Opposed Systems Design

The most recent newsletter from Michael Pettis focuses on two competing perspectives on the optimal level of investment for a country.  The first perspective holds that there is a global optimal level that advanced economies have developed and that all countries below that level of investment can profitably expand their investment.  The second perspective contends that the optimal level of investment for a country depends upon its institutions (what Pettis calls "social capital"), which affect how much investment a country can profitably absorb.  Pettis acknowledges that there is not decisive evidence to resolve the debate but he leans towards the latter camp.  If one buys this perspective, then in order to continue growth China will have to make painful reforms to its institutions to increase its ability to productively use infrastructure.  The necessary reforms include, among other changes, improved rule of law and a reduced influence of crony networks.

If this perspective is correct, then it is ominous that there are reports that Chinese officials have asked professors to avoid seven sensitive topics, including "elite cronyism, and an independent judiciary." If the government is so sensitive about these topics, then how realistic is the expectation that it will tackle them head-on in reforms needed to continue to the healthy growth of China?  What happens if the interests of the Communist Party collide with the reforms necessary to enable continued robust growth?