Certainly, China could “make a big difference” on major global issues such as climate change, nuclear proliferation and the global economic crisis if it chooses to, Lieberthal told INSEAD Knowledge on a recent visit to Singapore.

“I think (China) is still in the early stages of figuring out how to be a global player. It still isn’t comfortable yet with what the balance ought to be between following China’s very narrowly defined national interests, versus contributing to global common goods, global stability, global rule-making, global institutions that are vibrant,” says Lieberthal.

“It certainly does some of all of that but not much. And I think that there’s going to be a period of time before the Chinese get comfortable with the notion that they should not be doing everything just for themselves.”

“At the moment they (the Chinese) think that their future depends on their economic development, and so everything they do is strongly influenced by their notion of what is needed to continue rapid economic development.”

“Overwhelmingly their foreign policy aims at acquiring mineral and energy resources, at keeping markets open for their exports and then providing the most narrowly-based kind of national security.

Chinese foreign policy is “shaped by what they see as their domestic economic requirements” and this is likely to continue, he says, adding: “It’s a struggle to get them to think beyond that because in (terms of) per capita GDP, they rank very low in the world.”

However, Lieberthal acknowledges that the Chinese leadership’s focus on generating economic growth is driven by the fear of widespread social unrest should economic growth falter. About 450 million people in China live relatively modern lives, but for more than 800 million people life is harder, he says. “Their leaders never forget the reality of that 800 million and its implications for the country.”

Indeed, with economic growth at the heart of the contemporary Communist Party, a more apt name for the party could be the “Chinese Bureaucratic Capitalist Party”, Lieberthal says, adding that the party is neither communist nor free-market capitalist in practice.

“This is a party that intervenes massively in the Chinese economy at a microeconomic level, at an enterprise level, not simply monetary and fiscal policy, law and regulation and sectoral policy, this is enterprise by enterprise at various levels of the Chinese political system,” says Lieberthal.

“If you look at the reward structure and the promotion structure within this Chinese Communist Party, it rewards overwhelmingly those party members who are the most effective at growing the GDP of the area under their jurisdiction. So you get some of the best entrepreneurs in China who are the key people in what is still called the Chinese Communist Party.”

Asked how he expects China to develop politically, Lieberthal replies that China will require strong political will from its leadership to enact much-needed structural economic reforms to counter rampant corruption among local level officials. Failure to engineer such reforms could result in slower economic growth and increased social instability, he adds.

Lieberthal also believes that it’s critical that the Chinese government stop interfering in the economy at the micro level, as well as putting an end to the widespread practice of local officials collaborating with local companies to ensure their mutual success. He points out that the practice fosters such close ties between officials and companies that it becomes very difficult to tackle corruption, enforce environmental regulations and protect intellectual property.

And because there are many levels of protectionist measures in various local markets, relatively few manufacturing firms in China are able to achieve meaningful economies-of-scale, says Lieberthal.

“So there are a lot of costs to the way this has developed. It’s promoted very rapid all-out growth but at high costs, and I think those costs have become high enough that sustaining growth requires changing this fundamental dynamic in the political system.”

This article was written by Kevin Tan based on an interview for INSEAD Knowledge.

Professor Lieberthal spoke on US-China relations at the Civil Service College in Singapore on July 5.