The economy is booming but behind the successes lurk some uncomfortable questions – about poverty, pollution, censorship and a catalogue of human rights abuses. How the government answers them may define China’s image for decades to come

China's rise in the early 21st century is the headiest tale of development the world has ever seen. A drive through Beijing or Shanghai or Shenzhen or Guangdong gives you all the evidence that you could ever want of the 66 per cent expansion of the Chinese economy in the past five years. But it doesn't take long in China to see the problems that the country faces as it enters this new stage of development – and how managing these issues is the Communist Party's main challenge.

Pollution

Some problems that China faces are under the surface – particularly the political conundrums – but the issues of pollution and the rural-urban split are obvious even as you look out of the window of a cab whizzing you from the airport to your hotel. A glance at the sky, combined with a casual sniff of the air, and you start to see that China's rise has not been without its consequences. Cities are enveloped in a white haze for much of the time, any signs of the sky blocked out by the effects of manufacturing nearly half the world's finished industrial goods.

When the capital disappears inside yellow clouds – a mix of coal smoke, sand, particulate matter and ozone – people leave their bicycles at home and opt for an air-conditioned car instead.

In Beijing, pollution can be vicious, although it has improved noticeably in this Olympic year. This is part of the reason for the improvement – the International Olympic Committee has warned that cycling events and marathon running may have to be postponed if the air quality is not up to scratch by the time the Games open on 8 August.

The host city has already spent 120bn yuan (£8bn) on environmental programmes to combat pollution, and city officials say more efforts are planned. These include closing factories and taking 1.3m of the city's 3m cars off the road for the duration of the games.

The problem of pollution goes beyond China's borders, however. Traces of Chinese pollution have been found in the haze above Los Angeles, while emissions from factories in Guangdong province in the far south are causing havoc in Hong Kong, where air pollution is making it more difficult for companies to attract foreign staff to the territory.

And foul skies are potentially a political issue. Many people are unhappy that they have to keep their children in on certain days. They care less about democratic reform than they do the ability to go and play in the park, for their children to be able to breathe.

The internet

China is freer now than it has been at any point in its history. At the same time, the mechanisms of state control have never been so finely honed and the view of the world from behind the Great Firewall of China remains distant, blurred, filled with huge gaps and all too often simply wrong.

The internet is generally slower in China, and trying to access anything at all controversial is maddening. Trying to access forbidden terms produces a message telling you the website cannot be accessed, and you have to restart your browser to start searching again – time-consuming and annoying.

At times of great stress, such as the immediate aftermath of the violence in Tibet, sites such as YouTube, Wikipedia and those of most Western newspapers are blocked by the net nannies, who toil for "Operation Golden Shield", which stops free access to the internet. This sinister project has made blogging a dangerous occupation. It is difficult to open politically sensitive blogs. Most are hosted by big web companies, but they unilaterally block risky content to avoid getting shut down. There are tens of thousands of spooks working for the Great Firewall, blocking e-mails, monitoring websites and reporting back to superiors.

These controls will most likely be removed during the Games on the express wishes of the International Olympic Committee, but they do exist right now and they are real.

An unfree internet must ultimately prove problematic for China. One of the great things about the internet is the free exchange of ideas, which is really taking shape with new technologies like Web 2.0. Blocking internet freedom leaves a country's webizens using it for logistic purposes, and you very quickly get left behind.

Tibet

Tibet is rapidly emerging as a central theme in the Olympic Games, because only if the Tibetan issue is resolved in some way can the Games be seen as an unqualified success. If the issue isn't at all resolved by the time the Games start, the event will leave a sour taste. Tibet has become the focus for anti-Chinese sentiment around the world since the March riots when Lhasa residents took years of frustration at Beijing rules out on Han Chinese living in Tibet and monks demonstrated in the streets.

It's hard to overstate just how important Tibet is to China. You feel that China would sooner invade the United States than give ground on Tibet. The Chinese see the Dalai Lama as a dangerous separatist, who wants to divide Tibet from China and establish an independent country. He has become the focus of Chinese anger over the violent protests in Tibet. They accuse "the Dalai clique" of masterminding the riots and say he wants to destroy all the work Beijing has done to improve its international image ahead of the Olympic Games in Beijing this summer.

"For us, Tibet is, was and always will be, China," one intelligent, politically engaged young woman in her late twenties told me. "There was no other point of view. The Tibetans we saw on TV were always happy, the ones we read about in newspapers were doing well economically and we went there because we were happy to be Tibetan. How were we supposed to know?" She was a recent graduate of one of Beijing's most prestigious academies. For her, it was during a year abroad that she started to look at the other side of the argument on the Tibetan issue. She is in a minority – many Chinese students become even more nationalist during their time at foreign universities. Some of the more vocal protesters responding to the anti-Chinese demonstrators in London and Paris were university students. This is the generation "reared on wolf's milk", who know nothing else.

Tibetans certainly attacked the Chinese and dreadful outrages took place, in Lhasa in particular. In Beijing, I spoke to one young woman who was nearly beaten to death by angry Tibetans in Lhasa and still bore the scars, physical and emotional, of a terrifying ordeal.

China's claim that it has brought wealth and development aid to the region is true. But there has been no mention in the local media that the Tibetans may have a grievance, or that they may be unhappy about Chinese rule. Monks tell of Communist cadres coming to monasteries, stamping on pictures of the Dalai Lama and urging them to denounce their spiritual leader, an act akin to asking Catholic priests to denounce the Pope.

