the early 1980s foreign joint ventures and foreign investments were gradually allowed into China. The trickle soon became a flood and hundreds of billions in foreign investment came in helping to boost Chinese growth. This, during the process of globalization in the 1990s, when the U.S. thought it could shape world markets as it wished, in turn created more opportunities and also greater growth for foreign countries.

The process worked so well that China accumulated trillions in foreign reserves, and at least a fraction of it annually could be spent to partially reverse the trend by investing abroad. This created or helped to keep millions of jobs out of China and gave foreign companies opportunities for market expansion in China. The flow of money back and forth also brought in know-how and tools useful for Chinese growth.

However, there was in all of this some kind of tacit understanding: that is, the Western world, which dominated both the investment in China and many of the targeted areas for Chinese investment abroad, considered China friendly because Beijing would sooner or later become like a Western country, as happened with Japan or South Korea.

In the past couple of years, it started to become clearer that China was not becoming like a Western country; it is remaining different. In fact, it seems to many observers that it is turning these opportunities for market expansion and growth at home and abroad into resources poured into bolstering its differences with the West. The change of perspective changes the whole attitude about the country, which is no longer considered friendly.

This had broader consequences. In the previous decades, because China was thought to turn “good”, was given free access to global markets. The U.S., the dominant power in the world, provided free security and encouraged everybody to deal positively with China. It was as if the U.S. provided irrigation water for free to the Chinese fields. But when the output of those fields turned out to be different than expected, the water supply started to drop and the bill for the past supply came back with interests. America provided China with the most important currency in the world – global trust. America was China’s guarantor.

In this new changed atmosphere, Chinese investments abroad were no longer considered ways to bring China and the world together; now they are viewed more and more as possible landing posts for some kind of Chinese invasion.

If China vis a vis the U.S. and the countries where China invests do not share a commonality of political, strategic, and military goals, everything becomes suspicious. It is not clear what is the goal of these Chinese ventures. Will they become springboards to expand Chinese influence abroad? Will they become devices to spy abroad or steal technology?

If there is this lack of trust, then even the immediate economic benefit derived from the arrival of Chinese money even in a poor stricken place will be smothered and killed by these overarching concerns.

The Chinese foreign investment is now starting to being viewed as “aggressive”, and the good feeling built over the past forty years in America and in the West is waning – and therefore the commonality of interest is becoming just suspicious.

It is not just a theoretical issue; it is very practical.

Many, if not all Chinese investments abroad are followed by the Chinese embassies themselves. Chinese companies do not do any kind of PR abroad, they do not go around making friends, they don’t mingle and mix with local society, and they leave all these social responsibilities in the hands of embassies.

This gives host countries the impression that Chinese investments are just the extension of Chinese state policy, which is tightly controlled by the Beijing government. Most of these investments are conducted by SOEs (state-owned enterprises), which are also tightly linked with the government, which owns the majority stake in them and also appoints the leading officials in the companies and ranks them according to state hierarchy.

These state companies often do not behave according to market practices, and certainly not at home. Wherever there is a state-owned enterprise active, private enterprises become crowded out.

The same could happen also in Western countries between local SOEs and local private companies. But in Western countries, private enterprises have a way to rebalance the weight of state enterprises, because private enterprise workers and managers vote in free elections and have direct political representation. Therefore they can try to square the overarching market influence of a state company. But none of that is possible in China where private entrepreneurs do not vote and can only try to exercise influence by pulling “guanxi”, which often becomes bribery.

Soon the reaction against China and these foreign investments could then be very dangerous. If the perception starts to sink in that these Chinese enterprises are dangerous to national security, then the assets could be seized or they could be put under some form of control, and therefore they would become hostage of bilateral relations.

There is only a radical approach to offset these dangers and very briefly it is 1) to have a massive political reform that could put China in line with the political system of the rest of the world, and 2) to have a privatization process that checks the expansion of state-owned enterprises and lets private enterprises expand beyond the tight control of the government.

This is the daily fuel for the growing talk of “cold war” between China and Western countries. However, there are many differences between the first and the “second” cold war. Here is a very simple table:

Cold Wars

Each element, should deserve a broader exam, but at last for now it can give an easy first glimpse of the dangers. It is a whole new situation and war can still be avoided and averted, but the situation is very is very serious and as such should be treated to be effective. Short of this, things can get rapidly worse.