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.

For 30 years, China identified rare earths as a strategic industry. By massively subsidizing its own companies and dumping product to crash prices, it methodically drove US and global competitors out of business, successfully creating a coercive dependency for the rest of the world.

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.

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.

China achieved its near-monopoly on rare earths not by chance, but through a long-term state-sponsored strategy. This involved providing capital to key firms, funding overseas acquisitions, banning foreign ownership of domestic mines, and consolidating the industry to control global prices.

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 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.

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.