Xi's War Drums

China's new leader is using the military to consolidate his power. But has he unleashed forces beyond his control?

Every morning at 6 a.m., more than two dozen of the world's leading submarine watchers, aviation experts, government specialists, imagery analysts, cryptanalysts, and linguists gather at the headquarters of the U.S. Pacific Fleet in Hawaii. Their job is to probe the overnight intelligence reports to guide the activities and strategies of the five aircraft carrier groups, 180 ships, and nearly 2,000 aircraft that constantly patrol the Pacific and Indian oceans. The morning meetings are convened by the fleet's top intelligence officer, Capt. James Fanell, and cover activities emanating anywhere "from Hollywood to Bollywood," as the head of U.S. Pacific Command, Adm. Samuel Locklear, likes to put it. But the group never takes long before zeroing in on the country driving the United States' military and diplomatic "pivot" to Asia. "Every day it's about China; it's about a China who's at the center of virtually every activity and dispute in the maritime domain in the East Asian region," said Fanell, reading from prepared remarks at a U.S. Naval Institute conference in San Diego on Jan. 31.

Fanell, in comments that went largely unnoticed outside the small circle of China military specialists, spelled out in rare detail the reasons the United States is shifting 60 percent of its naval assets -- including its most advanced capabilities -- to the Pacific. He was blunt: The Chinese People's Liberation Army (PLA) Navy is focused on war, and it is expanding into the "blue waters" explicitly to counter the U.S. Pacific Fleet. "I can tell you, as the fleet intelligence officer, the PLA Navy is going to sea to learn how to do naval warfare," he said. "My assessment is the PLA Navy has become a very capable fighting force."

Some were shocked to hear the extent and intensity of China's carefully orchestrated maritime provocations, especially coming from an officer whose job may make him more of an expert on Beijing's naval maneuverings than anyone outside China. Others wondered whether the Pacific Fleet was simply playing the Washington game, perhaps lobbying for a greater share of the U.S. military budget or wider authority to act by magnifying the threat.

But it may well be that the most contestable of Fanell's assertions were about the Chinese military's capabilities, not its provocations. For the question on many minds, both in Washington and Beijing, is this: Can China actually fight? And the person most anxious to find an answer happens to be the man who just became China's fifth leader since Mao: Xi Jinping.

FOR XI, this is no idle question. The 59-year-old new president is himself a veteran who launched his career in 1979 as personal assistant to Geng Biao, then secretary-general in charge of daily affairs at the Central Military Commission, the 11-member panel that runs the Chinese armed forces. And Xi has stated clearly that the military is central to his vision for China. "We must ensure there is unison between a prosperous country and strong military," he said in a pep talk to sailors on board a guided-missile destroyer in December. But his ambition to have a strong, professional fighting force is greatly complicated by an even bigger question that has occupied every Communist Party leader since Mao uttered his famous dictum that "political power grows out of the barrel of a gun." Can Xi be sure that the PLA will always be loyal to the party, and specifically to him?

"The people's army is not merely an organ for fighting; it is also an organ for the political advancement of the party," Mao once said, in another statement whose truth has been confirmed by all his successors. Xi may be able to build a military that is either modern and capable or loyal and political. But many in China now believe he can't have both.

It won't be for lack of trying. In the West, Xi's assumption of power has largely been covered as an economic and political drama: Can he keep China's booming markets on track? Will he tame the country's toxic levels of official corruption before demands for political reform derail him? Is he a reformer at all? What these accounts often miss are Xi's very deliberate moves to build a military power base for his presidency.

Even before formally taking office, Xi launched a wide-ranging program of inspecting troops, cementing key military relationships, and muscling up against Japan, his associates say. On Nov. 15, his preparatory work was rewarded by his appointment as not only general secretary of the Communist Party but also chairman of the Central Military Commission. The latter was a title that had eluded his predecessor, the lackluster Hu Jintao, for two years after Hu became party secretary, a symbolism lost on no one. Almost immediately after Xi's elevation, he announced a high-profile austerity campaign, attacking the military's culture of banquets, ceremony, and pomp. He demanded that his soldiers focus on their mission. "We must ensure that our troops are ready when called upon, that they are fully capable of fighting, and that they must win every war," Xi said during a tour of military forces in southern Guangdong province in December.

