In the two years since he took China’s most important job, Xi Jinping has become the most powerful national leader in the world. He has assumed seven top positions spanning the Communist Party, the state, the economy and the military. He has also displayed an activism that contrasts sharply with his predecessor Hu Jintao, and has promulgated a tough ideological line.

At home, his big anti-corruption and frugality campaign is attempting to strengthen the 87-million-strong Communist Party by bringing the cadres closer to the people. Abroad, Xi has forged a foreign policy to dispense hundreds of billions of dollars to countries from Asia to Latin America while confronting Asian neighbours and seeking geopolitical parity with the United States.

Projecting a folksy image domestically as “Xi Dada” (Uncle Xi), he appears popular, as a leader with ambitions that match China’s economic weight, the strongest chief of the world’s most populous nation since Mao Zedong. Like the Great Helmsman, Xi knows how to play to perfection the front-line role in his country’s political system – Leninism with Chinese characteristics. (Though paramount leader after winning the power struggle that followed Mao’s death in 1976, Deng Xiaoping preferred to operate through others.) With his tenure stretching to 2022, Xi does not have to worry about elections or obstructive legislatures; what matters is controlling and strengthening the monopoly movement that has ruled the People’s Republic of China (PRC) since 1949. After taking over the Party leadership at the end of 2012, he swiftly pursued the centralisation of authority and set up four top-level national bodies under his chairmanship to add to the usual top three posts of Party general secretary, state president and chair of the Central Military Commission. He has no rivals and has ensured control of a vital power base by reshuffling top commanders of the People’s Liberation Army (PLA) to promote generals close to him.

Xi has also put his name to an ambitious seven-year programme of economic reform. The growth rate has fallen below the government target but it is projected to be 6.8 per cent this year, strong by global standards. Inflation is low; deflation, boosted by excess capacity, is the big problem. Foreign currency reserves, feeding off the PRC’s position as the world’s biggest exporter, stand at $4trn, as much as the next seven biggest reserve holders combined. (Although this is an enviable position, China is in a “dollar trap”: it cannot sell much of its US assets for fear of provoking a wider sell-off of the greenback, reducing the value of its remaining holdings.)

Internationally, Xi has displayed ever-increasing confidence, discarding Deng’s advice for China to “hide its brilliance and bide its time”. For him, the time has come. The PRC’s huge aid programme includes the “One Belt, One Road” plan, to pay for infrastructure, transport routes and energy generation plants along the maritime passage from China to the Gulf, and also across central Asia to Russia and Germany beyond. China has offered large sums to governments in Latin America to gain influence, buy in to companies and promote infrastructure projects that would provide work for PRC firms. Its firms have been investing in Europe, North America and Australia as well as the old natural-resources-hunting ground of Africa. The Beijing government has created the Asian Infrastructure Investment Bank and had the satisfaction of more than 50 countries, led by the UK, joining despite warnings from Washington not to do so – a telling sign of how strong is the ­desire to get on with China.

Xi’s body language at the summit in Beijing of the 21-nation Asia-Pacific Economic Co-operation (Apec) organisation towards the end of 2014 told a clear story. Japan’s prime minister, Shinzo Abe, and Barack Obama were both put at a disadvantage by the staging of meetings with him by being made to appear like supplicants, Abe receiving only the most distant of handshakes and no small talk. Xi, who is broad-shouldered and nearly six foot tall, trumped the feline figure of Vladimir Putin, who committed the overeager faux pas of putting a shawl around the shoulder of the Chinese leader’s wife: it was swiftly removed. Xi looked, and acted, like an emperor.

Both Obama and David Cameron will have occasion to savour the Xi style when he visits the US and UK this autumn. Britain has already felt the impact of the tougher Xi approach over Hong Kong with the refusal late last year to allow a Commons select committee to visit the former colony and, in January, the snubbing of the Foreign Office minister Hugo Swire by the two most senior Hong Kong officials. But the Cameron government has accepted such ­rebuffs in the hope that Xi’s visit will result in contracts for British companies.

