US citizen Merle Hinrichs has long been tied to China, so much so that he considers Hong Kong to be his permanent home rather than the small farm town in Iowa where he grew up. Soon after graduating from the American School of International Management in Phoenix, Arizona, in 1965, Hinrichs went to Japan to seek a fortune. He found, however, that his destiny had more to do with the rest of Asia, and in particular China.

In 1971, he moved to Hong Kong where he co-founded a small publishing company producing trade magazines that touted global trade and helped international buyers to source products from Asian factories. Today, that company, Global Sources, is a powerhouse facilitator of global trade. Listed on the Nasdaq in 2000, Global Sources helps buyers, particularly Americans, source billions of dollars worth of goods every year from Asia, and currently mostly from China.

“China makes up 35 per cent of our revenues,” says Hinrichs, 61, with a beaming smile. “Of our 1,800 employees, 800 are in 35 offices spread across China.” The way global trading trends are heading, with China already being the world’s premier workshop, Global Sources may see more than 50 per cent of its revenues come from China in the coming five years.

When China gained “most favoured nation” trading status in 2000, only one hurdle remained to China’s economic makeover: that was surmounted last year when Beijing joined the World Trade Organization. From an economic perspective, trade appears to have worked miracles. Grey streets once defined by rusting bicycles and drab blue suits now bustle with expensive cars and young professionals in designer clothes. China’s foreign trade is now growing at a faster rate than that of Japan during that country’s boom period of the 1960s and 1970s. The annual growth of Guangdong’s provincial economy presently surpasses that of Hong Kong by a factor of 10.To see the full measure of China’s transformation, drive out to the Lemon Lake housing development north of Beijing where a sign at the entrance promises, “North American Demeanor, Rich and Strong.” Houses there all come with brightly-lit breakfast nooks, large master bedrooms and American Standard bathrooms.

The biggest with 418 square metres of floorspace sells for US$ 1.1 million. The entire development looks as if it were plucked root and branch from California’s San Fernando Valley.

If the goal of economic engagement has been to turn China into a land of hard-working consumers, then shouldn’t Washington should be pleased with all the changes? Not according to a recent report by the US-China Security Review Commission. China has learned the lessons of capitalism so well that its continuing development poses a security threat to the US. Compiled by a 12-member bipartisan panel of businessmen and Washington insiders, the 209-page document asserts that Beijing is a growing economic and military threat. And China, despite its promises to the contrary, does little to protect human rights, ensure religious freedom or curtail the illegal sales of nuclear materials and missile-related technology to countries accused of sponsoring terrorism, say critics.

“This kind of behaviour is not trade; this is global manipulation by companies for their own bottom line,” says Maryland legislator Richard D’Amato, Chairman of the commission. Notes William Reinsch, a former Clinton administration under-secretary of commerce who was the lone dissenter on the commission: “The majority has bent over backward to avoid describing the Chinese as a ‘threat’ — yet the belief that they are permeates every chapter.”

Desperate for allies in its amorphous war on terrorism, the Bush administration publicly continues to praise China’s economic gains. In private, however, several leading government officials say they worry that the stage is quickly being set for an epic struggle pitting the American eagle and the Chinese dragon.

In a recent tour throughout South-East Asia, US trade representative Robert Zoellick told Asean leaders that the best way to prevent Chinese dominance would be to form a cohesive trading bloc. The 10-member Asean bloc, perhaps in recognition of China’s growing influence, has postponed debate on a free trade zone among its members and instead agreed to trade talks with China. Beijing, for its part, has begun a wining and dining initiative in picturesque southern Hainan province, which sits at the mouth of the South China Sea and is known as the “Hawaii of China.” There for the past two years in the resort town of Boao, senior Chinese leaders invite South-East Asian leaders for discussions on regional economic interests. Though only two years old, the Boao Forum has come to be known as China’s imitation of the World Economic Forum, which meets annually in the small Swiss ski resort of Davos.

“China has three priorities: economic growth, economic growth, economic growth,” says Kenneth Courtis, Vice Chairman of Goldman Sachs in Asia, who attended the Boao conference at the invitation of China last April, and believes that China does not pose an economic threat for the US. “It was well done,” he says. “There were a lot of regional leaders present.

The Chinese put on a good show, and there was a lot of constructive engagement.” Despite the belief of corporate America, Capitol Hill thinks otherwise. Unlike the major wars of the past century, which were fought over territory, natural resources and political ideology, the 21st century’s first major conflict could be a prolonged struggle for economic advantage, say analysts. It will not be a war fought with bombs or bullets. Instead, the weapons in this war will consist of temporary tariffs, tax incentives, migrant labour and the strategic awarding of university scholarships, say the analysts. The emotions surrounding US-China relations reflect the challenges of balancing economic and military interests in a world where the free flow of capital, goods and people has blurred the lines between friend and foe. continue >>