China’s had a difficult year in 2019, balancing political unrest in Hong Kong and among oppressed Muslims with its trade dispute with the United States. All this has already caused the Chinese economy to slow considerably, with a spillover into the global economy that has still not been fully appreciated by investors and policymakers. 

This year began with the explosion of the coronavirus crisis in Wuhan, a health disaster caused by China’s indifference to the basics of civil sanitation and hygiene. In both cases, what should have been a manageable challenge became a global crisis because of the inefficiency of authoritarian rule by the Chinese Communist Party (“CCP”). 

Since rising to power in 2013, Xi Jinping has viciously attacked his political rivals and discarded China’s collective leadership. Xi’s brutal rise to sole power in China is nothing if not a display of massive insecurity. Revelations that Beijing feels the need to imprison over a million Muslim Uighurs in work camps, a mere 10 percent of the 11 million population of Xinjiang, also suggests a very direct fear of instability. But the more the CCP tries to thwart China’s progression toward freedom, the more the pressure for change builds.

The result of Xi’s dictatorship has been a concentration of power at the top that has paralyzed China. Leaders are fearful of taking action without the active consent of President Xi. In the case of the coronavirus, the response by Chinese authorities was delayed for weeks until the CCP was forced by events to take action. And when the central government finally did act, its measures were clumsy and badly executed.

The dysfunction of Chinese governance was illustrated recently by the tragic death of physician Li Wenliang, who was silenced by the police after warning about the new coronavirus that has killed hundreds in China and sickened thousands. Dr. Wenliang was forced to sign a statement repudiating his warning about the danger of contagion because the CCP did not approve of his views. 

“Government officials, prominent business figures and ordinary online users, have posted numerous messages expressing their grief for the doctor, who contracted the new coronavirus, and their anger over his silencing by the police after he shared his knowledge about the virus,” reports The New York Times. “It has prompted a nationwide soul-searching under an authoritarian government that allows for little dissent.”

There may indeed be a great deal of anger and soul searching among China’s 1.4 billion citizens, but the political monopoly of the CCP and President Xi remains unchallenged—for now. The country’s communist rulers, after weeks of inaction, have finally embarked on a massive public response to the coronavirus, borrowing phrases and imagery from China’s struggle against foreign imperialism. Xi spoke of a heroic fight against the “demon” virus, even though the biggest struggle in China today is against communist misrule. 

Xu Zhangrun, a law professor from one of the country’s top universities, lambasted the government under Xi in an essay titled “Viral Alarm, When Fury Overcomes Fear.” In it, Xu blames the current national crisis on a culture of suppression and “systemic impotence” that Xi has created. 

Says Xu: “It is a system that turns every natural disaster into an even greater man-made catastrophe. The coronavirus epidemic has revealed the rotten core of Chinese governance; the fragile and vacuous heart of the jittering edifice of state has thereby shown up as never before.”

Xu lost his teaching position last year after an earlier criticism of Xi, who was installed as a co-equal of Mao Tse-Tung in 2018 by his communist cadres. Yet the fact that more and more Chinese nationals are willing to challenge the CCP, despite the harsh punishment that results, suggests that China may eventually be free. 

“The ancients observed that ‘it’s easier to dam a river than it is to silence the voice of the people.’ Regardless of how good they are at controlling the internet, they can’t keep all 1.4 billion mouths in China shut. Yet again, our ancestors will be proved right,” Xu wrote.

While much of the world’s attention has been focused on the coronavirus, the Chinese economy has shown serious signs of strain. The years of plentiful trade surpluses that swelled the coffers of the central bank with trillions of dollars has reversed as the Beijing government has vastly increased its support to state-owned enterprises, resulting in a net dollar deficit for the Chinese state. Now with the coronavirus, the impact on the global economy is growing because of disruptions to fragile global supply chains. Products from automobiles to iPhones to clothing are being severely impacted by the slowing Chinese economy.

Foreign analysts who once fretted about China possibly ending its purchases of U.S. Treasury securities and other assets were right, but for the wrong reasons. China’s slow liquidation of U.S. dollar assets is a function of the increasing flow of red ink accumulating in China’s state sector, where literally trillions of dollars in bad debts are largely hidden from view. The logic of the Chinese communists is to do everything and anything to maintain political power, no matter how damaging these short-term economic decisions might prove. 

The collapse of heavily indebted Chinese companies such as HNA and Anbang Insurance Group several years ago illustrated the growing pressure on the Chinese economy caused by hundreds of billions of dollars in subsidies to state companies and local governments that are treated as “debt.” As Bloomberg News reported last year: “The foreign debt built up by Chinese companies is about a third bigger than official data show, adding to the pressure on the country’s currency reserves as a wave of repayment obligations approaches in 2020.”

While the coronavirus is a significant health threat to China and the world, the bigger danger is that the CCP under Xi Jinping has adopted a reactionary stance in the face of growing demands for freedom in China. Western audiences were able to view these pressures first hand in Hong Kong, but across the country Chinese citizens are growing increasingly bold in their public attacks on Xi and his communist cadres. 

Chinese citizens have taken to writing blistering critiques of Xi, but in disguise. One favorite technique is to refer to Donald Trump, rather than Xi, in social media comments, in order to evade China’s online censors. Chen Yixin, a protégé of Xi, was sent to Wuhan last week to help tackle this problem. He is expected to introduce measures to maintain social stability, including heavy controls on media and people expressing views online, reports the South China Morning Post.

Yet growing political repression across the country is creating the circumstances for an explosion from within. Two decades since the massacre in Tiananmen Square, the grip of the CCP on power has never been more fragile—ironically and in large part because of such authoritarian actions.

Mao Tse-Tung wrote in World Marxist Review in 1961: “A potential revolutionary situation exists in any country where the government consistently fails in its obligation to ensure a least a minimally decent standard of life for the great majority of its citizens. If there also exists even the nucleus of a revolutionary party able to supply doctrine and organization, only one ingredient is needed: the instrument for revolutionary action.” He’s right.

Christopher Whalen is an investment banker and chairman of Whalen Global Advisors LLC. He is the author of three books, including Ford Men: From Inspiration to Enterprise (2017) and Inflated: How Money and Debt Built the American Dream (2010). He edits The Institutional Risk Analyst, and appears regularly on such media outlets as CNBC, Bloomberg, Fox News, and Business News Network. Follow him on Twitter @rcwhalen.