It's because of the lack of creative destruction blowing through the country. An ossified political strata is resistant to new ideas. A lack of new ideas and lack of dynamism creates a self-reinforcing negative spiral.
China has been down this path before- once a technological leader of the world - it turned inwards and lost ground to the dynamic, open and inclusive societies forming in Europe during the medieval period.
China became a technological leader of the world during its imperialism. Granted there weren't that many democracies around the world at the time, so we have no point of comparison. The few period where there existed a democracy in the world (ancient Roman, for example), it's quite hard to compare the two, and what worked in the past might not work in the present.
But my point is that it's just not simply a clear cut issue of "democracy", "democracy" like everyone in the West like to chant whenever they talk about China (and to certain extend, East Asia as a whole). Look at Japan, one party (Liberal Democratic Party) has been in control of the goverment since 1955 - and not because of corrupted election or anything like that. The social and cultural situation in East Asia is much difference than the West.
China has been down this path before- once a technological leader of the world - it turned inwards and lost ground to the dynamic, open and inclusive societies forming in Europe during the medieval period.