One of the most important reports discussed in late January by the Council of Europe Parliamentary Assembly was a report on "The implications for Europe of the economic resurgence of China".

In its draft resolution the report stated that the emergence of China as a new player in the world economy presents an opportunity to be seized by Europe in the form of increased trade, cross-investment, human contacts and political co-operation.

The challenge ahead was spelt out very clearly in the sense that it is vital that Europe - whether in the EU or in the larger Council of Europe - adapts in time to this new realignment of the world's economic, and eventually political forces of which other rising powers such as Brazil and India also form a part.

The main thrust of the resolution is that Europe stands to benefit economically, whereas refusing to do so would not only jeopardise its own growth but also leave it increasingly isolated from the most dynamic regions in the world.

China has various reforms in its sights. These include a fundamental reform of its financial sector, aiming at better governance, a reduction in the number of bad loans, a larger presence of foreign capital and financial institutions, the opening up of domestic markets and a level playing field for foreign and domestic companies.

China's 2001 membership of the WTO has had an important and telling effect on the Chinese economy. When, as is hoped, the EU will grant it market economy status, this should translate itself in further increases in trade and investment between the two sides.

The Assembly showed its awareness of the widespread apprehension in Europe over intensifying penetration by Chinese companies in markets such as textiles and manufactures. Not only in trade but increasingly also through investment in Europe-based production and retailing.

China's investment needs nevertheless remain considerable and this is where European exports could excel.

The areas where European companies have already made major inroads include Chinese tourism to Europe, environmental facilities, education and healthcare as well as social and pension models, services, infrastructure, energy production, vehicles, housing, quality brands and luxury commodities.

One cannot also ignore the fact that China's economic resurgence is affecting and intensifying competition at world levels for increasingly scarce energy, especially oil and gas.

An area where major shortcomings continue to prevail is that of intellectual property rights which calls for adequate protection and corrective measures.

The rapporteur states that from Marco Polo's tales of the magnificence of Cathay to the gunboat diplomacy of the 19th century, we have tended to see China's size as an opportunity.

Recently, though, it has been seen as a threat: at first, because of the military machine, and now because the west fears for its own economic future.

When we talk of China's population we have to look beyond the 1.3 billion figure. This represents a fifth of the world's population.

One area that China is penetrating intensively through its investments and economic activities is Africa, so much so that a Rome-based diplomat who recently hosted me to dinner told me wryly that 'The road to Africa is through China!'

China is unfortunately not well understood in the Western world. Few realise that if China's economy were to collapse, the world's trading system might well collapse with it.

One important thing we must keep in mind is that the country's history has influenced its growth while economics is constantly changing its social dynamics.

Between 1980 and 2003, China grew at an average rate of 9.5 per cent per year, with real incomes rising by 300 per cent and GDP per head increasing faster than in any other country.

In the last decade it has attracted foreign investment of $560 billion and is now the world's third largest economy and already the second largest if one uses purchasing power parity figures. This means that it accounts for some 15 per cent of the world's economic activity. In terms of foreign investment it is the largest recipient, attracting as it did some $60 billion in 2004.

Investment is not only in the vehicles sector, the chemical industry or in electronics but increasingly also in research and development, hi-tech and services.

When I visited China last year it was a culture shock for me since I had not been there since 1978 - although I plan to revisit it this year. Its skyscrapers, highways and ultra-modern airports all seem to be designed to demonstrate China's new status in the world.

But one question which many have been unable or ill-equipped to answer is how this boom has been financed and whether it is sustainable.

Its growth is so fast that China is finding it hard to keep pace. On the other hand, some believe that China's demand for investment is insatiable.

I agree with the rapporteur in the sense that as the longer term infrastructure investments pay off, and the subsidies fall away, China's potential for real growth will become spectacular.

When we met Chinese officials last year they made it plain that they intended to introduce financial transparency and political accountability as they wanted to eliminate waste, incompetence and abuse in their system. The Communist Party itself has acknowledged that tackling corruption is a top priority so much so that during conversations the Chinese themselves bring up this topic for discussion.

Though the pattern of Chinese growth is a familiar resurgence of an Asian economy, it has never before been attempted to such a scale, and from such an impoverished starting point.

Much has been achieved but there are many problems, particularly at the institutional level, that need to be overcome.

As far as Europe is concerned it must endeavour to see China succeed. Europe will not and should not want to see this project fail.

That is not in the interests of the people of China, nor is it in the interests or true to the values of the peoples of Europe itself.

To achieve this the West, and not just China, will have to embrace change.

leo.brincat@gov.mt

Leo Brincat, who is the Shadow Minister of Foreign Affairs and IT, also forms part of the Political Affairs Committee of the Council of Europe.