Engagement with the U.S. was supposed to make China more free and democratic. What went wrong?
Another factor is that China has considerable resentment of the "west", particularly the UK. The UK fought two (Opium) wars against China and won them. The consequences for China were dire. Conversely, the US massively supported China in its war with Japan. All of this is ancient history for the US and the UK, but not for China.
China didn't liberalize because the dominant ideology of the "west" is insanity. Who would want to joins that? In the "west", sex is supposedly a spectrum and 2 + 2 is "white racism". Why would China move in that direction? When China was controlled by Maoists, China was a catastrophic failure. Mao and his crazy ideas are long gone. Now the "west" is dominated by crazy ideas. Times change.
Let me offer a different comment on "why China didn't liberalize". The CCP found a way to achieve massive economic development without eliminating the CCP's power. The Communist party of the USSR never did. The success or the former and failure of the latter is the bottom line.
The Chinese situation is explained as like the kid that watches Bruce Lee films and goes out into the yard to practice his moves, and eventually perfects the moves and then claims he is a master in martial arts.
Everything China is today is because is looted and leeched it from the US and other western industrial countries. We gave it all of the industrial secrets and IP. We educated its engineers and scientists... we even educated its leaders. It had this crutch where the US had none. We even saved the Chinese from being dominated by Japan.
China is built off the backs of previous generations of US inventors and producers. Without China the US would be a much better country. Without the US, China would be still a 3rd world country.
But China has done well in its looting plan... sucking the US to a husk of what it had been by serving the greed of American traitors who would mortgage their own family with an offer of more power, prestige and wealth.
The question is... can the fake Bruce Lee actually win the fight... has he learned enough to stand on his own... or is his mistaken in that the US has been and always will be his required crutch?
Counterpoint: China DID in fact liberalize, but in a manner that the CCP absolutely would not openly admit and invisible or incomprehensible to state-level outside observers in the west, in a manner that is ad hoc and infrapolitical. It's also unrealistic to use "democratic institutions" as the only benchmark for liberalization because markers like "individual freedom" and "extent to which the state actively interferes in the daily lives of citizens in a detrimental manner" are also evidence of liberalization, and personally I consider those to be grassroots and much better indicators, but difficult to quantify easily and almost impossible to study from afar or as a non-ethnic-Chinese (overseas Chinese have much greater access to Chinese society thanks to the ethno-nationalist stance of the CCP as opposed to someone not ethnically Chinese but otherwise have the same education/views/language skills). Democracy is ONE marker, but not THE marker for liberalization.
For example, there tends to be a gulf between the official CCP line that the west dutifully reports and how policies and decisions are implemented on the ground. "Anti-corruption" efforts are political purges (with Chinese characteristics, lmao) more often than not. The lack of an actual criminal justice system with due process and any semblance of fairness means that people are keenly aware that most grievances will not be resolved via official channels. The existence of guanxi as an accepted part of business even though even by Chinese standards it frequently not just resemble but IS nepotism or corruption as long as it's not flouted is one indicator of this parallel system by which power is exercised on the ground level. With the central government being an unreliable source of truth, information is disseminated and trusted on much more localized lines and since the CCP have been unable to even get its top leaders to speak Mandarin with clarity that could be universally understood - although my generation (late-Millenial) tend to at least speak Mandarin intelligibly albeit almost always with regionalisms variations in official settings. My grandfather, who recently passed away at the age of 92, reached high office within the CCP without ever being fluent in Mandarin. Written Chinese and spoken Chinese have historically always been separate, and it was no different under the CCP. But this also meant that informal, decentralized systems that provided aid, information, access to institutions, etc persist and acts as the real conduit of power on a local level. This is not unique to China, although it lacks a succinct equivalent in English. The concept of Landsmanschaft(n) for Jewish communities is comparable in the overseas context, although in China itself such affinity groups are far less explicitly organized (and offers few ways of joining, by design and tradition). But in spite of official centralization, even CCP leadership tends to operate in regional cliquish settings. A great deal of the overt centralization of power is performative, but performative doesn't equal fake necessarily. It is however fairly different from how power is presented, used, and devolved/federalized in the west. This is further complicated by the fact that the CCP does certain things for the benefit of western reportage that have no bearing on what actually happens on a policy level in the country, while other things happen on a widespread scale that the western media and academia has very little understanding of.
