China’s transformation from being a communist backwater under Mao into an efficient and powerful nation today in the span of four decades boggles the mind.

There is something amazing about the scale of its transformation. China produces half the world’s steel and is the world’s largest exporter with seven of the world’s ten largest ports. The huge size of the bullet train maintenance centre in Wuhan is a spectacle to behold. And many of China’s public sector companies perform at world-best levels. The State Grid Corporation of China is the world’s largest power company and also the most efficient, with extremely low transmission losses. And while corruption continues to dog China, it is steadily decreasing.

True, China has a few more decades to go to overtake the West – its current per capita income is still only around a third of an average Western nation’s. But to have an economy larger than that of the USA is no mean achievement.

How did this huge change come about, and is there anything India can learn from it?

In a Ted talk in 2013, Eric Li asserted that China’s authoritarian model is superior to the Western democratic model because it promotes a meritocracy. But that begs the question: what exactly is merit? If China had continued to promote a “meritocracy” that was good at reciting Das Kapital or Mao’s Little Red Book, it would have remained a miserably poor nation. But today, merit in China means mastery of the standard economic model. And that is the key message for the world.

China is now an unambiguously capitalist nation, with a form of state capitalism modelled after Singapore. Its underlying core is the free market, property rights and profit. Mao’s communism has been entirely dumped, so the name Chinese Communist Party is completely misleading. But I suspect the Chinese are in no rush to change this name or to remove Mao’s huge portrait from the Gate of Heavenly Peace.

The true Chinese model today is perhaps best understood from the 2012 book How China Became Capitalist which Ronald Coase, the great economist and Nobel prize winner, wrote at age 102 along with N.Wong. This book should be supplemented by Lee Kuan Yew’s autobiographical books and interviews.

Mao claimed to have read Adam Smith and JS Mill at around age 19 but obviously these readings were wasted since he did not understand the market system, either because he was mentally immature at that age or because it was beyond his grasp. At university he adopted the distorted version of economics known as Marxism and went on to run China’s economy aground as a communist leader, apart from presiding over the massacre of millions of Chinese.

Adam Smith re-emerged in China only in the late 1970s – when a few Chinese leaders started touring the West, including Japan and Singapore. They were gobsmacked that these countries could make such huge progress while China remained so backward. They were “forced to appreciate the extraordinary strength of capitalism in innovation”. It was clearly too late for Mao to learn anything new, so after his death in 1976 the new President Deng Xiaoping (in power from 1978 to 1989) rushed for advice to Lee Kuan Yew in Singapore in November 1978.

This was a pivotal moment for China that changed world history. In the meeting Coase notes that Deng openly admitted to him “the mistakes the Communist government had made and earnestly sought advice from Lee Kuan Yew”. By 1992 Deng was touting Singapore publicly as China’s role model: “There is good social order in Singapore. We should draw from their experience, and do even better than them”.

Deng Xiaoping also encouraged economics education among his civil servants. During his time, Milton Friedman trained senior Chinese bureaucrats about the market economy in week-long course in 1980 – the same Milton Friedman whose 1955 memorandum to India’s Finance Minister was entirely ignored by Nehru.

Deng’s successor Jiang Zemin (1993 to 2003) was an engineer but diligently spent time to study Adam Smith and Friedman. Further, Chinese civil servants have regularly trained in Singapore over the past few decades. The combination of this focus on good economics by its leaders and practical knowledge of detailed good governance acquired by its mandarins from Singapore means that today China’s leaders and bureaucrats have a much better understanding of economics than any Western leader.

China is not particularly impressed with democracy. It claims that its system is able to better identify and groom the best talent to positions of leadership. As a result it is able to implement unpopular reforms that are usually stymied in democratic countries and also able to take a long term view of public policy. Given the example of India’s pathetic performance as a socialist democracy, China is obviously not going to be in a rush to democratise.

The debates about democracy that started thousands of years ago in political philosophy, have never truly concluded. The liberals have long recognised the conflict between liberty and democracy and have never been great fans of democracy. In the long run democracy tends to destroy individual freedom and bankrupt a society by squandering public money in populist programs. Hitler, too, arose from a democracy. The only reason liberals accept democracy is that it is better on average than monarchy or autocracy, particularly where it is reined in by a strong constitution that protects human freedoms.

If better models than democracy can be found, the liberals would probably want to give them a go. Hayek was disillusioned with Western democracy and at least since his 1966 article, The Principles of a Liberal Social Order, considered the need for significantly truncated models of democracy and proposed a detailed alternative model in his 1973 Wincott Memorial Lecture.

Our party is not persuaded that authoritarianism of the Chinese type is good for India, particularly given the way it treats political dissidents and oppresses groups of people, including Tibetans. Protecting human freedom and life is the main purpose of government and China has failed on this most basic measure. We believe India’s systems are fundamentally valid and can be reformed with minimal effort to create a good democracy that permits talented people to join politics and the bureaucracy, so India can do even better than Singapore.

The main takeaway for India from the Chinese transformation, however, is this – that mastery over economics holds the key to India’s future. Only a liberal free market economy can create prosperity.