With the Communist Party of China now in the process of selecting its new leaders at its 18th National Congress, the world is scratching its head wondering where the second-most powerful state in the world is headed. Will it continue its policy of pursuing a “peaceful rise” and maintain good neighborly relations, or assert itself as a hegemon and become a threat to the United States, Japan and surrounding countries?

The party, which opened its National Congress for a weeklong session on Thursday, is reviewing what China has achieved under Hu Jintao during the past decade and mapping out its future course under Xi Jinping, who will be crowned as president on Nov. 15.

As Xinhua news agency observed on the eve of the CPC National Congress, China has become the second-largest economy and the biggest manufacturer/exporter in the world in the past decade. It also holds the largest foreign exchange reserves. Xinhua said: “Not since the Opium War in 1840 when the country was crashed by Western powers has China held such power.” China deserves to pat itself on the back.

At the same time, China is faced with unprecedented challenges. As the world economy slides deeper into a recession, China will undoubtedly find it difficult to generate economic growth at an annual rate of more than 10 percent, as it has done in the past. Indeed, its growth rate slowed to 7.8 percent in the first half of this year ― a rate that was still seen to be enviably high to outsiders but one China might regard as woefully low as a nation striving to rise above developing country status.

Another thorny problem China’s new leader will have to address is a growing popular demand for greater political freedom. If South Korea’s experience is any guide, Chinese people will be increasingly vocal in their demand for human rights and democracy as their income increases. The transition from authoritarianism to democracy is anything but smooth, as witnessed in the Arab Spring. South Korea also experienced political upheavals before it became a democracy in the mid-1980s.

One way to divert public attention away from potentially disruptive domestic issues, such as a popular demand for an end to one-party rule, could be for China to become more assertive in its external relations. China has already become confrontational in its territorial dispute with Japan over the Senkaku/Diaoyu islands. It also launches immediate counterattacks when it is accused by the United States of violating human rights or manipulating exchange rates.

Whether or not China will change the course of its foreign policy, in particular toward the United States and Japan, will undoubtedly have a far-reaching impact on South Korea’s security concerns and external relations.

On the one hand, South Korea relies to a great extent on China economically. China has emerged as South Korea’s largest trading partner, with bilateral trade having grown 35-fold during the past two decades ― from $6.3 billion in 1992, the year when the two countries opened formal relations, to $220.6 billion last year.

On the other hand, South Korea, which has a free trade agreement with the United States, also relies on its military ally for help in fending off security threats from North Korea, while China remains an unwavering patron for the communist North. All this means is South Korea has good reason to tread a fine line between China and the United States. It needs to ensure that its relations with the two countries are complementary, not mutually exclusive.

For his part, Xi needs to carefully manage China’s delicate relationships with South Korea, which he has already visited twice, and with the Communist North, the first country he visited after his selection as China’s future leader in 2007. Moreover, he is taking over China’s leadership at a time when the United States is putting a greater emphasis on South Korea and Japan in what it calls a pivot toward Asia.

Another area that will merit keen attention from Xi will be the future of Northeast Asia. The three countries in the region will have to rise above their territorial disputes ― China with Japan over the Senkaku/Diaoyu Islands and South Korea with Japan over the Dokdo islets ― and build closer ties for common prosperity, as envisioned at the 2005 trilateral summit.