Recently, Foreign Minister Winston Peters sparked a diplomatic row with Beijing after telling Chinese-born Green MP Lawrence Xu-Nan in Parliament to “go back to your own country.”
Peters’ remarks were more than an unpleasant outburst. They reflected a wider tendency among some Kiwis to treat the Chinese Communist Party (CCP), the Chinese state, Chinese society and people of Chinese heritage as interchangeable.
That same tendency impoverishes our economic debate. Too often, the label “communist” substitutes for a deeper understanding of how China’s economy actually developed.
China is not a liberal democracy. It’s a one-party authoritarian system controlled by the CCP. But repeating those facts does not explain how a poor, predominantly agrarian country transformed into the world’s second largest economy and a serious technological and geopolitical competitor to the United States.
None of this erases the repression, censorship and coercion embedded in China’s one-party political system.
The real question is whether we are willing to understand the economic pragmatism behind its transformation.
China’s experience fits the “developmental state” tradition associated with economists such as Harvard’s Dani Rodrik. Its rise cannot be reduced to either free markets or state planning. The party-state actively shaped market forces, combining strategic control over finance and key industries with foreign investment, private enterprise and local policy experimentation to accelerate industrialisation and technological upgrading.
So, what explains China’s economic rise?
The first factor is experimentation.
When Deng Xiaoping began reforming China in the late 1970s, he did not start with a complete ideological blueprint. He pursued an experimental approach that later became known as “Socialism with Chinese characteristics”. His famous quip captured the pragmatic and unconventional approach: “It doesn’t matter if the cat is black or white; what matters is how well it catches mice.”
Policies were judged by whether they actually worked.
China began by reforming agriculture through the household responsibility system, allowing rural families to contract collectively owned land and keep production above state quotas. Institutions such as Township and Village Enterprises created new space for locally driven industry.
Rather than dismantling the planned economy at once, China used dual-track pricing and created Special Economic Zones, such as Shenzhen, to test market incentives and foreign investment before extending successful reforms nationwide.
Foreign companies brought capital, technology and management knowledge. Provincial and local governments were given considerable scope to test economic policies, build infrastructure and support new industrial capacity.
China effectively treated economic reform as a succession of controlled experiments. Successful policies were expanded, while failed approaches could be abandoned or contained.
China liberalised gradually while retaining political continuity and stability, state capacity, and control over critical state institutions.
This stood in stark contrast to the economic “shock therapy” later adopted across parts of post-communist Eastern Europe and the former Soviet Union.
The second factor was the way China utilised market institutions.
The CCP increasingly used market mechanisms to serve developmental objectives. It invested heavily in infrastructure and education, maintained state control over the banking system, directed capital towards priority sectors, supported export-oriented manufacturing through a competitive exchange rate, and promoted technological upgrading.
This was not “laissez-faire” free-market capitalism, nor was it the old “command and control” economy.
China did not reject global capitalism; it engaged with it selectively, absorbed its capital, technology and expertise, and harnessed globalisation to advance national development.
The results were extraordinary.
Since reform and opening began in 1978, China’s economy has grown by an average of more than 9 percent annually. Almost 800 million people have escaped extreme poverty. China became the world’s second-largest economy and an indispensable centre of global production networks.
It is no longer merely the world’s low-cost assembly line. China now competes strongly in sectors including electric vehicles, batteries, solar technology, robotics, high-speed rail and artificial intelligence.
China’s success has sharpened a growing debate across the Western world: does China’s experience challenge the belief that sustained economic modernisation must eventually produce Western-style liberal democracy?
Political scientist Francis Fukuyama, best known for his “End of History” thesis about the ideological ascendancy of liberal democracy, recently acknowledged this challenge. He described China’s system as authoritarian but “quasi-market-based,” highly capable of marshalling resources and developing new technologies.
China is our country’s largest trading partner, with two-way trade worth more than NZ$41 billion as of September 2025. Since New Zealand signed its comprehensive free trade agreement with China in 2008, our goods exports there have quadrupled.
For the first time in a decade, the Asia New Zealand Foundation’s “New Zealanders’ Perceptions of Asia 2026” survey found New Zealanders were more likely to see China as a friend than the United States – 43 percent compared with 39 percent.
This does not mean New Zealanders suddenly support the Chinese government. It reflects a world in which economic power, technological capability, and political influence are shifting towards the Asia-Pacific region and confidence in the United States has weakened.
Unfortunately, many policymakers still lack a sufficiently deep understanding of how China’s political and economic institutions interact.
Understanding China’s achievements also doesn’t mean we should ignore the Chinese economy’s contemporary flaws and serious weaknesses.
China’s growth model has relied too heavily on property development and debt-financed infrastructure investment. Local government finances are currently under heavy fiscal strain. Household consumption remains weak. The population is ageing. And greater political centralisation risks weakening the local experimentation and private sector confidence that powered earlier growth.
A centralised political system can act quickly and mobilise vast resources. But if policymakers make poor decisions, there are fewer checks and balances, with weaker feedback mechanisms. This is what Fukuyama has described as China’s “bad emperor” problem.
The political system that made rapid execution possible can also suppress the information required to correct serious mistakes.
Minister Peters began with a true but unremarkable observation: China is not a liberal democracy. But that tells us very little about why its economy succeeded, how its institutions operate, or what its rise means for New Zealand’s future.
New Zealand does not have to approve of China’s political system. But in a century increasingly shaped by Asian economies, refusing to understand the pragmatism behind China’s rise would be economic and strategic complacency.
Leonard Hong is an Auckland-based economist with a Master’s degree in International Political Economy from Nanyang Technological University, completed with support from the NZ Prime Minister’s Scholarship for Asia. He is a member of the Asia New Zealand Foundation Leadership Network and was advisor to former Minister of Commerce Hon. Andrew Bayly MP.
Leonard Hong 