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The global financial crisis that erupted in 2008 has only served to underscore the vulnerability of the US and the rise of Chinese capitalism. While the US and European economies contracted in 2009, China contributed more than 50 percent of global economic growth. Last year China overtook Germany to become the world’s largest exporter. While major Western banks had to be bailed out, the seven largest Asian economies now hold $US4.6 trillion in foreign currency reserves—greater than the rest of the world combined...

Today’s tensions are compounded by the fact that no country is in a position to play the role that the US did in creating a new equilibrium after World War II. China is an economic giant with feet of clay, riven by economic and social contradictions. Its economy is dependent on Western investment, technology and markets. China’s great economic “strength”—its vast pool of cheap labour—inevitably produces deep-seated social tensions. While its GDP is set to become second in the world, its per capita GDP was just $3,259 in 2008, 104th in the world, behind Iraq, Georgia and the Republic of Congo. It has the second largest group of dollar billionaires in the world behind the US, yet 150 million people live on $US1 or less a day. The abiding fear of the tiny Chinese elite is that its police-state measures will not contain the immense social explosion that is building up.

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