With that as the background, coupled by the fact that western (church) morality isn't something ingrained in the culture and attempts to partially integrate aspects of it into formal policy have generally failed when the population at large don't find any benefit from it, means that there are many aspects of Chinese society that is de jure conservative and constraining but de facto liberal. For example, money laundering is officially a huge problem, but understand that a) the Yuan's value is more or less plucked out of thin air to begin with and b) money laundering in China is far more focused on circumventing currency flows in and out of the country than dodging taxes, adds up to the phenomenon of rampant real estate speculation as a way to park one's wealth in something that is, if not entirely inviolable, at least real compared to the value of the Yuan. Cryptocurrencies now serve that function. It's incredibly frustrating to have regulators in the west treat crypto as some sort of giant ponzi or fad when it is the most real thing anyone in China can own, which it absolutely is. The GFW is incredibly porous, but political subjects are not what interests most people with internet access. Instead, the GFW and its countermeasures (aka 'scientific internet usage') concerns things that are officially banned but as the ban is arbitrary and there's considerable demand, whole cottage industries spring up to support the offshore hosting and organization and other services that facilitate... the distribution of pornography, which is officially banned in China but also ubiquitous. There is domestic porn but it's small scale and not really organized, but there are literally communities of millions of members (at least by signup count, who knows how many members are active) and an essential guerilla campaign to pirate porn into China - pirate because there's no legal channel by which it can be purchased - and the guerillas are winning, handily. Surely that is one form of liberalization, even though it's against official policy. But surely practice trumps policy when it comes any practice when assessing its prevalence, no?
Now, these are marginal gains from a western perspective, surely, but they're not marginal from the Chinese viewpoint, and the CCP and citizenry cares about western anxieties and benchmarks as much as westerners care about how much the Chinese citizenry think about them, which is generally 'not much at all'. Also, the CCP flexes openly against the west in opportunistic ways largely for the west's sake, when it knows it can exercise leverage it doesn't really have. The whole NBA tour hubbub was a calculated gamble that could have backfired if the NBA had a realistic assessment of its leverage in China. The CCP could not afford to anger every NBA fan in the country, there are more of them than CCP members, but leadership correctly sensed that the NBA did not have that assessed correctly and thanks to a culture of piracy, its impact on access for fans domestically was relatively low. Its suppression of the rights of Hong Kongers also was strategically timed because western xenophobia helps China out a lot - the brain drain of western-educated Chinese along with their financial resources would have been disastrous and it's a fear that is literally as old as Jim Crow - and the Chinese Exclusion Act. But while an administration that wasn't full of proud ethno-nationalists (ironically, China's own official policy) might have taken advantage of the leverage that was there for the taking - especially since doing so would have not even required any international wrangling but done entirely on domestic policy grounds, which China would have little room to argue with since sovereignty is a two way street, it correctly assessed the level of xenophobia within the administration and was able to pull off the occupation when other administration of either party would have likely intervened in some manner. But all this was predicated on knowledge of how the administrations in the west would react, which in itself required a much greater degree of understanding of the pernicious aspects of American politics, something it had access to because while F-1 student visas were given out liberally, H1-B quotas essentially counteracted any benefits beyond the immediate financial gains for institutions by kicking out a great portion of graduates, something that is clearly illogical and self-defeating. Like it or not, these are also effects of liberalization, but one can hardly blame America's tendency to shoot itself in the foot on China.
And ultimately much of this is like the whole "who lost China" narrative post 1949. Nobody lost China, China wasn't America's to lose. Trade liberalization has more than enough benefits on its own, and liberalization on a practical level certainly have been happening. So much of the anxieties from the west comes from a sort of projection, a bipartisan one at that, that somehow there is a prescriptive political liberalization scheme attached to economic liberalization, but western wishcasting is not something China is concerned about unless it thinks it benefits the regime. So, Gramscian hegemonic theory, which was formulated in an Italian jail cell by someone who have never visited the areas the theory is meant to apply to nor spoke any of the local languages and can be refuted by the field work and records of, well, an entire academic field, basically (Subaltern studies), is happily taken upon by the CCP because grievance politics is the basis of its raison d'etre. Democratic institutions? Since Mao had already redefined "democracy" in a manner that suits how the party wishes to rule but keep the name, why bother?
When it comes to China in general, I recommend texts by liberal intellectual and historian Johan Norberg. He argues that several things went wrong also because the EU and the USA became more protectionist
Democracy in the USA should not be "preserved". Instead, it should be developed, renewed, regenerated and revitalised as via liquid democracy https://medium.com/@memetic007/liquid-democracy-9cf7a4cb7f
Regarding democracy. China is one of the most centralised nations in the world, despite is land and population size. So some kind of democracy taking place in China could be a matter of time, simply because many people are experiencing problems at the local levels.
But which "American values"? Not even many Americans have such values, just take Donald Trump as an example.