Published: March 6 2001 19:39GMT | Last Updated: March 6 2001 19:43GMT

The mood is growing chillier while the rhetoric is blowing hotter. On Monday, Beijing formally announced an 18 per cent increase in defence spending in response to "drastic" changes in the world military situation. China's foreign minister also urged Washington to "rein in its wild horses" over supplying anti-missile defences to Taiwan. Chinese defence planners have argued that Nato's intervention in Kosovo highlighted the west's meddlesome intent, and thus justifies a stronger army.

It is not only Beijing that is beefing up its military spending. Last week, India announced a substantial increase in its defence budget - chiefly in response to the threat from a nuclear-armed Pakistan, but with a wary eye on China too.

Russia has also hinted it may have to rebuild its nuclear arsenal if China develops its long-range missile technology in response to US plans to deploy a national missile defence system. A worrying spiral of suspicion is beginning to build in the region, which could yet develop into a full-blown Asian arms race.

As its economic power grows, China is becoming more assertive in the region. In some respects, this interest in the outside world is both welcome and benign. Chinese officials are playing a far more active role in regional forums, which could help develop closer intra-Asian economic ties.

But many of China's neighbours remain suspicious and want the US to remain engaged in Asia as a powerful counter-balance to Beijing. Unfortunately, the US and China appear to be slowly straying towards a collision course.

Republican hawks have condemned President Bill Clinton for being too soft on China. Their hostility has been fuelled by allegations that Chinese military experts have been aiding Iraq - a claim that Beijing has vigorously denied. On the campaign trail, Mr Bush talked about China being a strategic competitor rather than a strategic partner, suggesting a greater readiness for confrontation.

This is not yet cause for alarm. Mr Bush has yet to spell out in any detail what his China policy will be. There are good grounds, though, to believe he will pursue a policy framed around the tough-minded pragmatism that he is enunciating elsewhere.

While Beijing may bluster about US arms sales to Taiwan, the Chinese government has also shown a greater degree of flexibility in its dealings with its neighbour. It has sent senior diplomats to Washington to discuss relations in a quieter context. The Chinese would appear to be testing the US administration rather than rattling the sabre of aggression. But Washington must think long and hard about the direct and the indirect consequences of its missile defence plans.