While many think China is poised to unseat America as the world's dominant global superpower, the world's most populous nation is beset with many problems of its own.

With their growing wealth and power, why are Chinese leaders so paranoid? Actually, there are many reasons.

Their legitimacy is totally dependent on economic growth, Gates explained. Moreover, they are faced with the numerous demographic challenges of an aging population, arising partly from their one-child policy. As in the U.S. and Europe, an increasingly well-educated cadre of Chinese youth is disgusted with meager job prospects.

Gates noted that China has to deal with tens of thousands of violent protests every year in rural areas, protests the West rarely sees. At the same time, 300 million middle-class Chinese want a greater say in governing their country.

The response of Chinese leaders to all these internal challenges has been an increasingly strident nationalism. More than ever, China has been throwing its weight around the Pacific, which Gates said used to be an America-dominated ocean.

China is also allocating more and more resources to the military, scaring many of its Asian neighbors. Half of all the world's oil passes through the Strait of Malacca near Singapore, and China's demand for energy greatly exceeds its self-sufficiency.

--Evan Simonoff