The Fall of the CCP Is the Best Economic Stimulus

Apr 18, 2025

Since the reform and opening up, China has gradually shed the overt totalitarianism of the Mao era and instead established a market economy framework. However, this transformation did not lead to a genuine democratic system. The CCP has never fully abandoned the possibility of returning to totalitarian rule. What it undertook was merely a “strategic retreat”—a reduction of authoritarian control on certain superficial fronts while simultaneously strengthening autocratic measures and restructuring its power architecture.

Since Xi Jinping came to power in 2012, this latent reversion trend has become increasingly apparent. China’s political system has once again slid into totalitarianism, even evolving into an unprecedented form of “digital totalitarianism.”

As Friedrich Hayek warned in The Road to Serfdom, once the state controls the economy, it must also control other areas of society. For the CCP, which is regressing toward totalitarianism, the trend of centralizing economic control is inevitable. The direct consequence is the suppression of market mechanisms and the continual erosion of economic vitality.

Institutions are structures of incentives. A bad institution encourages unproductive behavior, stifles innovation, efficiency, and sustainable growth. Under the current system, the primary “rational choice” for entrepreneurs is no longer innovation and development, but rather building dependent relationships with power.
Investors must face high uncertainty: sudden policy interventions, antitrust crackdowns, industry purges, and platform economy cleanups. Resource allocation is no longer based on the market but on power. Political capital becomes the core variable determining economic opportunities.

In this mechanism, the CCP’s enhanced control over the economy suppresses the market’s self-regulating function, leading to a decline in overall economic vitality.

The Institutional Arbitrage Logic of the CCP’s Economic Model

In their book Why Nations Fail, Daron Acemoglu and James Robinson classify institutions as either “inclusive” or “extractive.” The former ensures property rights, encourages innovation, enforces the rule of law, and creates broad opportunities. The latter serves a small elite, extracts wealth from the public, discourages innovation, and fails to promote general welfare.

The CCP system is a typical extractive institution, but it does not operate in isolation. China’s economic development has mainly relied on an export-oriented model, which exhibits a dual-track logic of “internal extraction and external inclusivity.”
Domestically, it suppresses labor costs, restricts personal rights, and curtails market freedom. Externally, it establishes special economic zones, emphasizes property protection, and offers incentives to attract global capital.

The CCP leverages the openness of global inclusive institutions to obtain institutional benefits that cannot be generated internally. This strategic “institutional arbitrage” forms the key logic behind China’s economic growth: squeezing internal costs to create price advantages and monetizing them in external markets to achieve systemic profit.

However, these institutional benefits are not without cost. The externally oriented development model driven by “internal extraction and external inclusivity” becomes unsustainable when the burden on inclusive external markets grows or policy directions shift.
Once such a system is entrenched, vested interest groups, bureaucratic coordination mechanisms, and cognitive inertia reinforce themselves and reject genuine institutional reform.

The CCP regime is deeply bound to this interest structure. As long as the regime exists, no endogenous institutional transformation will occur. Only a regime change can truly break this institutional deadlock, unleash new incentive mechanisms, enable effective resource allocation, and revive economic vitality.

Why China Lacks Domestic Demand

Despite its massive GDP, China has long maintained a low household consumption rate. Consumption as a percentage of GDP has hovered between 38%–40%, far below the U.S. (70%) and the EU (55%–60%). This lack of domestic demand is not because people “don’t want to consume,” but because they “can’t afford to”—incomes are too low, burdens are too heavy, and risks are too high.

The low income stems from the fundamentally weak position of laborers within the economic system. This weakness is no accident—it is a product of institutional design. Under CCP rule, workers are restricted in expression, cannot organize, and cannot strike. This allows businesses and the government to collude in suppressing labor costs to gain investment and export advantages.

This “low human rights advantage” constitutes the hidden foundation of China’s economic growth. It is not an efficiency dividend, but a systematic plundering and exploitation of basic rights.

How Democratization Can Deliver True Economic Stimulus

Once a democratic system is established, the technical foundations of this “exploitation logic”—silent workers, muted media, and hollow laws—will be completely dismantled.

Under democracy, workers can spontaneously form unions and industry associations, participate in wage negotiations, and help draft labor contract standards. Workers will no longer be passive price-takers but will become a core force bargaining with government and corporations as equals. The institutional structure of rights will elevate their negotiating power and improve income and quality of life.

For example, after Korea democratized in 1987, independent labor unions surged and drove a nationwide rise in wages. This also prompted sweeping labor law reforms that significantly improved workers’ conditions.

Democratization also means media freedom and the establishment of public oversight mechanisms. These can expose exploitation, forced overtime, and harsh working conditions, sparking social empathy, creating public pressure, and ultimately driving policy reform. In early 20th-century America, the abolition of “yellow-dog contracts” was achieved through joint media and public efforts.

Furthermore, rule of law is a cornerstone of democracy, making it impossible for companies to rely on low wages and health exploitation to gain a competitive edge. This forces enterprises to shift toward domestic market-driven innovation, management optimization, and product upgrades, ultimately enabling economic transformation.

From “Low Human Rights Factories” to “Demand-Driven Economies”

Democratic systems bring more than just fairer income distribution and improved labor conditions—they are the key path to stimulating consumption, unleashing domestic demand, and promoting sustainable growth.

Democracy would lead China away from a “sweatshop model” defined by “low human rights, low costs, and high exports,” toward a healthy economy driven by domestic demand and innovation.

And the prerequisite for all this is fundamental institutional change—the fall of the CCP is not only a victory for political justice but also the best economic stimulus.