The People's Liberation Army was founded as an arm of the Chinese Communist Party on Aug. 1, 1927, when it began a quarter-century of nonstop warfare. Today it occupies a central place in party history and mythology for helping to defeat the occupying Japanese, drive the Kuomintang nationalists to Taiwan, and push U.S.-led forces back to the 38th parallel in the Korean War. It added an air force and navy shortly after the 1949 founding of the People's Republic.

Politics have always played a key role, and the PLA retains a Soviet-style dual command structure. A powerful political department sits at the center of the organization, while political minders shadow commanders at every level of the enormous hierarchy. With its crucial role at home as well as internationally, the PLA today boasts 2.3 million active-duty personnel, and its capabilities have been greatly strengthened by two decades of double-digit budget increases, enabling it to invest in everything from its first aircraft carrier and stealth fighter jets to the world's only anti-ship ballistic missile.

Despite the hype, however, high-ranking insiders have come forward to say the Chinese military is rotten to the core. Formal hierarchies are trumped by personal patronage, coordination between branches is minimal, and corruption is so pervasive that senior positions are sold to the highest bidders while weapons funding is siphoned into private pockets. "Corruption has become extremely institutionalized and significant," says Tai Ming Cheung, director of the Institute on Global Conflict and Cooperation at the University of California/San Diego. "It makes it much more difficult to develop, produce, and field the weapons systems required to achieve world-class power projection."

It's not just corruption. More than three decades of peace, a booming economy, and an opaque administrative system have taken their toll as well, not to mention that the PLA is one of the world's largest bureaucracies -- and behaves accordingly. "Each unit has a committee with a commander, political commissar, and deputies, to the point they have a meeting now for everything," says Nan Li, associate professor at the U.S. Naval War College's China Maritime Studies Institute. Li told me that PLA military universities have even been reduced to printing textbooks that instruct commanders how to transcend the tyranny of committee-style decision-making. "That shows how much the PLA has been defeated by -- corroded by -- peace," he says.

Nor is the military necessarily 100 percent loyal to its political masters in the Communist Party -- a terrifying prospect for a new leader trying to consolidate his power. In theory, the PLA has always been subordinate to the civilian side of the party, but the actual command linkages are largely limited to its top leader and sometimes his deputy. In 2012 -- in the wake of the political destruction of Xi's potential rival, Bo Xilai, who boasted extensive informal ties within the military -- the drumbeat of official demands that the PLA demonstrate the proper obeisance to the party and the party's outgoing general secretary, Hu, suggested the chain of military command might be more fragile than commonly understood.

Xi's associates believe he harbors similar concerns. They note that Liu Yuan, the senior general who sent shock waves through the party and military establishment after warning in an internal speech that mafia-like knots of patronage and corruption were crippling the PLA, did so only after getting a nod from Xi. "Only our own corruption can destroy us and cause our armed forces to be defeated without fighting," Liu warned in his December 2011 speech. The two ambitious princelings, as the privileged sons of China's revolutionary leaders are known, have been close friends since the late 1970s. Another close friend of the Xi family, whose father fought alongside Xi's father when the Chinese Red Army was a hungry, disciplined machine, told me that Xi has focused his political capital on whipping the PLA into better shape and probing to see which generals he can personally rely on. The family friend says Xi's relentless inspection program and calls for combat readiness have a clear purpose: "To sort the horses from the mules you need to walk them around the yard."

Xi's associates point out that his first real job, as personal assistant to the secretary-general of the Central Military Commission, gave him a ringside seat for studying the art of accumulating power as demonstrated by one of the world's great strongmen, Deng Xiaoping. Although most recall Deng today as the architect of China's economic reforms, the initial foundation of Deng's political platform was the military, where he enjoyed prestige unparalleled by any other post-Mao leader. He tightened his "grip on the gun," as Communist Party insiders put it, by mobilizing the military for an invasion of Vietnam in February 1979. Deng, still technically vice chairman of the commission but already its most powerful leader, initiated, planned, and managed an invasion that was militarily disastrous, costing tens of thousands of Chinese lives and blowing out the budget deficit, but nevertheless left him with a more professional fighting force and firmly in command.

He ensured this grip on power by closely managing the military's upper echelons. By 1980, after a reshuffle when incumbent Central Military Commission Chairman Hua Guofeng was out of the country, 15 of the 22 top military region posts were held by generals who had fought directly under Deng, says historian Warren Sun.

