In the decade since the turn of the century China has made huge progress in national development and its position in the world has changed accordingly. 2010 was a particularly symbolic year. China became the world's biggest consumer of energy, and the biggest emitter of greenhouse gases. Having already become world number one in international trade in 2009, in 2010 China became the world's second largest economy. Indeed, according to the purchasing power parity (PPP) standard used by the World Bank and the IMF, China has already overtaken the United States to become the world's largest economy.

China's military spending in 2010 was 530 billion RMB – but in reality that may be an underestimate. Using the official exchange rate, China's military spending, at US$78 billion, is the second largest in the world. It outstrips Japan's by more than 50 percent and India's by more than 150 percent. And although China's military still lags far behind that of the United States, in PPP terms it spends nearly half as much as the US regular military budget (excluding anti-terrorist expenditure).

1. Four characteristics of China's foreign relations

China's relations with the rest of the world can be said to have four main characteristics. First, China relies heavily on the outside world, and especially needs a peaceful and stable environment. Second, the international community also relies heavily on China, and China's role in shaping international affairs is growing. Third, China's rapid rise has enormously enhanced its global role and its international status is at an historical high. Fourth, some countries remain suspicious of China's intentions and capabilities, and are particularly concerned as to whether China will continue to follow a peaceful path.

The year witnessed instability, even unrest, on China's periphery. There were massive riots in Kirghizstan, and a shift in the political situation in Myanmar. Tension grew on the Korean Peninsula with the sinking of the Cheonan, followed by the mutual bombardment during South Korean military exercises around Yeonpyeong Island. China's dispute with Japan regarding sovereignty over the Diaoyu Islands intensified to a level not seen in many years. These destabilizing events had a negative effect on the external environment that is crucial for China's economic development. Since China has repeatedly emphasized its primary goal is economic development, instability on its periphery constitutes a threat to its core interests.

In response to these problems, the Chinese government pursued active foreign policies to preserve regional stability and promote China's own interests. Regarding surrounding countries' internal political problems that do not directly affect it, China showed concern for their resolution but opposed any form of foreign intervention. In the case of issues that threatened to spin out of control and endanger China's own security, China worked actively to bring the parties concerned together for peaceful negotiations. When the North and South Koreas confronted each other on Yeonpyeong Island at the end of the year, China did its best, in cooperation with other countries, to cool down the tense situation using bilateral channels, the United Nations, and shuttle diplomacy.

China has become the brightest star among the emerging powers of the new century, whether addressing the world's nuclear security issues, or collaborating with other countries to find solutions to the financial crisis. China's rising international status and its capacity to take part in global governance is widely recognized as a major new force in the world. The establishment of the G20 summit mechanism following the global financial crisis pushed China to the center stage of global governance.

Although 2010 saw a number of disputes between China and the United States, consultation and cooperation remain the main theme of bilateral relations. In the two core areas of Sino-US relations – the RMB exchange rate and emissions reduction – the two countries continue to seek win-win outcomes against a background of both cooperation and competition. The Chinese currency appreciated by 2.5 percent this year. In response, the United States drew back from accusing China of currency manipulation. There were further positive negotiations between the two countries at the Cancun Climate Change Conference, giving rise to expectations that both sides are becoming more reasonable. Cooperation in these two areas is playing an important role in stabilizing and promoting sustainable development of the global economy.

As a result of its rapid rise, China has achieved enhanced international status. In 2010, the World Bank launched a new round of voting reforms, raising China to third place in terms of voting rights, up from 2.27 to 4.42 percent. The IMF also moved China into third place, increasing its shares from 3.72 to 6.39 percent, and its voting rights from 3.65 to 6.07 percent.

China's increasing clout has not only contributed to the rise in its status, but also raised expectations around the world about its readiness to take on more responsibilities, which, as a matter of fact, China has consistently done. China's expanding cooperation with Africa, its massive assistance to Pakistan during this year's floods, even offering support to some crisis-hit Euro-zone countries, are all evidence that, as China develops, it is providing more and more public goods to support world and regional governance.

The increase in China's international competiveness has equipped it to play a more important role in regional and world affairs. But it may also have increased vigilance and suspicion of China's power and purposes among some countries, especially neighboring countries in direct competition with China. In 2010, India became somewhat more suspicious of China's strategy. The United States joined with a number of ASEAN countries to step up the controversy surrounding China's sovereignty in the South China Sea. And Japan listed China as its top security threat in its latest National Defense Program Outline (NDPO).