Almost certainly, that feeling is mutual. Last year Americans bought
clothes "Made in China" to the value of $11 billion and additional goods
worth $185 billion. Yet for all the ubiquity of Chinese products in U.S.
stores, to most Americans China remains a mystery. For both nations,
that is unfortunate; though it does not have to, a mystery can all too easily
metamorphose into a threat. Most Americans don't realize the extent to
which China's future and that of the U.S. are linked. It isn't just down vests--
or toys or shoes--that bind the U.S. and China together. China holds billions
of dollars of U.S. debt; its companies increasingly compete with U.S. ones
for vital resources like oil; its geopolitical behavior will affect the outcome
of issues of key importance to U.S. policymakers, like North Korea's nuclear
arms capacity. Although their political cultures are radically different, in many
ways and many areas both countries essentially want the same things.

Will the U.S. come to think of China as a friend or a foe? This year, after a
period of placid relations while Washington was absorbed with the war on
terrorism, there have been indications aplenty that some high U.S. officials--
and many ordinary Americans--find China's rise to be a source of anxiety.
China, critics say, manipulates its currency to keep its goods cheap, hence
destroying American jobs. China steals intellectual property from U.S. firms.
China is engaged in a crash program of modernization of its armed forces.

Within the Bush Administration, there are signs of dissonance on how to deal
with China. "We have the best relations [with China] that we've had in some
time--perhaps ever," said Secretary of State Condoleezza Rice on her recent
tour of Asia. Yet on June 4 in Singapore, Defense Secretary Donald Rumsfeld
made headlines with a hawkish speech, asserting that "China's defense expenditures
are much higher than Chinese officials have published." Rumsfeld continued,
"Since no nation threatens China ... why these continuing large and expanding
arms purchases? Why these continuing robust deployments?" The next day,
Rice tried to square the circle. "I think that both happen to be true," she said.
"Relations are at their best ever, and the Chinese are engaged in a major
military buildup, and that buildup is concerning."

Of course, to say that China is both an economic partner and a rival is no
revelation. There has been so much talk, for so many years, about the
potential of China's "opening up" to the West. Still, the extent of its rise
somehow managed to sneak up on the U.S. "You have an emergent
power and a dominant power," says Richard Haass, president of the
Council on Foreign Relations and former director of policy planning at
the State Department. "The question is, Will we inevitably be enemies?
No, it's not inevitable." The goal for Washington is to manage China's
rise in ways that peacefully incorporate a new force into the global system.
The goal for China is to protect itself from yet another false start on its
quest of modernization. Neither nation will satisfy its objectives unless
there is a clear-eyed sense of where China has been and where it is going.
That is not simply a matter of understanding China's formal centers of power.
What matters in China today is happening on the ground--in the lives of
people like Liu Li.

What does it mean when Wal-Mart has become a major force for change
in China, as a buyer and seller of goods but also as an employer?
What does it mean when several Chinese city governments hire pollsters
to gauge their effectiveness and a district leader conducts town-hall
meetings and answers thousands of e-mails from the public? How should
the West understand a society in which environmental protests are
common and underground churches thriving--and yet in which information
is tightly controlled and long prison sentences are handed out for those
who transgress dimly defined laws on state secrets? Chinese officials bristle
at American finger wagging and warn that how the U.S. treats China will
affect Beijing's posture. For each side, finding--and maintaining--
common ground will require understanding what's truly happening on
the other side of the globe.

