Carnegie’s Michael Pettis spoke on CNBC about what to expect from the Third Plenum of the 18th Chinese Communist Party Congress. Pettis explained that China has historically grown by pouring investment into manufacturing and construction, and that these investments have disproportionately benefited the elite. Going forward, China must reallocate resources away from the government elite and toward small- and medium-size private enterprises and Chinese households, he said.

Although most economists agree that this is the path that China must take with its economic reforms, this is really a political issue about the distribution of the benefits of growth, which Pettis said makes him pessimistic about how much progress can be made. When asked about the prospects for political reform, Pettis explained that historically only competitive democracies and centralized authoritarian regimes have successfully undertaken such sweeping structural reforms. As such, he argued that, since a rapid transition to democracy is not feasible, “a stable and orderly adjustment may require increasing concentration of power” in the hands of President Xi Jinping and his allies.

This interview was originally aired on CNBC.