Just finished reading Will Hutton's powerful book The Writing On The Wall which argues that China's extraordinary growth is more the result of good fortune than good management. Hutton argues that China is riddled by corruption. More importantly, it lacks the basic freedoms and institutions we take for granted in the West, and there is a growing gap between the urban rich and the country poor. He says it's a picture of a society that must change, or it will have change forced upon it by an open revolt.

This book has been out for some time, and it's taken me a while to get around to it but the points it makes seem increasingly relevant, particularly with human rights as well as boycott calls likely to flare up again over the coming months in the lead-up to the 2008 Olympics.

According to Hutton, the rule of law, the independence of the judiciary, the freedom of the press, scientific and research processes in independent universities, and the idea of representative and accountable government are not just Western constructs. He says they are essential for every economy, including China's.

The problem for China, he says, is that it's a "Leninist corporatist" state. It has failed to "let the puppet enterprises off the puppeteers' strings and provide them with the institutionalist network that would permit more creative pluralism and endogeneous accountability".

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"The lack of such a network is also the chief cause of China's environmental crisis. The pace of desertification has doubled over twenty years, in a country where 25 per cent of the land area is already desert. Air pollution kills four hundred thousand people a year prematurely. Energy is habitually wasted. But the worst problem is water. One fifth of China's 660 cities face extreme water shortages and as many as 90 per cent have problems of water pollution; 53 per cent of water in major waterways is unfit for human consumption. As a result, 500 million rural Chinese still do not have access to safe drinking water...Enterprises are accountable to no-one but the Communist Party for their actions; there is no network of civil society, plural public institutions like a free press or representative government and property rights to create pressure for enterprises to become more environmentally efficient."

Without any civil society, with rampant corruption and political interference, a banking disaster is inevitable. Officially, non-performing loans amount to $300 billion. But according to Hutton, they are double that unofficially. And only one per cent of private Chinese companies subject themselves to audit and then, they only do it because they want to be be listed. Furthermore, most Chinese companies have three sets of accounts: one for the banks, one for the tax authorities and one for management.

As Hutton puts it, this is simply unsustainable. But the West will require a cool head to help China through its difficult and revolutionary transformation.