After three decades of rapid growth, China’s economy stands at a crossroads today, its future direction holding implications for the rest of the world. Author Martin Jacques spoke with Sohel Sanghani about the challenges China faces, how its rise as a world power still appears strong – and how India should respond:

Your new book is titled When China Rules The World – is that an inevitable conclusion?

No, it’s a figure of speech. I explore China’s rise by assessing what sort of power it will be and how it will change the world as it grows richer and stronger.

But considering its latest quarterly growth rate dropped to 7.6%, is this rise so assured?

The recent slowdown is due to China coming out of a stimulus and the government trying to rein in both inflation and the real estate bubble by reducing liquidity – the long-term prognosis remains positive.

What about falling demand in the West and the erosion of China’s cost advantage due to its wage rises?

Both are valid concerns. The US and EU account for 50% of China’s exports. China must boost domestic consumption and sustain investment to keep up growth. Its wage rise in 2010-11 has been around 25% in some areas. This may affect competitiveness. The answer is to gradually move up the value chain instead of persisting with grunt work. This should be possible if Chinese companies build and rely on their own intellectual property – and the number of patents filed in China has been rising rapidly.

Could China get caught in a middle-income trap?

It’s too soon to say. They’ve been able to sustain a spectacular period for 30 years and the energy that’s been released is diffused throughout the country – the boom has lots of legs.

But as per capita GDP rises further, growth rates are likely to fall.

What will slower growth and fewer jobs mean for China’s social contract where currently, people seem willing to trade some rights for prosperity?

Well, what’ll take the pressure off jobs is the aging and declining population – consequences of the one-child policy. Also, mechanisms to manage unrest do exist. Following a large rebellion in Wukan, the provincial secretary intervened to organise an election, calm people’s anger and elect new local officials. Civil unrest in Tibet and elsewhere is due to ethnic reasons, the Tibetans resenting large influxes of Han Chinese, but this has mostly been contained – the real danger is if seve-ral such local uprisings coalesce into one large revolt that catches the government by surprise.

Does China see India as a rival?

China looms large in India’s mind – but the reverse is not true. The fact is, China’s economy is still much bigger and growing faster than India’s. The events of 1962 continue to rankle with India. China’s solved every land border dispute except the one with India – this should be done as soon as possible.

India should also look at China and see what it can learn from its success. Greater engagement will be beneficial for both countries while slower growth in China will harm India’s exports.

How does China view a growing US-India partnership?

China is very sensitive to this relationship. If India moves closer to the US and is perceived to be participating in a containment strategy, this will roil China. Perhaps a modern version of Nehruvian non-alignment would be the best course for India.

– Sohel Sanghani