Is China poised to close the technology gap?

But China has developed on a bigger scale, with more investment from multinational companies, and now is plowing its profits heavily into investments in research and education in the hopes of becoming an innovation-based economy.

Its moves will affect not just economics but geopolitics as well.

The US, long the world's lone superpower, now faces an emerging China that is both a major partner and a potential rival on the world stage.

"The richer the Chinese get, ... the stronger their defense capabilities get," says Adam Segal, a senior fellow in China studies at the Council on Foreign Relations in New York.

Whether US-China relations will grow more or less stable over time is the key question. "The more interdependent our economies become, the more we all have to lose from any conflict, either economic or military," Mr. Segal says.

China's rising economic capabilities, in many cases, have military applications as well, and Beijing's defense budget has been growing. In January, it unnerved the US by conducting a test in which it used a missile to knock out a satellite. It began deploying a new fighter jet recently.

Just how fast is China climbing the industrial value chain? "Probably faster than we expect but not as fast as the hype," Segal says. "I don't think they're going to eat our lunch anytime soon."

In commercial aviation, for example, China remains far behind the US and Europe. "I find it difficult to believe that they could develop their own" large aircraft from scratch in just 13 years, says Paul Nisbet, an aerospace analyst at JSA Research in Newport, R.I.

Still, China has signed a deal with Airbus to assemble the A-320 jetliner. That, coupled with China's own massive investment in the industry, could build its capability over time. Chinese companies have a track record of using foreign partnerships to build domestic expertise.

"This narrowing of the technology gap is occurring in many, many fields," says Mr. McMillion, the Washington economist. In part, he says, "the issue is that multinational companies are now building their very best products in China" as well as in the US.

Since China has much lower labor costs, that holds a potential threat to the high-cost standard of living to which Americans are accustomed.

Already some signs of strain have emerged, some economists say.

The competition of lower-cost and increasingly skilled labor in emerging nations "has put unrelenting pressure on employment and real wages in the high-cost developed world," Stephen Roach of Morgan Stanley, a New York investment bank, writes in a recent report.

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