This helps explain that startling announcement last week that China is planning to launch a state investment fund that would seek better returns on its money. It plans to start by investing in stocks and private capital funds like the Blackstone group, which this week announced the infusion of $3 billion of China's massive hoard of cash.

Put this into perspective. At current market values, China's $300 billion fund could buy the whole of Wal-Mart, and still have enough left over to buy the Big Three American car makers: Ford, GM and Chrysler. Or it could buy British oil giant BP and still have enough left over to buy Germany's Siemens. If China wanted to put all its $1.2 trillion into stocks, it could buy Exxon-Mobil, Shell and BP and still have enough left to buy Wal-Mart.

Or China could put some of the money into its defense budget, buy aircraft carriers and challenge the traditional U.S. dominance of the seas. The standard U.S. Nimitz-style carriers cost around $6 billion each, and America's next generation CVN-21 carriers will cost about double that sum. Then there will be the cost of the warplanes, training the crews, and the other surface vessels in the standard task force that support and protect the carrier.

So a fleet of 10 state-of-the-art CVN-21 carriers with their warplane, crew and task force support could be had for about the $300 billion that China is planning to invest -- not counting the savings that Chinese manufacturing techniques and labor costs would bring. So China could in theory afford to challenge the traditional U.S. naval dominance in the Pacific Ocean.

Were it to choose to do so, it seems they would have a helping hand from the U.S. Navy. Adm. Tim Keating, who now runs the Pacific Command and used to serve on the carrier Nimitz, has just completed a five-day friendly visit to China. And at a lunch with Vice Adm. Wu Shengli, commander of China's navy, Keating stressed the difficulty and complexity of developing, building and operating an aircraft carrier. But at his news conference the following day, Keating said the United States would be willing to help if that is what China decides to do.

"It is not an area where we would want any tension to arise unnecessarily," he said. "And we would, if they choose to develop (an aircraft carrier program) help them to the degree that they seek and the degree that we're capable, in developing their programs."

The immediate response from many armchair strategists was to wonder if Admiral Keating had taken leave of his senses. Why would the U.S. Navy want to help a potential challenger for the control of the seas?

And yet the immediate Chinese response was very cautious. Maj. Gen. Yang Chunchang of China's Academy of Military Sciences told the Chinese-run Hong Kong daily, Wen Wei Po, that he "was concerned about (the implications of) Keating's remarks." Chinese strategists are wary of U.S. plans to infiltrate China's military machine and gather intelligence through joint exercises and exchange visits.

U.S. Navy officials have been thinking about China's plans for an aircraft carrier for more than a decade, since China first began talks with Russia about buying one of their small and obsolete carriers, so that they could start the long climb up the learning curve of naval aviation.

There is a school of American thought that would actually welcome a massive Chinese investment in aircraft carriers, on the grounds that it would take them as long as 20 years to be able to build the ships and aircraft, train the crews, and learn the tactics of operating carriers, and they would be very hard put to catch up with the U.S. Navy's 80 years of experience. (The U.S. Navy paid a stiff price for a similar over-confidence regarding another Asian fleet back on Dec. 7, 1941.)

Others maintain that luring China into building such a navy would be a clever fiscal trap that would overwhelm and distort the Chinese defense budget for decades to come, and simply offer some very fat targets for the U.S. advantage in stealthy hunter-killer submarines. There is also a view that in the age of stealthy submarines and super-fast torpedoes like the Russian Skval and precision-guided weapons, big aircraft carriers are already obsolete.

Maybe. But do not forget that China has already put men into space, and earlier this year a Chinese anti-satellite weapon knocked out an obsolete satellite orbiting high above the earth. The Chinese may be technologically behind the United States, but they are evidently catching up fast.

And the argument that building a carrier fleet would bust the Chinese budget looks very thin against the potential tsunami of dollars that Beijing is planning to pour into the world's financial markets. If the Beijing government decides that a carrier fleet is in the national interest, and that China's strategic goals require the ability to control its own waters and the key shipping lanes and oil tanker routes, they can certainly afford it. And there would be no more visible symbol of China's new role as a great power than a carrier fleet that embodies a challenge to America's command of the seas.

We have, of course, been here before, at the beginning of the 20th century when Kaiser Wilhelm's Germany decided to build a High Seas Fleet that could challenge Britain's dominance of the seas. The subsequent arms race as each side vied to produce more and more Dreadnought-type heavy battleships played an important role in the escalation of tensions that helped bring about the First World War.

This time, we have a third candidate for the new naval arms race. Indian Defense Minister A.K. Antony told his country's parliament last week that India plans to have three carriers on the seas by 2017. They already operate the Virar, bought from Britain (where it was known as HMS Hermes), and are currently refurbishing the former Soviet carrier Admiral Gorshkov. India is also now building at Cochin its own new 41,000-ton carrier, designed to carry Russian-designed Mig-29s.

But remembering the cost of all this, it should be emphasized that China's current account surplus grew by $136 billion in the first three months of this year. At that rate, they could afford to build a 10-carrier fleet with just half of this year's surplus. And last week, Credit Suisse estimated that China's total war chest, or rather its total reserves, could hit $2 trillion, or $2,000 billion, by the end of next year.

As China decides whether it wants to take the risk of challenging the United States for the command of the seas, or even just for the command of the waters around Taiwan, money will be no object.

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