China's economic success is driven by a small, hyper-competitive private sector (the top 5%). This masks a much larger, dysfunctional morass of state-owned enterprises, leading to declining overall capital productivity despite headline-grabbing advances.

Unlike the U.S. government's recent strategy of backing single "champions" like Intel, China's successful industrial policy in sectors like EVs involves funding numerous competing companies. This state-fostered domestic competition is a key driver of their rapid innovation and market dominance.

Deng Xiaoping’s reforms, which ignited China’s growth, were based on adopting American free-market principles like private enterprise and foreign capital. China’s success stemmed from decentralizing its economy, the very system the U.S. is now tempted to abandon for a more centralized model.

China's government designates strategic industries, and provinces subsidize local firms to become national champions. This hyper-competition, while creating overcapacity and unprofitability, forces surviving companies to become technologically superior and globally competitive. The state then helps the winners consolidate and scale.

China's economic model blends the "best of socialism" with the "best of capitalism." The state provides long-term, profit-agnostic infrastructure like transport and power, reducing costs for businesses. Simultaneously, it fosters hyper-competitive markets in consumer goods, driving relentless innovation and efficiency.

China's government sets top-down priorities like dominating EVs. This directive then cascades to provinces and prefectures, which act as hundreds of competing, state-backed venture capital funds, allocating capital and talent to achieve the national strategic goal in a decentralized but aligned way.

A key driver of China's rapid development is a system where city mayors function like regional CEOs. They actively compete with other provinces on metrics like GDP and attracting projects, creating an intense, market-like competition within the government itself.

Contrary to the view of a monolithic state, China's economic strength comes from intense competition between its provinces. This hyper-local market forces companies to become incredibly resilient, and only the strongest, like BYD, survive to dominate globally.

China uses a systematic four-step process to dominate industries. First, it subsidizes over 100 entrants. Second, it allows intense domestic competition to find the strongest. Third, it consolidates all subsidized manufacturing capacity under the few winners for free. Finally, it unleashes these champions to conquer global markets.