Pat M Holt:

There’s a Chinese dragon thrashing around in Asia, and the rest of the world had better pay attention. A country of 1.3 billion people, enough to make it a political power, is about to become an even greater economic power as well. For several years, China has been averaging 9 per cent economic growth.

China has become the world’s second-largest consumer of oil. Its oil imports increased about 40 per cent in 2003, and it is actively competing with the US for foreign oil supplies in the Middle East, Sudan, Canada, and Venezuela; Chinese foreign trade has grown so fast that it is investing $4 billion in shipbuilding facilities and aims to be the world’s largest shipbuilder by 2015; China may well already be the world’s largest clothing manufacturer; China is becoming a foreign investor, including investments in high-tech industries.

This growth is altering China’s place in the world. It is something to which both China and the rest of the world need to adjust. For the short term, something needs to be done about international currency exchange rates. A considerable amount of the growth comes from the Chinese policy of tying the yuan to the US dollar. This has the effect of undervaluing the yuan, thereby making Chinese goods cheaper for foreigners and US goods more expensive. Result: In 2004 the US spent $1.3 trillion importing Chinese goods while earning only $745 billion exporting US goods to China.

For the long term, China needs the political institutions generally associated with free-market economies. Following the death in 1976 of revolutionary and long-time dictator Mao Zedong, Mao’s successors began slowly and cautiously to experiment with lifting some of the political and economic restraints that Mao had imposed. So far, the ruling elite has managed to give the country the benefits of economic growth without coming to grips with its political implications. The central dilemma remains: How can a free market work without, for example, an independent judiciary and independent labour unions? The prospect of such institutions scares the party, with good reason.

The rich-poor gap in China is growing. This provides an almost endless supply of cheap labour as peasants move to the cities. China is undercutting the low-wage production of some of its Asian neighbours, notably Bangladesh and Cambodia. China and the US approach the question of how to adjust to these changes from different worldviews. They have been hostile and suspicious of each other for most of the time since World War II. These differences are illustrated by the US’s recent imposition of sanctions on eight Chinese companies for exporting missile technology to Iran.

The extent of Chinese economic growth adds new meaning to globalisation. It may require the US to change some of its domestic policies in ways that will encounter fierce political resistance. Adjustment will almost certainly require US companies to become more competitive in the ways they do business. On balance, it seems better to include China in world economic activities than to exclude it or to discriminate against it. The time may soon come to consider making China a member of the elite G-7 group. It is not inconsistent to think of China as an economic competitor and a political ally. — The Christian Science Monitor