(FORTUNE Magazine) – A fickle world has changed its mind about China again. A year ago the miracle of Chinese growth was widely seen as a bonanza for an otherwise sluggish global economy. Today China is being cast as a threat--in effect, it has become a scapegoat for many of the more intractable problems that a dysfunctional world has been unable to solve.

This role reversal is both disturbing and ill founded. It probably says a good deal more about the West than it says about China. The case for China-bashing stems largely from the angst about jobless recoveries in the world's wealthy industrial nations. In particular, U.S. jobs are increasingly perceived as being exported to China--an erroneous perception that has tempted politicians to flirt with dangerous protectionist "remedies."

China's currency peg--a fixed arrangement between the renminbi (RMB) and the dollar--has become a lightning rod in this debate. In the eyes of many, it underscores the unfair competitive advantage that China enjoys in an otherwise tough global marketplace. Pressure is being put on China to rework the peg. Federal Reserve chairman Alan Greenspan recently noted that such a chance is a "fairly reasonable expectation." A rumored 5% revaluation of the RMB is being hailed as a first step in taming the so-called China threat--as if that would actually temper the world's imbalances. Nothing could be further from the truth.

Lost in the handwringing are the extraordinary benefits that a rapidly changing Chinese economy is bringing to the world--benefits that an ungrateful world should give thanks for. That's especially the case for the U.S. Yes, China accounted for the largest portion of America's record $540 billion trade deficit in 2003. But this deficit was not made in Beijing--it was made in Washington. That's right--courtesy of a runaway federal budget deficit, America has all but depleted its national savings. In order to fund the investment necessary for economic growth, that shortfall of domestic savings must be offset by surplus savings from abroad. The U.S. has no choice other than to run massive balance-of-payments and trade deficits in order to attract foreign capital.

For that reason alone, China plays an important role in plugging a hole in the American economy. Just as Japan filled the void created by the Reagan budget deficits of the 1980s, China is playing a similar role in an era of Bush budget deficits. Given our savings shortfall, we have to run trade deficits with someone. If it wasn't China, it could be Mexico, Canada, or even Europe. The result would be higher-cost imports that would represent a tax on the American consumer--a tax that would squeeze purchasing power and would undoubtedly constrain U.S. economic growth.

In fact, it's the consumer who benefits the most from America's trade with China. The U.S. purchased more than $150 billion of cheap, high-quality Chinese products last year. That helped hold down the inflation rate. U.S. import prices for items other than petroleum rose by only 1% in the 12 months ended in December--a minuscule increase for a now rapidly growing economy with a weakening dollar. Low inflation provides a windfall of purchasing power to job-short and income-constrained U.S. consumers. America has China to thank for it.

But that's not all. It turns out that China is plowing back a large portion of its export earnings into dollar-based financial assets. As of last November, China held $144 billion in Treasury securities; that's 9.6% of total foreign holdings of such government paper--triple China's share in 1994. Among foreign holders of U.S. Treasuries, China is now second only to Japan and well ahead of Britain, which is in third place.

This is hardly a trivial matter. Normally, outsized government borrowing would drive financing costs up. But eager Chinese buying of U.S. paper prevents that from happening. By helping keep interest rates low, China is lending even more support to U.S. economic growth.

It's not just America that should be grateful for China's dramatic emergence. Multinational corporations have moved rapidly to integrate China into the global supply chain. More than $50 billion in foreign direct investment went to China in each of the past two years, making it the world's largest recipient of such flows. Chinese subsidiaries of multinationals and joint venture partners from Japan, the U.S., and Europe have accounted for 65% of the cumulative increase in total Chinese export growth over the past decade. Outsourcing has become an increasingly important element of corporate efficiency strategies around the world, allowing high-cost operations in developed countries to be replaced by low-cost production in developing countries such as China. Ultimately, these benefits are also passed on to consumers around the world.

At the same time, China has become an important source of growth for its neighbors in Asia and other countries. You'd never know that from all the clamor over China's export prowess. But the big secret is surging Chinese import demand--up some 40% last year. As China erects the infrastructure of a modern economy, it does so with capital equipment and technologies it purchases from countries such as Japan, South Korea, Taiwan, and Germany. Inasmuch as these same nations suffer from deficiencies of internal demand, their China export businesses have become important sources of growth.

The bottom line is that the so-called China threat rings hollow in an era of globalization. China is not stealing jobs from rich, developed countries. Employment is growing in China's export sector because multinational corporations are expanding their Chinese subsidiaries. And China's demand for foreign-made goods is supporting employment elsewhere in the world.

Nor should China be accused of having an undervalued currency that gives it an unfair advantage in the battle for market share. Xenophobic American Congressmen believe that the country's bilateral trade surplus with the U.S. is the smoking gun of a manipulated currency. Never mind that the RMB peg to the dollar hasn't changed since 1994; the more important point is that China runs large deficits with most of its other trading partners. As a consequence, its overall trade position is only slightly in surplus--some plus--three-tenths of a percent of Chinese gross domestic product in 2003. If anything, this suggests that the Chinese currency may be fairly valued--at odds with those clamoring for a quick revaluation.

Most of all, the world owes a debt of gratitude to China for its commitment to dismantling its state-owned economy. For China, this is the only avenue to sustained prosperity. For other nations, it is an opportunity to tap an enormous market.

Nor do we in the West have to worry that China will play unfairly on the road to reform. China's willing accession to the World Trade Organization guarantees that it will be held accountable to a system based on Western rules.

By committing to such an extraordinary transformation, China has thrown down the gantlet to the rest of the world. Yes, China's success is also a challenge: It puts the rigid and outdated economies in Europe and Japan on notice that they must also change, or risk being left behind in an increasingly fast-moving time. Far from being a threat, China is an important example for others to emulate.

No one said globalization would be easy. But in the end, it sure beats the alternatives. Thank you, China, for showing the way.

STEPHEN S. ROACH is chief economist at Morgan Stanley.