The modern-day Silk Road

For the last 2,500 years the Silk Road linked China to the West. Mysterious and exotic China was a consistent supplier of "innovative" goods such as porcelain, tea, paper and printing, gunpowder, the compass and all sorts of medicines. The Middle Kingdom has had a glorious albeit turbulent past. Over the last three decades the West seems to have rediscovered China.

The Made in China label is a symbol of mass-produced, low-quality merchandise. China seems to have lost its soul to become the factory of the world. Its industrialisation has been largely driven by the West's needs for cheap manufactured products. In 2001, communist China was admitted into the World Trade Organisation. Globalisation hit upon another El Dorado. One in every five humans lives in China. Huge amounts of foreign investments flowed into the country to tap the vast, cheap labour pool. For many workers in the West, especially semi-skilled or unskilled ones, China represents a threat; the modern day invaders from the East.

China's communist regime deliberately opened up the country to international capitalism. They did not want to end up the Soviet way. They realised that their legitimisation depended on their ability to foster economic growth and create jobs. This was the legacy of Deng Xiaoping who launched China's modernisation drive. If you cannot beat them, join them.

China represents a unique experiment blending communism with local and international private capitalism. The re-possession of Hong Kong provided an opportunity to show the world China's new-found pragmatism. "One country, two systems". China is the world's third largest economy and the second biggest exporter. Its economy has been registering double digit growth rates while inflation has been under control.

The country now needs to re-invent its economy, to find strength in its creative and ingenious roots. China too aspires to become a knowledge-driven society. It is investing its economic surplus to realise this promising future. Big money is going into R & D in such strategic sectors as telecommunications, nuclear power and the space industry. The target is to double present investments in this area so as to reach 2.5 per cent of GDP within the next 10 years.

The 2008 Beijing Olympics, the single most expensive PR exercise ever undertaken, marked the start of this re-positioning exercise. China took the opportunity to project itself as a well-organised, dynamic and winning society. The 30,000 visiting journalists were full of praise. Hundreds of millions of TV viewers were impressed by the extravagance and grace of the opening and closing ceremonies. The message was clear: This is the emerging China whose image should not be tainted by stories of poisoned milk and lead-tainted toys.

China remains an enigma to the West. The latter's dogmatism and sense of intense competition jars with China's disposition to seek harmony, yin and yang. The West places too much emphasis on the individual to understand China's "collective" orientation. The West criticises China for failing to accept its value system: democracy, human rights, the environment and so on. This generates a sense of mistrust. China does not hide its discontent with the existing political and economic world order and expects to occupy the place it deserves. Its "smile diplomacy" is intended to extend its sphere of influence, especially among Third World countries, so as to underpin its global standing.

Despite the recent naval incident, the Obama Administration realises that the US needs China which has over $1 trillion invested in its bonds. Talk about China "dumping" exports through an undervalued currency is being downplayed and the US has praised China's rapprochement with Taiwan. Relations with the EU remain cool, after President Nicolas Sarkozy, then EU President, met the Dalai Lama last December. Tibet remains a thorn in China's side. It managed a relatively successful damage control exercise on the 50th anniversary of the flight into exile of the Dalai Lama.

These are demanding times for the Chinese as well. Export-driven economic growth has slowed down, leading to increased social tensions between regions. Although registering significant trade surplus, China remains a developing economy with a relatively low GDP per capita. The country has emerged relatively unscathed from the global financial crisis but its exports are suffering due to the fall in global demand. Serious doubt exists whether this year China will achieve the eight per cent growth rate that is deemed critical for economic and social stability.

The Chinese government remains particularly sensitive to student discontent. Of the six million annual graduates, about 20 per cent are out of a job or doing work they consider to be inadequate. This year marks also the anniversaries of Tiananmen Square (20), the banning of Falun Gong (10) and the coming to power of the Chinese Communist Party (60), all of which could be potential flashpoints.

The 21st century will belong to China. Malta has a lot to gain from this success story. The Chinese have not forgotten that, in 1972, Malta was the first Western country to open relations with it. Exploiting this unique opportunity in a coherent manner could benefit our economy much more than embarking on some white elephant project.