The Chinese took several steps to bring about this astounding economic growth. They could save and invest a high percentage of GDP, nearly 40 per cent. This national propensity to thrift would imply that foreign investment is important but not essential. The foreign investment flows were and still are mainly from the non-resident Chinese, which makes the capital flight less likely and its occurrence would not significantly impact the economy. Reforms were sequential with success feeding upon success. Forinstance, privatisation of agriculture led to privatisation of services, which led to privatisation of small-scale retailing, which, in turn, led to privatisation of small-scale manufacturing. The exports were freed from the fetters of control before imports. A blend of communism and Confucianism also gave impetus to education, resulting in a better and broadly educated populace. The stability of the Chinese regime enabled focus on long-term interests rather than short-term payouts.

China could achieve spectacular growth notwithstanding its infrastructural constraints (communication, transportation, and electrification). Its infrastructure is deficient when compared with even smaller and poorer countries. For instance, it has 20 per cent fewer railway lines, while being three times the size of India. In India, the British army built railroads in the 19th century, not out of altruistic intent, but to efficiently garrison the country. China being a quasi colony, none of the countries involved in its quasicolonialism took responsibility for building its national infrastructure.

Even the meltdown in East Asia has left China relatively unscathed. Though the domestic consumption weakened, the economy grew at a robust 8.8 per cent - a mere 0.8 per cent decline over 1996. The inflation was on a leash at 2.8 per cent. The export growth of nearly 21 per cent in 1997 and import growth of mere 2.5 per cent resulted in a record trade surplus of US$40.34 billion and forex reserves of $140 billion by the end of 1997. The Chinese currency remained remarkably steady in spite of the volatility of eastern money markets.

Unemployment, however, continued to be the bugbear of the Chinese economy. The unemployment rate has reached 3.1 per cent in the urban areas, posting a rise of 1 per cent over the previous year.

But the second half of 1997 is ominous with reduction in export growth. The ensuing year will witness a slowdown in global trade. But the Chinese have already a slew of macroeconomic policies in place to overcomethe challenges of 1998. These policies embody austerity, checks and balances in the financial system, social stability and stimulus to investment - particularly in infrastructure. Despite these measures, the Chinese economy may register a decline in the GDP growth with an increase in unemployment. These glitches in the Chinese economic locomotive are unlikely to rub the sheen off its long-term economic prospects.

China has effectively leveraged its economic might in enhancing its military strength and political influence in Asia. China pursued the development of weapons of mass destruction and delivery systems early on. It played a central role in transfer of conventional and non-conventional weapons to many nations. These transfers include construction of a secret heavily defended nuclear reactor in the Algerian desert believed to be capable of producing plutonium; the sale of chemical weapons materials to Libya; the provision of CSS-2 medium range missile to Saudis Arabia; the supply of nuclear technologyor materials to Iraq, Libya, Syria and North Korea and the transfer of large numbers of conventional weapons to Iraq. China has already built a strong linkage with both Pakistan and Iran.

The Chinese growing influence in the post cold war era is borne out by repeated retreats by the US in the areas of conflict. The US intention to punish China for its human rights record by stripping it of its MFN status had to be rescinded owing to pressure from American business. Its displeasure at Chinese proliferation of weapons of mass destruction has been ignored.

China is on its way to becoming the dominant power in East Asia. East Asian economic development is becoming more and more China-oriented, fuelled by the rapid growth of the mainland, Taiwan and Hongkong. This phenomenon is in no small measure due to the central role which ethnic Chinese have played in developing the economies of Thailand, Malaysia, Indonesia and the Philippines.

China is becoming more assertive and threatening. It is vigorous in:staking its claim to the South China Sea; developing its base in the Paracel Islands; fighting the Vietnamese over a handful of islands in 1988; establishing a military presence on Mischief Reef off the Philippines and laying claims to the gas fields adjoining Indonesia's Natuna island. Despite its assertiveness, the Asian countries have exercised utmost restraint in dealing with China.

As an economist said "Europe's past is Asia's future", Asia with its growing economic strength would dominate the global economic and political landscape and hence the mantle of dominance may well fall on China.

The implication for India would be the imperative to seek and strengthen its ties with the west while maintaining strong ties with Russia. Balancing Chinese proclivity to regional and ultimately global hegemony would be a test for Indian diplomacy and ability to project military power. Catching up with China in economic growth could be a pipe dream.

In the next millenium, China will be the second biggest threatto India next only to Islamic fundamentalism. These two burgeoning forces can unleash catastrophe on the sub-continent.