In the aftermath of the First World War a retired German schoolteacher named Oswald Spengler published the first volume of one of the most influential books of the 20th century: Der Untergang des Abendlandes, known to us as The Decline of the West. These days Spengler is seldom read; his prose is too turgid, his debt to Nietzsche and Wagner too large, his influence on the Nazis too obvious. And no one takes seriously his theory that cultures, like the weather, pass through seasons. Yet Spengler expressed better than almost anyone the inter-war German revulsion against all that had been achieved by the west before 1900.

"The last century," he wrote, "was the winter of the west, the victory of materialism and scepticism, of socialism, parliamentarianism and money. But in this century blood and instinct will regain their rights against the power of money and intellect. The era of individualism, liberalism and democracy, of humanitarianism and freedom, is nearing its end. The masses will accept with resignation the victory of the Caesars, the strong men, and will obey them."

It was not a bad prediction of the direction German politics would soon take. In particular, Spengler grasped that the backlash would manifest itself partly as a war on cities, which he saw as the embodiment of a decadent civilisation. After "the powers of the blood" had been reawakened by the "new Caesars", the result did leave scores of European cities in ruins.

Nevertheless, events since 1945 have tended to discredit Spengler's idea of a western downfall. It has seemed much more persuasive to represent the history of the 20th century as part of a protracted occidental ascendancy. "Much of the last three centuries," wrote the late J M Roberts in his Triumph of the West, published in 1985, "is the story of a triumph of the outright power of the west." It was a triumph not only of western power but above all, he argued, of western civilisation.

Just four years later, the 20th century appeared to culminate in a comprehensive western victory, with the break-up of the Soviet empire in eastern Europe and the collapse of the Soviet Union itself. Famously, on the eve of those events, Francis Fukuyama proclaimed "the end of history" and the victory of the western model of liberal, democratic capitalism. The west, far from suffering its downfall in the 20th century as Spengler anticipated, appeared to attain its historic zenith.

Yet in many ways this represents a fundamental misreading of the past hundred years. The 20th century, far from being a time of western ascendancy, witnessed something more like a reorientation of the world and the decline of the west - not a decline in the cultural sense that Spengler envisaged, but relative economic decline, relative demographic decline and, above all, imperial decline.

In 1900 the west really did rule the world. From the Bos phorus to the Bering Straits, from Siberia to Ceylon, nearly all of what was then known as "the Orient" was under some form of western rule. The British had long ruled India, the Dutch the East Indies, the French Indo-China; the Americans had just seized the Philippines; the Russians aspired to control Manchuria. All the imperial powers had parasitical outposts in China. The east, in short, had been subjugated.

What made this possible was not so much scientific knowledge in its own right as its systematic application to both production and destruction. Economic historians disagree about the timing of what Kenneth Pomeranz has called "the great divergence" of the economies of the west and the Orient. In his seminal book of that name, Pomeranz argues that it was only after 1750 that western Europe leapt ahead, due mainly to the "windfalls" of New World colonies and conveniently located coal.

The economic historian Angus Maddison, however, places it earlier. In 1600, he estimates, China accounted for as much as 29 per cent of global output, but thereafter relative decline set in. By 1913 the figure had plummeted to 9 per cent, even though China was still home to nearly a quarter of the world's population. Western Europe alone accounted for a third of global output, but barely one in seven of the human race.

Modernisation à la carte

Whenever it began, western ascendancy was due to more than sugar and coal. It was also due to the failure of the Asian empires to modernise, to say nothing of the relative stagnation of oriental intellectual life. Democracy, liberty, equality and, indeed, less benign ideals such as racial pur- ity: all of these concepts originated in the west. So, too, did all the significant scientific breakthroughs of the modern era, from Newton to Einstein.

Historians influenced by Marx have very often made the mistake of assuming that the backwardness of eastern societies circa 1900 was the consequence of imperial "exploitation". Rather, it was their backwardness that made European imperial domination possible.

British rule over India was very far from a triumphant success from the point of view of economic development. Per capita income stagnated. The subcontinent continued to suffer from periodic famine. Yet it is hard to believe that, had the Mughals continued to rule through the 19th century, the life of the average Indian would have been much better. In fact, the experience of China suggests that it might have been worse. There, the continuation of Asian imperial rule was characterised by a succession of bloody rebellions, symptoms of the breakdown of the imperial structure.

The Taiping Rebellion (1851-64), a peasant revolt led by the self-proclaimed younger brother of Christ, claimed between 20 and 40 million lives, according to contemporary western estimates. Also bloody were the Nien and Miao Rebellions, as were the Muslim rebellions in Yunnan and north-western China. In some cases the declines from one census to the next imply mortality rates ranging between 40 and 90 per cent.

To blame these disasters on western commercial penetration is to get the causation the wrong way round. It was the crumbling of imperial rule that allowed European merchants to carve out privileged enclaves in China's principal entrepôts, European bankers to run China's fledgling railways, and European officials to collect China's customs revenue.

