Although in current prices, America’s GP is US$14 trillion, Europe’s US$16 trillion and China’s US$4 trillion, in real terms, China is already more than half the size of the US with a GDP of US$8 trillion. Close to 30 per cent of the output of all the major Japanese manufacturing firms is actually produced in China, not in Japan. China is already Australia’s largest single trading partner; it is also Japan’s, Korea’s and Taiwan’s and our projections suggest that by 2020 China will be the largest economic partner of every single country in our region. Although it is on average a poor country in per capita income terms and will remain so for some years yet, the scale of what is going on in China and the pace of its growth mean that it will also certainly be as big an economy as that of North America in little more than a decade.

So in not much more than a decade, there will be a huge transformation in the structure of regional and world power, not only economic weight but also the political power that inevitably follows economic power in some form or other.

These are hugely positive developments that have already lifted close to three quarters of a billion people out of poverty and hold the promise of doing the same for two billion more in China and in India. But they are developments which also bring with them big, unprecedented challenges.

Deng Xiaoping urged his successors in China to pursue low posture politics and to concentrate all their political energies on modernising the Chinese economy. That has been a very successful strategy and Chinese leaders continue to heed Deng’s advice. But it is a strategy that is no longer viable, since, while modernisation is still a work in progress, China is already a great power in terms of its impact on other economies and polities around the world. China now affects all our lives and our consciousness (as we discovered in Australia suddenly last year) not only through commercial and investment dealings but also through the way in which its different legal, political and institutional systems intersect with ours.

In many ways there is much that is familiar in the rise of China from earlier experience with the rise of Japan after the Second World War. But the scale is another thing; and so too is the fact that, unlike Japan following defeat in war, China is not a budding democracy embedded in the American alliance structure.

Much of the challenge in this circumstance is the pace and scale of change — the dynamics of vast economic, social and political change in China. Its continuing rise, moreover, is fraught with real internal risks, what I sometimes call the three Es — the equity problem (the huge disparities in incomes that have emerged across provinces and within society); the externalities problem, as economists call it (including the impact of China’s growth on the environment); and the risks associated with the evolution of its political system (the need to confront the problems of political reform, crucial to internal stability as well as to dealing with the great industrial democracies).

The good news is that the Chinese leadership is sharply focused on managing these risks and, despite the degree of difficulty, on past record their chances of success would have to be rated greater than fifty-fifty.

China’s success has already transformed the global economic and strategic outlook, and in the next decade — not the next twenty or fifty years — it will further profoundly change the world with which we have to deal.

There are the beginnings of a change in global governance: putting in place the G20 in which Australia played an important part and of which China and India are members. But there are many questions about how the new structure of world power will be managed.

How will China and the new powers assume their global responsibilities, lagging in experience and capacity? Will China accept the established order — be a regime-taker — rather than want to be a regime-maker? How can we manage the transition of power, from the established power of North America and Europe to the emerging power of China and Asia?

Our lead piece from Justin Li lightly suggests that there is evidence that China is feeling its way towards being a regime-maker.

Leaders around the region are searching for a strategic framework, a regional and global architecture, in which to manage this change. We shall have to work these questions through carefully and patiently with all our partners in Asia — including China. It will be a process that needs must reach deep into the fabric of our economy, our polity, our laws and social institutions.

While we are fortunate in the legacy of capacities with which we’ve been endowed to take up these challenges, the endowments, I’m afraid, are sadly inadequate to the task at hand. The elevation of capacities and efforts is an urgent national and global priority, and among the most important challenges we face today.