In 2004, three years after its entry into theWorld Trade Organization (WTO), in Geneva, and a quarter-centuryafter China began welcoming foreign investment, China'strade volume hit $1.2 trillion, displacing Japan asthe world's third largest trading nation, behind theUnited States and Germany. This milestone is all themore staggering in light of the fact that China's two-waytrade, barely $20 billion in 1978, has increased 60-foldsince then. For the first time in history, what Chinadoes, or does not do, ripples with consequence acrossthe planet.

But this dramatic transformation is putting huge strains on China. It's easy enough to see on a quick tour through Chengdu. The city's environmental quality and headache-inducing traffic congestion, for starters, leave much to be desired[see China's Cyclists Take Charge and A Market for Clean Air in this issue]. Fifteen percent of city sewage goes untreated—practically pristine by national standards, but still too high to make the tap water drinkable. More critical are the power shortages. Rolling blackouts throughout the year leave some neighborhoods (although never the wealthiest ones) without power for up to five days per week.

Another source of tension is land. Here as elsewhere, real estate developers are gobbling up whole neighborhoods to make way for office high-rises, malls, and apartment complexes, bringing a mostly modern sheen to the city [see photo, "Urban Renewal"]. In the vast high-tech development zone, amid the hundreds of corporate complexes stand crumbling stone farmhouses. Although Chengdu's official boosters insist that "nobody lives here now," clearly some still do.

Just southwest of Chengdu, zealous land grabs have turned explosive. In November, tens of thousands of farmers in Hanyuan County seized the local government headquarters and held the Communist Party chief hostage for several days. Their beef: the government had unfairly claimed their land for a dam project, and to add insult to injury, officials had pocketed most of the money earmarked to compensate them.

The Chinese are still not allowed to own the land they live on, making it easy for an unscrupulous official to expropriate a farmer's fields or a town dweller's house to make way for a new factory or golf course. It took 10 000 paramilitary troops to quell the Hanyuan disturbance, and one policeman was killed and several protesters injured in the process, according to news accounts that appeared in Hong Kong and the United States.

Most such incidents go unreported in China, where the government still maintains tight control of the news media. But there are tens of thousands of spontaneous uprisings every year against corrupt officials and abusive police, according to official statistics. The number of incidents has increased steadily during the last several years, as have individual petitions to the central government seeking redress against local officials who collect illegal fees, steal compensation funds, or persecute personal enemies.

Far from having a monolithic and highly centralized government, China is in fact quite decentralized, and local and provincial leaders have enormous leeway. When the system works, it works quite well. Chengdu's mayor and party chief, Li Chuncheng, is seen as one of the driving forces behind the city's high-tech successes and has been anointed in the official Chinese media as "one of the 10 rising stars in Chinese politics." An electromechanical engineer by training, he is reputed to be close to China's president, Hu Jintao.

But when the system breaks down, it can do so spectacularly. In late January, the media reported that officials in Gansu province, one of China's poorest, had embezzled nearly $1 billion set aside for infrastructure and compensation for evicted homeowners.

Social unrest is not confined to the rural interior. In some heavily industrialized cities, including Shenzhen, worker unrest is palpable. Workers in China are barred from organizing, and those who do risk being fired, beaten, or imprisoned. Even so, labor protests are proliferating, triggered by unpaid wages and pensions, sudden and massive job terminations, and an end to most of the socialist benefits that had been guaranteed since the earliest days of the Communist regime in the 1950s. Indeed, many Chinese ruefully note that the United States, with its unemployment insurance, Social Security, and Medicare, is now more socialist than China.