Martin Jacques: Beijing's power struggle is bigger than America's

The news that Bo Xilai has been stripped of his positions on the Communist Party Politburo and Central Committee and that his wife, Gu Kailai, is being held on suspicion of murdering a British businessman has added a dramatic new twist to a story that first began to break in February. The dismissal of Bo, the former Chongqing party chief, surely marks the end of his political career. It also suggests that the path to the crucial Communist Party Congress in the autumn, when, in effect, a new President and Premier will be elected and seven of the nine-member standing committee that runs China will be replaced, could run somewhat smoother.

What does the Bo affair tell us about China? The very fact that so much of it has entered the public domain – and in real time, as opposed to long after the event – is a sign that it is now far more difficult to keep these things under wraps. The growth of the internet, microblogs and a more lightly censored media mean that Chinese society is far more open and porous than was previously the case. The manner in which Bo Xilai was conducting a thinly-veiled public campaign for a seat on the standing committee is further evidence of this: different leaders are for the first time becoming associated in the public mind with different, competing political positions. It would be an exaggeration to suggest that the party now embraces a range of political tendencies that can be publicly identified, but this is one route that a process of growing democratisation could take in the future.

The conflict over Bo Xilai gives us some insight into the fierce struggles that have been taking place among the party leadership about both the composition of the new leadership and the policies that it should pursue. We tend to think of China as being relatively devoid of debate and argument: nothing could be further from the truth. If an economy is growing at around 10 per cent a year – and doubling in size roughly every seven years – it is constantly throwing up huge new problems. The fact that, remarkably, this has been happening for over three decades means that China is now a profoundly different country compared even with a decade ago, let alone 30 years previously.

The new leadership will be confronted with four overarching issues which will define what happens to the country over the next decade and more. First, there is the challenge of shifting the centre of gravity of the economy from being labour-intensive, low value-added and export driven to one that is increasingly value-added and oriented towards domestic consumption.

Then there is the question of political reform. There has, in truth, been an ongoing process of political reform in China which has been largely overlooked in the West because it has not involved moves towards a Western-style democracy. The most persistent advocate of further political reform has been Premier Wen Jiabao, who renewed his call when he questioned developments in Chongqing last month, thereby precipitating Bo Xilai's downfall. What he seems to have in mind is extending village elections to towns and counties and continuing the process of greater openness and transparency.

The two most incendiary issues in China are corruption and inequality. There is a widespread view among many Chinese that a large proportion of the new rich have obtained their new-found wealth as a result of corruption involving illicit deals between government officials and private business. Such views undermine respect for the government's economic policy and weaken its legitimacy. While economic growth is so buoyant – and living standards are rising rapidly – this resentment is unlikely to boil over, but it could well be the source of instability in the future. Given that corruption and inequality have continued to grow apace, it poses the question of whether the party and government have the will to tackle the issue – or whether the problem is now too deep-rooted and intractable.

Finally, the new leadership will face the increasingly urgent challenge of articulating a new foreign policy. Ever since Deng Xiaoping set out the parameters of 30 years ago – gearing foreign policy to economic growth and the reduction of poverty – it has, in its essentials, remained little changed. China may still be poor, but it is no longer weak; furthermore, it has a rapidly expanding portfolio of global interests. Already a fascinating debate is under way about what might constitute that new foreign policy.

The backdrop to the events surrounding Bo Xilai's political demise, then, is provided by a huge and fascinating debate about the country's future. It is no exaggeration to suggest that the Chinese Communist Party Congress this autumn is likely to be of greater consequence to the world than the American presidential election with which it will more or less coincide.

Martin Jacques's 'When China Rules the World: The End of the Western World and the Birth of a New Global Order' is published by Penguin Books