During a recent discussion with Behzod Hoshimov and Botir Kobilov, two of Uzbekistan’s most respected economists, I asked whether China’s current economic slowdown aligns with the predictions in Why Nations Fail by Daron Acemoglu and James A. Robinson. Their response was simple yet striking—“Actually, it is already happening.” Our conversation took place three or four months ago, and since then, the signs of China’s economic decline have only become more evident.
This statement led me to take a deeper look at China’s current economic state and whether the book’s argument—that non-inclusive institutions eventually lead to economic stagnation—is becoming a reality in the world’s second-largest economy.
The Rise of China: A Model for Success or an Economic Bubble?
For the past four decades, China has been one of the greatest economic success stories in modern history. From a poor, agrarian society in the late 20th century, China became the world’s manufacturing hub, lifted hundreds of millions out of poverty, and built entire cities seemingly overnight. Many experts praised the country’s state-led economic model, where the government controlled industries, guided investments, and prioritized rapid infrastructure development.
Unlike Western economies that rely on free markets, private sector innovation, and democratic institutions, China’s model was based on strict central planning, an authoritarian government, and a one-party system. The state controlled major corporations, investment flows, and even the real estate market, ensuring that growth was fast and predictable. For years, it seemed as though this model was working better than capitalism itself.
But in Why Nations Fail, Acemoglu and Robinson warned that China’s extractive political and economic institutions—meaning a system where power and wealth are concentrated in the hands of a few—would eventually lead to stagnation. Their argument was simple: growth under authoritarian rule can only last for so long before it slows down, because centralized control limits competition, innovation, and long-term sustainability.
Now, as China’s economic slowdown becomes more visible, many are wondering if this moment has arrived.
The Signs of Trouble: China’s Economic Slowdown Begins
In 2024, China’s economy expanded by 5%, which might sound healthy, but for a country used to double-digit growth, this is a red flag. Projections for 2025 show that growth could slow even further, to 4.5% or even lower.
So what’s causing this slowdown? The answers lie in three major economic crises that are unfolding at the same time:
1. The Property Market Collapse
For decades, China’s real estate sector was one of the biggest drivers of economic growth. People invested their life savings in apartments, believing that real estate values would never fall. Developers borrowed massive amounts of money to build endless rows of high-rise buildings. The government encouraged this boom, seeing it as a way to keep the economy growing.
But then came the collapse. In 2021, Evergrande, one of China’s largest property developers, defaulted on its debt, triggering a financial crisis in the real estate market. Since then, the housing sector has been in freefall, leaving millions of people with unsold apartments, unfinished projects, and declining property values.
This collapse mirrors what happened in other authoritarian economies in history—when governments artificially boost sectors instead of letting markets grow naturally, bubbles eventually burst.
2. An Aging Population and Shrinking Workforce
China’s rapid economic rise was powered by a young and massive workforce, providing cheap labor to fuel industries and exports. But today, that workforce is shrinking. Birth rates have dropped, and China is now aging at an alarming rate.
By 2050, nearly 40% of China’s population will be over retirement age, meaning fewer workers, less productivity, and higher government spending on elderly care. Unlike countries with strong social security systems, China is struggling to adjust to this shift, which could drag the economy down even further.
3. The Deflation Trap
China is also facing deflation, meaning prices are falling instead of rising. While this might sound like a good thing, it’s actually a warning sign of a struggling economy. Falling prices mean that businesses earn less revenue, which leads to lower wages, job losses, and weaker consumer spending.
Right now, China is caught in a cycle where people are saving instead of spending, companies are making less money, and economic activity is slowing down—the exact conditions that have led to recessions in other economies before.
Is Why Nations Fail Being Proven Right?
In Why Nations Fail, Acemoglu and Robinson argue that countries with centralized, non-inclusive institutions can grow rapidly at first but struggle to maintain long-term prosperity.
The reason is simple: when power and wealth are concentrated at the top, innovation slows, corruption rises, and bad economic policies continue unchecked.
Looking at China today, this prediction seems to be playing out:
- State-controlled industries are inefficient, while private companies struggle with strict government regulations.
- Foreign investors are losing confidence, withdrawing money from China’s markets.
- The government is trying to control the economy through artificial stimulus measures, rather than allowing markets to correct themselves.
China’s economic troubles today mirror past collapses of other authoritarian economies, such as the Soviet Union, which also experienced rapid industrial growth before stagnating and eventually collapsing.
Can China Avoid This Fate?
Despite these challenges, China is not doomed. The government is taking steps to rebuild investor confidence, including meetings between President Xi Jinping and private sector leaders like Jack Ma. There are also policy changes aimed at stabilizing the property market and supporting new industries like AI and green energy.
However, these measures don’t address the deeper structural issues. Unless China shifts toward more inclusive economic policies, where private businesses and individuals have greater control over innovation and investment, its slowdown could turn into long-term stagnation—just as predicted in Why Nations Fail.
Final Thoughts: Is the Decline Already Here?
China remains one of the world’s largest economies, but its challenges are becoming increasingly difficult to ignore. The cracks in its economic model—a struggling property sector, an aging workforce, and deflationary pressures—are now more visible than ever.
The real question is whether China can adapt and reform its institutions in time or if this slowdown marks the beginning of a much deeper economic decline—one that was predicted long before it began.
Prepared by Navruzakhon Burieva
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