If China's rise looks scary to some Americans, from Beijing's perspective
it seems very different. At last, think China's rulers, the world is being put
into proper balance. After 500 years during which China fell asleep,
it is once more taking its rightful place among the great powers. But most
casual observers outside China don't understand that even as the nation
gains respect, its people are haunted by a deep sense of past slights. China's
long journey toward modernity began not because the dragon gently flexed
its scaly muscles but because others prodded it with a sharp stick. When
China began to open up to the world 150 years ago, it did so because gunships
of the British Royal Navy, working in the service of opium smugglers, forced
the imperial government to accept foreign trade. As China sees its history,
the country was subjected to foreign humiliation for the next century, its
territory invaded and dismembered, its people raped and massacred.
Along with the foreign interventions came homegrown catastrophes:
rebellions, revolutions, civil wars, famine and unspeakable cruelty. Luan,
the Chinese word for chaos, is perhaps the single most important concept
that the outside world needs to grasp about the new China, for the memory
of the long years of chaos continues to have a profound impact on Chinese
thinking today.

The opposite of chaos is stability, and for the 16 years since the massacre
near Tiananmen Square in 1989, China has enjoyed more stable leadership
and prosperity than at any time in the past 150 years. Incomes have grown,
and millions of lives--like that of Liu Li--have improved beyond imagination.
To be sure, China is not one big, bucolic Iowa; all sorts of tensions over land
use and workers' rights and free speech and endemic corruption and environ-
mental despoliation loom, and they come into view in a startling number of
riots and protests--big ones too. But compared with what China has been
through in living memory, these are good times.

Hu Jintao, the President and (a more important position) General Secretary
of the Chinese Communist Party, wants to keep it that way. He came to
power in November 2002 in the first political succession in modern China
that took place without purges, late-night arrests or blood in the streets.
That alone is a measure of China's new stability. The government's main focus:
balancing growth between the go-go coastal areas and a sometimes shockingly
poor interior, easing the movement of millions from farms to cities and ensuring
that local officials do not succumb to corruption.

So far, so good. But three years after Hu took power, the way in which
he intends to secure stability has become apparent--and it is not what
many foreign observers expected. Many hoped he would be a reformer,
allowing alternative sources of power, like the media, regional governments,
independent judges and prosecutors, to balance central control. As head
of the party's school for top cadres from 1993 to 2002, he had encouraged
the study of other societies going through profound dislocations. In power,
however, Hu has come across as more of a communist traditionalist. Within
the past six months, the party has started something of a crackdown on both
traditional and new media.

In speeches to the party faithful, Hu has said Western democracy is a
"blind alley" for China, and he has excoriated the path to reform, with all
its attendant chaos, taken in the Soviet Union by Mikhail Gorbachev.
Hu's key policy initiative so far has been to strengthen, not weaken, the
role of the Communist Party in Chinese life. "They believe the party is
the only way that China can maintain political stability," says a China
watcher in the U.S. government. "Political institutions outside the party
are not to be trusted." In essence, the thinking goes, party discipline
guarantees stability, which in turn breeds national strength.

The great question now is whether internal pressures or external forces
will somehow throw China's rise off course. Outside its borders, the
new China has plenty of friends. How could it not? Its growing markets
and voracious appetite for the world's goods are making companies and
their workers wealthy, from Latin American cattle ranchers to French
vineyards. In the U.S., the ever increasing flood of low-priced Chinese
products has enabled rising standards of living for years (even as it has
made job security in some areas more tenuous).

China's well-being is predicated on continuing that flood of exports, so
the U.S. has some leverage over China's policies. But beyond that carrot,
the U.S.'s tools have become limited. When Jiang Zemin, Hu's predecessor,
visited the U.S. in 1997, Washington could still block China's accession
to the World Trade Organization (WTO), of which it is now a member,
campaign against China's hosting of the Summer Olympic Games (which
will be held in Beijing in 2008) and tie access to the U.S. market to
improvements in human rights (unlawful under WTO rules). Now, says
Chu Shulong of Tsinghua University in Beijing, "the U.S. is no longer so
important for China's national interest." (For those skeptical of that claim:
between them, members of China's Politburo Standing Committee have
made 36 trips to 77 countries since Hu took over; only one of those trips--
by Premier Wen Jiabao in 2003--was to the U.S.)

