The opening of China’s first KFC restaurant nearly three decades ago heralded a boom in foreign direct investment and an era of turbocharged Chinese economic growth. So the decision this week by KFC parent Yum Brands to spinoff its China businesses is another sign of that era closing—for better and worse.

The first KFC opened near Beijing’s Tiananmen Square in 1987. Pizza Hut, also owned by Yum Brands, followed in 1990. Both became icons of China’s opening to the West, and of the new material opportunities available to China’s...