China is effectively in a lockdown. From big cities to little villages, almost every community is under quarantine to a varying degree, or at least faces some travel restrictions. There is little information on how long this will last. One thing for sure is that the government is willing to keep the country in lockdown until the virus outbreak comes under control. A government mobilisation on this scale is unprecedented. This shows the awesome power of the China model . With government power at the centre of everything, it can mould society in a way not possible in any other large or even mid-sized country. It has grass-roots party cells to implement quarantine policies in every urban compound or village. Going anywhere in the country feels like going through an international airport; someone may pop out suddenly to measure your temperature. China’s political system allows it to put down everything else to focus on one thing. The economy can take a back seat. If the lockdown lasts for four weeks, which is an optimistic assumption, the economic loss could be around 2 per cent of the gross domestic product. If the crisis lasts longer, the cost escalates proportionately. While overwhelming government powers are an advantage in handling a national crisis, they are not so effective at preventing one. Since the virus began to surface in early December, developments have unfolded like a sequel to the 2003 severe acute respiratory syndrome crisis , as if nothing had changed in 17 years. It shows that the China model is a blunt instrument good at doing obvious and big things, but not so effective with complex issues at micro levels. Wuhan could have contained the crisis early if it had followed World Health Organisation guidelines of implementing quarantine policy early and restricting crowds. Perhaps the most effective policy is transparency. When people are on guard, the virus cannot spread as quickly. Wuhan’s failures show up the systemic weaknesses in the top-down structure of the China model, where everyone in the hierarchy is accountable to someone above. This top-down nature has been considerably strengthened in recent years. The less initiative one takes, the less likely one is to receive blame. The less initiative one takes, the less likely one is to receive blame A viral crisis requires quick decisions but there is no incentive to do so. If an official at the scene had taken the decision to ban crowds and impose a quarantine on anyone related to an infected patient, the coronavirus crisis might not have happened. But then the official would be blamed for making a fuss, disrupting the economy and bringing bad vibes to the spring festival celebrations . Instead, the usual response was followed: reports were made to immediate superiors until they went to someone sufficiently senior and knowledgeable and who was willing to make the call, by which time weeks had passed. Similarly, the China model is very effective in the early stage of economic development, but much less so in an industrialised and urbanised economy. A developing economy needs infrastructure above all else and the China model is very good at mobilising resources to implement large-scale projects. During the infrastructure-building phase, economies of scale power productivity and GDP growth. But afterwards, as economies of scale diminish, the same system slows down productivity and growth. China’s economy appears to have been in this later phase for the past five years or so. The China model, while hotly discussed globally, is losing effectiveness at home. A related topic is the middle-income trap. Once Japan, Taiwan or South Korea had passed US$10,000 per capita income, this grew to US$20,000 relatively quickly. China, however, has struggled to make headway on its per capita income in the past five years, with GDP growth partly offset by currency depreciation. China likely to avoid middle-income trap but pitfalls remain for investors Increased investment in the same activities has led to rising overcapacity and currency depreciating pressure. To escape the middle-income trap, China needs to scale down investments and shift capital from government-planned projects into market-driven and productivity-enhancing activities. This is not happening because the government has too much control over capital allocation. The China model, while effective at lifting the country from US$500 per capita income to about US$10,000 now, may be the very trap holding the country back from attaining high-income status. The coronavirus crisis reveals another weakness in the China model. An all-powerful government tends to weaken the sense of personal responsibility, as people grow used to the government solving problems and pay less attention to the social impact of individual action. A viral breakout can only be contained when everyone plays a part, but not if people adopt a cat-and-mouse relationship with authority. A lockdown of such a huge country is costly and not sustainable. The China model requires the social contract of accepting an all-powerful government in return for comfort and safety. For a small city state such as Singapore , the model can work for a long time as there is little distance between government and people. For a vast country such as China, the necessary hierarchy in the system makes it slow to respond to a crisis like this. Some believe that with the internet and artificial intelligence, China can be managed like Singapore, despite of its size. This crisis exposes the flaw in this sort of thinking. Tight control cannot instil in individuals the critical sense of responsibility that ultimately safeguards society. It is time to improve the China model. Andy Xie is an independent economist Purchase the China AI Report 2020 brought to you by SCMP Research and enjoy a 20% discount (original price US$400). This 60-page all new intelligence report gives you first-hand insights and analysis into the latest industry developments and intelligence about China AI. Get exclusive access to our webinars for continuous learning, and interact with China AI executives in live Q&A. Offer valid until 31 March 2020.