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Confounding non-Chinese commentators who see the PRC as defined by its Confucian civilisation, Xi belongs to the other philosophical stream, of legalism, dating back to the First Emperor 2,200 years ago. This puts its faith in top-down autocratic rule, with the law frightening citizens into obedience. There is no room for retreat or compromise. The way in which reform is perceived to have brought down the USSR is held up as a terrible example of weakness.

Xi’s wide-ranging war on corruption is a perfect example of the legalist approach. Its cutting edge, the Communist Party’s Commission for Discipline Inspection, can hold people for as long as it wants without charge in a secret location before the Party rules on whether to expel them. Only then are they handed to the courts for sentencing.

In targeting high-profile “tigers” such as the maverick Politburo member Bo Xilai, who was sentenced to life in prison in 2013, and the former security chief Zhou Yongkang, who was given a life sentence on 11 June, Xi has shown that nobody is safe though powerful vested interests are bound to oppose him. (Besides being found guilty of corruption, Zhou was accused of divulging secret documents to his spiritual guru, who claims supernatural powers. A brief video of his sentencing showed a man who was once one of the PRC’s most powerful figures, his previously black hair turned white, evidently from having hair dye denied to him in detention.) Close associates of Hu Jintao and his immediate predecessor, Jiang Zemin, have been detained; the campaign has also swatted tens of thousands of less eminent “flies” and induced a widespread atmosphere of fear.

Not content with the Party’s 66-year-long monopoly of power, its Politburo ruled last month that all social, cultural and economic organisations must have a Communist cell, as is already the case in most companies. A legal programme launched last year aims to use the law to buttress central control; judges already had to swear an oath of loyalty to the Party. Liberals who, having given up on canvassing for democracy, ask merely that the constitution be respected, are denounced as foreign agents out to undermine the PRC. Anybody trying to operate outside the system is in danger. An anti-corruption campaigner who called for party and state officials to be required to declare their assets has been jailed for disturbing public order; his real sin was to have operated on his own.

After being abolished officially in 2002, class warfare has reappeared as a mantra in state media, along with Mao’s “mass line” – to ensure conformity under the leadership – and denunciations of “western values”. Repression of dissent, officially equated with subversion, has increased; Liu Xiaobo, the 2010 Nobel Peace Prizewinner, remains in jail, where he is serving an 11-year sentence for having circulated an online petition in favour of democracy.

Beijing has also toughened its hold on Tibet, where more than 100 Buddhist monks and nuns have burned themselves to death in the past five years to protest against Chinese rule, and on the huge western territory of Xinjiang, where the state faces increasingly violent action by Muslim Uighurs who oppose the Chinese rule imposed by military force around 1950. Mass immigration by Han Chinese, who get most of the benefits of the cash being poured in by the central government, is changing the population balance in both territories.

Xi’s persona as a strong leader with populist characteristics is nurtured by events such as his 2013 visit to a neighbourhood restaurant for a lunch of vegetables, steamed buns and pig-innard soup. His liking for football is reported in the Chinese media, along with his desire for the People’s Republic to improve on dismal performances and become a World Cup challenger. In 2013 he was photographed on a dockside in a downpour holding his own umbrella and with his trousers legs rolled up, like a holidaymaker caught in the rain at Blackpool – though the snap disappeared from mainland websites after Hong Kong democracy protesters took the umbrella as their symbol.

His wife, Peng Liyuan, has become China’s most prominent first lady since Madam Mao – Jiang Qing, who led the extremist Gang of Four during the Cultural Revolution and subsequently died in jail – if a good deal less scary. The handbags Peng carries on foreign visits quickly sell out on e-commerce sites. She was a well-known folk singer with a big voice before she stopped performing when her husband rose to the Politburo Standing Committee (she sang in the PLA entertainment corps and holds a rank equivalent to major general). A schmaltzy ballad, “Xi Dada Loves Peng Mama”, even went viral last winter, with tens of millions of internet downloads in China.

