ASSERTIVE: Narendra Modi is likely to be India’s next prime minister, and one of a new crop of more nationalistic Asian leaders. Picture: BLOOMBERG

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THE biggest geopolitical risk of our times is not a conflict between Israel and Iran over nuclear proliferation. Nor is it the risk of chronic disorder in an arc of instability that now runs from the Maghreb all the way to the Hindu Kush. It is not even the risk of a new Cold War between Russia and the West over Ukraine.

All of these are serious risks, of course; but none is as serious as the challenge of sustaining the peaceful character of China’s rise. That is why it is particularly disturbing to hear Japanese and Chinese officials and analysts compare the countries’ bilateral relationship to that between Britain and Germany on the eve of the First World War.

The disputes between China and several of its neighbours over disputed islands and maritime claims (starting with the conflict with Japan) are just the tip of the iceberg. As China becomes an even greater economic power, it will become increasingly dependent on shipping routes for its imports of energy, other inputs, and goods. This implies the need to develop a blue-water navy to ensure that China’s economy cannot be strangled by a maritime blockade.

But what China considers a defensive imperative could be perceived as aggressive and expansionist by its neighbours and the US. And what looks like a defensive imperative to the US and its Asian allies — building military capacity in the region to manage China’s rise — could be perceived by China as an aggressive attempt to contain it.

Historically, whenever a new great power has emerged and faced an existing power, military conflict has ensued. The inability to accommodate Germany’s rise led to two world wars in the 20th century; Japan’s confrontation with another Pacific power — the US — brought the Second World War to Asia.

Of course, there are no iron laws of history: China and its interlocutors are not fated to repeat the past. Trade, investment and diplomacy may defuse tension. But will they?

Europe’s great powers finally tired of slaughtering one another. Facing a shared threat from the Soviet bloc, and with US prodding, European countries created institutions to promote peace and co-operation, leading to economic and monetary union, now a banking union, and possibly in the future a fiscal and political union.

But no such institutions exist in Asia, where historical grievances among China, Japan, Korea, India, and other countries remain open wounds. Even two of America’s most important allies, Japan and South Korea, find themselves in a bitter dispute about the Korean "comfort women" forced to work in Japanese military brothels before and during the Second World War, despite an official apology from Japan 20 years ago.

Why are such tensions among Asia’s great powers becoming more serious, and why now?

For starters, Asia’s powers have recently elected or are poised to elect leaders who are more nationalistic than their predecessors. Japanese Prime Minister Shinzo Abe, Chinese President Xi Jinping, South Korean President Park Geun-hye, and Narendra Modi, who is likely to be India’s next prime minister, all fall into this category.

Second, all of these leaders now face great challenges stemming from the need for structural reforms to sustain growth rates in the face of global economic forces that are disrupting old models. Different types of structural reforms are crucially important in China, Japan, India, Korea and Indonesia. If leaders in one or more of these countries were to fail on the economic front, they could feel politically constrained to shift the blame onto foreign "enemies".

Third, many US allies in Asia (and elsewhere) are wondering whether America’s recent strategic "pivot" to Asia is credible. Given the feeble US response to the crises in Syria, Ukraine, and other geopolitical hot spots, the US security blanket in Asia looks increasingly tattered. China is testing the credibility of US guarantees, raising the prospect that America’s allies may have to take more of their security into their own hands.

Finally, unlike Europe, where Germany accepted the blame for the horrors of the Second World War and helped to lead a decades-long effort to construct today’s European Union, no such historical agreement exists among Asian countries. As a result, chauvinist sentiments have been instilled in generations that are far removed from the horrors of past wars, while institutions capable of fostering economic and political co-operation remain in their infancy.

This is a lethal combination of factors that risks leading to military conflict in a key region of the global economy. How can the US credibly pivot to Asia in a way that does not fuel Chinese perceptions of containment or US allies’ perceptions of appeasement of China? How can China build a legitimate defensive military capability that a great power needs and deserves without worrying its neighbours and the US that it aims to seize disputed territory and aspires to strategic hegemony in Asia? And how can Asia’s other powers trust that the US will support their legitimate security concerns, rather than abandon them to Finlandisation under Chinese domination?

It will take enormous wisdom on the part of leaders in the region, and the US, to find diplomatic solutions to Asia’s multitude of geopolitical and geo-economic tensions. In the absence of supporting regional institutions, there is little else to ensure that the desire for peace and prosperity prevails over conditions and incentives that tend towards conflict and war.

• Roubini is chairman of Roubini Global Economics and professor of economics at New York University’s Stern School of Business.

© Project Syndicate 1995–2014