China's relative silence on the crisis in Iraq is in keeping with its low-profile foreign policy. Next week Jiang Zemin is expected formally to cede the presidency to Hu Juntao, while holding on to the chairmanship of the state military affairs committee. Mr Jiang will thus retain a firm grip on external relations. But the retirement of Qian Qichen, the chief architect of foreign policy for the last 15 years, and the possible appointment of Li Zhaoxing as foreign minister, have raised a question few in China seem willing to answer: will the policy change?

This question may strike many in Beijing as absurd. Keeping a low international profile, maintaining a stable relationship with the US and capitalising on globalisation to spur economic growth have served the country well. Why change?

Indeed, few would dispute that, on balance, Beijing's foreign policy has demonstrated increasing maturity and sophistication. Yet, China's handling of the crises in Iraq and North Korea also shows the risks and costs of passivity. It is time the leadership re-evaluated the geopolitical assumptions underlying Chinese foreign policy.

In the crises in Iraq and North Korea, the desire to keep a low profile has led China to adopt a more ambiguous stance and lose whatever influence it may have had in shaping their resolution. Unlike Russia, which has taken a more proactive approach, China has been missing in action. Its position on the use of force against Iraq is unclear. Its declared goal of keeping nuclear weapons out of the Korean peninsula has not been accompanied by visible diplomatic measures.

Inaction becomes harder to defend when one considers what is at stake for China. Its immediate economic interests in Iraq are modest. But because of its growing dependence on Middle Eastern oil, which accounts for 60 per cent of imports, it may better serve its interests by getting more actively involved and taking a clear stand. Quiescence risks marginalisation.

In dealing with an unfolding nuclear confrontation in North Korea, Beijing's inaction has disappointed its friends and irked Washington. Although it does not have to toe the US line toward Pyongyang, China needs to come up with an alternative to Washington's policy of no negotiation. If it allows the crisis to spiral out of control, it could be dragged into a nuclear maelstrom with devastating consequences for peace and prosperity in the region.

In a world where the threats from rogue states and international terrorism are at least as dangerous as rivalry among major powers, Beijing can better defend its interests by modifying its diplomatic strategy. While it should continue a policy of co-operation with the US, it must use its growing influence to assume a more active role in the international community. This may require Beijing to break some old habits, such as its aversion to substantial participation in peacekeeping missions, reluctance to increase its financial contributions to the United Nations, and abdication of any leadership role in multilateral organisations.

Chinese leadership will be necessary above all in reshaping its own volatile neighbourhood. To be sure, its initiative to establish a free-trade zone with the Association of South East Asian Nations is a good start. But Beijing can do much more to allay the fears of its neighbours about China's growing power. This may require it to adopt a new two-pronged regional strategy.

First, China should use its clout to push for regional integration and co-operation. On the top of this agenda should be expanded regional free trade. Despite Tokyo's lukewarm response to Beijing's proposal for a Japan-China-Asean free trade agreement, China should continue to push this initiative.

Second, Beijing needs to mend its frayed ties with Tokyo, where sinophobia is at a feverish level. To reassure Japan, China must be more transparent about its military modernisation, stop using Japan's war guilt as a diplomatic tool, and start treating it as a full co-equal partner in maintaining peace and prosperity in East Asia. A genuine Sino-Japanese reconciliation is the requisite for regional collective security.

No doubt, this may seem an ambitious agenda for China's new foreign policy team. It also goes against ingrained thinking in Beijing's diplomatic strategy. But if Chinese leaders do not seize the current opportunity to reshape their regional environment, others will do it for them - and not necessarily to their liking.

Originally published in the Financial Times.