Current economic projections -- such as the one by Goldman Sachs -- suggest that by 2050 the hierarchy of the largest economies would have China as the largest, followed by the USA, India, Japan [Images], Brazil [Images] and Russia [Images]. Such historic shift of power is not likely to be smooth for a variety of reasons.

First, and foremost, is the complex, symbiotic relationship between the Chinese economy and American prosperity and indebtedness. A large fraction of the American trade deficit is with China. This is now becoming a political issue in the US, but since the Chinese purchase of American bonds is keeping the interest rates in America low, the recent American demand for a revaluation of the yuan is largely shadow boxing.

Nevertheless China and the United States remain economic competitors. The Chinese appetite for commodities is driving up world prices. In Mapping the Global Future, an assessment of the world's prospects in 2020, the US government's National Intelligence Council says China is expected to boost its energy consumption by 150 per cent.

The Chinese feel vulnerable since America controls the sea lanes from the Middle East. Consequently, the Chinese are building up their naval power to defend these sea lanes and also entering into exploration agreements with Central Asian and South American countries. In my own view, the mutual economic and business linkages will ensure that there would not be a military conflict between the US and China.

China's real dangers are internal. The main challenge is the idea of Western individualism which goes against the Chinese tradition related to order and harmony in society. The failed Taiping rebellion of the mid-19^th century, the communist revolution of Mao Zedong, and the Tiananmen protests were attempts to find Chinese answers to this Western challenge.

Looking from outside, the centralisation of power by the Communist Party, and absence of institutions that provide outlet to vent frustrations of the public, appear future vulnerabilities. But Chinese leaders haven't yet found a new paradigm that would be in harmony with its own history as well as the needs of the times. Meanwhile, certain problems are festering, such as its hukou (household registration) system of two Chinas in which more than one-sixth of the population is denied the rights that others have.

Under the hukou system, people must live and work in the place where they are permanently registered, which is normally their place of birth. Households are designated as rural or urban. Urban workers are permitted to change jobs and they are provided with state housing and pensions. Rural workers need government permission to seek work in designated urban areas. In their jobs, rural workers are required to enter into bonded contracts which they can break only if they pay the employer a large amount of money. Employers prefer to recruit young, single women, who are housed in cement-block dormitories; the fear of the registration laws ensures that the women spend most of their time in the factory complex.

In effect, the hukou system perpetuates two Chinas, where the rural sixth has become the underclass in relation to the urban population. The urban folks are like the silk-industry bourgeoisie, and the women of the peasant families are like the workforce for cocoon production.

Absent legal safeguards for the rural people, local governments have recruited gangsters, known in Chinese as 'the black society,' to collect extortionary taxes. According to a recent World Bank report, China's rural poor have suffered a six per cent decline in living standards since Beijing's [Images] accession to the World Trade Organisation in 2001.

The mix of foreign ideas, bureaucratic control, greed, and corruption has led to several social explosions from time to time. Given that the Communist Party in China allows no opposition to it, could there be periods of breakdown of order?

A historical breakdown of monumental proportions was the Taiping Rebellion (1851-1864). One of the bloodiest conflicts in history, it was a struggle between the forces of Imperial China and those inspired by the Christian convert Hong Xiuquan. It is estimated that this war cost more than 20 million civilians and army lives. Both the Chinese Nationalists and the Communists, two groups that later ruled the nation, claimed to have been inspired by it.

The British East India Company started to import opium to China in early 19^th century. Warren Delano, maternal grandfather of Franklin Delano Roosevelt, was an important figure in this business. The Chinese resisted the importation of opium, but the Western powers insisted on carrying it out in the name of free trade and this led to the Opium Wars of 1839-1842 and 1856-1860. The treaties of Nanjing and Tianjin, which legalised the opium trade, also legitimised missionary activities throughout China.

This story had an American connection in the name of Issachar J Roberts, a Baptist minister, who was Hong's religious teacher. Believing that he was the Son of God and the younger brother of Jesus, Hong announced that his mission on earth was to rid China of evil influences of Manchus, Taoists, Buddhists, and Confucians. In the late 1840s, Hong reorganised his movement into a military organisation. In 1851, after repulsing an attack by the Imperial forces, he declared that a new Kingdom of Heavenly Peace had been established; he himself was the Heavenly King and the era of the Taiping (Great Peace) had begun.

The rebellion got off to an impressive start. Its soldiers raced northward through the central Yangtse valley to Nanjing. However, they were repulsed in Beijing. For the next ten years, the Taipings warred continuously to maintain their territory. But, slowly, the Kingdom began to unravel and in June, 1864, Hong poisoned himself.

The Tiananmen Square protests of 1989 were squelched before they became an unstoppable force. Although sparked by students mourning the death of a liberal Party leader, they were a consequence of the inability of the Communist party to resolve its differences in an orderly manner. It was the struggle between reformers and conservatives being played out in the streets in which the demonstrators called for greater democracy, and an end to official corruption.

As the protests spread nationwide, the hardliners got the upper hand and Beijing was placed under martial law. Tiananmen Square was not cleared, and on May 30 students erected the 'Goddess of Democracy' statue to the cheers of a large crowd. On June 4, on the orders of the party elders, troops and tanks cleared Tiananmen Square. Hundreds (some say, nearly 3,000) of unarmed protestors were killed. The Chinese government has refused to give out the number of dead and wounded.

The Taipings wanted to create an ideal theocratic state, whereas the Tiananmen protestors wanted an ideal liberal state. The liberal State model would solve the problems of hukou and hasten the creation of a civil State, but its goals are different from that of the Communist Party, which remains provincial in many respects.

It is the reluctance to face up to these tasks of bringing democracy within, that Chinese leaders have used hegemonic nationalism related especially to Taiwan for its internal political purposes. The same reason leads to a selective use of history. Recently, there were state sponsored demonstrations against Japanese atrocities in the Second World War, yet China is purging its own textbooks of its own war in the late 1980s in Vietnam, and whitewashing the events of the Tiananmen Square protests.

China has asked Koizumi not to visit the Yasukuni Shrine [Images] for the Japanese war dead, which Koizumi has done anyway, to Chinese anger. There are also tensions between China and Japan over Japan's republishing of a controversial textbook and over territory in the East China Sea. The Chinese have orchestrated protests against Japan's bid for a permanent seat in the United Nations Security Council. Although, the Chinese government has used these protests as instruments of national policy, there is no telling whether in future such protests could get out of hand.

The Chinese economy also has to carry the burden of an aging population that is proportionately greater than in other large countries. The demographic problem of China will get worse in the next decade.