China's harsh, deflationary economic environment and intense domestic competition, while causing many companies to fail, effectively hones a select few into highly resilient and efficient champions. These survivors are now prepared for successful global expansion.

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.

China's industrial policy mirrors a venture capital model: it funds numerous companies in strategic sectors like EVs and batteries, expecting most to fail. This ensures the few survivors, like BYD and CATL, become world-leading giants.

Uber's CEO argues China's EV dominance is a product of a unique hybrid model. The government sets a top-down strategic goal, but then over 100 domestic companies engage in "brutal," bottoms-up competition. The winners, like BYD, emerge battle-tested and highly innovative.

Rather than a simple supplier relationship, CATL's early breakthrough came from embedding BMW engineers in its facilities. This deep, co-design partnership provided CATL with invaluable German engineering expertise and the credibility needed to win global automakers, long before its landmark deal with Tesla.

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 strategically skipped competing in established markets like internal combustion engines to focus on emerging technologies like electric vehicles. This allowed them to build a competitive advantage from the ground up, leveraging their domestic market and dense supply chains to become world leaders.

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.

Contrary to the Western perception of a monolithic state-run system, China fosters intense competition among its provinces. Provincial leaders are incentivized to outperform each other, leading to massive, parallel innovation in industries like EVs and solar, creating a brutally efficient ecosystem.