Rocket Economics

In becoming only the third country, after Russia and the US, to send a man into space, China has passed another milestone in its ambition to become a global power. The timing for Beijing is exquisite as well. The launch of the Long March 2F rocket came just ahead of next week's economic summit in Thailand; where Mr Bush will ask China for a favour.

Mr Bush may lead the world's most powerful country, but the US has economic vulnerabilities that have been exposed by China's tremendous growth in recent years. The US has a massive trade deficit - now running at an annual rate of $433bn (£259.7bn) - partly because it has assumed its traditional role as the world's economic engine. That means sucking exports from the rest of the world at a time of weak global growth, including goods from China.

Chinese exports to the US have tripled since 1995 and last year America's trade gap with China hit $120bn, the largest ever recorded by the US with any country. So far this year, the deficit is 22% above last year's pace. As the trade gap widens so has political tension grown over the issue. US exporters, unions and politicians accuse China of foul play by keeping its currency artificially low to give Chinese goods an unfair advantage in world markets, an accusation levelled at the Japanese in the 1980s. China has now replaced Japan as America's favourite economic whipping boy.

Blaming China for a growing trade deficit is politically expedient, even if the argument is shaky on economic grounds. As Joseph Stiglitz, the Nobel prize-winning economist, pointed out in today's Guardian, the fault lies mainly with the US itself.

"America's burgeoning trade deficit is a result of Bush's unprecedented mismanagement. Tax cuts that the US could ill afford turned a huge fiscal surplus into a massive deficit; rather than saving, America is borrowing, much of it from abroad. That - not China's exchange rate policy - is the culprit," he argued.

Nevertheless, Mr Bush, under domestic pressure with a presidential election looming next year, has to project a tough image when he meets Chinese officials in Bangkok. The spin has already started, with Mr Bush telling Asian journalists that he will press China and Japan to allow their currencies to rise against the dollar.

But Mr Bush has to tread carefully. Beijing will not want to be seen to kowtow to the Americans and too public a show of US pressure may backfire. The irony of this potential trade dispute is that it may well be in China's interest to see a rise in the value of its currency.

The Chinese economy has been growing at an annual rate of 7%, but such breakneck expansion brings the risk of overheating. China already produces more new cars, toys and mobile phones than the still developing domestic economy can consume or international markets absorb.

There are already signs of a Japanese-style bubble, bad loan problems and deflation. Chinese officials have said they can see a case for revaluation on domestic grounds, but they have made it equally clear that this will done at a time of their own choosing and not by diktat from outside.

The currency issue will need careful handling. For all its great power pretensions, China's self confidence is still fragile. Plans to show today's launch were cancelled at the last minute and TV viewers saw the lift-off 40 minutes after it occurred. For all that, like its rocket, China's trajectory is upwards. The same cannot be said for the US under George Bush.

Mark Tran is business editor for Guardian Unlimited.