The move towards an unbalanced state-led model did not occur by accident but was the result of deliberate policy. The Chinese reform experience can be divided broadly into two periods with the Tiananmen protests in 1989 constituting the dividing line. Prior to 1989, the spontaneous explosion of private initiative in rural China—fuelled by limited land reforms and unobstructed by officials—certainly propelled China closer towards a free-market model. Significantly, 80% of the poverty alleviation that occurred since 1979 was achieved during this period. But a top-down change away from nurturing the growth of the private sector is obvious when examining fixed asset investment measures before and after the ‘Tiananmen Interlude.’ From 1981–89, fixed asset investment by the private sector was growing at 20% per annum. During the ‘Tiananmen Interlude,’ it dropped to 2.6% and from 1993–2001 only rose 12.4% per annum. Private investment in rural China, which had been growing at above 19% prior to 1989, dropped to 1.1% during the ‘Tiananmen Interlude’ and averaged only 7.5% from 1993–2001.As China continues to concentrate its wealth and power into the hands of a few well-connected individuals and groups, it becomes possible to envision the end-point of China's celebrated rise to global status. Either war or dissolution into warring fiefdoms. We all know which choice the CCP will make.
...To put the situation in perspective, China’s overall use of capital is twice as inefficient as India’s when measured in terms of capital inputs used to produce additional output. In fact, World Bank findings indicated that about one-third of recent investments made generated zero or negative returns.(23) Given the regime’s need to continually stimulate the economy for political ends, it is no wonder loans keep on increasing at an incredible pace despite economic rationality demanding that it should not. This might further the end of maintaining loyalty to the ruling Party and entrenching its power, but it is at enormous cost to the country.
...The political imperative of retaining power severely impedes the building of the soft institutions needed for successful capitalism: enforceable property rights, independent courts and rule of law, independent financial and administrative organs. For example, the Property Rights Index released by the Heritage Foundation gives China a dismal score of 20 (which is the same rank as countries such as Bangladesh, Cambodia and Uzbekistan), while South Korea and Taiwan rate reasonably well at 70.(30) All land is still owned by the state although individuals may own and transfer long-term leases. But as the report observes, China’s judicial system is weak and even when courts try to enforce decisions regarding land rights, local officials ignore them with impunity. _CIS
The CCP has been preparing for regional and quasi-global warfare for decades, as it enlarges its nuclear submarine fleet, its blue water navy, and expands land operations in Latin America, Africa, Western and Central Asia, and the Caribbean.
The CCP's economic squeeze will force it to make a choice. President Obama makes the dictatorship's choice a bit easier, as the American president continues to weaken America's ability to respond to global and regional threats. If Obama continues as US President a full 8 years in office, China's ability to defeat the US across several regions of the globe will be much better than at the present. Such is the calculus of war, for a country that appears to have few other choices.
To better understand why China's leadership has shut the country off from sustainable peaceful development along the lines of Japan, Taiwan, or South Korea, read the full CIS analysis linked above.