The economic emergence of China is one of the great stories in human history, lifting hundreds of millions of people out of poverty.

It also heralded a golden age of 28 years of continuous economic growth for Australia. If the Hawke-Keating reforms set us up for success, it was China’s rise that delivered the goods.

Hong Kong's universities have turned into battlegrounds. AP

While we’ve all enjoyed the bounty of China’s progress, there is heightened anxiety around the increased power of what can be a brutal autocratic regime. In this year’s annual Lowy Institute survey measuring Australian views of the world there was a 20 percentage point drop in people saying they trusted China.

Much of this uneasiness is justified, as the recent unrest in Hong Kong and human rights abuses of the minority Uighur people show. Some is less justifiably fuelled by an inability to let go of the false idea of western superiority, which China’s rise has made difficult to maintain.

But while they say beware the rising dragon, a slowing dragon presents many more challenges.

Senator James Paterson and MP Andrew Hastie may not agree, but there was bigger news out of China than the rejection of their travel visas last week. Latest statistics show that economic growth in China is at a 30-year low. While this is linked to the trade wars with the US, it is part of the much longer trend that has seen economic growth more than halve in the past 10 years.

Despite much of this slowdown being planned, China has consistently missed its growth targets in recent years. The impact on Australia’s economy of a sustained slowdown will be profound, with China accounting for 30 per cent of our exports and 7 per cent of demand in our economy. The RBA earlier this year reported that even a temporary 5 per cent drop in China’s growth would translate into a 2.5 per cent drop in Australia’s growth – which could be enough to push us into recession.

So what is going on and why is China slowing?

Counter to President Trump’s claims, China remains firmly a middle-income country. It still has a lot of developing to do before it joins the exclusive club of advanced economies like Australia and the United States.

In economics, there is ongoing debate about the existence of a so called middle-income trap. This is where middle-income countries struggle to maintain growth due to structural issues and rising labour costs.

Even if you don’t believe in the trap, figures from the World Bank show that of the 101 middle income countries in 1960, only 13 took the leap to advanced economy status by 2008. Not great odds.

Strikingly, if China clears the hurdles and makes it into the top club of world economies, it will be the first truly authoritarian regime ever to make the transition (excluding the oil states). Even worse odds.

Economic development is a hard game, and many countries fail before they even start. China has done it better than any country before it partly because it is an authoritarian regime. It didn’t need to worry about the ballot box when making reforms to kick-start capitalism. India’s failed attempts to achieve land reform illustrate how hard it is to make the early reforms necessary for economic growth when you are a democracy.

It’s also true that governments have a large role in development to plan, manage and invest in the economy. China’s regime has played this role close to perfection. But then things change.

The people need to take over and drive the investment and innovation that defines an advanced economy. Put simply, advanced economies are far too complex and intertwined to rely on good planning alone. For this to occur the people need reliable information, which requires press freedoms, and a strong reliable rule of law, which requires an independent judiciary. Two things not generally associated with autocratic rule.

Today in China it is illegal to report negative news about the economy – but this is exactly the type of information investors need to make decisions about where and in what to invest. Lack of information (and disinformation) has a stifling and distorting impact on economic growth.

A number of middle-income countries with authoritarian regimes have, after periods of instability, transformed into democracies before making that final leap to advance economy status. These include Spain, Portugal, Taiwan and South Korea. Countries which failed to transform, such as Zimbabwe, can descend into greater authoritarianism and failed economy status.

So what course will China take?

The fear is that the current unrest in Hong Kong is the start of more widespread unrest in the face of a slowing economy. How China responds will shape the global order for a generation. If it leads to a strengthening of autocratic rule and a stifling of individual freedoms many Chinese people will suffer and the economic miracle of China (and Australia) is likely to end.

If, instead, the regime pursues reforms that give its people the freedoms they need to continue on the path of growth, then China may well become the most powerful nation in the world. But it will not be the China we know today. It will instead be a China with many of the features we recognise as democratic, such as press freedom and an independent judiciary.

As China enters a difficult stage of its history it will need friends, who even in delivering the necessary truths fundamentally have its and its people’s back. Australia has a unique role to play, but this will involve rising above the growing levels of sinophobia, and welcoming the next major superpower as Asian. Because, ultimately, alongside the prospects of the Chinese people, our economic future depends on the dragon continuing to soar.

Angela Jackson is an economist at Equity Economics.