ChinaLast month more than a third of President Bush's cabinet hopped on a plane and flew to Beijing.
They went there to meet Chinese bigwigs for "strategic economic dialogue" and intend to repeat the process twice a year from now on. US cabinet members do not visit anywhere in large numbers so this gesture can be taken to mean that China matters. Big time.
The extent to which the US economy is dependent on China has been well documented but deserves emphasising. The US government spends far more than it receives in taxes, running a budget deficit of some $286 billion (€220 billion) for the current year.
Were it not for Chinese loans (through purchasing US Treasury Bills and bonds) Bush would not be able to balance the books. China can afford to bail out the US; it now has more than $1 trillion (that's a million million) in foreign exchange reserves. Also, Chinese goods are manufactured at a small fraction of the manufacturing price that prevails in the US and elsewhere. Enormous exports of Chinese goods to the US have helped to keep American inflation down. For example, nearly 70 per cent of Wal-Mart's sales are produced in China. One economist reckons that American consumers are cumulatively $100 billion better off because of cheaper Chinese products.
This level of dependence has some Americans concerned and some Americans deeply annoyed. They complain that Beijing is deliberately keeping its currency, the yuan, at a low value, especially relative to the dollar, in order to make its exports even more attractive. Last year China racked up a trade surplus in excess of $4 billion a week, every week.
Even the Chinese themselves accept that their economy is unbalanced. Growth rates are being achieved that cannot be sustained. Concern was expressed when it was revealed that the Irish economy expanded by 6 per cent, way above the EU average. Surely, this is an overheated economy in line for a nasty shock. Well, the Chinese economy is estimated to have grown by almost 11 per cent last year. It can't last.
Will Hutton, an economist, former editor of the Observer, and author of four acclaimed books, has now turned his attention to the China conundrum. He too is in awe of the stupendous growth of the economy. From being fourth largest in the world at present, he expects it to rise to second place within a decade and he is quick to acknowledge the benefits. In the 25 years to 2003, average per capita income rose by a multiple of six and some 400 million people have been brought out of poverty. In addition, nearly 150 million have moved from rural areas to China's booming cities - though that is not necessarily an achievement.
HUTTON AGREES THAT this can't last. He emphasises the unsustainable levels of export growth and argues that the investment policy of Chinese banks (generating a puny return) cannot continue for long. However, his main thesis is that the contradictions between a roaring capitalist economy and rigid State control over just about everything else are manifesting an ominous instability.
So what to do? Well, Hutton argues cogently that the West needs to cajole China towards democracy. The introduction of civil rights, proper representative government, an independent judiciary and full accountability could bring to an end (or at least reduce considerably) the corruption, mismanagement and pollution that makes life a misery for millions of its citizens and threatens, eventually, to put the kibosh on economic growth.
Easier said then done. Later this year the 17th Communist Party Congress will decide who succeeds Hu Jintao as president and general-secretary. All the indications are that the party plans to play safe and draw its next generation of leaders from the ranks of conservative loyalists who have neither the vision nor the desire to look beyond the confines of the one-party state. Unfortunately, it may take many more years of growing income gaps and accumulated discontent before China's leaders come to accept that a 21st-century superpower might operate better with 21st-century freedoms.
This book is no impenetrable academic study. Will Hutton has written a very informative, wide-ranging and readable study of the threat that China poses to itself and to the rest of the world.
Eoin McVey is a managing editor of The Irish Times
The Writing on the Wall: China and the West in the 21st Century By Will Hutton Little, Brown 431pp. £20