China's position could certainly change. In the past six months, a series
of rows with Japan have reminded Asians that the two giants, with a bitter
shared history, have never been at ease with each other. Even more potentially
worrisome is China's determination to bring Taiwan back into the fold. The
island to which defeated Nationalist forces retreated at the end of the civil
war in 1949 is now a thriving, culturally rich democracy--the freest society
that Chinese people have known in their long history. But to Beijing, Taiwan's
status is a constant memory of the years of foreign humiliation. The National
People's Congress, China's docile parliament, recently passed a resolution
authorizing military intervention if Taiwan declares formal independence, but
the U.S. has pledged to defend Taiwan from unprovoked attack. In the past
few months, relations between Beijing and Taipei have improved after a
dangerously frosty winter, but the tensions across the Taiwan Strait will
require constant--and subtle--engagement by the U.S. if they are not to
flare up again.

Perhaps the greatest risk to China's continued rise--and to the way it
behaves internationally--comes from within. The extraordinary changes
in the past 20 years have brought prosperity to many, but to scores of
millions, the wealth so evident in cities like Shanghai and Beijing is a prize
continually being yanked out of reach. Economic reforms have reduced
the entitlements to a steady job and basic health care that were enjoyed
by earlier generations. "Life in China is much more uncertain now," says
Li Yinhe, a sociologist at the Chinese Academy of Social Sciences in
Beijing. "Economic instability can cause social instability."

That is why the most important figure for China's future and in many
ways for the Sino-U.S. relationship is not Hu--nor Rice, Rumsfeld
or any other U.S. leader. It is someone like Liu. If her life continues
to get better, the extraordinary challenges facing China's leadership
will be ameliorated. The best news possible for high policymakers
in Washington is that a 20-year-old girl in Kaiping is happy. Between
bonuses and overtime, Liu makes as much as $120 a month, nearly
twice what she says she would have made if she had stayed closer to
home, and she saves more than half of it. It's a tough life, but Liu and
her friends in the factory talk about their "coming out" from the villages
as their chance to see the world. She shares a room with five other
women, and at night in the dorm she and her friends test the freedoms
of life away from their parents: wet towels snap, clusters of card players
shriek and giggle. Liu doesn't expect to sew seams forever. In two years
she hopes to save enough to study for a better job and move on.
"Who knows," she says, gazing at a Timberland vest, "someday maybe
I'll meet someone who wears one of these." If that ever happens, perhaps
they will be friends. --Reported by Hannah Beech/Shanghai, Chaim
Estulin/Hong Kong, Matthew Forney/Beijing, Susan Jakes/ Kaiping
and Elaine Shannon/Washington

• China's New Reality
  In Beijing and Shanghai, the shapes of things to come

China’s New Heights

CHINA BY THE NUMBERS

•Mobile-phone text messages sent last year: 218 billion

• Percentage of the world’s ice cream consumed: 20%

• Percentage of Chinese with a positive view of U.S.-China relations: 63%

• Communist Party officials disciplined for corruption last year: 170,850

• Percentage of counterfeit goods seized at U.S. borders that come from China: 66%

• World ranking in automobile deaths: 1

• Percentage of urban Chinese with a college education: 5.6%; Rural: 0.2%

• Estimated rural Chinese who have never brushed their teeth: 500 million

• Estimated ballistic missiles pointed at Taiwan: 700

• Smokers: 350 million

LIVING LARGE

China has more than four times the population of the U.S., nearly all of it concentrated in the eastern half of the country

China - 1.3 billion

U.S. - 295 million

Sources: Access Asia, TIME research; map data from LandScan/UT-Battelle

$859 > Annual disposable income of a resident of Lanzhou. A Shanghai resident has more than twice that: $2,010

63,900 > Number of retail outlets opened in Chongqing, 1998-2004

1.3 million > Number of private cars in Beijing, up 140% since 1997

300+ > Number of skyscrapers in Shanghai. In 1985 there was just one

620% > Shenzhen’s population growth since 1990, from 1.67 million to 12 million