10 March 2026
CO26038 | How China’s Economic Model Sparks a Rethink About Global Competition
SYNOPSIS
China’s rise challenges the belief that frontier innovation requires liberal democracy. Through “smart authoritarianism” and production-anchored growth, it prioritises industrial ecosystems, scale and diffusion over financial efficiency. While the US emphasised finance and asset-light innovation, China built manufacturing depth and resilience – making structural capacity, not quarterly returns, central to 21st-century competition.
COMMENTARY
China’s rise has forced a fundamental rethinking of long-held assumptions about political economy, innovation and global competition.
For decades, conventional wisdom in the West held that sustained frontier innovation required liberal democratic institutions, secure private property, open civil society and financial efficiency.
China’s trajectory challenges each of these premises. Its economic strength does not rest on maximising financial returns or fostering consumption-led growth. Instead, it is rooted in production-system dominance: the deliberate construction of dense industrial ecosystems capable of rapid scaling, technological absorption and manufacturing depth.
Two influential interpretations illuminate this model. Jennifer Lind, associate professor at Dartmouth College, argues that China has disproven the assumption that authoritarian systems are structurally incompatible with frontier innovation. Adjunct Professor Arthur Kroeber at New York University contends that China’s rise reflects a strategic choice to prioritise production capability over marginal financial efficiency.
Combined, these perspectives reveal a system that is inefficient by conventional metrics yet formidable in structural terms. China competes not by optimising quarterly return on investment, but by building ecosystems, accelerating diffusion and accepting waste as the cost of capability.
In contrast, the US pursued a different trajectory. Financial markets reward capital efficiency and asset-light strategies. Manufacturing ecosystems were increasingly offshored in pursuit of lower costs and higher margins.
The US-China contrast can be summarised as finance-anchored growth versus production-anchored growth. In an era of geopolitical fragmentation, financial scale matters less than physical resilience. The contest will not be settled by tariffs, but by structural capacity.
“Smart Authoritarianism”: Innovation Without Liberalism
Prof Lind’s concept of “smart authoritarianism” reframes the relationship between political control and technological dynamism. Liberal theory long assumed that innovation requires political pluralism and autonomous civil society. China’s experience suggests something subtler: innovation requires selective openness, not wholesale liberalisation.
The country’s system permits considerable freedom for entrepreneurs, engineers and scientists within carefully defined boundaries. It suppresses organised dissent and collective political mobilisation while tolerating, and often rewarding, individual productivity and technological experimentation. The result is a system capable of frontier breakthroughs in areas such as renewable energy, advanced manufacturing and artificial intelligence, even as it constrains political pluralism.
Prof Kroeber reframes China’s development not as an efficiency story, but as a system-building strategy. The nation behaves less like a profit-maximising corporation and more like a massive national venture fund investing in industrial ecosystems. The goal is not to maximise short-term returns, but to secure long-term production depth and industrial dominance.
“Made in China 2025” exemplifies this approach. Evaluated on its own terms, the programme largely succeeded. The country upgraded manufacturing processes across multiple sectors, achieved global dominance in green technologies such as solar panels, batteries and electric vehicles (EVs), and reduced reliance on imported core components in many industries. Semiconductor progress has been partial, especially under external sanctions, but domestic capacity has nonetheless expanded significantly in mature-node production.
The costs of Beijing’s approach have been substantial. Overcapacity, duplication, corruption and weak firm profitability are endemic. Many sectors exhibit excess supply and compressed margins.
Yet, redundancy and waste are not accidental – they are features of a system that values resilience over financial elegance. China chooses duplication because it preserves capability and reduces dependence on the US. It tolerates low returns because scale and learning matter more than immediate profits.
China’s strategy also focuses on accelerating diffusion. Rather than merely inventing at the frontier, it compresses imitation lags through scale manufacturing, supplier clustering, export-driven learning and infrastructure integration. Western firms may invent first, but China scales faster. Over time, rapid diffusion undermines monopoly advantages. This dynamic explains Beijing’s emphasis on industrial robotics, logistics infrastructure and supply chain integration. It is building mechanisms that accelerate learning curves.
Michael Porter’s cluster theory further explains China’s systemic competitiveness. Clusters geographic concentrations of interconnected firms, suppliers and institutions – enhance productivity, innovation and firm formation.
China has constructed entire regions optimised for scale manufacturing: EV clusters in Shenzhen, Shanghai, Changzhou, Hefei, Ningbo and Hangzhou where battery ecosystems, solar supply chains, robotics hubs and advanced manufacturing zones form dense networks and tacit knowledge circulates rapidly.
In 1991, I was part of the small delegation that accompanied Singapore’s then prime minister Lee Kuan Yew on a visit to Pakistan, where he was advising then prime minister Nawaz Sharif on economic development strategy. In an internal discussion, Lee offered a striking prediction. He suggested that China would one day emerge as a formidable challenger to the US.
