Despite the extravagant claims of its leaders, China at 50 faces contradictory problems both at home and abroad that suggest the country's future remains confused and uncertain. At home, the contradiction between the political system and the economic reforms has become more acute. Abroad, the difficulties of reconciling economic dependence on the outside world, and the US in particular, with the political aspiration to be an independent great power have deepened considerably.

Ironically, the official celebrations with their emphasis on communism are indicative of these problems. Communism has once again been resurrected as the symbol of legitimacy, partly in reaction to the revival of traditional quasi-religious cults, such as the Falong Gong, and partly because economic growth has slowed considerably.

Although state nationalism (or patriotism) remains a key element in the appeals of China's leaders for the loyalty of the people, it has proved to be a dangerous brew. They encouraged what they called patriotic education to resist pressures for social and political change that stemmed from deepening interdependence with the outside world and from what was portrayed as American interference in domestic affairs.

But patriotism entailed a celebration of China's past culture which in turn opened the door to the revival of traditional quasi-religious cults and practices that President Jiang Zemin found so threatening in the shape of the Falong Gong. Moreover, as economic problems have deepened it has become more difficult for the Communist party to claim support as the provider of prosperity.

Following the Tiananmen disaster and the disintegration of the Soviet Union, China's communist rulers appealed to the loyalty of their people on the grounds that their rule provided growing prosperity and the stability that was needed to sustain it. In the early 1990s they quietly dropped the emphasis on communism and stressed performance as the basis for their right to monopolise political power. Now, in the late 1990s, they have found performance alone cannot be relied upon for this purpose and communism has been revived.

Unfortunately for China's leaders their economy has not been immune to the Asian economic crisis, and the years of spectacular economic growth have passed. The economy is now growing very slowly indeed. It is impossible to calculate the true figure as no one believes the official figure of 7.8 per cent, but it is thought to be several percentage figures below that - barely able to keep up with the natural growth of the labour market.

The slowdown has occurred just as the leaders have found they can delay no longer the process of restructuring the huge loss-making state-owned enterprises. This is the truly difficult part of the reform process as it involves dismantling enterprises that served as social welfare units for the 100 million workers - more than half the urban workforce - and their families at a time when unemployment and inadequate social services threaten.

Meanwhile, these enterprises are beholden to the banking system with non-performing loans that are estimated to account for up to a third of the value of China's GDP. Consequently, reform of the banking system continues to be delayed.

In the long term there can be little doubt that the solution lies in deepening China's integration into the international economy through joining the World Trade Organisation and developing financial institutions and management systems that correspond to best international practice. However, the problems of transition in reaching that ideal state are enormous and they also affect China's relations with the rest of the world.

Since embarking on the path of reform some 20 years ago, China has indeed become more integrated into the international community, but it still remains detached from it in important ways, leaving its relations with neighbours and the wider world in degrees of uncertainty. Will rising Chinese power challenge the security of neighbours and disrupt international order or will it contribute to regional stability and conform to international norms?

THE problem is that since emerging as a great power in the aftermath of the Korean War in the early 1950s neither China's leaders nor Chinese writers on international affairs have been able to articulate a coherent vision of the use to which its great power status should be put.

Their rhetoric has consistently abjured what they call "power politics" and "hegemonism", claiming China would never behave in that way. No other leaders place so much emphasis on set principles in their declaratory policies and yet few other leaders have acted with greater attention to the calculations of realpolitik.

Nearly all of China's alliances have broken down at some point amid much acrimony and self righteousness, only to be revived when the balance of power has shifted as perceived by China's leaders. Thus the close alliance with the Soviet Union of the 1950s broke down into enmity in the 1960s and 1970s and has been replaced with a "strategic partnership" in the 1990s.

If there is a thread of continuity in shaping Chinese approaches to the world, it must be seen in the terms of nationalism. Chinese nationalism emerged out of the ashes of the collapse of the Chinese empire, or rather civilisation, in the face of the onslaught of Western power and the forces of modernity which it represented. It is that which gave rise to the myth of a century of "shame and humiliation" and the drive to restore Chinese pride and greatness that underpins a Chinese sense of entitlement in their leaders' approach to the West in particular.

It is nationalism that stresses China's role as a victim of modern history. It also leads to attempts to define some kind of Chinese identity that is separate from the rest of the world. Today, China's leaders claim they are developing a "socialist market economy with Chinese characteristics".

None of these terms has been satisfactorily defined. Yet the leaders' engagement with the international economy is designed to give them access to the means to sustain and defend that.

This, of course, leads to perennial uncertainty as to how to cope with the problems of interdependence. China can develop the economy and become strong enough to resist the encroachment by modern powers only through engagement with the international economy, but that in turn brings in external influences which cannot but change Chinese society.

This unease with the outside world is exacerbated in dealing with other great powers by whom they crave to be treated as an equal. This is especially true of the United States. According to Chinese current definitions of "comprehensive strength", the US excels as the dominant world power in military, economic and cultural terms. Indeed, much as they are loath to admit it, China has become unusually dependent on the US.

THE US accounts for one third of all China's exports and it provides the public goods from which its economic reforms have benefited these past 20 years. It has also underpinned the security system in East Asia, contributing to what the Chinese identify as the "tranquil international environment" that has been conducive to their economic development.

Yet the Chinese chafe at American dominance. They complain about American support for the defence of Taiwan; they seek to weaken the American security role in east and south-east Asia; and they proclaim their opposition to American alliances and in particular they oppose what they regard as American attempts to contain them. To this end the Chinese seek to cultivate partnerships with other great powers so as to strengthen multipolarity against the "unipolar" US.

Such attitudes have contributed to instability, not only in Sino-American relations, but also to strategic uncertainty in east and south-east Asia.

China tends to see its approach to smaller countries as entirely benign, but this is certainly not the view of its smaller maritime neighbours. They have engaged China in a variety of co-operative approaches, but they have done so in the assurance of the presence of the American Seventh Fleet in the western Pacific and they are distinctly uneasy at Chinese attempts to disengage them from the security of the American alliance system.

The biggest problem, however, lies in China's refusal to recognise that Japan may have legitimate security concerns. In the absence of workable security relations with Japan, Chinese attempts to undermine the American security role in east Asia cannot be other than profoundly destabilising.

However, the greatest threat that China poses to the world is from internal collapse. The economic and social consequences to China and east Asia would be so appalling as to damage the world as a whole. Consequently, we have no alternative but to continue to engage China and to encourage economic development.

But that does not mean acceding to its nationalist demands.

Michael Yahuda is professor of inter- national relations at the London School of Economics