None of this was lost on the young, ambitious princeling Xi Jinping. After all, Hua was Xi's nominal boss at the time, yet Deng swept him aside. The lesson learned? "Without the gun in your hand, who will obey you?" as Xi's close family friend puts it. "So the first thing Xi did after his rise was seize military control."

Guang Niu/EPA

XI HAS TAKEN CHARGE at a moment when China has been building up its military power as never before, surprising the United States and shocking its neighbors with the speedy development of new hardware and the aggressive manner in which it has deployed those tools to support its expanding ambitions. Top U.S. intelligence analysts and generals have admitted to being caught out by the 2011 flight-testing of China's new J-20 stealth fighter. They were dumbfounded by China's subsequent deployment of the East Wind 21D, the world's first anti-ship ballistic missile, dubbed the "assassin's mace" in China and "the carrier killer" in the West. And now China is on track to nearly triple its fleet of maritime strike aircraft by 2020, according to the U.S. Congressional Research Service. Its naval weapons -- and capabilities -- are proceeding even faster.

China is simultaneously developing and producing seven types of submarine and surface warships. That's after a decade in which it quadrupled its number of modern submarines, including nuclear submarines designed to carry nuclear-armed ballistic missiles. It has massively expanded production of corvettes, frigates, amphibious ships, and destroyers. In September, China launched its first aircraft carrier, which it has flagged as a training platform for others to come.

Then there's the less visible but perhaps more troubling escalating cyberwar now being waged with hyperactive assertiveness by PLA cyberunits that have reportedly penetrated deeply and repeatedly into key U.S. government departments and top U.S. defense, media, and technology companies. Along with probing infrastructure vulnerabilities and spying on commercial transactions, they have reportedly pilfered military designs and technology. Mandiant, an IT security firm, reported in February that it had traced 141 specific cyberattacks to a single PLA unit based in Shanghai. The PLA has been tasked with "systematic cyber espionage and data theft against organizations around the world," the report stated.

"No other great power today enjoys China's ability to dedicate such vast amounts of capital and personnel so dynamically to such a wide range of new programs," says Andrew Erickson, an expert on PLA technology at the U.S. Naval War College's China Maritime Studies Institute. "China enjoys unparalleled flexibility and adaptability and could increase production rapidly if desired."

The backstop for all these new platforms and capabilities is the PLA's strategic missile force, which possesses conventional ballistic missiles that can destroy satellites in space, plus as many as 400 nuclear weapons. The dizzying display of hard power is sending fear and awe throughout the Asia-Pacific region. But Xi, it seems, is unconvinced that all this shiny hardware can be effectively deployed by an organization that was designed for civil war and adapted in recent decades as a political force to ensure the party's grip on power.

That's where China's rapidly escalating territorial showdown with Japan, its largest trading partner and still the world's third-largest economy, comes in. In September, the Japanese government bought the disputed Senkaku Islands, or Diaoyu Islands as they are known in China, from private owners to prevent them from falling into the hands of Tokyo's governor at the time, a hawkish nationalist provocateur. But China responded with fury. It launched a propaganda blitz against Japan, facilitated protests and riots across China, and escalated its maritime and air patrols of the disputed area. For Xi, according to his close family friend, the otherwise baffling diplomatic crisis that resulted has offered a priceless opportunity to "sort the horses from the mules" and mobilize willing generals around him. Claims that Xi has exploited or even orchestrated the brinkmanship with Japan might seem preposterous to outside observers, given that a miscalculation could lead to war. But the logic is compelling for those who have grown up near the center of China's endless and unforgiving internal struggles.

"Promoting people into positions is always a very sensitive question," says a retired officer, the son of one of the PLA's most decorated commanders and who was himself working at the PLA's General Staff Department, the operational command center, when Xi was at the Central Military Commission in 1979. "This is why Xi is coming to power using a very strong voice on the Diaoyu Islands," he says. "He was asking them to prepare for war … like Deng."

Indeed, the crisis with Japan seemed to come exactly in tandem with Xi's ascension last fall. In September, Xi disappeared for a fortnight, missing top-level meetings (including with U.S. Secretary of State Hillary Clinton) for reasons that remain unexplained. He re-emerged looking healthy and happy on Sept. 15. A day earlier, according to a report in the Japanese newspaper Asahi Shimbun that cited a "source close to the Communist Party," Xi had assumed control of a special cross-agency and military task force to manage the Diaoyu dispute. China immediately increased air and maritime patrols in the area.

