Will China successfully brake its economy? From the United States to the smallest, least globalized economy, every nation has much riding on China's quest to avoid economic overheating. China's $1.4 trillion economy is a third the size of Japan's, yet its If John Maynard Keynes is looking down from the heavens these days, he may be lamenting missing out on the ascension of China. Never has such an underdeveloped economy with such a huge population stepped into the global community with such alacrity.

And then there's India, Asia's other rising superpower. While China and India are often thought of as competitors, they have ample scope to fuel each other's advancement.

If Keynes---which Time magazine named as one of the most important people of the 20th century---thought East meeting West was a big story in the last millennium, just wait as East meets East in this one.

While there are countless questions about China's evolution from socialism to capitalism, we may get closer to answering at least five of them in the coming year.

Yet the fiasco at China Aviation Oil (Singapore), which lost $550 million from trading derivatives, validated concerns about a hard landing. It could be China's Enron - a pivotal event that prompts investors to reassess an economy. The waves of foreign direct investment rushing to China also may constitute a bubble that could shoulder-check the global economy.

China is striving to trim the current 9 percent pace of growth to less inflationary levels. Achieving a soft landing is easier said than done, though, considering that China must raise hundreds of millions of people out of poverty.

Is China a partner, or a rival? Just a few years ago, many Asians were panicking over China's rise, fearing that whole sectors of their economies would be decimated. Now, it seems that China's growth may be the best thing that ever happened to the region. Yet governments need to act in 2005 to keep their industries from being eclipsed by competitors in China.

That goes for the United States, too. Beijing is becoming more influential in Asia than Washington. U.S. industries like textiles face extinction thanks to China's competitiveness. And U.S. companies will confront expansion-hungry Chinese businesses looking to buy them out. Lenovo Group's purchase of IBM's personal computer business was just the beginning.

At the same time, aid efforts in the aftermath of the tsunami disaster will test whether China can lead in a region where it intends to be a major power.

Will the yuan be revalued? This is a real possibility in 2005, though traders betting on bold steps to strengthen the yuan may be disappointed. On this issue, China will move at a pace with which it's comfortable: glacially. And the more the United States pressures China, the longer a revaluation will take, for Beijing will not allow itself to be perceived as bowing to the White House.

Will investors buy China's debt or run from it? China is looking to sell $438 billion of bad bank loans to overseas investors. This appears to be a chance not only to buy low and sell high - as with distressed Japanese assets in the late 1990s - but also to clean up China's fragile financial system.

The task is complicated by lack of transparency at Chinese companies and the nation's underdeveloped legal system. Rarely have on-the-ground analysis and gut feelings mattered more, and rarely have the stakes been so high.

Finally, what about India? The Indian economy will get even more attention this year than last, and for good reason. It will be interesting to see if India siphons off some of the foreign investment that China has begun to take for granted.

Investors who let China distract them from India's rapid growth, its vast English-speaking population and its entrepreneurial vigor may have much to regret a year from now.

(Source: International Herald Tribute)