The transatlantic link between Britain and the United States may have been the defining global partnership of the past 50 years, but the next half-century will be dominated by the relationship between the US and China, and it is unlikely to be smooth.
The largest remaining communist state, if only in name, is the only nation capable of challenging US economic pre-eminence.
The Chinese economy is already larger than Italy?s, apparently will overtake France this year and is
moving up fast on Britain.
The US is likely to be untouchable for some time as its military spending is greater than the next nine largest countries combined. But measured at purchasing power parity China?s military expenditure is about 85% of Washington?s.
The hawks in the Bush administration have also done their sums and they don?t like the results. On the face of it the hawks are right to be alarmed at the potential challenge to US economic hegemony. The sheer speed of China?s development over the past 30 years ago has been astonishing. For most of the 1980s and 1990s China grew at nearly 10% a year. Per capita income has quadrupled as a result and now stands at $4 000 a year.
But for China to become a serious rival to the US it has to negotiate some formidable obstacles. The social strains of restructuring are growing.
The challenge to the state?s authority is the vast pool of the unemployed created by the restructuring of inefficient state industries and the exodus from agriculture. The World Bank estimates that 36-million workers have lost jobs in the past three years.
Just to keep pace with its growing workforce, the economy needs to create about nine million jobs a year. Growth has slowed over the past five years. The government says the jobless rate is 3,5%, but nobody believes it. The World Bank thinks the real unemployment rate is at least 10%.
Nor is there likely to be any let-up. China has recently joined the World Trade Organisation (WTO) and now its sluggish firms face even sharper competition from foreign investors.
The cracks are starting to show. Opening up the economy to foreign firms will in the long run raise China?s growth rate, but the price is being paid in the short term by millions of angry workers who have lost their jobs.
The government?s solution to bankrupt firms is to force the four state-owned banks to keep extending them credit. But that strategy is building up a debt time bomb. The World Bank thinks that hidden debt could be 50% of gross domestic product. If the state-owned banks go under, the government will have to take over their debts.
The Organisation for Economic Cooperation and Development says restoring solvency to the financial system is the top challenge. If the government wants a lesson in the dangers of neglecting a bankrupt financial system, it need look no further than Japan, once the most likely challenger to the US but now mired in recession.
Another challenge is political. The government?s problem is that it is guaranteeing social stability by vast spending programmes. That is only a stopgap. Vast fiscal packages no longer work when taxpayers stop believing the government can pay for them. It also shows what happens when a moribund political system is faced with an economic crisis. If Japan is any guide, the omens aren?t good for China.