It’s only been 35 years since capitalism prevailed over communism, yet the West’s intellectual classes seem to have already forgotten the key lessons of the era.
It only dawned on me today that the reason so many well-accomplished and high-functioning elites are defending the China model may be because they genuinely don’t understand the difference between price-based competition and quota-based competition.
They seem to think the two amount to the same thing. And that, therefore, China’s economic model — because it allows for “hyper competition” at the bottom level — is doing something new and unique that the old communists never tried.
This is not so!
The competitive forces that China encourages to the nth degree are almost entirely quota-driven. This is exactly the same model that was pursued under COMECON. Nothing new here.
If you’re interested in the go-to literature on why quota-based systems always lead to shortages, the must-read on the topic is Janos Kornai’s The economics of shortage.
But the essence of my argument is that it’s wrong to assume that China’s flavor of communism can work because it has “competitive characteristics.”
Take “dual circulation” — the argument that China has cleverly balanced domestic dynamism with global integration — or the claim that China’s economy thrives on ruthless internal competition between provinces, firms, and sectors. At face value, this appears like a radical departure from central planning. Yet this logic is strikingly similar to the late-stage COMECON model, where competition was also encouraged — not through prices, but through quotas, targets, and bureaucratic recognition.
Remember, each republic or industrial zone was tasked with specializing in a particular sector and then fighting fiercely for favor, funding, and Gosplan status.
The result wasn’t genuine market efficiency; it was a zero-sum struggle for political survival. Factories hit targets by overproducing the wrong things, provinces hoarded resources to meet performance metrics, and entire industries ran at a loss to satisfy central plans. It was “competition” but of a performative, quota-driven kind, detached from actual demand.
That distinction — quota-driven competition versus price-driven competition —, in the end, proved the communist system’s Achilles heel.
China’s system, for all its data dashboards and digital sophistication, remains firmly in the former camp. Its enterprises still chase targets set by the state, its provinces still compete for Beijing’s approval, and its “innovation” is too often about meeting metrics, not serving markets.
So no — China’s model isn’t something entirely new. It’s a more technologically advanced version of an old structure: bureaucratic competition masquerading as economic dynamism.
Late-stage communism vibe
But perhaps the most telling evidence that China’s model is entering its own late-stage phase is not to be found in its factories or trade data, but in its people. The same symptoms of decay that once marked late communism — cynicism, disengagement, and quiet resistance — are now surfacing across Chinese society.
The most obvious form of that is in the “lying flat” movement. On the surface, it looks like a lifestyle choice — young people opting out of the rat race. But in substance, it’s eerily similar to the quiet withdrawal that spread through Eastern Bloc societies in the 1970s and 1980s. When people realized that hard work could not change their material circumstances or grant them autonomy, they stopped pretending to care.
Lying flat in the Poland of the late 1980s had little to do with apathy. It was merely the rational response to a system where effort and reward had become decoupled, and where merit no longer rewarded you with social status.
Closely related is the rise of Xi’s preferred euphemism for stagnation amid diminishing returns, aka “involution.” In the communist world, involution took the form of workers and managers competing to hit impossible quotas — everyone expending more effort for ever less return. In China today, people describe involution as the sensation of being trapped in endless competition — for grades, jobs, promotions, housing — even when all the extra effort offers no real gain.
In business, meanwhile, it manifests as the ‘efficiency trap’ — the idea that the economy grows in scale but not in efficiency.
Just like Russia had to turn to Perestroika to break this trap, Deutsche Bank recently outlined that Beijing is pursuing the buzz term of “fan nei juan’ which literally means “anti-involution” to break-free from “self-destructive economic cycles”. [You’d think they could just go with the term evolution. But hey. Complexity for no reason is the calling card here.]
In analyst chart form, involution looks like this:
To nip these diminishing returns in the bud, China is now pursuing its “initiative to maintain fair competition”, which explicitly opposes below-cost price wars. We’re seeing it in EVs, but also in solar, where quota caps are now being introduced instead of targets, a sign that Perestroika-style price reform is coming.
