The Chinese revolutionary strategy of “Encircling the Cities from the Countryside,” famously employed by Mao Zedong against the Kuomintang, offers a striking metaphor for modern marketing. Just as Mao began by gaining influence in rural peripheries before advancing toward urban centers, businesses can adopt a similar approach by entering underserved or niche market segments before moving into mainstream, highly competitive arenas. By focusing first on overlooked opportunities—whether small geographic areas, niche customer groups, or early adopters—companies can build traction, loyalty, and credibility. This periphery-to-core strategy allows brands to refine their offerings, establish proof of value, and cultivate advocates, ultimately positioning themselves to challenge dominant players in the core market with greater confidence and legitimacy. In essence, China’s revolutionary wisdom provides a blueprint for a measured, strategic path from marginal footholds to market leadership.
From Periphery to Core: Huawei’s Encircling Strategy Against Shanghai Bell, Nortel, and Global Markets
Huawei’s rise in the telecommunications industry illustrates a strategic approach often referred to as “encircling the cities from the countryside.” This strategy entails initially targeting underserved or peripheral markets, gradually building strength, and eventually moving into mainstream, highly competitive segments. In the 1990s, Huawei faced formidable domestic and international rivals. One early competitor, Shanghai Bell—a foreign-invested enterprise—boasted superior financial resources, research capabilities, and technological expertise. Instead of competing directly in major urban markets, Huawei, under Ren Zhengfei’s leadership, concentrated on underdeveloped regions in Northeast, Northwest, and Southwest China. By offering competitive pricing, localized services, and consistent market engagement, Huawei steadily gained market share. By 1999, the company had captured 70% of Shanghai Bell’s market in Sichuan and, through innovative product promotions and network solutions, surpassed Shanghai Bell, achieving domestic sales of 10 billion yuan and securing a dominant market position.
Huawei’s strategy against Nortel in China demonstrated another aspect of its competitive insight. Nortel’s headquarters and technical expertise were largely overseas (e.g., Canada, U.S.), meaning equipment failures or technical support requests required intervention from distant locations. Recognizing this gap, Ren Zhengfei established localized customer service teams to deliver rapid, on-site support. This not only addressed client needs promptly but also strengthened Huawei’s reputation for reliability and responsiveness, further solidifying its domestic market position.
After securing a strong domestic foothold, Huawei applied a similar “encircling” strategy internationally. Instead of confronting established global competitors head-on in developed markets, Huawei focused on developing regions often overlooked by others. Its first international success came in Hong Kong in 1996, followed by expansion into Russia and CIS markets in 1997. Despite early setbacks caused by the global economic crisis, Huawei persisted, eventually winning major contracts such as the Ural Telecom switch and Moscow MTS mobile network. By 2003, Huawei had become the largest telecommunications equipment supplier in the CIS region. Simultaneously, the company expanded aggressively into Africa, Southeast Asia, and Latin America, overcoming language and cultural barriers to build trust and cultivate a loyal customer base.
Huawei’s strategic execution combined product adaptation, localized service, and focused resource allocation. The company developed cost-effective, easily maintainable equipment suited for rural and underdeveloped regions while deploying dedicated teams to ensure rapid response and customer satisfaction. By concentrating its R&D and sales efforts on the communications sector, Huawei avoided distractions from high-profit but unrelated industries, allowing it to strengthen core competencies and prepare for entry into more competitive markets.
Ultimately, Huawei’s “encircling the cities from the countryside” strategy was more than a market approach—it reflected a cultural and organizational ethos. It nurtured the so-called “wolf culture” of rapid response, aggressive market penetration, and resilience in challenging environments. By combining careful market assessment with strategic patience and operational excellence, Huawei transformed from a small domestic competitor into a global telecommunications powerhouse, demonstrating the effectiveness of incremental, targeted expansion both domestically and internationally.
“Encircling the Cities from the Countryside”: QQ’s Grassroots Strategy to Outmaneuver MSN in China
Tencent’s QQ is a classic example of a “periphery-to-core” strategy, entering the market through underserved segments before gradually expanding to dominate mainstream users, eventually surpassing Microsoft’s MSN in China. By addressing overlooked needs—such as reliable large file transfers, offline messaging, and interactive virtual features—QQ captured niche users that MSN neglected. These early advantages snowballed, allowing QQ to transition from peripheral markets to the heart of China’s online social ecosystem. MSN, in contrast, was hampered by a globalized management structure and low strategic priority, which prevented it from responding effectively to evolving local user demands.
