Here is an article in Chinese that talks about the "vassals economy" China is in now. What happens in China is that they now have de facto economic federalism as the regional Communist governments don't listen to voices from Beijing. What Hu Jintao and Wen Jiabao say can't even reach outside Zhongnanhai (the Communist and executive power compounds in Beijing).
http://www.epochtimes.com/b5/6/4/7/n1280307.htm
What happened is that the high GDP growth is financed by provinces and municipalities (cities) getting foreign investments via subsidized lands (they didn't need to pay anything to buy the land, and even teh governments would pay the costs of developing plants!), and Beijing promoted public infrastructures growth to increase economic activities (classical Keynesian policy).
These two policies interwine with the problem that the banks are controlled by Beijing BUT the regional heads are appointed and managed by the provincial and municipalities governments. In this way the regional governments can raise debts over subsidizing foreign investments and new civil engineering projects, and then it is Beijing's turns to pay the debts. The results are what the original article outlines.
And don't forget neither of the regional provincial, municipalities governments, nor the central government in Beijing is in black. All are accuring massive deficits themselves.
A lot of their growth is fake growth and their economy is becoming more and more pumped and bubble like. Much of it is based on massive currency manipulation.
There is a massive recession looming on the horizon for them. Could make what happened in Japan look small by comparison.
Thats very true they are so poor that they can go up for a long time. In real terms they are only about 1/30th of America's per capita gdp. So even with very serious problems like non-performing loans they still can grow. They don't even need to invent, just copy what other nations already do.
I think their political system is an asset for them at this stage of development. As they can do long term deep reform that would not be possible in a democracy. The main thing they have to do however is deal with corruption, and institutionalize things like property rights.. That to me is the real strength of the anglo-saxon nations.