Why the China model is failing | The Strategist

🌈 Abstract

The article discusses the authoritarian China model under President Xi Jinping's leadership, which is facing increasing failure. The key issues highlighted are:

• The unconstrained power of the ruling Chinese Communist Party (CCP) and its arbitrary interventions in the market and social activities without robust accountability mechanisms
• The decline in the dynamism of the Chinese market, with falling private company valuations, declining foreign investment, and slowing economic growth
• The CCP's efforts to enhance state control and influence abroad, which are disrupting normal social behavior, sowing uncertainty, and undermining confidence in China's systems

🙋 Q&A

[01] The Authoritarian China Model

1. What are the key flaws of the China model according to the article?

• The unconstrained power of the ruling Chinese Communist Party (CCP) to arbitrarily intervene in market and social activities without robust mechanisms for accountability and self-correction
• The CCP's belief in the superiority of the China model over the capitalist West, leading to enhanced control at home and increased influence abroad

2. How has the CCP's control and influence expanded under the China model?

• Economically, the CCP has applied measures to enhance the strength, size, and performance of state-owned enterprises (SOEs) while imposing stricter regulation on the private sector, especially tech businesses and finance
• Internationally, the CCP has become more combative, aggressive, and expansionist, pressing on with the Belt and Road Initiative, establishing its own multilateral organizations, and getting involved in geopolitical issues

3. What are the signs of the China model's failure?

• The Chinese market is losing its dynamism, with the combined market value of private companies falling significantly and foreign direct investment reaching the lowest level since 1993
• Due to the decline in domestic consumption and investment, the youth unemployment rate has exceeded a critical 15% since 2022, and China's annual GDP growth is forecasted to slow to around 3.5% by 2028
• The West's efforts to de-risk their economies by reducing exposure to China in manufacturing and strategic technologies are exacerbating China's prospects, and China's rise is losing momentum

[02] The Limitations of the China Model

1. Why is the China model not the key to China's rise?

• The China model disrupts normal social behavior, sows uncertainty for investment, consumption, and governance, and undermines collective confidence in its systems, affecting both domestic and international perceptions of the Chinese market and its long-term stability

2. What does the article suggest China needs to do to restore confidence in its future?

• Reduce government intervention in the market and create a level playing field in which state-owned enterprises (SOEs) and private businesses can compete, and foreign capital can flow
• Apply the rule of law and relax repression on civil society, thereby freeing the creativity and dynamism of the people
• Abandon ideological antagonism towards Western democracies and re-engage with the outside world

3. How does the article characterize China's economic development trajectory?

• China has fallen into the middle-income trap, a phenomenon in which economies rise to a certain level of development below that of advanced nations and become stuck there
• This is a failure of governance, an inability to drive institutional transitions needed to adapt to rapidly changing social and economic structures
• China's formerly fast growth and increasing innovation since 1978 was in fact based on limited liberalization in five areas where the China model will give no more ground: marketization of resource allocation, social freedom, individualization of rights, some political liberalization, and exposure to international trade