Lee also emphasised that China, like the US, was a continental-scale economy. As incomes rose, its vast domestic market would foster the growth of large, resilient and highly competitive firms. Those capable of surviving intense Darwinian competition at home would emerge as formidable global players – challenging established powers in the US, Europe and Japan. In this sense, he appeared to foresee the eventual rise of companies such as BYD and CATL.
Reshoring Dilemma: What It Says About the US Model
The US pursued a different trajectory, excelling at frontier innovation, platform dominance and intellectual property monetisation. Its financial markets reward capital efficiency, while manufacturing ecosystems were increasingly offshored to lower costs. This model produced design-led champions and extraordinary asset valuations. Thus, the US leads in leading-edge chip design, electronic design automation software and platform ecosystems.
But the approach weakened domestic manufacturing depth. Supply chains stretched globally and physical production capacity thinned. The reshoring dilemma illustrates this tension. Tariffs cannot rebuild ecosystems overnight. Industrial capacity requires supplier networks, skilled labour pools and cumulative learning – assets that erode when production migrates abroad. Financial efficiency generated strong returns, but left structural vulnerabilities.
In an era of geopolitical fragmentation, resilience may matter more than return on capital.
The decisive variables will be innovation velocity, diffusion speed, ecosystem depth, energy scale and cumulative learning.
China now leads in industrial robot installations, EV supply chains, solar manufacturing and mature semiconductor fabrication. The US retains advantages in leading-edge chip design, electronic design automation software and platform ecosystems. China’s risk lies in overcapacity and demand imbalance. America’s risk lies in asset bubbles and supply fragility. But the competition is increasingly structural.
The Chinese model seeks durability through production anchoring. It bets that industrial depth provides long-term resilience against external shocks and geopolitical pressure – even if it wastes along the way.
Whether production dominance ultimately proves more durable than financialised innovation remains uncertain. But the Chinese model has already reshaped the global economic debate, demonstrating that industrial ecosystems, not just balance sheets, determine power in the 21st century.
About the Author
The writer is Emeritus Professor of Economics at Nanyang Technological University (NTU), Singapore. He is a former chief economist of the Singapore government and a senior economist at the World Bank’s office in Beijing from June 2002 to June 2005. This essay is part of New Global Order, a series which explores how the changing world landscape is reshaping business, politics and beyond. It was originally published in The Business Times on 24 February 2026. It is republished here with permission.
SYNOPSIS
China’s rise challenges the belief that frontier innovation requires liberal democracy. Through “smart authoritarianism” and production-anchored growth, it prioritises industrial ecosystems, scale and diffusion over financial efficiency. While the US emphasised finance and asset-light innovation, China built manufacturing depth and resilience – making structural capacity, not quarterly returns, central to 21st-century competition.
COMMENTARY
China’s rise has forced a fundamental rethinking of long-held assumptions about political economy, innovation and global competition.
For decades, conventional wisdom in the West held that sustained frontier innovation required liberal democratic institutions, secure private property, open civil society and financial efficiency.
China’s trajectory challenges each of these premises. Its economic strength does not rest on maximising financial returns or fostering consumption-led growth. Instead, it is rooted in production-system dominance: the deliberate construction of dense industrial ecosystems capable of rapid scaling, technological absorption and manufacturing depth.
Two influential interpretations illuminate this model. Jennifer Lind, associate professor at Dartmouth College, argues that China has disproven the assumption that authoritarian systems are structurally incompatible with frontier innovation. Adjunct Professor Arthur Kroeber at New York University contends that China’s rise reflects a strategic choice to prioritise production capability over marginal financial efficiency.
Combined, these perspectives reveal a system that is inefficient by conventional metrics yet formidable in structural terms. China competes not by optimising quarterly return on investment, but by building ecosystems, accelerating diffusion and accepting waste as the cost of capability.
In contrast, the US pursued a different trajectory. Financial markets reward capital efficiency and asset-light strategies. Manufacturing ecosystems were increasingly offshored in pursuit of lower costs and higher margins.
The US-China contrast can be summarised as finance-anchored growth versus production-anchored growth. In an era of geopolitical fragmentation, financial scale matters less than physical resilience. The contest will not be settled by tariffs, but by structural capacity.
“Smart Authoritarianism”: Innovation Without Liberalism
Prof Lind’s concept of “smart authoritarianism” reframes the relationship between political control and technological dynamism. Liberal theory long assumed that innovation requires political pluralism and autonomous civil society. China’s experience suggests something subtler: innovation requires selective openness, not wholesale liberalisation.
The country’s system permits considerable freedom for entrepreneurs, engineers and scientists within carefully defined boundaries. It suppresses organised dissent and collective political mobilisation while tolerating, and often rewarding, individual productivity and technological experimentation. The result is a system capable of frontier breakthroughs in areas such as renewable energy, advanced manufacturing and artificial intelligence, even as it constrains political pluralism.
