The China-US relationship will be the pivot of the post-unipolar world order. Western perceptions of China tend to oscillate between confrontation and fascination, either inflating or downsizing its importance. The benign view sees China taking its rightful place as a responsible stakeholder in the management of regional and world order; the pessimistic assessment worries about its potential for mischief across a broad range of issues around the world.

Driven by strategic narcissism, the $US3 trillion ($A3.4 trillion) wars in Iraq and Afghanistan have helped to bankrupt America and, by outsourcing manufacturing to China and services to India, enfeeble its capacity to produce enough goods and services to pay its bills.

 The United States economy used to be the biggest, best balanced and most productive and innovative. Now it is saddled with debts, deficits and distortions.

 The US deficit, projected at about 11 per cent of economic output for the next year, will still be about 5 per cent of GDP in 2020.

 A seemingly dysfunctional political system neuters all efforts to address structural problems. If by the end of the decade the US is still the world's biggest borrower - 10-year economic forecasts lack credibility - will it still be the world's biggest power?

 China is the world's largest auto market by unit volume, the biggest exporter of merchandise and will account for the largest growth in world trade for some time. The US remains the finance and consumption capital of the world but the new production capital is China. It is dependent no longer on US markets, managerial know-how and technology, nor on US power as a counterweight to a Soviet threat.

 A dominant player in setting energy, mineral and other commodity prices, China is the world's major net (but not per capita) emitter of greenhouse gases and determinant of climate change.

 Tom Friedman argues the loss of faith in Western prescriptions is leading to the discredited Washington Consensus of free market, pro-trade and globalisation policies being replaced by a Beijing Consensus: a one-party, state-guided development, strictly controlled capital markets and an authoritarian decision-making process that can make tough strategic choices and long-term investments without being distracted by daily polls.

 The Chinese save as stubbornly as the Americans spend.

 US President Barack Obama's China visit in November was of a supplicant paying tribute to his chief creditor. His refusal to meet the Dalai Lama before the trip reinforced the symbolism. Their planned White House meeting this month has drawn fresh warnings from China.

 Yet, while the US needs China to finance a mounting debt projected to hit $A10 trillion over the next decade, a collapse of the US economy would mean drastic cutbacks to sales of made in China products in the world's biggest consumer market and also erode the value of China's $A2.7 billion currency reserves.

 China used to believe that the world order of one superpower and several great powers would continue. The Iraq and Afghanistan wars hastened the military, financial and moral decline of America.

 To protect their interests, some Chinese debated how they could arrest the pace of America's descent from heaven. Since the financial crisis, which proved China's remarkable resilience, there has been a flood of declinist commentary about the US by Chinese analysts.

 For the first time in 200 years the world must engage with a united and powerful China that has become more aggressive on several issues, including climate change, internet freedom and the border dispute with India.

 But so too must China come to terms with its new status: the Middle Kingdom has no historical, philosophical or literary tradition of diplomatic intercourse as a great power in a system of great powers.

 This will become especially relevant as China's footprint becomes increasingly global and its interests, presence and activities mushroom around the world.

 Treating China as an enemy could turn it into one.

 The Clinton and Bush administrations' China policies had rested on the assumption that exposure to free trade and the information age would release and strengthen the forces of liberalisation and political change. What if the assumptions are false? The evidence to date is mostly in the opposite direction.

 The US approved arms sales to Taiwan worth $A7 billion, calculating that with more than 1300 Chinese missiles pointed at Taiwan, bolstering the latter's military preparedness may be a prudent hedge against having to defend it from attack.

 It simultaneously raises the risks of failure and the costs of success should China choose to go to war.

 China retaliated immediately, suspending bilateral military exchanges and imposing sanctions on companies selling arms to Taiwan.

 Yet calculations of relative US decline are more likely to nudge China towards exerting leverage over US international policy than outright confrontation.

 China's rise has been welcomed by many as a counterweight to US military muscle and political arrogance.

 China could also be the world's engine of growth.

 But if not careful, it could encounter a grating wall of resistance as countries, multinationals and NGOs begin to push back against heavy-handed assertiveness.

 Is China prepared to shed Deng Xiaoping's anachronistic adage to keep a low profile and not take the lead? Will it use growing wealth, power and influence for narrow mercantilism or the common good? How long can it question the dollar's status as the global reserve currency without loosening its iron grip on the RMB?

 Google's threat to leave rather than become more complicit in internet censorship may be a harbinger of a changing international mood.

 Google's fight with China is more likely to be motivated by commercial calculation than concerns about freedom of information. As most foreign companies have discovered, it is not easy to move from China's massive potential to massive profits. Google's one-third share of China's search engine market provides just 5 per cent of its global revenue. On a level playing field, Google could potentially wrest a much larger market share from Baidu, its government-connected chief competitor in China. The risk assessment of the strategy of standing up to China may reflect this cost-benefit analysis.

 In China's implicit social contract, the citizens acquiesce to political control in return for the government overseeing continuing prosperity that delivers the same goods and services to them as to Westerners. With communism discredited, the government lacks a legitimising ideology to economic growth.

 If this is put under threat by Google and other major multinational firms pulling out, the strategic loss for the Chinese Government could be bigger than the lost revenues for the firms.

 China basks in the growing acknowledgment of its rising status. It is happy to take the benefits flowing from it but is less keen to stop being a free rider, exercise international public leadership and accept the burdens of being a great power.

 That mindset helps to explain currency manipulation to protect exports at the expense of other countries, unwillingness to commit to internationally verifiable cuts in emissions and courting of pariah authoritarian regimes to gain access to raw materials and resources.

 China is as unwilling as the Bush administration was to bind itself to agreed global norms. It could find itself in somewhat lonesome company with arms-length relationships of convenience rather than true friends and allies - of which America still has plenty, including Australia, Canada, the EU and Japan.