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Xi, 62, has radiated a sense of entitlement from his youth, somebody who knew him in those days told me. The son of a first-generation Communist leader, he was sent to live in a cave and look after pigs when his father was purged in the Cultural Revolution. He then worked his way up through provincial posts, including senior positions in two high-growth provinces, Fujian and Zhejiang, before being put in charge of Shanghai in 2007. That same year he was elevated to the country’s top political body, the Politburo Standing Committee, marking him as the man to succeed Hu Jintao at the following congress, in 2012.

He stands at the top of the “princelings” group of offspring of first-generation Communist chiefs, though the leadership factions apparent before Xi became general secretary appear to have dissipated. Other Standing Committee members seem to have accepted his power play. Premier Li Keqiang, the leading member of the “Youth League faction” of Hu protégés, lines up loyally, but knows that if the economy falters seriously he will be the fall guy. Any ambitious younger politician aiming to join the Standing Committee at the next congress in 2017, and so position himself in line for the post-Xi leadership, is likely to hunker down in the leader’s tent.

For all his power, Xi confronts a long string of challenges; indeed, he has indicated that he feels he needs great authority because of the scale of problems facing the regime. China has major economic imbalances. The leadership has to manage slowing growth, deflation, excess industrial capacity and a mountain of debt incurred by local governments for projects unlikely ever to provide a decent return on ­capital. To ensure sustainable growth, it needs to reduce the dependence on exports and fixed asset investment and to increase domestic consumption – but the rate of consumption growth remains weak. Prices have fallen on the property market, into which many Chinese poured their savings. The recent stock-market boom has run ahead of itself and international investors showed what they thought early this month by declining to include in the benchmark global MSCI Emerging Market Index stocks that are listed on the mainland, rather than in Hong Kong. For all its adaptation of inventions from abroad, China is not good at original innovation. It also faces competition from lower-cost producers and needs to move up the value-added chain of manufacturing.

The second generation of the urban middle class, which holds the key to the PRC’s future in many ways, and which has never known anything but strong growth, is more questioning than its parents. Social media has introduced conversations that are outside the range of the official channels, and too numerous for the censors to keep track. Chinese citizens make more than 100 million trips abroad each year and see the liberties democracy can bring.

There is a grave environmental crisis in air quality (life expectancy in polluted northern cities is five and a half years lower than in the cleaner south), water and soil (one survey showed that 10 per cent of arable land was unsafe to grow crops on). Food safety is a constant concern. Differences in regional and personal wealth have soared. As the scale of the current anti-corruption campaign shows, graft is deeply embedded. Public trust in officialdom is low. The hukou registration system that ties people to their place of ordinary residence deprives migrant workers of rights to welfare, education or property, and prevents them from launching businesses in the cities, where they are treated as second-class citizens.

Low fertility, the one-child policy and the cost of raising children in a system without adequate maternity facilities have all caused the birth rate to fall just as more old people are living longer. The result is a demographic time bomb in a nation without a proper pension system and sparse state care for the elderly. Confucianism is fraying, and despite the new, Mao-tinged ideological campaign the “ism” that most marks out China today is materialism. The government wants people to spend more and thus boost growth, but the inadequate welfare system obliges Chinese citizens to save a lot.

Abroad, some of the rulers with whom Beijing has formed close relationships have come unstuck – as in Sri Lanka and Venezuela. The PRC’s project to build a highway and railway from the Arabian Sea through Pakistan to China’s westernmost territory of Xinjiang has problems with both topography and the Taliban. There are serious doubts about the transcontintental railway proposal for Latin America. Moscow may resent China’s push into central Asia and Beijing’s expansive sovereignty claims in the South and East China Seas have drawn Japan, the Philippines and other countries closer to the strategic umbrella of the United States. Tokyo has launched its own aid programme in response to Beijing’s initiatives. America has critical allies in the region; Beijing’s only formal alliance is with North Korea. Despite its military spending, the People’s Republic lags behind US military power in east Asia.

