In China, local officials are promoted by pleasing the party with economic results, not by winning votes. This 'mayor economy' creates a dynamic where mayors compete fiercely to support their local businesses and industries, hoping that success will lead to their own political advancement.

The city of Hefei's government saved the struggling EV startup NIO with a $1 billion equity investment. It later sold its stake for a 3-4x return, creating the "Hefei Model." This success spurred a nationwide trend of local governments acting as venture capitalists, fueling massive investment and overcapacity.

China's economic structure, which funnels state-backed capital into sectors like EVs, inherently creates overinvestment and excess capacity. This distorted cost of capital leads to hyper-competitive industries, making it difficult for even successful companies to generate predictable, growing returns for shareholders.

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, driven by internal provincial competition, creates massive overcapacity. This is intentionally turned into an asset by dumping subsidized products (like EVs) into foreign markets below cost. The goal is to eliminate foreign competitors, create dependency, and convert domestic economic chaos into international power.

China's 'Big Fund' was managed regionally, sparking competition between provinces to build their own chemical supply chains for materials like NF3. This parallel development, driven by local ambition rather than central planning, resulted in massive overcapacity that is now reshaping the global market.

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.