Hamish McRae: The greatest boom the world has ever seen

Beijing: China's pre-Olympics economic boom has ratcheted up a few clicks. With less than a year to run, it is not just the main stadium site that is humming; the entire city is a great building site. Not only is it rushing to complete new hotels and other facilities ahead of the games, it is also sprucing itself up: fixing pavements, repainting shopfronts, opening restaurants.

You can measure the China boom in the statistics – growth running at more than 11 per cent in the first half of this year – but nothing can prepare the visitor for the actuality. This is not just the greatest boom on earth at the moment – it is the greatest boom the world has ever known. In 2005, China passed the UK to become the world's fourth-largest economy; either this year or next, it will pass Germany to become the world's third largest. It is hard not to see it passing Japan to become the second largest within about a decade, and then it is at least plausible that within a generation it will pass the United States to become the biggest.

Most of us are vaguely aware of this, just as we are aware that, thanks largely to China, the world economy has, over the past five years, had its fastest growth ever recorded. We also can see, and this is more troubling, the pressure that this growth has put on world resources. We see it not just in the price of oil and minerals, but also of basic foodstuffs such as meats, wheat and maize.

Naturally, this is troubling China too: the main reason why inflation has shot up to more than 5 per cent is the rising cost of food, something that has its harshest impact on its urban poorest. The most extreme example I have found is the price of pork, which, partly as a result of an illness in pigs called blue ear that has cut supplies, is 75 per cent higher than a year ago.

We are also aware that there has been huge environmental degradation as a result of rapid industrialisation. Horror stories abound, including a million people losing their drinking water because of pollution from factories. Actually, the air in Beijing this week seems rather better than it was on my last visit a year ago, and much better than, say, Edinburgh in the 1950s. But the point was made forcibly to me this week at a meeting with top bankers, that China would clean up the environment because it had to for the health of its people. It would not pay any attention to what the West urged upon it. Incidentally, there is one big public health lesson we can learn from China: virtually the only obese people you see are tourists. China has so far avoided what is arguably the greatest single threat to health in the West.

There is a wider point here. China is industrialising on pretty much the same model as the various western economies did a century or more earlier, the key driver being a surge in manufactured exports. But there are three crucial differences. It is making the transformation much more swiftly. It affects vastly more people, some 20 per cent of humankind, than even the industrialisation of the United States. And it is happening at a time when many of the world's natural resources – from fish stocks to oil – are reaching limits of sustainability, and, in some cases, exceeding them.

Viewed rationally, this is not sustainable. That is accepted. One of our hosts pointed out that were China to reach Western levels of car ownership, they would use more fuel than the entire output of the world. But that has not stopped China building a motor industry that will become the world's largest within about five years, or pricing petrol at one-third of UK levels. China became a net importer of oil in the 1990s, and this year it is in the process of becoming a net importer of coal, too. But rather than be a pioneer in conservation, it has headed out into the world, doing deals – particularly with African countries – to try to secure supplies. This may give it some modest measure of greater security in the short-term, but oil is oil. There is a finite amount of the stuff, and such deals do little to increase the global supply.

Meanwhile, to price petrol so cheaply is nuts: poor farmers who need to buy it could be helped in other ways. "I agree," said a senior banker, "but I am not the government."

There is something else that is not sustainable. That is the trade imbalance between China and the US. You can hear the rumblings in Congress; the candidates in next year's presidential election will be forced to adopt a more protectionist stance. The modest and gradual revaluation of the yuan, forced on China by the US, has failed to cut the deficit; indeed, it seems to have had hardly any impact at all. So this problem will not go away.

The Chinese point out that their exports to the US are rising more slowly than their exports to Asia, which are rising by about 50 per cent a year. They point out that they have been responsible holders of US Treasury securities, in effect financing the trade gap. And, of course, it is Americans who buy the imports and, largely, American companies that help produce them, through licences and joint ventures. But these arguments won't play strong in Congress.

These coming months, the run-up to the Olympics will, I think, be crucial in the relations between China and the rest of the world. China is on display and will want to impress. Given the extraordinary achievements of the past 30 or so years, it will indeed dazzle the world. But it needs not just to dazzle but to build a harmonious relationship with its trading partners: to adopt a measured response commensurate with its power.

One of the most surprising aspects of being a Briton in China is periodic emergence of a curious victim mentality. We were reminded of Britain's role in selling opium to China. Er, yes, that was 150 years ago. Official tours of Shanghai, a wonderful city that was in some measure the creation of western businesses, remind people of the unequal treaties that gave western countries concessionary areas. Talk of the environmental cost of rapid industrialisation and you are told that this is really the responsibility of the Americans who buy their toys from Chinese factories.

It is all a bit odd. There is so much to admire about this ancient civilisation which, by the way, Londoners can catch a glimpse of when the terracotta warriors are exhibited at the British Museum, and so much to admire about the present stunning economic progress. As for the problems such growth creates, they are huge, but at least the leadership is aware of them and will see it is in its own interest to tackle them.

China, we were told, is like a teenage boy who needs a lot of food to keep growing. I like the analogy. But teenage boys are inclined to be short on communication skills. Let's hope China gets easier to live with as it hits the next stage.