Dan Wang and Arthur Kroeber
Adecade ago, planners in Beijing unveiled Made in China 2025, an ambitious scheme to take leadership of the industries of the future. The plan identified ten sectors for investment, including energy, semiconductors, industrial automation, and high-tech materials. It aimed to upgrade China’s manufacturing in these sectors and others, reduce the country’s dependence on imports and foreign firms, and improve the competitiveness of Chinese companies in global markets. The overarching goal was to transform China into a technological leader and turn China’s national champion firms into global ones. The government backed this vision with enormous financial support, spending one to two percent of GDP each year on direct and indirect subsidies, cheap credit, and tax breaks.
China has been wildly successful in these efforts. It not only leads the world in electric vehicles and clean technology power generation; it is also dominant in drones, industrial automation, and other electronics products. Its lock on rare-earth magnets produced a quick trade deal with U.S. President Donald Trump. Chinese firms are on track to master the more sophisticated technological goods produced by the United States, Europe, and other parts of Asia.
And yet China’s model still has many skeptics. Lavish funding, they point out, has led to waste and corruption. It has created industries in which dozens of competitors manufacture similar products and struggle to make a profit. The resulting deflation makes companies wary of hiring new staff or raising wages, leading to lower consumer confidence and weaker growth. China’s economy, which once looked poised to overtake the United States’ as the world’s biggest, is mired in a slowdown and may never match the American one in total output.
These problems are not trivial. But it is a serious error to think they are big enough to derail China’s technological momentum. Beijing’s industrial policy succeeded not simply because planners picked the right sectors and subsidized them. It worked because the state built out the deep infrastructure needed to become a resilient technological powerhouse. It created an innovation ecosystem centered on powerful electricity and digital networks, and it established a massive workforce with advanced manufacturing knowledge. Call it an all-of-the-above technology strategy. This approach has enabled China to develop new technologies and scale them up faster than any other country. Its model is unlikely to be pushed off course by sluggish economic growth or U.S. sanctions.
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