For the remaining three months of 2012, roughly once each day, a Chinese government plane flew southeast toward the Japanese-administered islands. With equal regularity, when the plane crossed an "identification" line nearly 100 miles east of the Chinese mainland, Japan tried and failed to make radio contact and then scrambled F-15 Eagle fighters from its Air Self-Defense Force. The Chinese planes would each veer east at about the 28th parallel and then north, out of harm's way, without crossing into Japanese-controlled airspace or encountering approaching Japanese fighters, according to Western defense officials. That's the way it happened on 91 occasions between October and December, according to Japan's Defense Ministry.

But on Dec. 13, the 75th anniversary of the Nanjing massacre and a day after Chinese media reported that Xi had called for "real combat" awareness during a three-day tour of a PLA warship and live-fire tank drills, a low-flying China Marine Surveillance Y-12 twin-propeller plane crossed the 28th parallel. It kept flying southeast and penetrated Japanese airspace -- the first such episode since Japan began monitoring half a century ago -- and took a snapshot of the largest of the disputed islands out of its left window, a photo that was published widely in the Chinese state media the following day. On Dec. 16, a new Japanese government led by Shinzo Abe, who had promised to stand up to China, was elected in a landslide. Abe immediately increased surveillance over the disputed area and reportedly loosened the rules of engagement so that Japanese vessels could approach much closer to Chinese vessels.

On Jan. 10, with Xi firmly in control but now up against a more assertive Japanese administration, Chinese and Japanese surveillance and fighter planes tangled above disputed oil fields north of the Senkakus. On Jan. 14, the PLA Daily reported that the General Staff Department had ordered all units to prepare for battle, in what may have been the first such warning since Deng's debacle in Vietnam. On Jan. 18, Clinton met the Japanese foreign minister and warned China against taking "unilateral" steps to challenge Japanese administration of the Senkakus. It did little good. On Jan. 19 a PLA Navy frigate responded by locking its missile-control radar on a Japanese Self-Defense Forces helicopter around the same disputed oil fields, according to Japanese accounts. On Jan. 30 it was a similar story, this time with a Japanese ship in close proximity, according to more detailed Japanese accounts that were backed by the United States but denied by China. Western military officials and diplomats have told me that they have evidence, including from electronic intercepts, that shows that the movements of Chinese boats and ships were micromanaged by the new task force chaired by Xi.

The world still knew nothing of these dangerous confrontations when Captain Fanell gave his remarkable speech in San Diego the following day, Jan. 31. Asia's two heavyweights -- America's key ally and its global rival -- were one itchy trigger finger away from exchanging live fire on the water while Chinese J-10 and Japanese F-15 fighters were buzzing overhead, according to Western military sources. "If you are the Japanese captain, you would have an incredibly uncomfortable choice to make very quickly," says a Western diplomat who has been following the dispute closely. "You're seconds away if that thing decided to fire." What had been hypothetical musings about the PLA's combat capability took on a more urgent tone.

BUT THE SPECTER OF WAR is not the only possible explanation for Xi's saber rattling and demands for combat readiness. For even as Japanese leaders and U.S. officials were publicizing their concerns this winter about a region on the brink of naval conflict, it became clearer that Xi and his close military confidants are squarely focused on domestic politics. Indeed, Gen. Liu Yuan -- the same reputedly hawkish princeling general thought to be close to Xi, who had blasted corruption in the military -- counseled in an essay published Feb. 4 in state media that China's dream of modernization had twice been shattered by war with Japan. "Today, our economic construction has arrived at a critical moment. We must never let it be broken by an incident," he wrote, referring to the Diaoyus. "The U.S. and Japan are scared of us catching up, and they will do anything to contain China's development, so we must not be fooled."

At the same time, another top-level document emerged: a speech delivered in December by Xi himself, in which he gave thundering confirmation that the PLA's primary function is to defend the regime, not China. This was the lesson learned from the Soviet Union's collapse, he said. "In the Soviet Union, where the military was depoliticized, separated from the party, and nationalized, the party was disarmed," Xi warned, according to an extract of his speech that was published by journalist Gao Yu and broadly corroborated by other sources. "A few people tried to save the Soviet Union; they seized Gorbachev, but within days it was turned around again because they didn't have the instruments to exert power." Nobody in the vast Soviet Communist Party, Xi averred, "was man enough to stand up and resist."

