While American foreign policy is adapting to the new threats of terrorism, transnational crime and rogue states, a far more traditional kind of enemy is lingering in the shadows. The United States, bogged down in its war on terror and increasingly disliked by the international community, is being replaced as a political, economic and military power by the increasing influence of the People’s Republic of China. Make no mistake: China has nowhere near the military or economic power of America, but its clever use of diplomacy and the governmental control of commerce allow Beijing to influence world events from the background.

The most common coverage of Chinese power deals with the conflict with the Republic of China on the island of Taiwan. But Taiwan is not the real goal of Chinese policy, or of the mainland’s increasing military development. With more than 100 billion dollars of indirect trade passing between the two each year, the island is now politically and economically dependent on the mainland; a war between the two would be counterproductive for both sides. Nevertheless, threatening Taiwan is a useful side-venture for Chinese leaders: a source of nationalist pride, an excuse for military development, and a distraction from the real news of Chinese geopolitics.

In 1998, when media coverage was focused on tension in the Taiwan Straits, the Chinese navy was expanding its presence on Mischief Reef in the Spratley Islands of the South China Sea, actually within Philippine territory. Neither the US nor the Philippines’ ASEAN allies complained because China had recently been so reasonable in settling the Taiwan disagreement, which of course had been orchestrated for just that reason. The recent heightened tension with Taiwan has been similarly-useful cover, as China signed agreements with Vietnam and the Philippines granting it effective rights over territory well outside its internationally-recognized borders.

Some pundits talk about oil hidden beneath the Spratley’s, but China lacks the technology for deep-sea oil exploration. Beijing’s real goal is the demonstration of its brown-water naval capabilities and a slowly-expanding naval playground in the South China Sea. Its exercise of naval dominance, unprotested by America or ASEAN, has convinced nearbye countries that they are far better off simply consenting to Beijing’s territorial demands.

But naval power is only one among the many tools the PRC hopes to leverage into great power status. Chinese political leaders’ control of state-owned enterprises allows them to use economic tools toward diplomatic success. Backed by state money, Chinese state-owned enterprieses won lowball bids for operating the Panama Canal and the new trans-Philippine railway, critical infrastructure links the control of which gives Beijing diplomatic power in the respective countries and leverage in future crises.

Yet perhaps the greatest sign that Chinese leaders have shed their old abrasiveness and put on the mantle of a great power is their new diplomatic flexibility. While the country traditionally aided Pakistan or India only at detriment to the other, last winter’s joint naval maneuvers with both countries signify a shift from alliance toward leadership. The enemy of China’s friend is also its friend, a position that will perhaps give Beijing the chance to dominate disputes once arbitrated by Washington. America’s Asian “hub and spokes” system and its reliance on Japan are crumbling under Chinese pressure. Simultaneously, strengthened ties with the European Union may deliver to the People’s Liberation Army military technology thus far denied by American restrictions.

The combined effect of China’s military, economic, and diplomatic efforts cannot be understated: America is rapidly losing control over the Asian balance. Faced with this challenge, the coming years will be formative for a new and far-changed relationship between the United States and the People’s Republic. While the Taiwan issue is fundamentally unlikely to lead to conflict, it will serve as a test of America’s ability to maintain regional leadership and a barometer of the regional power balance. Without a more comprehensive plan to slow China’s military and economic growth and contain its diplomatic influence, however, the long-term trend is undeniable. America can protest now, or forever hold its peace.