I think the thinking is that capitalism creates wealth, creates a middle class, i.e. a large population of wealthy educated people (in other times we would call it the bourgeoisie). This middle class would be large enough, organised enough to threaten a corrupt/unpopular dictatorship and would ultimately result in its downfall, either violently or gradually.

I think it is misguided in the short term. Dictatorships are very good at protecting themselves from the hostility of its population. However I think it does work in the long run, that is 30-50 years.

So we just need to be either patient or ruthless with China.