Xi, then, has ultimately chosen to defend the Communist Party against internal political threats rather than prepare it to face external military threats. There is little doubt the Communist Party has been sharpening its identity in a post-communist world by defining itself against the West, fanning nationalist fervor, and promising a restoration of China's ancient grandeur. Xi thus has little choice but to keep pumping enormous resources into a war machine if he is to justify his party's continuing monopoly on power. "This dream can be said to be the dream of a strong nation," Xi told sailors on board the destroyer Haikou. "And for the military, it is a dream of a strong military."

To many observers, however, his speech seemed to confirm that China's provocations against Japan were in fact "evidence of profound domestic insecurity rather than rational policy," a Beijing diplomat who closely studies China's military machinations told me. "It is the fact of party control," he says, "that makes the PLA weak. Everything else -- the corruption, the risk aversion, the hierarchy -- is a symptom of that."

Then, too, there is the very real risk that if China or Japan miscalculates over the Senkaku Islands and actually does spark a war, China may lose. That, at least, is the assessment of several military analysts with whom I spoke, who believe Japan's disciplined, professional forces would prevail even without direct U.S. intervention. More broadly, I have heard growing doubts about China's actual fighting capabilities in some sections of the Chinese military, foreign diplomatic corps, and U.S. academia, many of whose members are revising their views on the PLA. "Our assessment is they are nowhere near as effective as they think they are," a Beijing-based defense attaché from a NATO country told me.

What if the recent drums of war are a sign of China's weakness and not its impressive new strength? "When Xi tells his troops to be ready for war, it's really an admission that they're in disarray," says the defense attaché. "He's saying, 'You guys are drunk, fat, and happy, siphoning off all the money into private accounts, and you need to get real.'"

Illustration by Piotr Lesniak for FP


Soft (Drink) Power

The head of the world's most global beverage company on climate change, power in the post-crisis era, and how Coke's secret formula stays safe from hackers.

The financial crisis altered the very nature of the international balance of power. Five years later, the presumption is that the crisis is in the rearview mirror -- and that the volatility that shook markets and felled governments is behind us too. But we've entered a new order that's vastly more uncertain than what preceded it. International coordination is breaking down. Global challenges like climate change and nuclear proliferation are becoming more intractable as no one country or group of countries is in a position to set the international agenda. The G-20 is too crowded and conflicted; the U.S.-led G-7 can no longer run the show. In such an environment, we have to ask: What are the big question marks for sustainable global prosperity going forward? How are the roles of the United States and China evolving? And where are the world's next big opportunities?

I sat down in New York not long ago with Muhtar Kent, chairman and CEO of the Coca-Cola Co., to talk about how global power dynamics are shifting and what that means, tactically and strategically, for a $180 billion company dealing with customers and governments in more than 200 countries, from Suriname to Vietnam. Coca-Cola is a quintessential American brand -- and the largest private employer in Africa. In my conversation with Kent, everything from China's rise and the dubious fate of Europe to the safety of the secret Coke formula was in play. Here are edited excerpts:

Foreign Policy: What are some of the ways that a company like Coca-Cola can bring about positive global change in a world where governments increasingly don't have the power to do so?

Muhtar Kent: That to me is straight down the alley of what we call the "golden triangle," a collaborative effort between government (at every level), business, and civil society as they come together to tackle big issues -- societal issues, economic issues, investment issues, governance issues -- that face all of us. The future is going to be much more about closer, better, longer-term collaborations between these three entities.

Businesses need to proactively create models that make a difference in society and let everyone else use them, talk about them, emulate them -- and build on them. An example is Coca-Cola's "5 by 20" campaign, a movement to enable the economic empowerment of 5 million women entrepreneurs by 2020 by bringing capital, training, mentoring, and by working with governments. If we can create 5 million entrepreneurs in 10 years, just through one business working closely with government, working closely with organizations like the International Finance Corporation, by working with Mexico City, Kinshasa, Buenos Aires, Delhi, or Mumbai, that's a big thing. It will lead to a better society and better community in each of those markets. And this isn't just a charity; it's an activity that's good for business. That makes it self-sustainable.

FP: As the CEO of a leading multinational corporation, do you engage with governments around the world differently than someone in your role would have five or 10 years ago?

MK: Yes. I think we've moved much more towards a collaborative partnership model, like I've been describing. Before it was much more compartmentalized. There wasn't a holistic thought process, and it was always a transactional model: I'm asking something; they're asking something. So it's moving from a transactional "you, me, give, take" model toward a more holistic model with government as a key stakeholder. That's a good thing.