As for soft power, the idea that Chinese civilisational values will spread to match those of the west looks good only on paper. Since 1949 the Communist Party has presided over extensive destruction of Chinese traditional culture. Apart from the Forbidden City and a few temples, Beijing is now a city of modern towers and ring roads, of shopping malls and mobile phones.

There are far more signs of western influence in China than of Sinicisation in cities of the west; the latest film in the Avengers franchise did far better at the box office in the PRC this month than a popular cartoon biopic of Deng Xiaoping. Despite the success of Chinese enterprises such as the internet giant Alibaba, the US remains well ahead in innovation and China usually adapts novelties from elsewhere rather than invents things itself. When it comes to politics, demonstrators in Ukraine or the Middle East call for western democracy but nobody marches to demand a Chinese political system. While universities in China are told to repel foreign values, any Chinese parents who can afford it send their children to be educated abroad. Xi’s own daughter went to Harvard (under a pseudonym).

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The greatest problem facing the Chinese leadership is simple. What is the Communist Party of China for and where does it derive its legitimacy? That raises some very knotty issues.

Is this movement that has never run in a national election – let alone won one – the deliverer of material progress, extending Deng Xiaoping’s insight that going for growth was the path both to restoring the PRC’s global status and to giving the Party a source of popular legitimacy? If so, what will happen if growth drops more sharply than Xi and Premier Li Keqiang plan and if the aspirations of the second generation of the middle class reach beyond money? What impact will the anti-corruption campaign have on the Party’s patronage networks and its poorly paid cadres, who live by rent-seeking?

Does the Party still have an ideological message as Xi’s invocations of Marxism and Maoism would suggest? If so, how does that chime with a rapidly evolving but still materialist society whose leaders cannot bring themselves to deal with the reality of China’s past? Mao is officially seen as “70 per cent good, 30 per cent bad”, but his record is still shrouded in myth. The story told at the grandiose National Museum in Tiananmen Square of how the Party saved China and is leading it towards “rejuvenation” is far from reality. Can a regime that cannot confront its own past command credibility?

For all the rampant growth and the praise some commentators heap on China’s supposedly meritocratic system rooted in thousands of years of history, its ruling class has a spotty record. The country’s economic success, which may be the most important global event since the end of the cold war, was buoyed by a combination of low wages, cheap credit and strong demand for exports. None of those factors now applies. The vast stimulus programme launched at the end of 2008 to counter the world financial crisis restored growth but led to wholesale misallocation of capital into wasteful projects that earn scant returns, the vast debt problem affecting companies as well as local governments, and also created soaring excess capacity in sectors such as steel production. In 2007, the then prime minister, Wen Jiabao, called the economy unstable, unbalanced, uncoordinated and ultimately unsustainable, a situation that was exacerbated by a £400bn expansion of credit and stimulus spending the following year.

The seven-year reform programme laid out in a Party plenum document at the end of 2013 was the response to that. It was limited to the economy; political change is unthinkable. Yet there is still a core problem. The plan aims to use market mechanisms to buttress the state and build “national champions” in a modernised system, but there is no mention of the main driver of growth and jobs: the private sector. If they are to be effective, China’s economic reforms must involve structural liberalisation, which has inevitable political implications and will reduce state power.

If he faces a choice between economic modernisation and party control, Xi is likely to choose protecting the second – in line with his condemnation of the Gorbachev experiment in the Soviet Union – as he steps forward as the strongman who defends the PRC’s Leninist form of bureaucratic state capitalism. But that in turn would cramp the development and modernisation necessary to perpetuate the Communist Party’s claim to rule. Such contradictions will shape China in the coming decade and, given the country’s global impact, will weigh heavily on the world.

Jonathan Fenby’s most recent book is “Will China Dominate the 21st Century?” (Polity). He is also the author of “Tiger Head, Snake Tails: China Today, How It Got There and Why It Has to Change” (Simon & Schuster) and “The Penguin History of Modern China”