Scottish Enlightenment philosopher and economist Adam Smith, claimed as its champion by capitalism, has found himself in odd company since being 'rediscovered' in the 1980s.

Alan Greenspan when he was Fed chairman, Margaret Thatcher and, more recently, Gordon Brown have all invoked An Inquiry into the Nature and Causes of the Wealth of Nations - which described the inner workings of a pin factory - to justify 'unSmithian' policies Smith would have most vehemently opposed today, such as tax cuts for the rich, the abandonment of welfarism and profit for profit's sake.

Giovanni Arrighi argues in his well-researched and insightful Adam Smith in Beijing that China's leaders, specifically Hu Jintao and Wen Jiabao, seem to have read Smith and may be about to prove the Scotsman who bestrode two revolutions - the American and the Industrial - was right.

Recent biographer James Buchan believes Smith's message became distorted when he 'fell among economists and politicians who constitute, more even than professional footballers, always the least literate sections of English-speaking society'.

Arrighi, professor of sociology at Johns Hopkins University, draws together the strands of modern debate, not least on the impact of globalisation and the so-called war on terror, in both of which he believes China to be the winner.

Arrighi holds that the economic and social proposals put forward in 1776 in Wealth of Nations are being played out today in East Asia, largely through the unexpected consequences of the push for globalisation, itself almost pure Karl Marx, which is slowly helping the developing world.

'In Smith's condition of market-based development ... the governments use markets as instruments of rule and, in liberalising trade, do so gradually not to upset 'public tranquillity'. They make capitalists, rather than workers, compete with one another, so that profits are driven to a minimum tolerable level,' he writes.

Tracing the development of China from Mao Zedong's socialist revolution, with its crucial land reforms, collective rural infrastructure and education, through the not entirely pointless disruptions of the Cultural Revolution, the real story begins with Deng Xiaoping in the 1970s.

It's as if Deng had Smith at his side because his first target was the domestic economy and agriculture, opening the way for labour-intensive industrial activities. Arrighi explains how China underwent not an industrial revolution, but an industrious revolution. Education policies in China allowed the substitution of inexpensive, educated and self-managing labour for expensive machinery, and expensive managers, an unnecessarily high cost to Smith.

It's the government's role to encourage division of labour among production units, invest in education to counter the negative effects of that division and give priority to domestic markets, firstly agricultural development, then industrialisation and ultimately foreign trade and investment.

This is almost precisely what China's reformers have been trying to achieve, putting 'greater emphasis on the intensification of competition' and nurturing a decades-old alliance with Chinese overseas capitalists investing in the nation's development.

'The result has been a constant over-accumulation of capital and downward pressure on rates of profits, which has been characterised as 'China's jungle capitalism' but looks more like a Smithian world of capitalists driven by relentless competition to work in the national interest,' he says.

Significantly, China 'did not embrace the key neo-liberal prescription of sacrificing workers' welfare to boost productivity'.

The problem, though, lies in the future. Under Jiang Zemin, 'accumulation by dispossession' - appropriation of public property, embezzlement of state funds, sales of land-use rights - might have prevailed 'were it not for the change in policies under Hu Jintao prompted by the escalation of social unrest', Arrighi writes.

Whether the Communist Party's hold over the state and society has been strengthened or weakened by market-based development is unclear, he says, but 'the PRC as a global power has seen economic reform to have been a resounding success'.

Recall that Smith was writing in the 18th century, and America was just being born, and consider his pronouncement on European 'discoveries' of new markets: 'By uniting, in some measure, the most distant parts of the world, by enabling them to relieve one another's wants, to increase one another's enjoyments, and to encourage one another's industry, their general tendency would seem to be beneficial. To the natives [of both] East and West Indies, all the [potential] commercial benefits ... from these events have been sunk and lost in the dreadful misfortunes which they have occasioned.

'Hereafter, perhaps, the natives of those countries may grow stronger, or those of Europe may grow weaker, and the inhabitants of all the different quarters of the world may arrive at that quality of courage and force which, by inspiring mutual fear, can alone overawe the injustice of independent nations into some sort of respect for the rights of one another.'

Arrighi says that conditions are more favourable than ever 'to bring into existence the commonwealth of civilisations that Smith envisioned long ago'.