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There are a couple of -- perhaps unrelated -- factors to consider:

1) China is now the #1 consumer of energy products in the world, and the expansive nature of their economy will not reduce energy needs.

2) Japan's pre-WWII expansion was associated with the need for raw materials. China's growth is already leading to expansionistic militarism in the South China Sea area, and "incidents" have been noted with Vietnam, Thailand, Australia, Japan over the ownership of islands adjacent to potential oil fields.

3) China is facing an internal issue of catastrophic proportions. Their banking industry is on the verge of collapse with bad loans. A recent phenonemon, "bankless" loans, is causing additional concern (http://www.iht.com/articles/2004/11/09/business/yuan.html)

Perhaps the most threatening issue for China is the US Dollar...

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(from January, 2004)

THE world's business leaders now assembling in Davos for the annual World Economic Forum have currency fluctuations at, or close to the top of, the list of what they are worrying about.

They see the collapse in the dollar's value as having the potential to spread economic pain throughout the world - something President Bush failed to mention in his State of the Union Address on Tuesday.

One aspect of dollar weakness largely overlooked, even in Davos, is how it heightens the risk of an economic crisis in China. Because that country is fixing its exchange rate to slide down with the dollar, it has experienced an effective 40% devaluation against the euro and only a little less against sterling in the past 18 months.

But because the Chinese economy was already running flat out, the stimulus from devaluation could cause it to blow in a way that would be eerily reminiscent of the 1997-98 Asian economic meltdown.

All the economic warning signs are there. According to a December paper from Lombard Street Research, industrial growth was then running at more than 17%, exports were growing at an annual rate of 36%, imports at 30% and broad money in excess of 20% - all this in an economy with a sustainable potential growth rate of 8% a year.

Such indicators show that the economy is running at collision speed, but there is no sign of understanding from anyone in the leadership that the brakes need to be applied.

There are other reasons to think the Chinese boom cannot go on much longer without an enforced pause for breath. The nation is undoubtedly home to most of the worst banks in the world, organisations so riddled with corruption, nepotism and bad debts that they make the Japanese banks look like pillars of economic probity and virtue.

Their dominant purpose is to prop up the legions of businesses that are chronically loss-making, and to protect the interests of the local party politicians and businessmen who dominate them.

This desperate weakness of the banking system is also the main reason the Chinese have become so open to foreign investment.

Chinese banks on their own could never supply the capital needed. The Chinese boom is massively dependent on ever-expanding inflows of foreign money.

At some time in the next few months - or, if we are very lucky, years - most of the foreign investors' money will be lost, just as it was in Asia, and the dollar collapse brings that day nearer.

In the words of those estimable fund managers* Bedlam Asset Management, ‘China is a fundamentally bad equity investment.’

Profits, dividends* and return on capital are not the priorities. The businesses are run for market share, family wealth and political influence.

A major factor behind the Asian collapse was the belated realisation by the investment banking and fund management hot shots that so many of the region's businesses were making a nil return, and had been for years. It is the same in China.

Corporation tax, a proxy for profits, is rising at less than a third the rate of sales. Even allowing for flaky government statistics, this indicates that most Chinese businesses are operating at a loss - and relying on banks to continue to prop them up.

When this is realised, or when investors notice that they are not getting any dividends, the inflow of money will slow and the local banks will have to take the strain. That could be the breaking point.

To give the last word to Bedlam, it is all terribly reminiscent of 19th century America, where there was stunning growth, an immature legal system, poor shareholder protection, overcapacity and weak banks.

(Source: http://www.thisismoney.com/20040122/nm73290.html)

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So, what will be the effect of China's economic collapse... besides an international economic collapse when the world's manufacturing market basket implodes?

It is at such times that a country's leadership attempts to distract the populous by engaging in military ventures. Not only do the Chinese Communist Party leaders survive retaliation from the masses, but resources critical to economic health are acquired.