Hong Kong is often cited as a pure free-market success, but this view is incomplete. While external trade was free, its domestic economy was a "colonial stitch-up" with cartels and limited competition. Furthermore, its foundational textile industry arrived fully developed from Shanghai, not from scratch, benefiting from existing knowledge and capital.
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The official focus on bamboo scaffolding after a deadly fire may be a political pretext to phase out a traditional industry with a strong, union-like guild. This would allow mainland-controlled firms to take over, despite evidence that much of the bamboo scaffolding survived the blaze intact.
Contrary to popular belief, the success of semiconductor industries in Taiwan and Korea isn't primarily due to massive government subsidies. Instead, their governments excel at creating an extremely stable and predictable business environment with streamlined permitting and minimal regulatory friction, which is more critical for long-term, capital-intensive projects.
To counter the economic threat from China's state-directed capitalism, the U.S. is ironically being forced to adopt similar strategies. This involves greater government intervention in capital allocation and industrial policy, representing a convergence of economic models rather than a clear victory for free-market capitalism.
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.
In the late 1980s, facing a lack of capital, China began experimenting with Hong Kong's model of leasing state-owned land. This became the primary financing mechanism for local governments, especially after a 1994 tax reform limited their revenue, fueling decades of rapid urban development.
During its boom, Japan's industrial policy and close bank-firm relationships were admired as strengths. After the bubble burst, these same traits were immediately relabeled as crony capitalism and systemic flaws, showing how quickly dominant narratives about national economic models can invert.
Unlike successful East Asian models, India's post-WWII industrial policy failed because it misunderstood a key ingredient: competition. Policymakers picked winners but failed to subject them to competitive pressures, either domestic or international. They viewed industrial policy as a purely organizational task, which ultimately proved ineffective for driving innovation and efficiency.
Beyond raw materials, China's national ambition is to achieve near-total self-sufficiency. The prevailing mood is that there is "nothing for which it wants to rely on foreigners a single day longer than it has to." This philosophy of aggressive import substitution signals a fundamental break with the logic of reciprocal global trade.
