Twenty years ago, Robert Putnam proposed the concept of a "two-level game" to describe the interaction between domestic and international politics. Today, China is playing a "two-level game" as it seeks to play a key role on major global issues at the international level while reinforcing and consolidating its domestic reform program. China realizes its domestic policy choices will have a significant effect on the global economic recovery; and that a move on either level may evoke a corresponding move on the other level.

China is becoming increasingly integrated with the global economy. Its rapidly expanding trade, financial muscle and potentially huge domestic market mark it as a rapidly rising world power. As the global economic recession evolves, China and the United States remain the two most important economies at the international level. Their bilateral cooperation has far-reaching implications for global economic recovery. China's domestic economic policy, especially its monetary, financial and trade policies are more than ever under the international spotlight. China has no choice but to act as a global player on both the domestic and international levels. This imposes huge systemic and political challenges for China's domestic development and its international diplomacy.

China learned firsthand how the "two-level game" is played during its 16-year WTO accession negotiations. The U.S. and its international allies pushed the Chinese government very hard to make commitments in terms of trade liberalization, rationalization of domestic laws and meaningful regulation. Since then, Chinese politicians and businesses have become very aware of China's role as a global player. And today, the issue is not when to play, but how to play.

First, the government needs to examine how an international approach can be used to best serve domestic development, and vice versa. Chinese leaders will face increasing international pressure on domestic policy initiatives. However, international pressure will not be as important a driver of China's internal reforms as in the past. The search for alternatives that best serve China's domestic interests while balancing its international interests will be the key. In the long term, China has to focus on numerous two-level balances. Here are some examples. How to balance GDP growth with environmental protection, climate change and clean energy use? How to balance trade growth and domestic demand stimulus? How to balance the internal and external effects of the RMB exchange rate?

Second, businesses need to be involved as part of a framework of interest groups. Industrial associations or alliances have a big stake in government decision and should function as independent forces in government policy-making processes. These so-called business-government relationships will eventually benefit China's institutional competitiveness at the international level. For example, an effective business association may play a leading role in defending anti-dumping cases brought against Chinese industry. Successful defenses of these cases are critical in the current era of world-wide protectionism directed against "Made-in-China".

Finally, the public and the media have key roles to play in China's international-domestic "game". There is no doubt that China's public diplomacy has to be further enhanced, and the media is factor in China's global image building and cultural exchanges. Even American scholars have to recognize that Chinese people, in general, understand the world far better than the rest of the world understands China. For instance, most Americans have a limited understanding of China and Chinese people. Their images of China are far from the reality. Mutual understanding is the key to stronger bilateral and multilateral relations at the international level.

To many people, diplomacy means national leaders bargaining with their foreign counterparts, but the existence of both domestic and international stakeholders in political, economic and security issues has made modern diplomacy a "two-level game." China's domestic ratification of any law, regulation or agreement immediately raises concerns and responses at the international level. Given the history of Chinese culture, it is understandable that China has raised the concept of a "harmonious world." This indicates a shift in Chinese diplomacy toward more involvement at the international level, and is in line with its domestic philosophy of building a "harmonious society".

There is no doubt that the global and the domestic arenas are becoming increasingly linked, and that China's strategy in the "two-level game" means more to the rest of the world than ever before.

Dr.Zhang Lijuan is a professor at School of Economics, Shandong University.