An alternative to your alternative is the possibility that China is going to have to keep narrowing the area of permitted activity since the state has used this narrowing ie repression as a way to deal with existing structural problems without ending their root causes (problems ranging from credit imbalances to over-capacity in state-owned enterprises to growing inequality to corruption and beyond).

China two years ago or maybe China might permit enough market choice to allow basic innovation. But appetite of the repressive apparatus is not going to be sated and virtually all choices may wind-up being politicized. What happens when a well-connected individual asks you to invest-in/consult-for/etc their enterprise? What impact on your social credit might it have if you refuse?

It is fairly well established that secrecy and repression tends to breed corruption - when individuals have untouchable power, of course they'll want to leverage that for gain.