In the first of a series of interviews with prominent figures in business and their impressions of the impact of the developing economies of the world, RICHARD CURRAN talks to Sir Anthony O'Reilly

The impact that China alone is having on the world economy is enormous. Its economy is already the size of Germany's and is growing at 9pc a year

THE American stateswoman and diplomat Madeline Albright best summed up her country's attitude to the opportunities and threats posed by the rapid emergence of the global economy seven years ago.

"The best course for our nation is not to curse globalisation but to shape it, to make it work for America."

Yet, globalisation, once hailed as an enormous economic opportunity based on the idea of reducing barriers to trade, is picking up more than its fair share of sceptics. Ironically, some of them surfaced at the Davos World Economic Forum in January. One word was on all their lips - China.

The world's fastest growing economy? China. The source of the funds needed to keep the US economy from going bust? China. The unfair trader manipulating the value of its currency at the expense of Europe and the United States? China. The economic giant siphoning off jobs from the West? China. The indifferent employer pushing labour standards lower throughout the developing world? China.

There are growing fears about the impact ever-decreasing restrictions on free trade will have on jobs and future economic prosperity in Europe and the United States.

The notion that allowing completely open trade around the world would present a wealth of fresh opportunities without threats appears to be turning on its head as future economic superpowers like China, and to some extent India, hoover up millions of jobs at the expense of the West.

At Davos, some of the greatest advocates of globalisation voiced doubts about one of the central tenets of global economic integration. The impact that China alone is having on the world economy is enormous. Its economy is already the size of Germany's and is growing at 9pc per year. That means that in a decade there will be a whole new 'Germany' added to the global economy.

In Ireland, we have already seen jobs begin to shift in China's direction. There are other impacts also. For example, freight shipping rates have risen by around 15pc worldwide, partially because of the freight demand created by China's rapidly expanding exports. The figures are hard to grasp.

China is producing 3m graduates and creating 8m new jobs per year. One of the strongest warnings of the threat to jobs in Ireland posed by the rise of China in particular has come from Sir Anthony O'Reilly, chairman of Waterford Wedgwood, Independent News & Media, and Eircom.

"There are 450m Chinese working in the cash economy and another 850m sitting on the bench," he warned in an interview with the Irish Independent.

Initial challenges have come in manufacturing. There has scarcely been a new manufacturing job created in Europe in the last 10 years, in that for every job created, one or more have been lost.

Even in Ireland, during the height of our economic boom, job creation in manufacturing was virtually static.

Ireland, along with many of its EU partners, has pegged its fortunes on creating more higher end value-added jobs, particularly in the services area, as well as in research. Can it work?

Countries like China, and India in particular, are gearing themselves up for higher end services jobs, backed by a cost of doing business which is a fraction of ours.

Behind Sir Anthony's warning on the impact of China is the very real possibility that globalisation and the pace at which it is progressing is thrusting Europe and the US into a battle that we cannot win.

For that reason, he believes a more radical and fundamental solution may have to be found which involves actively slowing down the pace of globalisation.

"I think there is a chance we may retreat into protectionism again, and quotas and tariffs very like the EU on agriculture," he said.

The need to slow down the process comes from the fact that not everyone is playing by the same rules. The cost of manufacturing in China is a fraction of what it is in this part of the world.

But that is achieved on the back of virtually zero protection of intellectual property rights, virtually non-existent laws on environmental protection and appallingly low standards of living.

The Chinese have built over half a million kilometres of highway in the last five years. This couldn't be achieved in the West. The Chinese operate a command economy, which is radically different to Europe and the US.

We do have to compete with radically different social, economic and political structures if globalisation means that we buy their goods at the lowest cost of production. One option is to put tariffs on goods coming into our country in order to preserve certain select industries.

It is Sir Anthony's view that a fundamental reappraisal of the rules governing trade is needed. Saying stop is an important step.

"If they are playing to the same rules as we are environmentally, in the likes of social welfare terms and labour payments . . . if we can be satisfied that they are operating the same as us, the tariff might be 10pc. If not, it's 50pc," he suggested, as a way of looking at the issue.

The uneven playing field is that our goods are competing against goods that are produced in conditions that would be unacceptable in Ireland, Britain or Germany.

Sir Anthony believes the closest body we have to a referee who could implement such a tariff-based set of rules is the World Trade Organisation. "I think there has to be a major conference on globalisation," he said.