Prof Kroeber reframes China’s development not as an efficiency story, but as a system-building strategy. The nation behaves less like a profit-maximising corporation and more like a massive national venture fund investing in industrial ecosystems. The goal is not to maximise short-term returns, but to secure long-term production depth and industrial dominance.
“Made in China 2025” exemplifies this approach. Evaluated on its own terms, the programme largely succeeded. The country upgraded manufacturing processes across multiple sectors, achieved global dominance in green technologies such as solar panels, batteries and electric vehicles (EVs), and reduced reliance on imported core components in many industries. Semiconductor progress has been partial, especially under external sanctions, but domestic capacity has nonetheless expanded significantly in mature-node production.
The costs of Beijing’s approach have been substantial. Overcapacity, duplication, corruption and weak firm profitability are endemic. Many sectors exhibit excess supply and compressed margins.
Yet, redundancy and waste are not accidental – they are features of a system that values resilience over financial elegance. China chooses duplication because it preserves capability and reduces dependence on the US. It tolerates low returns because scale and learning matter more than immediate profits.
China’s strategy also focuses on accelerating diffusion. Rather than merely inventing at the frontier, it compresses imitation lags through scale manufacturing, supplier clustering, export-driven learning and infrastructure integration. Western firms may invent first, but China scales faster. Over time, rapid diffusion undermines monopoly advantages. This dynamic explains Beijing’s emphasis on industrial robotics, logistics infrastructure and supply chain integration. It is building mechanisms that accelerate learning curves.
Michael Porter’s cluster theory further explains China’s systemic competitiveness. Clusters geographic concentrations of interconnected firms, suppliers and institutions – enhance productivity, innovation and firm formation.
China has constructed entire regions optimised for scale manufacturing: EV clusters in Shenzhen, Shanghai, Changzhou, Hefei, Ningbo and Hangzhou where battery ecosystems, solar supply chains, robotics hubs and advanced manufacturing zones form dense networks and tacit knowledge circulates rapidly.
In 1991, I was part of the small delegation that accompanied Singapore’s then prime minister Lee Kuan Yew on a visit to Pakistan, where he was advising then prime minister Nawaz Sharif on economic development strategy. In an internal discussion, Lee offered a striking prediction. He suggested that China would one day emerge as a formidable challenger to the US.
Lee also emphasised that China, like the US, was a continental-scale economy. As incomes rose, its vast domestic market would foster the growth of large, resilient and highly competitive firms. Those capable of surviving intense Darwinian competition at home would emerge as formidable global players – challenging established powers in the US, Europe and Japan. In this sense, he appeared to foresee the eventual rise of companies such as BYD and CATL.
Reshoring Dilemma: What It Says About the US Model
The US pursued a different trajectory, excelling at frontier innovation, platform dominance and intellectual property monetisation. Its financial markets reward capital efficiency, while manufacturing ecosystems were increasingly offshored to lower costs. This model produced design-led champions and extraordinary asset valuations. Thus, the US leads in leading-edge chip design, electronic design automation software and platform ecosystems.
But the approach weakened domestic manufacturing depth. Supply chains stretched globally and physical production capacity thinned. The reshoring dilemma illustrates this tension. Tariffs cannot rebuild ecosystems overnight. Industrial capacity requires supplier networks, skilled labour pools and cumulative learning – assets that erode when production migrates abroad. Financial efficiency generated strong returns, but left structural vulnerabilities.
In an era of geopolitical fragmentation, resilience may matter more than return on capital.
The decisive variables will be innovation velocity, diffusion speed, ecosystem depth, energy scale and cumulative learning.
China now leads in industrial robot installations, EV supply chains, solar manufacturing and mature semiconductor fabrication. The US retains advantages in leading-edge chip design, electronic design automation software and platform ecosystems. China’s risk lies in overcapacity and demand imbalance. America’s risk lies in asset bubbles and supply fragility. But the competition is increasingly structural.
The Chinese model seeks durability through production anchoring. It bets that industrial depth provides long-term resilience against external shocks and geopolitical pressure – even if it wastes along the way.
Whether production dominance ultimately proves more durable than financialised innovation remains uncertain. But the Chinese model has already reshaped the global economic debate, demonstrating that industrial ecosystems, not just balance sheets, determine power in the 21st century.
About the Author
The writer is Emeritus Professor of Economics at Nanyang Technological University (NTU), Singapore. He is a former chief economist of the Singapore government and a senior economist at the World Bank’s office in Beijing from June 2002 to June 2005. This essay is part of New Global Order, a series which explores how the changing world landscape is reshaping business, politics and beyond. It was originally published in The Business Times on 24 February 2026. It is republished here with permission.
