Clad only in skimpiest lingerie, the statuesque Chinese and western models certainly catch the eye as they tower 100ft high on giant billboards that liberally dot China’s underwear capital to the world. More than 180,000 workers sleep, work and eat in the shadow of these Amazonian adverts, whose towering presence mark out the 20 square miles of industrial sprawl of Yanbu in China’s Guangdong province. The garments may even look familiar to British women because most high street chains - including the likes of Oasis, Top Shop and Next - rely on Chinese lingerie and underwear to meet consumer demand. No wonder then that this demand for cheap Chinese clothing in the West has drawn in tens of thousands of migrants workers to this township and made the owners of some of its 300 factories very rich.

Millionaire Luo Shun Xin, who owns Jealousy International, has made so much money that she decided to copy Buckingham Palace when she built her new factory in Yanbu. Entirely fitting then that parked outside the factory is the mother-of-two’s Rolls Royce - a powerful symbol of her wealth in a country obsessed by material status symbols.

“When we first built this building we were looking to the long game. We wanted to build up a tradition and because we have built up our own brands we are now very well known in China,” she says. “We are now aiming to build a platform abroad with our own brands. We don’t want to just make lingerie for western companies because increasingly this is a fashion-led business.

Look at Paris, Milan and Lyon. You need to have your own identity and sense of fashion. You can only do that with your own brands.”

Few of the factory workers have any concept of the western brands they produce garments for, nor the fact that profit margins can be measured in 1000s of per cent rather than 100s. For most of the mainly female workers the chance to turn their back on a life of rural poverty in the poorer provinces of China is one that is often eagerly grasped, at least initially.

For He Yao Xin, aged 34, there was little choice. With one son being brought up by her mother-in-law in Hunan province, she made her way to Guangdong to give her child a better future: “I just came to earn money. I have been away from home for 10 years because this is the only way I can earn a living for my family. The last time I saw my son was August. I only get to see him once or twice a year. The only paid holiday we have is the Spring Festival (Chinese New Year).

“We work nine hours a day, excluding lunch, for 500RMB (pound;35) basic a month, with piece rates on top of that I can make about 1500RMB (pound;105). Although the factory provides dormitories I share an apartment with 10 people in 5 rooms.

“My employers provide insurance and medical cover. I don’t resent the fact that they are becoming rich because society is always unfair. I accept it as a fact of life that there are rich and poor. My only concern is how I live and can support my family.”

What both worker, He, and owner Luo share is that their respective stories encapsulate both the complexity and simplicity of China’s economic miracle.

Such has been the scale of this success story that over the past decade China has enjoyed growth rates of close to 10 per cent and 2006 looks set to be no exception.

Its foreign reserves have now outstripped Japan’s to become the world’s largest, with a projected total of more than US$1 trillion (pound;570 billion) before the year is out. This cash-rich economy has been fuelled by its cheap exports and has allowed its Communist rulers to invest billions in US government bonds and assets. As we will see later, this is no small irony given that competition between China and the US is being cast as the face-off for the 21st century. Such is the wealth of China’s firms that they are now securing foreign companies and assets across the globe.

Buying gas from Russia, oil from Venezuela and steel from the UK means that China is competing for increasingly scarce energy resources and prized raw materials. No small matter with dire energy shortages forecast for Britain - and the West - within a few years.

China’s ability to flood world markets with cheap goods coveted by western consumers and companies alike, allied to China’s phenomenal purchasing power, helps it drive the global economy. China can also increasingly dictate terms to the West.

Only last year Rover - Britain’s last indigenous volume car manufacturer - was bought despite the fact that its models were already outdated.

Shanghai Automotive Industry Corp (SAIC) paid out pound;67 million for the car designs or IPR (intellectual property rights) simply because they wanted to leap an engineering generation in their bid to play catch up with the West’s premier car manufacturers.

From cars to computers, clothing to children’s toys and illegal DVDs to people smuggling, China impacts upon our lives in the West on a daily basis and increasingly dominates the news bulletins. The irony is that China’s economic revolution has in many respects created as many problems as solutions for both East and West.

For China in particular there are the horrendous environmental degradations of rapid growth, with many cities cloaked in layers of pollution, the increasing divide between rural and urban areas, with farmers rioting over the “theft” of land for development, scarce resources and a debt-ridden banking system. But uppermost in the minds of China’s leaders is the widening gap between rich and poor, which is so well illustrated by the different experiences of Luo and He.

President Hu Jintao and his regime hope that as long as they can maintain the nation’s double-digit growth then the likes of He will continue to accept the quid pro quo of a better future.

Their greatest fear is social unrest and political instability and with good reason given China’s turbulent history. Should Beijing get it wrong and China fall from this high-wire act the world will certainly feel the impact.

But when Hu’s predecessor Mao Zedong died in 1976 there was little inkling that China would enjoy such a dramatic transformation. After he seized power from the Nationalists in 1949 Mao had plunged China into mass famines, as well as the political anarchy of purges, paranoia and vast gulags that culminated in the grotesque Cultural Revolution, where millions were denounced as counter revolutionaries.

