A democracy wouldn't have had the outbreak in the first place. It is the auto-immune response of the fascist system - I use this word literally and precisely, not as hyperbole - presided over by the CCP to repress any bad news and downplay anything that could embarrass the leadership. This is happening at the same time as a swine flu outbreak which has caused shortages of pork, which also got out of control thanks to cover ups, and now we have a bird flu outbreak. This also raises the question of, why can the government be so mighty as to be able to monitor everyone's private conversations and purchases and rigidly control ideology and society, but despite all the political micromanaging they are unable to enforce basic health and safety and hygiene standards. Incidentally, this is also related to a lack of democracy and no independent laws - even if such laws exist (and they do AFAIK), laws in China aren't worth the paper they're written on and personal political connections decide everything. It is not possible for an employee of a factory to report health and safety violations, as it is almost certain that the owner of the factory is better connected and can ensure that it is the employee who suffers for defamation and "picking quarrels and spreading rumours." Also, the concept of going to the police for help simply doesn't occur to most Chinese people because of the nature of political culture there.
Whether people recognise that is a different question however. I think a large number of people are recognising that censorship has gone too far, even Hu Xijin, editor of the radically nationalistic Party mouthpiece tabloid "Global Times" tweeted that there needs to be more tolerance towards alternative voices because of the Wuhan outbreak cover up.
This is why it is an existential crisis:
1 - It is a national crisis, and the Internet police and state apparatus generally deal with local crises.
The state is capable of managing localised crises by scapegoating local officials, arresting a few ringleaders and censoring reports of the unrest to create an illusion of harmony. However, this is a national crisis and the internet police seem to be overwhelmed. There is a lot more dissent getting out, and the idea I posted above (that censorship is to blame for this crisis) has entered national discourse. The fact that censorship really IS to blame seems to have caused confusion in the Party's response (see Hu Xijin's tweet), as people within the central government will also be attacking Xi for overly tight control of Internet, media, society and ideology. Furthermore, as it is a national crisis, any backlash will be nationwide, and not limited to a county or township as is more normal.
2 - Destroys two pillars of legitimacy - the Party can deliver 1- economic success and 2- international prestige.
The Party has for some time hinged its legitimacy to economic success. It has been clear for some time that economic hard times will be coming (thanks to a declining workforce and serious demographic problems caused by the long term effects of the one child policy, capital flight as wages rise, and a stressed over leveraged financial system, not to mention severe environmental problems), and this is why there has been an attempt to shift in recent years towards emphasising "national strength" as a source of legitimacy.
The economy has been bad for a while, but this crisis is confirmation and the economy is probably not going to recover anytime soon. China's rise has been over for a while, but it has concealed this by throwing money it doesn't have at big international prestige projects like the Silk Road Initiative (which is also starting to backfire), 5G, and generally throwing its weight around. That countries are now closing their borders to Chinese people and a disease from China has created a global crisis is a huge loss of face. The crisis has not only finished off economic performance as a source of legitimacy, but also international prestige which was being prepared as a reserve. Also, important to bear in mind that state propaganda for the last few years has been emphasising how 乱disorderly foreign countries are in contrast to a stable and harmonious China. That illusion is totally destroyed now.
3 - Causing political divisions within the Party. Xi's anti-corruption drive has been chiefly aimed at his opponents connected to Jiang Zemin as well as Bo Xilai and Zhou Yongkang. In the process he has made many enemies. Xi's failures in his second term are mounting with each month, and I had initially been expecting a coup against him around 2022 when he would begin a third term after HK proved him to be a failure, but given how fast things are deteriorating, he may not even last 2020. Bear in mind that the 2 previous serious existential threats to the Communist Party - the 1989 democracy movement and the cultural revolution - were both the products of political divisions at the top. (General Secretary of the Communist Party, Zhao Ziyang, came out to support the students in 1989, and the protests started to commemorate the death of Hu Yaobang, a liberal former General Secretary of the CCP.)
4- The status quo is over and will not return. A key goal of the trade war with the US was to move supply chains out of China. The Chinese government has already mishandled this by retaliating against foreign companies in China and promoting nationalistic propaganda which has only accelerated the exit of foreign investment, but this crisis is going to massively accelerate the shift of supply chains to South East Asia and India, as foreigners evacuate the country and many won't return. On top of that, Xi's aggressive foreign policy was successful in the short term, but Indonesia, Vietnam, and Malaysia in particular are starting to stand up to China in the South China Sea - in addition to growing confidence from ASEAN nations, we are also seeing a shift of the economic centre of gravity away from China and to ASEAN and India, which will be accelerated by this crisis. Also, India and Japan are working together to counter Chinese influence in Africa and Asia with their own "Asia Africa Growth Corridor" to rival the Silk Road. In light of these factors, the crisis spells the end of Xi Jinping's geopolitical project.
China's dream of "National Rejuvenation" (I.e. hegemony in Asia) has been scuppered. The confident jingoism of the 2010s is over, and now people are going to ask questions. Make no mistake, this is a tipping point in Chinese people's faith in their government.
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