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.

Even worse is the fact that China is now challenging the US in the manufacturing of airframes, computers and aeronautical guidance systems, products America once dominated. America’s growing reliance on high quality, low-price Chinese imports eventually might “undermine the US defense industrial base,” the report claims.
The commissioners took particular offence at the rapid and deepening economic ties between the two countries. They maintain that China, through trade and access to more than US$ 14 billion raised in US capital markets, has modernized its military and expanded its influence in South-East Asia at the expense of the US.

The report also blames the rush of multinationals to China for aggravating the massive US$ 87 billion US-China trade imbalance. “This kind of behaviour is not trade; this is global manipulation by companies for their

Shenzen special economic zone: a driver of China's world trade windfall

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.”