Nothing epitomised the subjugation of Asia better than the violation of Chinese sovereignty in 1900 by a multinational force (from Austria-Hungary, Britain, France, Germany, Italy, Japan, Russia and the US) sent to suppress the Boxer Rebellion, an inchoate, millenarian, anti-Christian movement that had arisen in the province of Shandong.

The Boxers' faith in martial arts and magic availed them naught. Having raised the siege of the Beijing legations, the international force staged a "grand march" through the Forbidden City, pausing only to "acquire" some ancestral Manchu tablets as booty for the British Museum.

It is only when one appreciates the extent of western dominance in 1900 that the true narrative arc of the 20th century shows itself. This was not "the triumph of the west", but rather the crisis of the European empires, the ultimate result of which was the inexorable revival of Asian power and the relative descent of the west.

What changed? The answer is that gradually, beginning in Japan, Asian societies modernised themselves, or were modernised. As this happened, the gap between European and Asian incomes began to narrow and the great divergence of the preceding centuries began to be reversed.

If the Orient had simply "occidentalised" itself, of course, we might still salvage the idea of an ultimate western triumph. Yet no Asian country - not even Japan in the Meiji era, when government ministers adopted tailcoats and western dance steps - was able or wished to transform itself into a replica of a European nation state. On the contrary, most Asian nationalists insisted that their countries modernise à la carte, embracing only those aspects of the western model that suited their purposes.

Crucially, the reorientation of the world could not have been, and was not, achieved without conflict. The Japanese, in particular, understood from the outset that parity with the west meant war. That was why their victory over Russia in the Manchuria war in 1904-05 was such a turning point; it was the first meaningful victory won by an Asian power over a European empire in well over a century.

Japan set a pattern. It began with a military challenge, but ultimately switched to economic competition. In the course of the 1930s Japan defied the western powers by extending her domain into Manchuria and all the way down China's eastern seaboard. The Chinese, weakened by civil war, could not repel the invaders. Japan, however, was acutely vulnerable to western sanctions because of her dependence on imported oil, rubber and other militarily vital raw materials.

The Japanese decision to attack simultaneously the European empires in Asia - the British, the French and the Dutch - and the United States in the Pacific was a doomed gamble. Yet, though it was impossible for Japan to defeat the US, her victory over European imperialism inflicted irreparable damage. One by one, the Europeans' attempts to resuscitate their Asian empires after 1945 foundered. Japan had permanently shattered the illusion of innate western supremacy, and her appeal to other Asians to throw off the European yoke resonated throughout the postwar period.

"Europe and America don't want Asia to awaken," wrote Okawa Shumei in his book The Establishment of Order in Greater East Asia (1943). "[But now] the dark night enveloping Asia has begun to break and the light of hope has shone from the east . . . Now Asia is on the verge of overturning European control everywhere and is about to destroy corrupt indigenous social traditions and to shed blood in building independent nations."

Time to think with the blood

So it proved. Nationalists from the former Dutch colonies hailed Japan as "the Leader of Asia, the Protector of Asia and the Light of Asia". Ba Maw, the Burmese nationalist whom the British had imprisoned in 1940, told delegates at the Tokyo conference of the Greater East Asiatic Nations in November 1943: "This is not the time to think with our minds, this is the time to think with our blood . . ." The pre-war Filipino ministers Jose Laurel and Jorge Vargas declared that the Japanese victories "vindicated the prestige of all Asiatic nations".

In this regard, the Second World War, far from marking the advent of the "American century", was the decisive moment in the relative decline of the west, even if there was one western empire in Asia that endured into the 1980s (the Soviet Union).

Military defeat did amazingly little to dissipate Japanese energies, which were now directed wholeheartedly into economic imitation of, and competition with, the west. Between 1950 and 1973 no economy grew faster than Japan's, which achieved an average annual growth rate of per capita GDP in excess of 8 per cent, more than three times the rates achieved in the English-speaking world. At the start of that period, Japan's economy was smaller than that of Italy. By the end, it was close to taking second place behind the US.

Why did other Asian countries - and particularly the most populous ones - take so long to replicate Japan's growth rates? The answer lies once again in the death throes of the occidental empires. For one legacy of western imperialism was to discredit all those things for which the west had claimed to stand: the rule of law, private property rights, the free market, representative institutions.

"The time has gone for ever," declared Peng Dehuai, the Chinese commander in the Korean war, "when the western powers were able to conquer a country in the east merely by mounting several cannons along the coast." He was right. Neither in Korea nor in Vietnam was it possible for the US and its western allies to win decisive victories after 1945.

One tragedy of the second half of the 20th century, however, is that it took so long for Peng's country to appreciate that the rejection of western political dominance did not necessitate the rejection of the market economy. Mao's breakneck industrialisation, followed by his cultural revolution, cost tens of millions of lives and left the average Chinese citizen little better off. In 1950 per capita GDP in China was 21 per cent of the world average. By 1973 it was 20 per cent.