FP: So 10 years ago, government relations were more transactional and oriented more toward the national level. Today, increasingly, it's much more diversified, much more localized.…

MK: Well, I'm saying, today the low-hanging fruit is in local opportunities. We need to focus on the speed with which local governments can work with businesses. I meet subnational leaders who operate like the types of CEOs or business leaders I like to work with. They can make things happen; they act faster, more flexibly. They have more risk tolerance, and they're more entrepreneurial.

And in terms of what models lead to progress, the world is converging. Before, it was Western industrial governments who supposedly knew everything -- everyone else was supposed to learn from them and emulate them. Today, the world has become a small village. If it's governance, it's just as important in Kinshasa or Maputo as it is in Brussels. They've realized that small, incremental improvement in governance is what's leading Africa's GDP drive. So everyone knows, whether it's business, government, or civil society, you need governance models that work. You need to be transparent. You need to show something for the money you spend. You need more accountability from everyone.

FP: Let me ask you about this "world as a village" concept in the context of Coca-Cola. To what extent can a brand like Coca-Cola be both American and global? Isn't that a contradiction?

MK: It's precisely because of the local nature of our business that we're successful and global. If Coca-Cola had not worked on a local level, when metrics for "Brand America" were at its lowest, say, six, seven, eight years ago, Coca-Cola could not have continued to prosper in many parts of the world -- but it did. And that's because Coca-Cola has a fantastic local partner in Israel, with whom we celebrated our 40th anniversary some four years ago when I was there. And we have a fantastic partner in Ramallah in the Palestinian territory; we have three factories in the West Bank, and we just celebrated 10 years with them as a Coca-Cola partner. The model of Coca-Cola is local, whether it's investing, partnering, sourcing, producing, or selling. We market and distribute locally; we pay taxes locally. And it works. In September, we entered our 207th country with a delivery to local customers in Myanmar -- our first time doing business there in more than 60 years.

FP: I could make the argument that the Obama administration's single greatest foreign-policy success -- although no one in the administration went into office anticipating it or spearheading it -- was Myanmar opening up. It really worked. And Coke was in there fast. Coke was in there early. How did you do it?

MK: Earlier in my career, I guess I was fortunate to be in Vienna with the responsibility of opening up Eastern Europe -- about 15 months before the Berlin Wall came down. Just like it was then, you had to make a call, that the wall would come down, and you had to spend money. And you'd look foolish spending money, opening offices behind the wall, if it didn't come down. But everything proceeds too quickly not to prepare in advance. You just need to make a judgment call sometimes. I love Southeast Asia. As a child, I lived in that part of the world. My first time in Burma was in 1958 with my parents. And so recently we started talking to a lot of people; we have partners in Thailand. We firmly believed it [Burma] was poised for change.

FP: So the U.S. began suspending sanctions in Myanmar in May 2012. When did you start looking at the possibility of doing business there in a serious fashion?

MK: Seriously thinking we'd be in business? About three years ago.

FP: I met with their minister of tourism recently. He was talking about where Myanmar is on infrastructure -- they need everything. As of last year, Myanmar's electrification rate was 26 percent. Transparency International's Corruption Perceptions Index 2012 ranks Myanmar at 172nd out of 176 countries. Is there a role Coca-Cola is playing to help Myanmar get up the curve faster -- bureaucratic capabilities, infrastructure, all these things -- to more quickly join the world of nations?

MK: I think we are helping. We're getting Myanmar on board to join the 5 by 20 initiative for the economic empowerment of women. On top of that, we're talking with our sustainability partners to have Burma realize the incredible value they have in the natural beauty of their country. They need to learn from the lessons of other countries where the pace of development came at the extreme detriment of nature. They have this special gem that they'll be better off in the long run if they respect. That doesn't mean, by the way, that you trade it for poverty. In the long run, every one of the 50 million-plus citizens can benefit from utilizing the natural environment responsibly.

FP: Coca-Cola remains on the sidelines in two major countries: Cuba and North Korea. Any speculation as to whether we'll see Coca-Cola in Cuba in the next five years?

MK: No comment.

Alexander Joe/AFP/Getty Images

FP: You said "Brand America" took a hit -- and it certainly did. Where is it still useful or attractive for Coke to be seen as an American brand today?

