China’s transformation into a knowledge-based economy occupying a central position in the global value chain will ultimately yield a “reform dividend.” But as exciting as that transformation will be, it will also be dangerous. Never before has an economy so large undergone such far-reaching change so quickly

Enduring wage disparities and outdated and imbalanced tax structures are seen as contributors to growing inequality, where neither the U.S. nor China are immune. Business, government and civil society leaders must come together to ensure the quality of education is improved to meet the demands of a technology-driven knowledge economy.

Currently, the world economy is at a critical juncture as new drivers of growth take the place of old ones. Chinese President Xi Jinping addressed the challenges of downward economic cycle lies in supply-side structural reforms. Obviously, the new growth cycle must be built upon a new structure - one that features the extensive application of S&T innovation results.

China’s controversial new anti-terrorism law would require foreign companies to install “backdoors” to give authorities remote access to computers and networks, and has been placed under review due to Western concerns. Since China still has to rely on foreign technology in the immediate future, the law might have been used to tell the United States government not to engage in what Beijing called “reckless behavior,” or to further expose U.S. hypocrisy in its own cyber espionage practices.

The U.S. is concerned over China’s new anti-terrorism law due to additional network security regulations that would affect its enterprises in China. Since Chinese governments, banks, and research institutes are almost entirely dominated by foreign IT companies, there is justified concern over domestic cyber security. Strict regulation in law could ensure that all investors are treated equally without favoritism.

The USCC assessment on the weaknesses of China’s People’s Liberation Army (PLA) offered little new analysis on PLA’s cyber-warfare capabilities. This is due to impossibility of finding a comprehensive assessment of China’s military cyber capabilities on the public record. Much of the debate surrounding the PLA’s cyber war capabilities is mere speculation based on evidence of its undoubted success in cyber espionage.

Lu Wei, China’s cyber czar has stressed “cyber sovereignty” as China’s official Internet policy. While the recent Sony hack may reveal that China was complicit in the unlawful breach of cyber norms, Gady argues that China and the U.S. need to find less politically sensitive ways to cooperate on mutually beneficial Internet issues, while circumventing their disagreements in other domains.

The recent Sony hack should increase dialogue between China and the U.S. on how to respond to cyber attacks and how to improve cooperation in cyber governance. Both countries are suspicious of the other’s activities, but existing interconnected Internet infrastructure requires new forms of dialogue and accountability.

China-U.S. relations in the field of the Internet is now an important component of the new model of major power relationship. To a great extent, the Internet will decide the future of both countries.

With the state of global Internet governance in flux, Lu Wei’s new Cyberspace Administration of China is making strides to cement a uniform position on the content delivery aspects of Internet governance, a hugely complex project that also hopes to impact the way these questions are answered internationally.