The greatest story of the last 25 years has been the political revival and economic development of China. It is a story of which the West is still only vaguely aware. Yet China over the next 25 years will change the whole world economy and dominate the eastern half of the continent of Asia. This development will be so huge that no global investment decisions can be made without taking it into account. The U.S. balance of trade? A question of China. The price of oil? A question of China. The European automobile industry? A question of China. General Motors? A question of China. The U.S. budget deficit? A question of China. The market for Microsoft? A question of China. The price of gold? A question of China. We have been living in a restricted global world, inside the confines of the advanced industrial economies. If one could calculate the interaction of the American, European, and Japanese economies, one could pretty well identify the trends of the future. Now one has to take the Chinese factor into all one's forecasts. It is the new variable in every equation; it is already the one that changes most rapidly, and it will soon become the biggest. I first went to China in 1977. Chairman Mao, a stultifying tyrant who is still widely admired for having reunified China, had recently died. His widow and her "Gang of Four" had recently been locked up. But China still had an unchanged Soviet-style economy. Everyone wore the same drab Mao suits. The clothes of senior officials were slightly better tailored, from somewhat better material. That was the sole difference. Everyone traveled by bicycle - a big, black Russian-built car meant a foreigner or a very senior official. Our guides from the foreign ministry all sang from the same song sheet, wherever we were. My memories of that visit are a snapshot of a foreign age. One can give some figures. Three years later, in 1980, Chinese foreign exports came to about $20 billion; they mostly consisted of commodities or very simple peasant goods. In 2002, Chinese exports came to just under $500 billion, and they are now past the $500 billion mark. That is an increase of 25 times in rather fewer than 25 years. In 1980, China represented just over 1% of world trade, although 20% of the world's population. In 2002, China's share of world exports was over 5%, and imports were over 4%. According to the leading British economist, Martin Wolf of Financial Times, from 1992 to 2002, China's export of goods rose at an annual rate of 17.3%. If current trends were sustained (which is unlikely), China's exports would surpass those of the United States by about 2010. Currently, China is the world's fourth-largest exporter and sixth-largest importer. At some point, between 10 and 15 years from now, China is likely to be the largest in both exports and imports. China has overtaken Mexico as a supplier of manufacturers to the United States. This astonishing growth has been based on the almost unlimited supply of cheap labor, backed up by an elitist but effective educational system. I have visited high schools in China and the United States. There is no comparison between the two in terms of motivation or disciplined learning, and many of the best Chinese students go on to study at excellent Chinese universities and then to the best universities in North America or Europe. Chinese labor costs are lower than ours - wages are still only about a quarter of those of Mexico - and for the higher grades, their educational system is better rather than worse. There are two very important safeguards. The first is that China has no alternative but to join in world trade. To feed 20% of the world's population, China has only 7% of the world's agricultural land. China still needs to import much of the technology to develop its economy, though that need will only last, on anything like the present scale, for one more generation. China - like 19th century America - needs to have access to foreign capital to develop its infrastructure. China is a net importer of industrial raw materials. There is no question of China ever wanting to withdraw from global trade or trying to set up a "fortress China" policy. That is a mistaken luxury that has been tempting to Europe and the United States, but will never be in the interests of China. They have to export in order to be able to buy the imports they need. They also have to reform the old state economy that still exists in some sectors, particularly in heavy industry. When one visits China nowadays, one is struck by the degree of freedom in ordinary life. Students do not hesitate to ask difficult questions because of political correctness. Ordinary Chinese are fully conscious of the freedom they have now - particularly in the economic sphere - as compared with the restrictions that still existed 10 or 20 years ago. Of course, China, like Japan, Korea or Singapore, is still an Asian society with a tradition of deference to authority. Confucius has outlasted Karl Marx - not to my surprise. There seems to be an implicit social bargain. The young in China want to take advantage of the opportunities that are so clear to them - and to foreign investors. Chinese graduate students come back from the United States with stories of Chinese graduates employed in the United States at $100,000 a year. They would like to work for an international business, inside or outside China, at that sort of salary. That is putting it in material terms. But the first time a nation gets rich, not just in terms of robber barons, but of the ordinary gifted graduate, that enables a wonderful feeling of hope and expectation. So long as the Chinese government, which is still run by the Communist Party, maintains these conditions of opportunity, the young Chinese graduates are not interested in chalking democratic slogans on the side of banks. Nor do they want to give up modern jobs in electronics in Shanghai to do the political chores of organizing labor relations in obsolete tractor factories in the Chinese midwest. The government has to deliver its side of the deal, which comes down to continued internationalization, economic growth, and reform. Many young Chinese have been abroad to study. They assume that democracy is the way that China will develop. But they are in no great hurry, and, like the Chinese government, they are determined that China should hold together. Of course, Chinese democracy will not be the same as our democracy. In 1977, I read quotations from philosopher John Locke to the staff of the People's Party in Beijing. The Chinese would still find Jefferson's Declaration of Independence a subversive document, because it implies a much more individualist society. They accept the authority of the government, of the emperor. They accept the seniority of the elders. They believe in respect. Perhaps Western society has something to learn from the social cohesion, belief in duties rather than rights, family structure and educational ambitions that tie modern China together. There are aspects of both our societies from which the other can learn. But we must recognize two things: China's amazing development is good for the world - a source of wealth; we cannot stop it, but we can share in its benefits. | 
