From Boom to Bloom

It used to be that whenever Wall Street sneezed, the rest of the world caught a cold. But things are different today. Now, when Shanghai's equivalent, Pudong Avenue, gets a fever, the rest of the world loses its manhole covers. This is globalisation writ small: citizens as far apart as Powys, north Wales, and Columbus, Ohio, have scratched their heads over the mystery of stolen manhole covers - and the culprit is China. The country's boom has set off a surge in international demand for the building blocks of industrialisation. The outcome has been rocketing profits for Brazil's steel mills and Britain's scrapmetal dealers, along with an increase in the value of humble drain covers. As Alexis de Tocqueville observed of 19th-century Manchester: "From this filthy sewer pure gold flows."

As readers of G2's special report on China this week will be aware, the consequences of that social and economic outburst are all around us. Just last month, when the People's Bank of China raised official interest rates - by a forensically precise 27 hundredths of a percentage point - international financial markets shuddered nervously. The west's media is transfixed by the outsourcing of nuts, bolts and jobs to the world's new workshop. All this, and the giant shopping malls of Guangdong and Beijing, are some of the forces unleashed by Deng Xiaoping's famous Aristotelian endorsement of capitalism: that it doesn't matter whether a cat is black or white, so long as it catches mice.

In 25 years, hundreds of millions of China's citizens have risen out of poverty. It has been one of the great success stories of economic development. Indeed, but for China's reforms, the best efforts of the World Bank would have been ineffectual. Take away China, and the number of those living on less than $1 a day in the developing world would have risen between 1987 and 1998. Such rapid change has a price. There are many millions in China's rural areas still unwarmed by the glow of the cities. Yet the pace of growth has threatened to outrun even China's seemingly inexhaustible resources, and the central government now wishes to cool the economy down - hence last month's modest interest rate rise. It is also committed to reforming the country's rickety banking sector, as well as its patchy property laws and social welfare provision, notably in health care. Should it succeed, Powys may have fewer drains lacking covers.

It is easy to be awed by China's tapestry, but this should not obscure the serious stains that remain on the country's fabric. China's rise is a familiar tale to those who saw the "tiger economies" of Asia make rapid strides in the 1980s and 1990s. They too were hailed as miracles, but each carried fundamental flaws. Corruption, reckless borrowing and distorted accounting were eventually forced to the surface in Indonesia, Thailand and South Korea. It is possible to imagine a similar bursting of China's bubble, especially as China's official statistics are uneven and notoriously unreliable. The difference in China's case is that the social upheaval following a deep economic dislocation could be far more dangerous for its neighbours and trading partners.

Elsewhere, the government's unbending grip on Tibet and those who dissent from its rule have not enjoyed political freedoms matching the economic ones. Support for human rights and the rule of law remains feeble. Just as worrying is China's record on pollution. Mao's ancien regime was responsible for some horrendous environmental disasters, but just as oil prices have risen in part because of modern China's appetite, so its output of carbon has ballooned. While western nations are in no position to throw stones over greenhouse gases, China must avoid their mistakes and be encouraged to avoid the environmental excesses of industrialisation.