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Contradictions between China’s external economic dynamism and its internal wealth gap, between its multipolar and multilateral orientation internationally and its politics of control domestically, and between its past ideals and present constraints, suggest that governance in 21st century China is problematic. Confucius said: “Ensure that those who are near are pleased and those who are far are attracted.” This article investigates and reflects on the inner-outer dilemma of contemporary Chinese governance. It calls on the wider sphere of cultural resources (not only Confucian but also Daoist and Buddhist) that provide a framework for accommodating rather than exacerbating tensions. Supporting evidence from Chinese government advisors and policy-makers, expressed in a lecture series on ‘China Confronts New Security Issues’, is also employed in this paper. The lectures and their extensive question-and-answer sessions, which the author attended, were held at the China Foreign Affairs University in Beijing, 6-10 June 2005. This paper concludes that that there is no contradiction between Confucian humanism and democracy, as demonstrated by Taiwan’s cultural heritage and democratic politics; just as there is no mutual exclusion between the capitalism and communism in the PRC, though the poorer sectors of the community need a stronger dose of socialism (via better educational, health and pension provisions) to survive in a capitalist environment. If a genuine Confucian democracy – and not a constrained paternalistic one – emerges, then transformation in China’s governance would have occurred. Transformative processes are thus necessary to bring China to a new level of stability. Unless this occurs the world will not bestow on Beijing the moral legitimacy it craves, despite its diplomatic recognition by the majority of the world’s states. Taipei, by contrast, enjoys approbation for its democratic politics but this does not extend to diplomatic recognition – a situation Beijing forbids. For China to become a respected power, and not only a strong one economically, its relations with Taiwan are a key. Productive relations on this front must augur well attitudinally for the task of building a civil society; one which in turn is capable of furthering the nation’s reputation internationally. To paraphrase Confucius, if those who are near are pleased, how can those who are far not be attracted?