Nor was it only China that suffered stagnation. After the US withdrawal from South Vietnam, Indo-China did not rebound, and India, though democratic, was afflicted by a stifling combination of British bureaucracy, Soviet-style planning and agrarian populism. As recently as 1968 the US per capita income, measured in current dollars, was still 120 times higher than that of east Asian countries. The irony is that the ideology most responsible for this final phase of stagnation - Marxism - was yet another western import.

The days of Asian stagnation are gone. Today, after 25 years of double-digit Chinese growth, the average American is just 30 times richer than the average east Asian and earns an income, if one calculates their respective earnings on the basis of purchasing power parity, just eight times higher.

Again, what made this possible? The Soviet collapse of 1989-91 tended to distract western attention from far more profound changes already under way on the other side of the world: in China, another communist regime had worked out how to introduce economic reforms without making political concessions.

When Deng Xiaoping arrived in Washington on 28 January 1979, his trip was the consequence of a momentous internal upheaval in the Chinese Communist Party. The previous month, at the party's 11th Congress, the decision had been taken to reorient China's economy toward the market. Deng's strategy was to break up communal control of agriculture and encourage the development of township and village enterprises. Within a few years, such rural businesses accounted for nearly a third of total industrial production.

The crucial thing about Deng's US trip was that it ensured that, as China industrialised, its exports would have access to the vast US market. It also ensured that, when Deng created free-trading special economic zones along the Chinese coast, American companies would be first in line to invest directly there, bringing with them vital technological know-how.

US firms saw this as an opportunity to "outsource" production, and some analysts even predicted that the SEZs would become like American colonies in east Asia, while others quietly hoped that exposure to the free market would weaken the Communist Party. This would certainly have represented a triumph for the west, but things did not work out that way.

When a potentially revolutionary situation developed in 1989, the regime did what communist regimes had routinely done when confronted with internal dissent: it sent in the tanks. On 4 June 1989, the Democracy Wall movement was suppressed ruthlessly, unknown numbers of the students were arrested and leading dissidents were jailed. Political reform was choked off, but economic growth was not.

Like other Asian economic miracles, China's has been propelled more by trade than by domestic consumption. More than 11 per cent of US imports today come from China - and the number is rising. Though American companies hoped to become beneficiaries of the Chinese export boom by investing in Chinese subsidiaries, barely a tenth of recent foreign direct investment in China has come from the US.

Indeed the roles have been reversed. As the US trade deficit has soared, it is the Chinese who have been lending to Washington. Meanwhile, more and more US manufacturers are coming under pressure from Chinese competition, because not only are wages in China a fraction of wages in America, the Chinese have also restrained the appreciation of their currency against the dollar. And it is no longer just cheap apparel and toys that they are exporting. Electrical machinery and power-generation equipment accounts for more than two-fifths of the US-China trade deficit.

America hoped that China would become a giant economic subsidiary, but it is now an economic rival. A forecast by Goldman Sachs has suggested that China's GDP will overtake that of the US as early as 2041. Some strategists anticipate not only trade wars but conceivably also real wars over such questions as the status of Taiwan.

Thus the supposed "triumph of the west" in 1989 is exposed as an illusion. The revolution that Deng had launched ten years earlier turned out to have much further-reaching economic implications, and Deng's ruthless suppression of opposition in 1989 was a more important event than Mikhail Gorbachev's capitulation before it that same year.

Smart money

A hundred years ago, as we have seen, the west could justly claim to rule the world. After a century in which one western empire after another has fallen, that can no longer be claimed.

To be sure, the United States remains the world's biggest economy and is still the predominant military power. Moreover, the financial crisis of 1997-98 in the so-called "tiger economies" provided a painful reminder that even economic miracles can suffer setbacks. Nevertheless, the smart money has to be on China's leaders avoiding such pitfalls; and so, the process of global reorientation that began in the 20th century will continue and, indeed, accelerate.

We in the west would be foolish to hope for it to slacken, alarmed though we may sometimes feel. The descent of the west is not to be dreaded if it is primarily the corollary of the ascent of Asia out of poverty. At least we can hope to ensure that this next stage of the great east-west reconvergence is less marred by conflict than the first phase - the phase we know as the 20th century.

Niall Ferguson is Laurence A Tisch Professor of History at Harvard University. His new book, "The War of the World: history's age of hatred", has just been published by Allen Lane, the Penguin Press (£25)

www.niallferguson.org

China by number

100 billions of US dollars saved by American consumers in the past 25 years by purchasing low-cost Chinese imports

61% year-on-year increase in bilateral trade between the EU and China, 2005

20% of the world's population is fed by China

7% of the world's arable land falls within Chinese borders

Research by Sohani Crockett