As China's President Hu and Prime Minister Wen go dashing around the world creating trade agreements with every country in the world possessing raw materials, a powerful new government is being created in Beijing.

Until recently, we've studied China by viewing it through three prisms – the Communist Party, the civilian leadership, and the people.

But this may be all wrong.

The Communist Party's influence is waning under the onslaught of wealth-creating capitalism. Mao, the great hero of the Communist Revolution, is rarely mentioned in the government-controlled press. As one recent visitor to China said, "I never met a communist under 60." As a Hong Kong businessman said to me, "China absorb us? We are absorbing China through capitalism."

The people have no influence over the government. The courts are so weak that the lowest government functionary can disregard a major court decision without fear of punishment. The people's sole power (and it is considerable) is the threat of revolt and revolution. As one Western businessman said to me, "The government is scared s***less of the rurals."

This fear is reinforced by over four thousand years of Chinese history in which great dynasties were overthrown by rural warlords. China's first dynasty was created by a rural warlord. And, unlike Russia's city-centered communist revolution, Mao's long march was a rural revolution. Last year there were hundreds of violent uprisings in rural China.

But now the civilian government has a new power to fear: The rising power of the Chinese Military.

Fueled by its rising trade surpluses, China's military has gone on a weapons tear. In just a few short years, it has gone from weapons buyer to weapons seller.

Its "Jian-10" fighter-bomber is state of the art, rivaling anything the U.S. can put into the air. This makes China the fourth country capable of producing jet engines and jet airframes equipped with precision-guided missiles.

China's war industry is now producing nuclear attack submarines, early-warning aircraft, frigates, destroyers, cruise missiles and computerized command and control systems.

All this has made everyone from Taiwan to Japan to India to the USA very nervous.

And there is good reason to be.

When you give overgrown boys the titles of Admiral and General and then fill their toyboxes with all kinds of destructive toys, you create problems. Big problems.

In 1949, outgoing President Eisenhower startled the country by warning of the increasing power of the "military-industrial complex." He was right. The military continually overestimated Soviet military strength so that they and the big defense contractors could prosper beyond imagination. This encouraged the Soviets to do the same for more than forty years. A tremendous waste of human and capital resources for both countries.

Now China's military seems to be reliving our experience in the decades following World War II.

With big budgets and big toys, the generals have developed the mentalities of schoolyard bullies – and the arrogance that goes with it.

Chinese generals threaten to fire missiles all the way to the USA. Chinese admirals order their ships to confront our fleet in the strait separating China from Taiwan. American ships are denied safe harbor during storms, which violates the most ancient of sea laws. An arrogant Chinese admiral tells an American admiral that China wants to divide the Pacific Ocean in half, one half for China and one half for the USA. A Chinese general claims that our questions about China's weapons demonstrate that "you have no courage."

But China's military is most threatening to its own civilian government.

In most civilized nations, the military is subordinate to the civilian government. In the USA, the military reports to the Defense Department, which reports to the President.

But not in China. The military has risen to the position of a parallel government, with powers equaling those of the civilian government. We got a hint of this when the Hong Kong incident was called "a mistake" by the civilian government. Word quickly shot back from the generals in Beijing: "It was not a mistake."

Long fearful of the people on the left, China's civilian government is now frightened by the generals on the right.

This fear has been revealed to everyone in China Daily by Premier Wen in January, when he announced a new policy called "Shuangyong." This policy pleads for greater cooperation between the army and the government, and between the army and the people.

Wen said, "It is of extreme importance to consolidate the solidarity between the military and the government and between the military and the people."

Beyond the startling nature of the plea is the clear view that the military is now on par with the civilian government, not subordinate to it.

This is a frightening development for everyone in the world.

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