A key factor in MSN’s decline was its strategic positioning. As a non-core product within Microsoft, MSN China lacked adequate resources, autonomy, and priority support, leaving it unable to iterate quickly or tailor its offerings to local preferences. QQ, as Tencent’s flagship product, enjoyed concentrated resources and a flexible, locally empowered decision-making framework. This allowed rapid experimentation and iteration, enabling QQ to introduce innovative features that met Chinese users’ expectations. MSN’s slow approval processes and sluggish R&D responses caused it to miss multiple opportunities to capture user mindshare.
The gap in product features and user experience further widened the competitive divide. MSN faced limitations in group management, unstable file transfers, absence of offline messaging, and inadequate customer support, whereas QQ continually enhanced its platform with features like video calls, screenshots, resumable downloads, and robust support. Additionally, QQ developed an inclusive ecosystem catering to multiple age groups and social contexts, integrating virtual items, memberships, and entertainment features to reinforce user engagement. MSN, with its focus on white-collar users and a closed network, gradually lost relevance.
The rise of mobile internet ultimately sealed MSN’s fate. While MSN lagged in mobile offerings, QQ swiftly transitioned to smartphones, providing seamless migration from PC to mobile and capturing the rapidly growing mobile social market. Tencent’s foresight and speed in mobile adaptation strengthened QQ’s dominance, whereas MSN’s slow response led to significant user attrition. MSN’s failure highlights the consequences of poor localization, rigid operations, and fragmented ecosystems, while QQ’s success underscores the value of localized strategy, rapid iteration, and deep understanding of user behavior. In China’s social messaging landscape, QQ’s methodical progression from niche users to mainstream adoption—akin to “encircling the cities from the countryside”—proved decisive.
Tencent’s trajectory illustrates a broader pattern of strategic growth: starting small, building a loyal user base, expanding into adjacent markets, and leveraging data to dominate new sectors. From QQ to WeChat to Tencent Cloud and AI, the company consistently harnessed its strengths in social ecosystems, gaming, and digital services to achieve technological leadership.
How Localized Strategy and Silicon Valley Hubris Shaped Taobao, Temu, and Shein’s Rise
The rapid ascent of Chinese digital companies such as Temu and Shein does not stem merely from cheap prices or opportunistic traffic arbitrage. It reflects a deeper strategic logic—one that echoes Mao Zedong’s classic principle of “encircling the cities from the countryside.” When confronting stronger incumbents, these firms avoid direct confrontation in the mainstream arena, instead mobilizing capabilities from the periphery: under-served markets, flexible supply chains, and institutional conditions that allow rapid trial, iteration, and eventual market reshaping. In business terms, “countryside” refers not to inferior quality but to unmet needs ignored by entrenched players and to product and organizational spaces where these players are slow, rigid, or blind.
Temu and Shein both targeted the blind spots of Amazon and Zara rather than their core strengths. Temu did not attempt to replicate Amazon Prime’s logistics supremacy or brand trust. Instead, it attracted price-sensitive global consumers with ultra-low prices, highly responsive Chinese supply chain clusters, and viral social marketing. Once it secured large volumes of traffic, it began moving upward by improving quality control and introducing premium offerings. Shein adopted a similar flank strategy: it sidestepped Zara’s high-end European retail network and instead dominated the emerging space of impulse-driven online fashion for Gen Z. Through small-batch testing, rapid product cycles, and algorithmic product selection, it built a digital-first fast-fashion model that later upgraded in design and brand value. These companies did not simply start at the low end—they redefined the low end through digital precision, making it a viable strategic launchpad rather than a developmental trap.
Their rise has been enabled by structural strengths embedded in China’s institutional and industrial ecosystem. China’s coastal manufacturing clusters form unparalleled “one-hour industrial circles,” where design, sampling, sewing, inspection, and logistics are integrated with near-frictionless information flows. Digital infrastructure—from cross-border logistics networks to fintech and ERP tools—lowers the cost of experimentation and grants even small firms platform-level operational capability. Labor flexibility, made possible by China’s urban-rural dual structure, provides a human buffer that can expand or contract production in step with demand fluctuations. Finally, long-term policy consistency and governance stability give companies the confidence to invest aggressively and absorb losses in pursuit of global scale. Together, these factors create systemic resilience that enables firms to start on the periphery and climb upward quickly.
