Can the US and China transcend their differences?

At this week’s APEC summit in Manila, President Barack Obama sharply criticized China for building artificial islands in the disputed waters of the South China Sea. But instead of calling out China, Obama should have taken the opportunity to reconsider Chinese President Xi Jinping’s proposal for a “new type of major-power relationship.”

The Obama administration was concerned when Xi first raised this concept in 2012 when he was still China’s vice president. Does that mean that China expects to share power equally with the United States? What signal would that send to U.S. allies?

In his 2013 meeting with Obama, Xi Jinping defined the “new type of major-power relationship” as “no confrontation, mutual respect, and win-win cooperation.” This proposition marks a break away from the zero-sum game mentality, and serves American interests as well as the interests of the world.

However, all Xi Jinping’s benevolent messages such as “win-win,” “shared future,” and “interdependence” are falling on deaf ears. Americans tend to view anything the Chinese say with suspicion, perhaps for good reason. China has repeatedly claimed that it will never pursue hegemony. Yet, the Communist Party itself is the hegemon within China. Beijing has a lot of work to do in order to convince the international community that it would behave differently on the world stage.

For the U.S., however, embracing the “new type of major-power relationship” does not diminish American leadership, nor does it mean that the U.S. needs to share power with China equally.

America’s closest ally, the United Kingdom, has engaged in a new type of relationship with China without worrying about what the U.S. thinks. The British now call themselves “China’s best partner in the West.” In an interview with CCTV, Lionel Barber, editor of the Financial Times, said that the British government has made a deliberate decision not only to engage China but also to support the new international institutions that China is creating.

The U.K. was the first Western country to join the China-led Asian Infrastructure Investment Bank (AIIB), despite opposition from the U.S. Other U.S. allies, such as Germany and France, followed suit. Fifty countries, including Australia and South Korea, were present as founding members in June.

The British have sent a clear message that they will not follow the U.S.’s semi-containment policy on China. During Xi’s recent state visit, Downing Street discussed two important initiatives with Beijing that will have significant implications for geopolitics.

The first is the “London-Shanghai stock-connect.” The U.K. and China are jointly conducting a feasibility study to link their two stock exchanges. George Osborne, the British chancellor, has championed making London a dominant center for offshore Chinese currency trading. China will soon issue yuan-denominated bonds in London.

The yuan has already surpassed the euro as the second largest settlement currency. As the Chinese currency becomes more prominent, London is keen to facilitate the internationalization of the yuan — a potential challenge to the dollar-based global financial system.

The second initiative is a China-European Union free trade feasibility study. The backdrop of the China-EU free trade bloc is China’s new Silk Road project, billed as “One Belt, One Road.”

The new Silk Road entails investing billions of dollars in infrastructure and economic development across Eurasia, linking China to Europe. It comprises one route on land and one at sea, involving 60 countries along the way. If successful, the Silk Road could open up markets in Central Asia that are largely untapped, while shortening the distance between China and Europe.

These two initiatives are in their early stages and could take years to come to fruition. However, their potential impacts are monumental.

At APEC, China is actively pushing a Free Trade Area of Asia Pacific (FTAAP), in response to the U.S. led Trans-Pacific Partnership (TPP), a free trade agreement involving 12 nations in the Asia-Pacific region but excluding China.

Clearly, the U.S. and China are beginning to engage in a dangerous rivalry that can result in loss on both sides.

The U.S. needs to reassess its China policy. Embracing the “new type of major-power relationship” does not mean the U.S. will cave in to China’s growing prowess. On the contrary, it would demonstrate a superior confidence and send a strong signal that the U.S. does not take its leadership for granted.

Furthermore, embracing this concept demonstrates strategic thinking that by working with China, the U.S. would be able to address many issues more constructively and effectively, including disputes in the South China Sea, cyber security and counterterrorism efforts.

Here are three specific actions that the U.S. should take immediately:

First, America should join the AIIB. The bank was created as a result of the U.S. Congress’ repeated refusal to increase funding for the World Bank. Instead of viewing the AIIB as a rival, the U.S. needs to take steps to incorporate it into existing institutions.

China’s invitation to the U.S. to join the bank is still open. Although it may be late as a founding member, it is better late than never. It may be a diplomatic win for China, but it will be a bigger win for China if the U.S. stays out. By joining the AIIB, the U.S. will be able to play an instrumental role from the beginning.

Second, the U.S. should grant China the opportunity to eventually join the TPP. This will prevent China from creating a separate trade bloc in the same region.

Since the TPP sets high standards in areas such as subsidies, labor standards and Internet freedom that China cannot immediately meet, the U.S. can set up a phased process for Chinese membership. The argument that China’s economy is not mature enough to join the TPP is nonsense, as Vietnam, a founding member, is lagging behind China in every economic dimension.

The TPP sets the bar for future international trade agreements, and should be a guideline for the China-EU free trade agreement. This will force China to speed up its reforms in the financial sector and state-owned enterprises, and maybe eventually to open up the Internet.

Third, the U.S. should consider supporting China’s new Silk Road project. The project encompasses countries such as Afghanistan and Iraq that are likely to harbor terrorists. Since China will invest significantly in these areas, it will have a shared interest with the U.S. in maintaining their stability.

William Overholt, a senior research fellow at the Harvard Asia Center, suggests that the U.S. could coordinate with China to develop a comprehensive and balanced economic and military strategy to fight terrorism. Neither the U.S. nor China can do this alone.

Embracing the “new type of major-power relationship” will only put the U.S. in a stronger position to address global problems, and to exercise its leadership in an increasingly multipolar world.