Events in Lima, Peru, on 19-20 November 2016 radically mark a major transformation in global economic leadership, consequently global governance and hence the global business environment.

Though the trends had been there for some time, Lima 19-20 November 2016 effectively marks the date when the US de facto relinquished the role it had been assuming for seventy-one years as leader of the global multilateral rules-based trading system. Chinese President Xi Jinping announced that henceforth China would assume that role and act as guarantor of global free trade.

I am writing this note from Shanghai where business and thought leaders I have been speaking to are quite stunned by the realization and especially the implications. At a time when Beijing is facing a number of daunting challenges on the domestic front, it is now facing an awesome challenge on the global front. And, the globe at the moment, whether geo-economically or geopolitically, is hardly a cosy bed of roses.

Having been throughout history the world’s wealthiest economy, for the last two centuries, from the first Opium war (1839) to China’s accession to the WTO (2001), China was successively exploited, humiliated, impoverished, ostracised and marginalized. From wealthiest economy, it became one of the poorest. A Chinese “come-back” seemed unimaginable.

Yet with indubitably the most radical and successful economic reforms the world has ever witnessed, when, as the leading thinker ZHENG Bijian put it, “the most important strategic choice the Chinese made was to embrace economic globalization”, resulting in the phenomenal decrease in poverty of over 700 million people, China has indeed “come back”. Though still a middle-income country on a per capita basis, in terms of aggregate GDP it is once again the world’s biggest economy (in PPP terms) and in principle should maintain that position for the next decades.

For its part, the US, under both presidents George W Bush and Barack Obama, failed to adjust to the new global economic environment. This is most vividly illustrated by Washington’s failure to lead the 2001 launched WTO Doha Development Round. This was visible at the WTO ministerial meeting in Cancún, Mexico, in 2003, when Washington effectively caused the collapse of the negotiations. Washington, not sure whether to engage China or contain China in the global trade arena ultimately succeeded in doing neither. The failure of TPP (the Trans Pacific Partnership) and the unwillingness of Washington to return to the multilateral table in Geneva ultimately sealed its fate.

As irrational as the man, president-elect Donald Trump, himself may be and however outlandish his trade “policies” (if that’s the word) may appear, in an admittedly rather rambunctious theatre, the position he has taken is logical in the context of American trade policy trends and developments since the beginning of this century.

China is not only the biggest economy, but also in some respects the most important. It has been for the last decade, especially since the 2008 American financial crisis, the leading global economic locomotive. To paraphrase a metaphor made over decades in respect to Washington; today if Beijing sneezes the world will catch pneumonia.

So, what’s the economic temperature like in China? Walking around the Bund in Shanghai, where I am staying (at the Fairmont Peace Hotel), it is difficult not to be perpetually amazed by the rising signs of urban middle class prosperity. Having first come to Shanghai in 1984, and even though returning often since, I look back in wonder. Prosperous, therefore, yes – though pockets of poverty remain – but how solid? What intrigues me is that many Chinese I speak to, not only in Shanghai, but elsewhere in China, in Hong Kong where I teach, and in the world generally, are what might be termed “cautiously pessimistic” with some perhaps as much as “cautiously alarmist”. There is concern that Beijing is assuming global leadership when, so far as the economy is concerned, it is not completely in steady control domestically.

There is another dimension to the global leadership role. The US became the world’s biggest economy within two decades or so following the civil war (1861-1865). It did not fully assume global economic leadership until 1945. Thus, Washington had some six decades to prepare and make errors: as it did by isolationism in the wake of World War One and in adopting protectionism in the course of the great depression. Washington was also succeeding a close ally, Great Britain, with, as some UK pundits liked to believe, London playing Athens to Washington’s Rome. Britain eased the US into the position of leadership.

It has been at most six years (rather than six decades) since China became the world’s biggest economy. It has hardly had time to prepare for the leadership role. Its “soft” power is hardly commensurate with its hard power, as was the case with the US. Furthermore, whereas the US could count on the UK’s sympathetic support and mentoring, China can hardly count on the US for sympathy, support or mentoring. Certainly not for the next four years.

In fact, in this leadership transition, the burning question of the 21st century is whether China will succeed in its “peaceful rise”. The answer depends not only on Beijing. It depends very much also on Washington, but ultimately also on as many players as possible, including businesses and business schools. The whole planet has a stake in China’s peaceful rise.

The alternative is terrifyingly cataclysmic.   

Jean-Pierre Lehmann is Emeritus Professor of International Political Economy at IMD and visiting professor at Hong Kong University.