When it comes to the threats and the opportunities posed by the emergence of China as a major force in the world economy, Sir Anthony has direct experience. As chief executive of Heinz he built a factory in China as far back as 1986.

More recently, the need to save on costs at the Wedgwood group prompted the loss of 1,200 jobs at Stoke-on-Trent as capacity was shifted to China. "We had a long agonising debate with the unions and said to them, if you came to work for nothing here, you would still be dearer than in China, because of their subsidised cost structures," he said.

He sees the possibility of further shifts of production to China, the Far East and he added, the new countries of Eastern Europe for the Waterford Wedgwood group as very real, possibly over the next five to ten years.

That need to be able to compete, particularly in manufacturing, has prompted others to look towards producing in China.

The Glen Dimplex Group has begun manufacturing there, and it is a pattern that is likely to continue, if manufacturing companies are to have a future at all. The rise of China poses a very real long-term threat to the future shape of economies in Europe. Add into the mix the growing attractiveness of India for services and software, and the imminent competitive advantages of the 10 new EU accession states.

Against that backdrop, Sir Anthony O'Reilly's call for a serious rethink and slowdown of the globalisation process takes on a fresh urgency. Yet there is an even more immediate competitiveness challenge which, in its own way, fits into the debate about globalisation and its threats.

It is the falling US dollar and the European Central Bank's apparent inability to grasp its implications. President George Bush's father lost the election on the economy and his son seems determined to try and avoid a similar failing.

"At the moment George Bush is about the business of getting re-elected. He is putting up tariff barriers around America. It is called the weakening dollar," Sir Anthony O'Reilly said.

Neither the European Central Bank or the respective EU governments have done anything to arrest the problem caused by the rising euro.

"The Americans are laughing all the way to the bank, when you look at the way the Europeans are responding to it. The Europeans still believe there is something magical about a strong euro. The magical thing about it is that it will put people out of work in huge numbers pretty quickly," he said.

The Asian economies have their currencies pegged to the dollar and so they are falling with it, thereby retaining their extraordinary competitiveness. The American strategy is to allow the dollar to fall.

Asian countries are not only pegging their currencies to the dollar, but also buying American securities and thereby subsidising the US recovery. In the meantime, the US continues to run up a 5pc deficit.

The right signal from the European Central Bank would be to lower interest rates and possibly intervene in the currency market.

"You can take it that the ECB doesn't like that message. Nothing they do in the short term, will persuade America to raise interest rates. I can't see the Europeans influencing Asian Central Banks who are pegged to the dollar. So Europe's future is one of splendid isolation. An exchange rate that is uncompetitive not just with America but with Asia," Sir Anthony said.

There are other pitfalls which follow from a lack of action. Every time the euro goes up, the value of all those shares and assets bought in the US in the 1990s goes down. This is effectively an item of default in regard to Europe that the ECB doesn't seem to recognise.

Ultimately, all of these competitive issues feed into the wider issue of globalisation and the threats that it poses. Every other central bank in the world recognises that inflation and growth are parallel partners.

The power that central bankers in the eurozone have in this equation is not healthy, especially when they are not responsible to anyone. An interest rate cut could be a start. Yet the will to act does not appear to be there.

The ECB is continually making comments that it notes things, but doesn't seem prepared to take action. Even apparently strong comments at the G7 meeting in Florida in recent weeks didn't culminate in action.

Sir Anthony believes the ECB has got it wrong. "If you allow bankers to say that a sign of our manhood is that we have a euro at 1.30 to the dollar, that may give them a warm feeling as they go home at night. But it gives a cold feeling to a Dutch textile worker or a German car worker or anyone who hopes to export to the US or any country that is pegged to the dollar."

Just as our Europe is becoming more uncompetitive, the challenge of free trade becomes more serious. The short-term problems of a weaker dollar are symptomatic of a more worrying longer-term lack of a plan on how to deal with the emergence of lower-cost economies. America's astuteness in handling its currency issue for short-term gain reflects that country's readiness to play a good game in the long term.

The unfettered march of the Chinese economy could pose problems even for the US's approach to globalisation, and what Madeline Albright referred to as her country's desire to "shape it and make it work for America".

Next week Richard Curran talks to IDA chief executive Sean Dorgan