The authoritarian China model under President Xi Jinping’s leadership is facing increasing failure. Its most critical flaw lies in the unconstrained power of the ruling Chinese Communist Party (CCP), arbitrarily intervening in market and social activities for the interest of itself or its leaders without robust mechanisms for accountability and self-correction.
The China model is thought to have contributed to the country’s ‘economic miracle’ in more than four decades to the early 2010s. From 1978 to 2012, the Chinese economy grew at an average annual rate of 9.4 percent, rising from low-income status to become the world’s second largest. For many developing countries, this growth symbolises the success of the CCP’s authoritarianism, which they seek to emulate.
The China model, in effect, is an institutional system that combines extensive state control and ownership of resources with limited free-market activity, all led by the authoritarian CCP. A main characteristic is the CCP’s ability to mobilise organisational resources efficiently and take the actions needed to reach a specific single goal. As Xi said at a 2022 CCP Central Committee meeting, it is about ‘leveraging the notable strength of China’s socialist system in pooling resources and efforts for major undertakings’.
Believing that the China model is superior to what the capitalist West has to offer and that the Chinese path to modernisation is the way to build a stronger nation, the CCP has enhanced its control at home and its influence abroad. Economically, Xi has applied measures to enhance the strength, size and performance of state-owned enterprises (SOEs) while imposing stricter regulation on the once-thriving private sector, especially tech businesses and finance. More than a dozen pieces of national security legislation have been passed or amended by Beijing since 2014, including anti-espionage, counterterrorism and data security laws.
Internationally, the China model is more combative, aggressive and expansionist than before. The CCP aims to reshape the world order. It presses on with the Belt and Road Initiative for involvement in foreign economies, establishes its own multilateral organisations and gets involved in geopolitical issues, including the war in Ukraine and the Israel-Gaza conflict.
And yet, despite the CCP’s belief in the China model, the Chinese market is losing its dynamism. The combined market value of private companies, which peaked at US$4.745 trillion in 2021, had fallen below US$2 trillion by the end of 2023. Foreign direct investment was a mere US$33 billion in 2023, less than 10 percent of the $344 billion reached in 2021 and the lowest level since 1993. Due to the decline in domestic consumption and investment, the youth unemployment rate has exceeded a critical 15 percent since 2022, and the International Monetary Fund forecasts China’s annual GDP growth will be just 4.6 percent in 2024 and fall to around 3.5 percent by 2028. The West’s efforts to de-risk their economies, reducing exposure to China in manufacturing and strategic technologies, are exacerbating China’s prospects. China’s rise is losing momentum.
It is clear that the key to China’s rise was not the China model. In fact, the China model disrupts normal social behaviour, sows uncertainty for investment, consumption and governance and undermines collective confidence in its systems. This affects domestic and international perceptions of the Chinese market and its long-term stability.
The IMF’s forecasts suggest that 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. At its heart, it’s failure of governance, an inability to drive institutional transitions needed to adapt to rapidly changing social and economic structures. It is not necessarily inevitable; rather, it comes from a flawed development strategy. Several economies, most notably those of Singapore, South Korea, Taiwan and the formerly semi-autonomous Chinese city Hong Kong, have reached a developed level.
China’s formerly fast growth and increasing innovation since 1978 was in fact based on limited liberalisation in five areas where the China model will give no more ground: marketisation of resource allocation, social freedom, individualisation of rights, some political liberalisation (at times) and exposure to international trade.
To restore confidence in the future of China, Xi needs to reduce government intervention in the market and create a level playing field in which SOEs and private businesses can compete and foreign capital can flow. The CCP needs to apply the rule of law and relax repression on civil society, thereby freeing the creativity and dynamism of the people. It should abandon ideological antagonism towards Western democracies and re-engage with the outside world. These actions will not undermine the CCP’s legitimacy to govern, which is Xi’s biggest concern. On the contrary, they will strengthen the foundation of its rule, which has been economic success.