MK: In every market that we're operating in, no matter what region in the world, we are seen as a local brand. We are always selected as the No. 1 brand in South Africa, not as an American brand but as a South African brand. In Turkey or Russia it's the same.

A successful global company needs to mean different things to different people. When you have Coca-Cola empowering women in Ghana or helping farmers in Haiti or building schools with youth leagues in China, that's what makes the character of the company closer to what people want it to be. Gone are the days when you simply create a positive impression through good advertising, create good products, make sure you can get to the point of sale, and end your job there. We're in a new era where you need to not just create positive impressions but positive expressions, so people talk about you between themselves. It's not you talking to the consumer -- they don't want that. You want to be the company that is more than the product, that has a caring character, that's transparent, lucid, open, and has a dialogue instead of a monologue. If you can then bring in the ecosystem that we're talking about -- all the stakeholders -- with a long-term purpose, you'll be creating value in a more multifaceted, sustainable way … and in a way that's more resilient to geopolitical shocks.

FP: In his inaugural address, Xi Jinping spent a lot of time talking about the "Chinese dream," in contrast with the "American dream." It's a much more collective vision, even if it is equally exceptionalist. What does the "Chinese dream" mean for Coca-Cola?

MK: How the Chinese engage today as a result of their dream is less important than how that dream evolves. China has clearly broken a world record in lifting people out of poverty in a given period of time. You need to peel the fruit and see inside instead of wasting time with the peel. When you look inside the fruit, it's a tremendously noble thing to lift so many people out of poverty.

But the key question is: How does China evolve towards a model where you're creating happiness and purpose for your people? I think that's the next 10, 20 years for China. How does China keep building into a more sustainable model? It's going to have to be an increasingly participative model. And what happens if you successfully build a prosperous middle class, foster true social mobility, but in the process, the environment is destroyed? That's not a happy outcome. So that's the challenge: There are just so many pieces that all have to fit. And I think the Chinese are educated enough, dedicated enough, and there's enough of a legacy -- we forget that out of 18 of the last 20 centuries, China not only had the largest population, but the largest GDP as well -- that they can make these changes happen.

FP: So if you think ahead over the next decade, does China's trajectory or the United States' trajectory matter more to the global economy?

MK: It's not an either-or. Once you think of it as either-or, you've lost the plot. For the world or for Coca-Cola, both the U.S. and China have to succeed. On the other hand, if Europe doesn't succeed, the world will muddle through and find a way forward. If Europe breaks up, if it doesn't accomplish its dream of a united Europe, the world is in a place to find a solution for that. I do not believe the world can find a solution if one or none of China and the U.S. succeed.

The U.S. is unique in that it has the youngest Western population in the world and the most diverse. If the U.S. can leverage the potential it has, if it can convert how it educates the world's citizens into intellectual property and innovation at home -- rather than sending students back to the countries they came from -- then there's a lot of potential.

Europe is a different story; Japan is a different story. It's too late to fix the demographics in Japan to convert it into an open, dynamic, growing population in short order. The U.S. isn't like that. I see the U.S. as a growth market for Coca-Cola. And I see China as a growth market. The rates will not be the same, but I see both of them as growth markets.

FP: What threat keeps you up at night more: cybersecurity or climate change?

MK: Because of how much I've seen about climate change and because it's an even more difficult fix, I think climate change worries me more. With climate change, for starters, people don't agree on the problem. There's a lot of politics and complexity; there's a lot of confusion and contradicting science. And there's a lot of reality that's worrying me. My fear is that if we see continued insufficient progress, volatility will rise at a pace and to an extent that we are unable to contain it. Governments can't manage it, and business and society just can't handle it. Climate volatility, temperature, rainfall, food prices, you name it.

So if I'm forced to choose, climate worries me more. Cybersecurity is a very real problem, but has, in my opinion, a fix that isn't quite so daunting.

FP: So on the topic of cyber, I can't resist asking … is Coke's secret formula safe from IP theft and hackers?

MK: Let me just say, it's in a very well-protected vault in our museum in Atlanta. But we have 500 brands and 3,000 products, so we've evolved from a one-brand, one-product business. Everything we do, in some respect, comes back to brands. A good brand is a promise kept. So to the extent that you want to keep those promises, you need to continually innovate and create new intellectual property. Something that isn't evolving and adapting to an ever-changing global marketplace is perhaps best suited for a museum -- just like Coke's original formula.

Illustration by Piotr Lesniak for FP