CHINA’s gross domestic product is likely to grow by 8%-9% in 2004. It has become the top destination for direct foreign investment, which may reach a historic $70bn this year. As the world’s third largest importer (1) and fourth-largest exporter China has helped to boost world growth.

It is often described as the workshop of the world, manufacturing low-grade products. However, as Patrick Artus, head of economic research at CDC-Ixis, points out: “China is turning into a competitive, quality manufacturer in an increasing number of fields: textile, toys, steel, shipbuilding, but also electronics, consumer electrics, metallurgy, capital and goods in the foreseeable future, cars, aerospace and furniture. Industrial growth is particularly strong in information technology, electronics, steel and cars” (2).

Should we hold China responsible for the loss of millions of jobs in the West? Jeremy Rifkin, the US economist, acknowledges that it is a prime destination for relocations, but is convinced that it is taking the same route as its western counterparts; it too is losing jobs in manufacturing, and at a higher rate than anywhere else. Between 1995-2002 it lost 15m jobs in industry, equivalent to 15% of its manufacturing workforce.

Without wanting to minimise the dynamism of its economy, observers have doubted the reliability of official statistics. Several economists claim GDP growth was overestimated between 1997-2002 to avoid discouraging foreign investors and underestimated after 2003 to support the idea that the economy was making a controlled landing.

Analysts have expressed doubts about the amount of bad debt held by local banks, a problem that may seriously threaten the economy’s stability. The authorities in Beijing maintain that bad debt amounts to less than 10% of total debt, but western banks put the figure at 30%, or even more than 50%. Journalist Michel de Grandi says that “much of the economy still lacks transparency” (3). Scandals have already hit the Shanghai and Shenzhen stock exchanges; the owner of the China Life insurance company had to acknowledge that its subsidiary had illegally used $700m. As an indication that China is familiar with the worst failings of global finance, an increasing number of Chinese companies are now registered in tax havens such as the Virgin or Cayman Islands.

Another question raised by economists in the English-speaking world concerns the yuan-dollar exchange rate. Since the mid-1990s $1 has been worth 8.28 yuan. But the US claims that the yuan is undervalued, enhancing the competitive edge of products manufactured in China over US equivalents. According to Washington the trade deficit (almost $125bn to China’s advantage) is mainly due to the exchange rate. It has put pressure on Beijing to revalue its currency. But such criticism conceals the inability of the US economy to compete with China in various sectors and, of course, its bad habit of living beyond its means.

To finance its trade deficit the US is running up debt, issuing bonds to the central bank in China and other Asian countries. And to support growth in consumer spending at home it imports cheap Chinese products.

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