Mao’s death, however, saw Marxist-Leninist ideology gradually replaced with the creed and greed of materialism in 1978 when his successor Deng Xiaoping declared that “to get rich is glorious”. western firms and overseas Chinese businessmen were lured to China throughout the 1980s and 90s with promises of cheap labour and materials. But this economic liberalism was still strictly controlled and all overseas firms were forced to enter joint-ventures with Chinese companies, which, in turn, enabled them to learn quickly from their more advanced partners. The message was clear: China was not prepared to play second fiddle to the West for long.

For those optimists in the West convinced that the rise of capitalism and the death of communist ideology would bring democracy in its wake, however, the past decade would indicate otherwise. Even the most cursory of experiments in municipal elections have bitten the dust and western observers are sounding the familiar refrain that we will have to wait for the next generation of Chinese leaders. In reality there is little evidence of any real appetite for radical political reform among China’s Communist Party let alone ceding control of the levers of power.

Under the supposed reforming figure of Hu Jintao - who once unleashed a vicious crackdown against Buddhist monks and nuns when in charge of Tibet - the authorities have recently harried China’s critical press and disparate dissidents.

Against a backdrop of rampant corruption among both prominent cadres and businessmen and women the communists have found refuge in advocating often quite crude nationalism.

This is an ideology that appeals to China’s barely concealed xenophobia and even Luo advocates that her lingerie designs must not simply ape the West but rather exhibit “Chinese characteristics”. Japan, with its long history of enmity and invasion of China, is regularly excoriated for its war crimes and Communist leaders regularly cite dark conspiracies by foreign powers.

The nation’s sense of historical grievance stems from the humiliations of 19th-century western colonialism and there is a collective determination to make sure this never happens again. China’s military spending has been expanding at such a rate that both Japanese and US leaders have voiced their concern recently.

With its 2.3 million strong People’s Liberation Army, the world’s largest, China has announced that its official defence budget would rise by 14.7 per cent to RMB283.8 billion (pound;20 billion) in 2006. Last year China passed a law that allows it to use force should Taiwan - which is regarded as a renegade province - declare de facto independence from the mainland.

Given that the US has pledged to defend the island - the sole Chinese territory that enjoys genuine democracy - this is yet another potential flashpoint between these two huge countries.

Other problems include the US’s record US$203 billion trade deficit with China - for 2005 alone - and the fact that Beijing refuses to bow to White House demands to revalue its cheap currency, which encourages exports and attracts foreign manufacturers.

Foreign relations

These issues are not confined to the US, with the EU increasingly at loggerheads with China over its cheap exports. Only last year we had “Bra Wars” when European commissioner Peter Mandelson decided the best way to safeguard European jobs was to block underwear imports from China that exceeded agreed quotas. In the end, irate consumers and companies faced with plummeting stocks forced the EU to reach a face-saving compromise with China.

In reality European and British workers face real competition from China’s nascent economy and the migration of manufacturing jobs eastwards shows no signs of stopping.

Such iconic companies as Citroen, Volkswagen, Hewlett Packard, Coca-Cola, and, from Japan, Sony and Toshiba, all have expanding operations in China.

When you consider that Hu’s average take home of pound;105 a month compares with her British counterpart’s basic of pound;364 a week the writing is on the wall for what little is left of British manufacturing.

Tony Blair, in particular, has repeatedly warned his continental counterparts that the EU must radically change if it is to meet the challenge of both China and India.

For the rest of the EU, however, the signs are arguably more serious. The recent upheavals in France over labour market reforms, which strip employees of employment rights in order to encourage employers to take on new workers, can be directly traced to the effects of China.

Manufacturing is not alone. Education in the UK is being forced to confront and even embrace globalisation. Nottingham University has set up a campus in China with the aim of attracting not only future generations of Chinese students but also to offer UK students the option of going East to study.

This year Nottingham also opened a series of research centres in Ningbo, eastern China, designed to draw on the vast pool of ambitious young graduates, researchers and academics, but also lure funds from Chinese businessmen and women. This combination of an increasingly well- educated workforce allied to a new generation of entrepreneurs determined to not only take on the West but beat it at its own game is potentially formidable. What can be said with certainty is that whether it embraces success or failure, China will dominate this century.

VITAL STATISTICS

* Founded in 1949 the People’s Republic of China is the world’s most populous country.

Its 1.3 billion citizens comprise a fifth of the world’s population.

* It is the world’s second largest country by area with 3.7 million square miles.

* With a GDP of US$8.158 trillion in 2005 China has the world’s second largest economy. The EU and the US both have GDPs of US$11 trillion.

* Europe was second only to US as China’s biggest customer, consuming 18 per cent of its exports in 2005.

* Only Japan exports more to China than the EU, with the European Union accounting for 18 per cent of China’s imports.