Dual engine of China's rise

Over the past three years, Pakistan has lived through one of its most intense periods of political and institutional turbulence since 2007.

From the parliamentary removal of Imran Khan in April 2022 and the polarisation that followed, to the legal battles, shifting alliances, and now the sweeping 27th Amendment, the central question has been the struggle over authority: how much power should be concentrated at the federal level dominated by the military establishment and how much autonomy should remain with the parliament, provinces, courts and local governance?

This debate is not unique to Pakistan, but it has become especially urgent amid economic stress, repeated governing deadlocks, and growing public frustration. The establishment's expanded role in this turmoil is often framed as a consequence of the failures of the political class, though many argue that the establishment itself has helped perpetuate the instability.

Recent assessments, including unusually blunt critiques from the World Bank and IMF, show that even government officials are now acknowledging the collapse of Pakistan's flawed 'growth model', if there was one, that enriched a privileged few while leaving millions worse off. Yet in a striking display of leadership vacuum, no one has articulated a bold or actionable path forward, deepening public pessimism and policy paralysis.

Centralising political power may offer an illusion of stability, but it cannot address – and may worsen – the systemic rot that has driven Pakistan's economic decline. Average GDP growth has fallen from above 6% in the 1980s to barely 3.4% between 2010 and 2025, while the population has continued to grow by nearly 2% per year. The long-term trend is unmistakably negative and deeply troubling.

For Pakistani readers, China's long-run experience offers an instructive contrast – not as a model to imitate, but as an analytical framework for understanding how the balance between political centralisation and economic decentralisation can shape a country's developmental trajectory.

China's rise over the past five decades has rested on a distinctive arrangement: a politically centralised system that sets strategic direction, paired with a highly decentralised economic structure that gives local governments considerable space to experiment, improvise, and compete. As Pakistan moves deeper into a phase of political centralisation, the Chinese experience provides a useful lens for examining the relationship among central authority, local initiative and long-term growth.

Over the past five decades, China has transformed from a poverty-stricken nation into the world's second-largest economy, lifting hundreds of millions out of poverty and reshaping global trade dynamics. This remarkable ascent is often attributed to a unique blend of political centralisation – where the central government maintains firm control over strategic direction – and economic decentralisation, which empowers local authorities to experiment, innovate and adapt policies to regional needs.

Yuen Yuen Ang, a political economist and author of 'How China Escaped the Poverty Trap' (2016), argues that China's success stems from a system she calls “directed improvisation”. In this model, the central government sets broad policy directives, while local governments are given the flexibility to implement them in ways that suit local conditions. This approach combines the stability of political centralisation with the dynamism of economic decentralisation, allowing for rapid experimentation without descending into chaos.

Ang describes China's decentralised economic policymaking process as “directed improvisation”, in which the central government establishes policy directives and local governments determine policy details and implementation. 

This framework enabled China to harness weak institutions early in its reform era to build markets, fostering a coevolutionary process in which institutions and markets mutually reinforced one another. As Ang explains in her book, the Chinese state “harnessed weak institutions to develop markets and provided favourable conditions for institutions and markets to mutually develop”.

This balance was evident in the post-1978 reforms under Deng Xiaoping, in which central mandates for economic opening were interpreted differently across provinces. Coastal regions such as Guangdong pursued export-oriented strategies, whereas inland areas focused on resource-based growth. 

Ang's analysis shows that this decentralisation spurred local innovation, including the rise of township and village enterprises (TVEs), which contributed significantly to GDP growth in the 1980s and 1990s. Without political centralisation to rein in excesses, however, such decentralisation could have led to fragmentation; instead, it propelled adaptive development.

Jostein Hauge, a professor in development studies at the University of Cambridge, emphasises the broader implications of China's economic rise, viewing it as a positive force for global development rather than a threat. While Hauge's work focuses on industrial policy and the future of manufacturing, he highlights how China's approach – combining centralised political oversight with decentralised economic initiatives – has enabled it to achieve remarkable progress in development economics.

In discussing China's trajectory, Hauge notes that its emergence is “just simply remarkable”, given its journey from poverty to global economic prominence. He argues that the world should welcome China's growth, as it challenges Western-dominated narratives and offers lessons for the Global South. Hauge points out that China's strategies, including state-guided industrialisation with local flexibility, have outperformed traditional Western interventions in regions like Africa, where positive views of China often outweigh negative ones.

Hauge's perspective underscores that political centralisation provides the coherence needed for long-term planning, such as in the Belt and Road Initiative, whereas economic decentralisation enables tailored industrial policies. This has been crucial in sectors such as renewable energy and high-tech manufacturing, where local governments have competed to attract investment, thereby driving efficiency and innovation over the past 50 years.

Nobel Prize-winning economist Joseph Stiglitz has long praised China's gradualist approach to reform, contrasting it with the shock therapy advocated by Western institutions. In his commentary on China's economic evolution and planning system, Stiglitz highlights how decentralisation has been indispensable to managing the country's vast scale and diversity. He argues that China could not have succeeded as it has without widespread decentralisation, noting that this structure allows for responsive governance amid rapid change.

Stiglitz further argues that while political centralisation ensures alignment with national goals – such as poverty reduction and environmental sustainability – economic decentralisation mitigates the risk of bureaucratic rigidity, thereby enabling local experimentation that has fuelled growth. 

He points to fiscal decentralisation in the 1980s and 1990s, which gave provinces greater control over revenues and expenditures, incentivising investment in infrastructure and industry. This contributed to annual GDP growth rates averaging around 9%–10% from the late 1970s through the mid-2000s. However, he cautions that decentralisation must be balanced to avoid inequalities, a challenge China has addressed through more recent central interventions in areas like “common prosperity”.

The insights from Ang, Hauge and Stiglitz converge on a core idea: political centralisation provides the strategic vision and stability, while economic decentralisation unleashes local creativity and efficiency. This duality has allowed China to navigate challenges like the Asian Financial Crisis, the Global Financial Crisis and the Covid-19 pandemic, emerging stronger each time.

Over five decades, this model has not only driven internal growth but also positioned China as a leader in global development, as Hauge advocates. Yet, as Ang warns, maintaining adaptability is key in an era of increasing centralisation under Xi Jinping. Stiglitz echoes this, stressing the need for ongoing balance to sustain progress.

For Pakistan, currently moving towards greater political centralisation amid economic stress, the Chinese case illustrates the possibilities and trade-offs. Strong political centralisation can provide discipline, direction and coherence. 

But without the creative oxygen of economic decentralisation – without provinces, cities and local actors having the autonomy to innovate – centralisation alone rarely produces development. China's experience shows that it is the combination, not the dominance of one over the other, that generates long-term transformation.

In sum, China's development miracle demonstrates that rigid dichotomies between centralisation and decentralisation are outdated. Instead, their strategic integration has been the true engine of transformation – a lesson with clear relevance as Pakistan debates its institutional future.

The writer is former head of Citigroup's emerging markets investments and author of 'The Gathering Storm'.

Disclaimer: The viewpoints expressed in this piece are the writer's own and don't necessarily reflect Geo.tv's editorial policy.

Originally published in The News