The US and China: new best friends?

The Chinese economy today, is slightly bigger than Italy (the eurozone's third largest economy) and bigger than Canada, in terms of GDP, (Gross Domestic Product).

But unlike Italy - or the rest of Europe, for that matter - the Chinese economy is growing fast.

Jim O'Neil at Goldman Sachs calculates that China will grow by 7% in 2002 while Italy and Canada will be lucky to grow at all.

Keep on growing

China is set to grow exponentially into the foreseeable future. Goldman Sachs expects membership of the WTO to boost Chinese foreign trade by $800bn every year to 2005.

Some economists calculate that China could be contributing almost 2% to world growth within ten years, and half that amount again to world trade.

That could foster a growth rate at least 7.5% above current expectations - in other words, China could expand at around 14% per year for the next several years.

The US government believes that the balance of trade between the US and China will remain in its favour. But most American (and other) businesses seeking to invest in China are fixed on China's biggest export - its highly competitive, low-cost labour force.

Already, China is the biggest exporter in the world of goods like toys, footwear and textiles. Experience from the former Asian "tiger economies", as well as India, show that exports climb the value added and premium price ladders faster than local labour costs.

The effect is to increase competition hugely in importing Western markets, putting pressure on employment and growth there.

As China's size within the world economy grows, so will its influence, in the way that its domestic economic decisions affect the rest of the world economy.

The day may not be far off when China will move swiftly from the outsider of the world economy at the end of the 20th Century to a place at the top table.

China may soon be invited to participate in global policy making at the highest level. It may join the G8 - or G9 as it would then become.