Last week's dismissal of Bo Xilai, the party secretary of Chongqing province, casts this autumn's Chinese Communist party congress, with the anticipated replacement of President Hu Jintao and Premier Wen Jiabao by Xi Jinping and Li Keqiang, in a dramatic new light.

Bo Xilai, son of a former Communist party leader and veteran of the Long March, has been exploiting his office for a thinly veiled campaign for a place on the party's nine-member standing committee that runs China. His fall was triggered when his righthand man in Chongqing, the police chief Wang Lijun, sought refuge in the American consulate in Chengdu, claiming that his life was under threat from Bo.

From that moment, Bo's career was in doubt. The coup de grace was delivered by Wen at a press conference at the annual National People's Congress, when he warned that China risked another "historical tragedy" like the cultural revolution and that the Chongqing party had to "seriously reflect on the Wang Lijun incident". Bo's dismissal followed almost immediately.

It is not surprising that tensions in the Chinese Communist party should be running high at this time. The forthcoming congress will decide who will run China for the next 10 years. Profound policy questions are at stake. After 30 years of extraordinary economic growth, China is the world's second-largest economy and a major global power. It is a very different country from the one in which Deng Xiaoping launched his reforms: fundamental changes now confront the new leadership.

First, the era of cheap labour and low value-added production is coming to an end as the economy becomes increasingly sophisticated: a major shift in economic strategy is under way. Second, China has acquired a panoply of global interests that require its foreign policy, presently based on keeping itself to itself, to be rethought. Third, the enormous growth in social inequality, combined with mounting corruption, has fostered a sense of grievance that, if unchecked, could threaten the country's stability. And fourth, major political reform must be instituted.

Debate and argument is no stranger to Beijing. When a country is growing at around 10% per annum, it is constantly throwing up huge new problems that demand solution. It is a far cry from the situation in western countries, where economic stagnation has produced a sterile and backward-looking political debate. There is a presumption in the west that there is little discussion and argument in China. This is quite wrong: it would be impossible to go through the kind of change that China has experienced without it provoking major debates and conflicts. And because China now faces the need for a major policy shift on several fronts, this has been intensifying. Beijing is currently home to the world's most interesting debates.

Could the conflicts get out of hand? Wen's reminder about the lessons of the cultural revolution was patently a reference to Bo Xilai's conduct in Chongqing, where he has been accused of ignoring legal procedures in the name of a crackdown on organised crime, using torture to extract confessions, and targeting powerful businesspeople who are not his allies.

He has combined this with a populist political campaign that has carried distant echoes of the cultural revolution. China has come a long way since those dark days, when lawlessness and arbitrary authority reigned, not to mention the many who lost their lives. If not the rule of law, there is certainly now a much much greater respect for due procedure. But the revelations about Bo's behaviour indicate that old attitudes and practices still persist, and are perhaps even widespread, and could – under certain circumstances – provide the basis for a serious political regression.

More likely, however, is that the process of growing political accountability and openness, which has been such a marked characteristic of the last three decades, will continue and deepen. This is not to suggest that China is on the verge of introducing universal suffrage and a multiparty system, which is the knee-jerk western response to any mention of political reform. Any such prospect can be discounted. This, we should remind ourselves, is a political regime that has enjoyed extraordinary success, the most successful in the world over the last thirty years. Political reform will be gradual and cautious.

We can already detect some of its characteristics. Unlike any previous party congress, clear differences have emerged in public between rival candidates for the new standing committee. The constraints on the media have been considerably loosened over the last several years, while the internet has provided, except on the most sensitive issues, a platform for a convulsive and hard-hitting debate.

If the new leadership were to heed Wen's words last week, then we can expect something more far-reaching. "We must press ahead with both economic reform and political structural reform," he urged, "especially reform in the leadership system… Without successful political structural reform, it is impossible for us to fully institute economic structural reform and the gains we have made in this area may be lost," he said. For a Chinese leader, these are strong words.