Dissidents

When China jailed Hu Jia in April, he had already been under house arrest for many months, guarded by state security officers. Hu, 34, was transformed from China's most famous dissident into one of the world's most famous human rights defenders at a single stroke, and his jailing highlighted China's efforts to stifle protest before the Olympics. He was jailed by a Beijing court for three and a half years for "inciting to subvert state power" through a series of articles about freedom and for his constant dialogue with foreign journalists. He has spoken out on Aids, Tibetan autonomy and free speech, while embracing the causes of the activist lawyer Gao Zhisheng, and Chen Guangcheng, a blind rural campaigner who has been jailed for four years.

I spoke to him during his house arrest last year and he was defiant: "I'm ready that the next step after house arrest will be jail."

China wants to be seen as a good advert for how a poor, developing country can transform itself into a major economic power – all you need is inward investment and a lot of people. Instead, its human rights record means that the government has an image problem, and a constant source of irritation to diplomatic relations, as world leaders bring their lists of detained rights activists to every briefing with the Beijing leadership.

Execution

China executes more prisoners than anywhere else in world, usually by a bullet in the head, though increasingly lethal injections are being used.

Exact figures are a secret, but a report published by the official Xinhua news agency last year said there were 8,000 in 2006. The following year, after the beginning of a new review system, about 5-6,000 executions took place, says John Kamm of the San Francisco-based Dui Hua Foundation, a human rights dialogue group.

This is one area where China is dealing actively with the issue. Since 1 January 2007 all death penalties must be reviewed by the Supreme Court; last year, the first year of implementation, an average of 15 per cent of convictions were rejected and returned to lower courts for re-sentencing.

Kamm praised President Hu Jintao and Premier Wen Jiabao for the death penalty review, calling it "a considerable achievement". However, there is a lot that remains to be done – while executions are dropping, figures compiled by Dui Hua show that the number of arrests for "endangering state security", or espionage, is rising fast. There were about 300 cases in 2005, rising sharply to 742 last year.

Gender imbalance

You can see it on the streets of the rural towns, where all the kids running up and down the road seem to be boys, girls standing forlornly by as they watch the favoured male children play. Boys outnumber girls eight to five in some parts of China, posing a threat to social stability. A report by the China Family Planning Association said the entire island province of Hainan now had 136 newborn boys for every 100 girls, while nationwide the figure is 119 to 100. In one place, Lianyungang, in eastern Jiangsu province, the ratio is 165 boys to 100 girls. According to the United Nations, the gender ratio should be around 107 to 100.

The statistics make for crazy reading. There are 37 million more men than women in China, giving it the most unbalanced gender ratio in the world – and one which has worsened since China introduced the One Child Policy 30 years ago to curb population growth. Abortion is a widely used method for controlling family size.

The alarming gender gap means that there are already 18 million more men than women of marriageable age. The restriction has cemented traditional preferences for boys, particularly in the countryside, where farming families favour sons because they believe they are better able to provide for the family and support their elderly parents.

Gender scanning of the foetus is illegal in China but the regulation as it stands does not spell out punishments and a large black market flourishes, with a scan typically priced at about £4 if the child is a boy and £2.50 if it's a girl.

"There are still risks of fertility rate rebound in China. Gaps exist between people's attitudes towards child bearing and existing laws on family planning," says Wang Yongqing of the Office of Legislative Affairs of the State Council.THE WEALTH GAP

Having lifted hundreds of millions from below the poverty line and out of hunger, China's farmers are in theory better off than they have ever been – but the wealth gap between the rich of the cities on the coast and the poor in the rural heartlands is still there and it's been exacerbated by the way food prices have gone out of control.

Combined with land grabs, where unscrupulous developers steal farmland to build real estate, the growing wealth divide is the biggest cause of unrest in China, much more worrying in many ways for the Chinese authorities than anything that happens in Tibet.

Annual consumer inflation is running at the quickest pace in well over a decade, driven largely by a spike in food prices. This, in turn, is down to the rise in petrol prices and the fact that blizzards earlier in the year damaged food production. But it's not a problem that is going away any time soon. Last year, consumer prices rose more quickly in the countryside than in cities, which means the wealth gap between rural and urban incomes widened.

And, of course, this breeds further discontent among the rural poor, who send hundreds of millions of workers to the cities every year to build the gleaming cities of the east and south. At every annual National People's Congress, the government, fearful of social unrest, pledges to do something to narrow the wealth gap, such as pumping up agricultural subsidies and tightening food exports. But so far these measures have had little success.

Censorship

China keeps a tight grip on all media, regardless of whether it be newspapers, TV, books or cinema. But working out exactly how the government censors things is an inexact science – by design rather than by accident.

China's cultural banner is being carried by its emerging film-makers, such as Jia Zhangke, Lou Ye, Feng Xiaogang, Li Yang and Yang Shupeng (see The Hot List, p39) but many of these are forced to work under excruciating pressure, chiefly censorship. Lou Ye has been banned from making movies, while the other directors have to get script approval before they can proceed with a movie. Even the top Chinese director Zhang Yimou was banned for many years in China until he started making nationalistic martial arts epics.

China's top regulator, the State Administration of Radio, Film and Television (SARFT), has announced a list of censorship criteria underlining a current crackdown on on-screen "smut" and horror.

With the Olympics looming, the government has gone hell for leather in cracking down on pornography and dissent on-screen. The criteria were published on the SARFT website and are aimed at "purifying screen entertainment" and creating a more harmonious and "green film environment for the public, especially children".

China's censorship system is rigorous but opaque and while many of the categories are already an open secret, it is unusual to see the criteria spelt out so publicly. Movie-makers are not allowed to produce films that depict hardcore sexual activity, rape, prostitution or nudity, while "vulgar dialogue or music and sound effects that had a sexual connotation" are also out.

These criteria come hard on the heels of a ban on a cold-cream ad featuring the rising starlet Tang Wei, which has been canned because of official displeasure at her recent role in the Taiwanese director Ang Lee's erotic thriller Lust, Caution.