China's response to the demand for exchange rate revaluation has been a dramatic increase in currency market intervention in order to promote exchange rate stability. During the past year, China has purchased $100 billion of U.S. government securities in order to maintain a stable exchange rate vis-Ã -vis the dollar. China is not unique in pursuing such a policy: Japan has also spent nearly $300 billion during the past year attempting to maintain a stable exchange rate for the yen against the dollar. The east Asian countries have become so concerned about currency stability that they are prepared to finance 50-60 percent of America's budget deficit.

In fact, it would not be an exaggeration to suggest that the financial underpinning of the Bush Administration's economic and foreign policies is the ownership by east Asian central banks of vast quantities of U.S. government debt. These banks now have $2.1 trillion of foreign exchange reserves which are nearly 90 percent invested in U.S. government securities. Indeed, it is the willingness of the east Asian central banks to fund the U.S. budget deficit which has permitted the Bush Administration to pursue a highly expansionary fiscal policy without any adverse consequences for the domestic bond market. The Bush Administration is so concerned about manufacturing job losses that it does not want to acknowledge its unusual financial dependence upon east Asia, but the reality is that their currency intervention has become a de facto form of burden sharing for the Bush foreign and defense policies. China is anxious to maintain a stable exchange rate because of concerns about the stability of its financial system and the fact that it has lost ten times as many manufacturing jobs as the United States during the past six years due to the restructuring of its state-owned enterprises.

CHINA'S ECONOMIC takeoff and new role in the global commodity markets has occurred so quickly that the United States and other countries have not yet fully come to terms with it. All are extremely sensitive to the risk of job losses resulting from China's export growth, but they have not devised a strategy for coping with the larger consequences of China's new role. There are many questions that loom. If China accounts for 30-40 percent of global metal consumption in 15 years, what will be the consequences for commodity prices and trade flows? Will China become the dominant trading partner of countries as diverse as Australia, South Africa and Brazil? If China assumes such a role, will it attempt to develop a larger blue-water navy to protect the ships providing critical supplies of oil, iron ore and other raw materials? Will China become a major investor in developing countries in order to finance the development of new natural resource projects? Will China follow in the footsteps of the United States and Britain by intervening in the domestic political affairs of countries vital to its national interest? Will China offer arms supplies to developing countries in order to enhance its access to their commodity production? Is the intervention in the Sudan only the first step to a much larger Chinese military role all over the Third World?

The United States has clashed with China in the past over its policy in the Middle East. During the late 1990s, China offered to sell military technology to Iran in order to enhance its access to energy supplies. The United States protested, and China ultimately backed down. But as a result of China's new circumstances, the temptation will be strong for China to pursue a variety of diplomatic strategies for enhancing its access to raw materials. The challenge for the United States will be to demonstrate that it can accommodate China's need for raw materials and play a cooperative role in helping Beijing to assure adequate supplies. The United States has always supported a policy of open sea lanes and protection of private property, and it should now reassure China that it will use its own military forces to assure the safety and security of Chinese vessels and others carrying critical raw materials. The United States should also attempt to collaborate with China in developing a common policy for third world countries. As with the Sudan, it is not difficult to imagine countries as diverse as the Congo, Papua New Guinea or even Saudi Arabia turning to China for help in suppressing rebellions or protecting political elites. In the past, the United States would have reacted adversely to the deployment of Chinese troops anywhere. But as a result of China's new role in the global commodity markets, the United States will have to recognize that China has new security concerns that it should attempt to manage rather than simply reject.

China announced a major breakthrough in its third world relationships in April when it said that it would join the Nuclear Suppliers Group (NSG). China's application to the forty-nation club is an important recognition that it is in China's interest to be seen working with other leading countries in regulating the transfer of nuclear technology and material. China also wants to improve its own access to nuclear technology from the United States because of its plans to increase the role of nuclear energy within China. As a result of this decision, China will no longer be able openly to offer Middle Eastern countries access to nuclear technology as a quid pro quo for oil supplies.

In the 1950s and 1960s, the Chinese relationship with the Third World was heavily influenced by the 1954 Bandung summit conference in Indonesia. At that summit, the leaders of newly independent countries of Asia and Africa pledged to work together on behalf of a non-aligned Third World. During the 1960s China helped Zambia to cope with Rhodesian trade sanctions by constructing a railway from Dar es Salsam to Lusaka. In the future, China will have a different relationship with developing countries. It will become both their primary export market and an investor in their natural-resource industries. China's negotiations with them over commodity contracts will have a major impact on their terms of trade and national income. If commodity prices fall sharply and they experience recessions, they might blame China; in the past they would have blamed American imperialism.

AT PRESENT only a few things appear to be certain. The transformation apparent in the commodity markets during the past year is likely to persist for some time. China will increasingly become a more important influence on commodity prices than the old industrial economies of North America, Europe and Japan. China could drive commodity prices higher as it develops larger reserves of oil, grain and other critical raw materials. When investment in China finally slows down, commodity prices will decline. But as China is unlikely to experience a full-scale recession anytime during the next decade, there will be a steady--if not always spectacular--growth in its demand for raw materials. Indeed, by the period 2015-20 China's share of global metal consumption could be 50 percent larger than America's.

Such a large change in the composition of global commodity demand and trade flows will have political consequences. China is going to develop far more intimate relationships with many developing countries than have existed before. It is going to redefine its national security strategy to include protection of critical raw material supplies. It is too soon to speak of a new era of Chinese imperialism in the Third World, but China will certainly play a more influential role in the affairs of many developing countries. The domestic political environment in the United States has pushed trade into the spotlight at the expense of a long-term strategy for managing the consequences of China's requirements for strategic resources. The United States can regard China's new role as an opportunity for cooperation on many geopolitical issues or as a further threat to its own economic interests. There is no way to predict exactly how policymakers will respond to these developments. At this point only one thing is certain: China's new role as the world's largest consumer of many industrial commodities will force everyone to rethink assumptions about foreign policy, military policy and even the conduct of monetary policy during the early decades of the 21st century.

 David Hale, a global economist, is the founder of Hale Advisors, LLC and is also chairman of the board of China Online, LLC.

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