The problem is you can’t anti-involve without writing down losses, something China still refuses to do.
For anyone who’s just invested in a shiny new Chinese EV, that point, coupled with this chart, should be terrifying:
To explain, let me indulge in a little anecdote.
Two years I decided to invest in an electric bike in a bid to get fit (on the assumption that a little electric push on the uphill climb to my house will incentivize me to do overall more biking).
My total outlay for a bottom-range electric bike was 2x what it would cost me to buy a medium to top-range conventional bike.
Within one year, however, my battery had died. Yet, when I tried to replace it, I couldn’t. Why? The manufacturer had gone bust. The outcome? A large personal expenditure relative to my personal income on a low-quality EV bike that cost much more than a good conventional bike to buy, but was now — without the battery — not even comparable to the worst conventional bike.
The point being, if anti-involution efforts really do kick in, they will inevitably lead to large-scale losses and shutdowns. At that point, all of us who have become dependent on supposedly “cheap” Chinese goods, parts, and other essentials will face chronic supply shortages or sunk costs on machinery none of us can use.
At this point, only the return of the price mechanism will help to alleviate shortages.
In material terms, what we will see will be similar to the effect our forefathers experienced during the post-war era, when they had to rebuild the capacity lost to war. Indeed, with hindsight, we might even come to view the 2008-2025 era as a 17-year (culture) war, which decimated our industry, decimated our energy efficiency, decimated our public institutions, and decimated our demographics. Not with bombs dropped on our plants or youth killed on the battlefield, but via our own industrial self-sabotage and our own self-sterilization under the influence of Chinese-directed policy.
To emphasize the point, just because I came across it the other day, here’s a picture of my great-grandfather’s pre-WW2 metal-coating factory in Warsaw:
Here’s what it looked like after:
In the aftermath, those with the right skills will be paid unbelievable sums to correct the imbalances and magnify their skillsets (which in the long-term could turn into a productivity miracle akin to that seen during rebuilding efforts after WW2).
As things improve, we, too, will hopefully experience a baby boom.
A Marshall Plan for China?
But before we can look forward to the gains to be made, there’s one last parallel that needs to be addressed, which is yet to manifest but could do so soon.
When communism eventually collapsed under the weight of its own inefficiency, it was the common people of Russia and the Eastern European states who bore the brunt of the cost. This is because, despite having funded all the state enterprises for all those decades, the people were left to the wayside. Unfamiliar with the mechanics of a true market economy, most didn’t see the black-market opportunists and predatory foreign asset strippers coming. The end result was the total looting of the country.
Much of this suffering stemmed from the fact that under the Soviet system, personal savings were effectively meaningless. There were no productive, independent, or legally secure avenues for ordinary citizens to invest in; money sat idle in state banks, depreciating quietly while the real wealth of the nation remained locked inside bureaucratic enterprises.
When the system imploded, people discovered that their life savings could not be converted into ownership or stability — only into desperation. In China, a similar dynamic persists today. Despite decades of growth, households have never been allowed to freely protect or diversify their wealth; their savings are funneled into state-controlled banks, inflated property markets, or politically directed investment vehicles. Now, sensing that a reckoning is coming, many are hoarding cash or buying gold — a rational impulse, but ultimately a defensive one.
This won’t secure their future.
To prevent the Chinese people from suffering the kind of social and economic collapse that befell ordinary Russians after 1991, the world will need to think in terms of a genuine Marshall Plan for China — one that prioritizes people over power.
When the old order finally buckles, the goal should not be to punish China or to seize its assets, but to stabilize and rebuild a functioning civil economy rooted in trust, ownership, and transparent governance.
That will mean forgiving bad debts rather than weaponizing them, restoring savings through credible monetary reform, and helping local communities reconstruct the real economy from the bottom up.
