Russia 3 - Why the dragon will outrun the bear

Ever since he travelled to the Soviet Union and China as a young man nearly 20 years ago, Nicholas W

In 1986, as a brash 18-year-old, I wrote to Mikhail Gorbachev. I asked the general secretary of the Soviet Communist Party to discuss world affairs with me during a brief stopover in Moscow as I made my way home from China that summer. I received no reply.

A month and a half later, on a stifling August evening after an eight-hour flight on a shaky Aeroflot Tupolov from Beijing, I was summoned to the foyer of my Moscow hotel. "Good evening, Mr Vyot," a stern woman from Intourist said to me in the faded splendour of the fin de siecle Hotel National near Red Square, where Lenin had stayed in 1918. "You wrote to the general secretary, who is unfortunately unable to meet you because he is on holiday. But he has instructed us to arrange a series of meetings for you."

Outside the hotel was my own black, chauffeur-driven car. Over the next two days, it whisked me to a series of meetings that gave me a taste of the growing divisions in Russia. I met enthusiastic promoters of Gorbachev's glasnost and diehard party officials convinced the Soviet Union's main aim throughout history had been to promote world peace.

The National is now one of Moscow's swishest hotels and these days students are no doubt shooed away. Colourful adverts for fancy consumer goods have replaced posters of Lenin and Marx. And the question that puzzled me on my teenage tour of the two communist giants, on the eve of the fall of the Berlin Wall in 1989, remains. Which one was right? Russia, which was then beginning to allow people to think but utterly failing to reform its creaking economy? Or China, which ended any hopes of political freedom on a summer's evening in Tiananmen Square in 1989, months before communism collapsed in Europe, but which has embraced the free market with zeal?

Neither, is the obvious answer. China's burgeoning middle class appears to be comfortable, but is governed by an elite that places a single bullet in the back of the head for relatively minor offences and which is so obsessed with secrecy that it cannot face up to a disastrous Aids epidemic. In Russia, people may be free to speak out and to vote for a president, even though he has blood on his hands. But they live in the shadow of a deeply corrupt elite that makes the Sicilian mafia look like charity workers.

However, sitting on the fence will not do, because, like it or not, there is a clear winner. To say that China has got it right is a little glib, when the country has such a grim human rights record and tolerates serious corruption among its business elite while executing small-time crooks. But while Russia is turning itself into a basket case, China will become a political and economic power in the next 20 years, rivalled only by the United States.

China's supreme confidence in its strength forced Tony Blair to play the role of supplicant during his three-day visit in the summer. After being welcomed by goose-stepping soldiers of the People's Liberation Army on the fringes of Tiananmen Square, the Prime Minister found himself in the embarrassing position of begging the authorities to allow UK insurance companies into the lucrative Chinese market. The Americans find themselves with an uncomfortable trade imbalance in favour of China.

Russia, on the surface at least, appears to have an equally thriving free market. The Gum department store on the edge of Red Square where I had to hunt for a toothbrush in 1986 has been beautifully refurbished and hosts branches of Max Mara and Benetton. Within sight of the Lubyanka, the KGB headquarters in the days of communism, stands Bentley's Moscow outlet.

A visit to the great Sandunovskiye baths, in a grand 19th-century building in central Moscow, shows there is serious money swirling around Russia. It costs 800 roubles (£16) to enter the ornate banya, where oligarchs sit on large leather banquettes and feast on prawns and beer in between visits to the stifling sauna. But there is a fundamental difference between the Russian and the Chinese wealth that explains why one country will flourish while the other stagnates. In Russia, the oligarchs enjoy obscene levels of wealth: some are worth billions after being handed a licence to print money by taking over giant public utilities. But behind the darkened windows of the tank-sized Mercedes that glide round the streets of Moscow, there is little sign of an entrepreneurial class of small- to medium-sized businesses, which should form the backbone of a flourishing market economy.

In China, by contrast, there is a growing middle class that is earning decent, but not obscene, salaries from genuine enterprises throughout the country. As a child, I was taught to fear the Chinese army, so large that its soldiers could march around the globe. The Chinese are still heading this way, but armed with briefcases and fat cheques.

Nicholas Watt writes for the Guardian