Fox said that with continued economic growth and prosperity there is a chance China could develop into a more open society with a "free market philosophy, the rule of law, and respect for human rights."

But he also warned Monday that things could just as likely get ugly, with possibilities for economic failure or, perhaps more worrisome, an economically strong but still repressive China with the means to finance military excursions into the rest of the world.

The major challenges to the Chinese economy were the nation's huge internal problems, Fox said. With a rapidly aging population shrinking the labor supply, staffing costs for Chinese firms were on the rise, he said. And any rise in the cost of doing business would slow the whole economy.

There are also major environmental concerns Beijing must address, with water shortages and pollution at the top of the list, Fox said. Half a billion Chinese do not have access to safe drinking water, and 110 cities currently do not have enough water for their populations.

The social upheaval that could ensue poses a threat to the Communist Party, which for all the nation's market developments still holds the reins to the economy.

"The Chinese Communist Party will put its own interests first," Fox said, that means that any economic development it does not like will abruptly be stopped.

Fox warned that China's People's Liberation Army could use Chinese economic strength to finance expansionist policies into the rest of the world, posing a very real geopolitical threat to the United States and Europe. He said the Chinese government viewed economic development as inextricably entwined with military strength, and argued that the country's economic growth was already accompanied by an "assertive nationalism."

Taiwan, particularly, has become an issue of national pride for China and for which "no prize is too big a sacrifice," Fox said.

Smaller countries that still recognize Taiwan can receive favors, both economic and diplomatic, from the Chinese government by switching their allegiance to Beijing, and Sino-Japanese relations, although economically beneficial to both parties, are increasingly strained by Japan's pronouncements on Taiwan, he said.

Such behavior points to a China willing to forgo economic gains in order to keep Taiwan under its control, Fox said. In response to speculation that the 2008 Beijing Olympics would restrain aggressive action toward Taiwan by China, Fox said, "Think again!"

Evidence of China's aggression potential can be seen in its foreign policy, Fox said. Going hand-in-hand with large-scale economic growth is a large-scale appetite for natural resources, and China is doing all it can to secure them, he said.

In Africa, Chinese influence has propped up Mugabe regime in Zimbabwe, a country with vast mineral and precious metal deposits, and China has taken the former U.S. position as the largest importer of Chilean goods.

The Chinese military has also recently sent 4,000 troops to the Sudan to protect its large investment in oil pipelines, and Beijing increasingly shows interest in cosying its relations with oil-rich countries on rocky ground with Washington, mainly Venezuela and Iran, Fox said.

Beijing has taken advantage of U.S. hostility toward Iran to build its relations with the Middle East oil producer, with whom there is already a 25-year contract for natural gas supplies, he said.

This friendship would allow Chinese aspirations of a China-Kazakhstan pipeline, which would pass through Iran, to materialize, and at the same time give Iran support for its nuclear program, and possibly access to more advanced military technology.

With Chinese energy demand growing seven times faster than in the United States, it is not surprising that the Middle East has become a hot spot for Beijing. U.S. activity in Iraq and its presence in Central Asia understandably make the Chinese uneasy, and Fox said the West had no right to object to Chinese efforts to secure its energy supply.

Fox also cautioned against branding China as the West's enemy, lest it prompts Beijing to act like one. "But that does not mean being blind," he said. The West must be "vigilant," and ever careful of its tendency to think only in the short term. Above all, he says, "we must tread carefully."

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