The consensus is that China will gradually emerge as a power in East Asia able to challenge the United States for regional dominance. In preparation, every country facing the prospect of Beijing's awakening is reassessing its strategic options in order to gain the best position after China sails ahead.

In the meantime, China's foreign policy has largely been driven by immediate needs - access to economic markets and energy resources. Knowing that its geopolitical power is directly tied to China's economic rise, and the perception that it will continue for the midterm, Beijing has limited its other geopolitical ambitions for the moment and has pursued the "waiting game,'' sensing that its hand will increase in value as the game continues, as long as it is able to get its domestic cards in order.

While the United States, India, Russia and Japan may maneuver to limit China's expanded reach, there are several domestic liabilities that could potentially limit Beijing's ability to gain its presumed position in the region.

The division between the rapid economic rise of China's east and the slow growth of the west has left the country divided. The environmental destruction caused by the centrally planned economy, and that the market economy has ignored or made worse, may cap China's economy before it reaches its full maturation.

The social havoc that centrally planned birth control and an aging society may produce in the near future could force huge changes in the government's role in private life, or worse, it could create a backlash against the government. Generational and ideological unrest could boil over as new technologies link disparate groups together.

Perhaps the gravest threat is the rapid growth of the eastern coast, generated by cheap loans from poorly managed state banks, which could potentially undermine the booming economy.

Any one of these liabilities could slow China's growth; all of them could sink China's rise. How China deals with these challenges in the near future will be a better indicator of its future role in the world than Beijing's current geopolitical maneuvering as it continues to play the waiting game.

While China's coastal cities have experienced meteoric economic expansion for the past 20 years, the interior's growth rate has not been enough to maintain a balance between its agrarian economy and the manufacturing economy of the east. Urban incomes have roughly tripled in the past decade, while growth in rural incomes has lagged behind at two-thirds that rate, creating a widening disparity between the coastal region and the remainder of China.

This imbalance has caused one of the largest migrations in the world's history as peasants from China's western and central provinces relocate to the booming economies of Shanghai, Beijing and Guangzhou.

More than 40 percent of China's population now live in cities or towns, up from 18 percent in 1978. Nearly one percent of the country's population make the move every year, despite regulations such as household regis-trations that discourage migration. Recent statistics indicating a shortage of skilled labor in some coastal regions will do little to alleviate the problem. The interior is largely unable to fill this void, and the shortage will only drive up incomes for the coastal workers facing increased demand, further enlarging the income gap.

The reason so many are abandoning the western, rural areas has everything to do with economic opportunities, but Beijing has moved to narrow the disparity by increasing the rate of urban-ization in the west.

In recent years, Beijing has begun to ease the restrictions on switching a rural household registration to an urban one - a necessity for a migrant worker to gain access to state services. Still, this remains a burdensome process for many.

Beijing is also pouring huge amounts of investment into infrastructure projects in the interior. But while hundreds of billions of dollars have been spent to turn the interior into an attractive location for private firms to invest, there has, so far, been little movement from the private sector to follow the lead.

However, the environmental costs of these investments may prove to be too much for the economy to bear, injecting a potentially disastrous risk into any private investment in China's interior.

The Three Gorges Dam will be the single largest source of hydroelectric power in the world (the equivalent of 15 nuclear power plants), and its reservoir will allow ocean-going ships to access China's interior for six months of the year, according to engineers working on the project. It will also displace more than one million people.

The 265 billion gallons of raw sewage and 700 million tonnes of sediment deposited in the Yangtze River annually will no longer be carried out to sea and will back up in the reservoir. Over 1,000 mines and factories containing potentially hazardous materials will be submerged. But the largest risk is the catastrophe that could occur from an error in construction, which has been so plagued by corruption that even the state-controlled media has criticized the loose financing of the project. This project, on a colossal scale, highlights the looming environmental risks to China's rise.

China continues to struggle with energy efficiency. Its oil use is currently about double the average of other Asian countries - approximately three quarters of a barrel per US$1,000 (HK$7,800) of GDP. Energy production is heavily reliant on domestic coal (75 percent of the energy production comes from coal-burning plants for which demand still outstrips supply even as China has begun moving to alternative sources) and is subject to frequent outages - in turn, causing an increase in oil use as companies turn to generators to keep production lines running.

The problems of energy production grow progressively worse as one travels west into China's interior, increasing the social divisions of the country.

While China has clearly put energy security at the center of its foreign policy, its progress at tackling domestic inefficiencies is troubling at best.

Environmental damage may not be the only legacy of China's centrally planned economy. China's ``one child'' policy may have created a society with far fewer workers than necessary to care for a population that will be dramatically weighted towards the elderly in the coming decades. In order to maintain social cohesion, Beijing will be forced to spend a greater percentage on caring for retirees than ever before.

However, the effect of this policy may not simply be limited to economic costs. Under the ``one child'' policy, male children were favored over females, especially in rural and isolated provinces. Soon there will be an abundance of young men with no prospects for marriage in their country.

This could well prove to be a destab-ilizing factor if these young men direct their anger towards the state. As mass protests become more common throughout China, it is possible to imagine disaffected young men linking up to display their shared outrage. Should this be directed at the government, it could limit China's ability to maneuver on the world stage.

The recent string of protests directed at Japan demonstrated Beijing's ability to control (and manipulate) mass crowds in China for foreign policy goals.

However, those protests have also exposed some of Beijing's weaknesses on this front. SMS messaging and e-mail were used to organize complicated protests. As organizers develop their skills, it is possible they will teach others not so keen to use the crowds for Beijing's benefit. This threat is more likely considering the current environment of wide-scale protests aimed at local officials and governments.

It is estimated that there were 60,000 protests in 2003, a number that has increased 17 percent annually over the past decade; in some inland areas, protests are becoming a daily occurrence. This could be viewed as an opening of China's political system if it were not for the harsh measures that Beijing has employed to squash dissent in recent years.

Forty-two of those partaking in the recent state-sponsored protests against Japan were arrested; when the cause goes against the government's political aims, the numbers are much higher. Even though they risk arrest and ``re-education'' internment, Chinese citizens are publicly voicing complaints across vast areas of the country.

These protests tend to be focused at local officials and stem from complaints about insufficient compensation for land confiscation, inadequate welfare payouts and official corruption at the local level.

As Beijing began to shift state assets to the private sector, the unprofitable state industries of the interior were the first to be dumped and were the last to be granted access to state bank loans. This led to vast areas plagued with unemployment. Often, the residents too old to migrate to the urban centers, but too young to draw a state pension, have little left to do except protest.

The state banks may have only added to the woes of China's interior, but they have become, perhaps, China's biggest liability if it is to emerge as a great power in the east. Some estimates have put the amount of ``bad'' loans in the system as high as US$800 billion (China's GDP is close to US$1.6 trillion). While this number may be inflated, the actual amount is certainly enough to cause great damage to China's economy.

As a condition of joining the World Trade Organization, China must open its banking sector to foreign competition in 2006. When this happens, it is likely that accounts in good standing will flee to the newly introduced banks with better financial footing. While preparations are being made to raise cash for the state banks in order to better absorb this shock, there is little time for Beijing to finish its reforms.

It is unlikely that Beijing will allow its state banks to collapse or to be undermined by the coming competition; in fact, the threat of competition has helped to transform the banking sector controlled by the state into a more transparent system in line with other developed countries' financial sectors. However, this has and will continue to require much of Beijing's energy, which could have been spent in other areas.

Adam Wolfe is a communications analyst. Reprinted with permission by the Power and Interest News Report, www.pinr.com