In the past three decades, China has risen from near collapse to a powerhouse -- upending nearly every convention on the world stage, whether policy or business. China is now the globe’s second largest economy, second largest exporter, a manufacturing machine that has lifted 500 million of its citizens from poverty while producing more than one million US dollar millionaires.

Then why do China’s leaders describe the nation’s economic model as “unstable and unsustainable”? Because it is.

James McGregor has spent 25 years in China as a businessman, journalist and author. In this, his latest highly readable book, he offers extensive new research that pulls back the curtain on China’s economic power. He describes the much-vaunted “China Model” as one of authoritarian capitalism, a unique system that, in its own way, is terminating itself. It is proving incompatible with global trade and business governance. It is threatening multinationals, which fear losing their business secrets and technology to China’s mammoth state-owned enterprises. It is fielding those SOEs – China’s “national champions” -- into a global order angered by heavily subsidized state capitalism. And it is relying on an outdated investment and export model that’s running out of steam.

What has worked in the past, won’t work in the future. The China Model must be radically overhauled if the country hopes to continue its march toward prosperity. The nation must consume more of what it makes. It must learn to innovate. It must unleash private enterprise.

And the Communist Party bosses? They must cede their pervasive and smothering hold on economic power to foster the growth, and thus social stability, that they can’t survive without. Government must step back, the state-owned economy must be brought to heel, and opportunity must be freed.

During the Tang Dynasty, an official in the imperial court observed: “No ancient wisdom, no followers.” He was lamenting that regime was headed alone into dangerous and uncharted waters without any precedent for guidance.

Again today – as McGregor makes clear – this is China’s greatest challenge.

James McGregor is an American author, journalist and businessman who has lived in China for more than 20 years. He is a senior counselor for APCO Worldwide and a professional speaker and CNBC commentator who specializes in China's business, politics and society. In addition to his China books, he is also author of the 2010 report "China's Drive for 'Indigenous Innovation' - a Web of Industrial Policies."

From 1987 to 1990 McGregor served as The Wall Street Journal's bureau chief in Taiwan, and from 1990 to 1994 as the paper's bureau chief in Mainland China. From 1994 to 2000, he was chief executive of Dow Jones & Company in China, and he also became a vice-president in the Dow Jones International Group. After leaving Dow Jones, he was China managing partner for GIV Venture Partners, a $140 million venture capital fund specializing in the Chinese Internet and technology outsourcing.

In 1996, McGregor was elected as chairman of the American Chamber of Commerce in China. He also served for a decade as a governor of that organization. He is a member of the Atlantic Council, Council on Foreign Relations, National Committee on US-China Relations and International Council of the Asia Society. He serves on a variety of China-related advisory boards. For more information visit his Web site, www.jamesmcgregor-inc.com.