In economic terms, China doesn’t fit into the standard model of a free-market system, either. American magazines and television programs have for years joyously proclaimed that China has “gone capitalist” — a supposed sign that the Chinese are becoming like us. In fact, China’s fast-growing economic system is quite different from the American model — a fact not lost on other countries. Yes, China has private firms and stock markets. But only a small portion of the stock of any given company is traded on the stock market; the majority is held by state-owned enterprises. Communist Party officials frequently retain a majority of the seats on boards of directors. And when it comes to foreign businesses, the Chinese system has been so good at attracting outside investment that the German magazine Der Spiegel recently asked, “Does Communism Work After All?”

China is unique because of its sheer size and the allure of its massive markets, but repressive regimes are nevertheless increasingly looking to Beijing. In return, China has in recent years helped prop up Zimbabwe, Sudan, Uzbekistan, Cuba and North Korea.

How can U.S. leaders turn things around? The most important change is conceptual. We must get beyond seeing every policy dispute involving China as a choice between “engagement” and “isolation.” Those loaded words set up a false selection and have little meaning anymore. With the world’s third-biggest trading economy, China is already engaged.

We must also get beyond the notion that our trade, investment and interaction with China will transform its political system. Any serious policy must be based on China as it is, not on our mistaken assumption that prosperity and liberty inevitably go hand in hand. Trade and investment should be evaluated for their economic costs and benefits to the United States, not for their political impact on China.

Take the economic meetings coming up this week between Treasury Secretary Henry Paulson and Chinese Vice Premier Wu Yi. China has maintained its currency, the yuan, at a value so cheap that the U.S. trade deficit with China has soared to well more than US$200 billion a year. That has boosted Chinese exports and depressed U.S. employment and production. But some American officials are concerned that pressing China too much on this issue might spoil U.S.-China ties. I don’t think so.

Above all, we should approach China through the lens of our national interest. That includes not just security and prosperity but our interest in a world with open political systems and the freedom to dissent. If we don’t take China’s new model as seriously as the rest of the world does, we could find that we’re the ones on the wrong side of history.

Mann, author in residence at Johns Hopkins University’s Paul H. Nitze School of Advanced International Studies, is author of “The China Fantasy.”