Is China like the US in 1890? Or is it more like Japan in 1980? If the parallel with America is right, China is likely to be the dominant power of the next century. If the Japanese comparison is more accurate, then the Chinese challenge to American hegemony could prove ephemeral.

The current mood in the US certainly feels like an exaggerated version of the "declinism" that set in towards the end of the 1980s, when the US was transfixed by the rise of Japan. A recent Pew opinion survey showed that a majority of Americans now believe that the Chinese economy is larger than that of the US. This is plain wrong. At the time the poll was taken, the Chinese economy was around half the size of America's.

It was this kind of scare that took hold in the late 1980s. Japanese investors provoked angst by buying the Rockefeller Centre in New York - and it was Japan that was the world's largest creditor nation.

The book that captured the declinist spirit of the late 1980s was The Rise and Fall of the Great Powers , written by Paul Kennedy, a Yale historian, who introduced readers to the notion of "imperial over-stretch". His argument was that America was staggering under the burden of its global commitments and was now in relative decline - following the path of the British, Napoleonic and Spanish empires.

Prof Kennedy's book caused a sensation when it was published in 1988. But just a year later, the Berlin Wall fell and the Japanese stock market bubble went pop. By the mid-1990s the "Kennedy thesis" was itself in relative decline, displaced by sexier new theories about the US as the "sole superpower" and the "clash of civilisations".

Now America's financial and military troubles - coupled with the rise of China - raise the question of whether Prof Kennedy was right, after all. Perhaps America's post cold-war dominance was just a blip before the resumption of relative decline.

Re-reading the book, more than 20 years after its publication, it seems strikingly prescient in some ways - and strikingly wrong in others. The argument that America's share of the global economy will inevitably decline - and that this will have knock-on effects on global politics - still looks spot on. But Prof Kennedy was also bedazzled by the rise of Japan, arguing that it was "likely to expand faster than the other major powers in the future" and would be "much more powerful" economically by the early 21st century.

I am not dredging up these old comments to make fun of Prof Kennedy. The point is simply that facts and conventional wisdom can change very fast. At the moment, China's rise looks just as unstoppable as Japan's did in the late 1980s. But there are plenty of analysts who see Japanese-style bubbles inflating in the Chinese economy. Perhaps the Chinese bubble will also go pop, leaving those who have predicted a "Chinese century" scratching their heads in embarrassment and surprise.

David Fuller's view I maintain that China's dramatic success is due mainly to four factors: governance, the Chinese diaspora, globalisation and the transfer of technology. To the extent that its progress is a 'surprise', an equivalent surprise is that it took China so long to shed Chairman Mao's dotty economic ideology and embrace capitalism.

Once Deng Xiaoping uttered the famous words: "Poverty is not socialism…to be rich is glorious", - effectively embracing capitalism - China's rapid advance was unstoppable. Deng also said: "When our thousands of Chinese students abroad return home, you will see how China will transform itself. He assiduously courted successful, wealthy ex-pat Chinese from Hong Kong and around the world. He studied Singapore's economic governance under Lee Kuan Yew. China's billion plus, job-hungry population provided the manpower for another Asian-led export boom. As the manufacturer of last resort, China rapidly assimilated other countries' technology to ensure its economic development.

In theory, China could create the mother of all bubbles and follow Japan's path since the mid-1980s. Japan was unfortunate but it would require mind-boggling stupidity, not to mention ignorance of history, for China to repeat that recent example. In practice, standards of governance have never been constant. Instead, they progress or regress. An objective assessment of China's current economic governance relative to other countries, I suggest, indicates that the students have become the teachers.

India may be setting the standard for corporate governance. None of this should be surprising given the long histories of both China and India. Similarly, I would not write-off Japan's potential. It remains a creative, inventive society, not least technologically.