A similar logic underpinned Taobao’s landmark victory over eBay China, one of the earliest and clearest demonstrations of divergent corporate worldviews. eBay approached China with the confidence of a Silicon Valley pioneer: it assumed that the model proven in the United States—auction formats, standardized platform rules, and PayPal payments—was universally applicable. This confidence was not personal arrogance but structural hubris: the presumption that technological standards developed within a mature Western institutional environment would seamlessly transplant into an emerging, trust-deficient Chinese market. As a result, eBay overlooked fundamental user concerns, particularly payment security. Its promotion of PayPal—ill-suited to China’s banking infrastructure—failed to address buyers’ most urgent pain point. By contrast, Alibaba created Alipay, an escrow system designed precisely for local conditions, eliminating trust barriers and unlocking the growth of C2C transactions.
Organizational rigidity compounded eBay’s misjudgments. Key decisions required approval from U.S. headquarters, leaving the China team unable to respond quickly to market realities. eBay refused to drop listing fees even after Taobao introduced free services, fearing misalignment with its global pricing structure. It resisted integrating with Chinese payment networks on compliance grounds. These constraints reflected a broader multinational dilemma: the pursuit of global standardization at the expense of local adaptability. Taobao, with greater autonomy and a willingness to sacrifice short-term profits for long-term ecosystem building, was able to innovate rapidly, localize deeply, and ultimately reshape the competitive landscape. In this sense, Taobao did not win because it was a “better” company but because it possessed a more accurate understanding of the institutional terrain.
What Temu and Shein are accomplishing globally today echoes the dynamics of the Taobao–eBay clash. The conflict is not simply one of business models but of cognitive frameworks. U.S. incumbents, shaped by shareholder pressures, compliance regimes, and a mature institutional context, often assume that the global market will converge toward their standards. Chinese firms, emerging from a heterogeneous and fast-changing environment, operate with greater sensitivity to local frictions, greater readiness to build missing infrastructure, and greater tolerance for strategic losses. Their success reveals that modernity does not follow a single path. It may begin in Yiwu’s small workshops, leverage Shenzhen’s algorithm engineers, rely on Guangzhou’s logistics networks, and reach global consumers through TikTok creators in Los Angeles.
In this broader perspective, Temu, Shein, and the earlier triumph of Taobao represent not isolated cases but recurring expressions of China’s institutional adaptability and ecosystem-level advantages. They demonstrate how firms from an emerging economy can leverage peripheral footholds, flexible production, and long-term strategic alignment to challenge global incumbents. And they show that the greatest vulnerability of Silicon Valley giants is not technological weakness but a habitual blindness to environments that do not conform to their assumptions.
AI Disruption and China’s Peripheral Challenge to Western Software Hegemony
The “Made in China” initiative generates trillions of yuan in GDP every year, yet a substantial share of this value quietly flows back to Silicon Valley through software licensing, subscription services, and patent fees. This outflow functions like an “invisible tax bill.” The market capitalizations of companies such as Microsoft, Adobe, and Salesforce—each built in part on payments from global users, including those in China—underscore the scale of this dependence. Software, unlike traditional manufacturing, is entrenched not only behind technological barriers but also behind ecosystem lock-in and deeply rooted user habits. These are far more difficult to overturn than even major feats of industrial engineering.
AI has now opened a crack in this structure. Large-scale models are reshaping the foundational logic of software itself: interfaces are shifting from traditional GUIs to LUIs, and static tools are evolving into dynamic, responsive assistants. Adobe offers a clear example. Its dominance in design, video editing, and imaging—powered by products like Photoshop, Premiere, and After Effects—has given it nearly $20 billion in annual revenue and an 88% gross margin. Over decades, it consolidated this position through acquisitions and aggressive patent strategies. Its current Firefly AI model extends this lead by allowing users to generate and edit images through simple language commands, seamlessly integrated into its professional suite.
By contrast, Chinese companies such as Meitu and Wondershare remain comparatively small, but they hold a distinctive advantage: agility in the consumer market. Adobe’s tools are powerful yet cumbersome for everyday users. Chinese firms excel at making professional capabilities radically accessible. Their AI-driven, one-click video voice-overs or portrait generators may appear simplistic to professional designers, but they are indispensable to China’s vast short-video and e-commerce ecosystem. Tens of millions of Taobao shop owners and Douyin influencers do not need Hollywood-level visual effects; they need an image that boosts sales within three seconds.
This is where China’s opportunity lies: “encircling the cities from the countryside”—advancing from the periphery to the core. By first conquering the massive long-tail of non-professional users, these companies can generate revenue, iterate quickly, refine their algorithms, and eventually mount a credible challenge to high-end incumbents. AI has loosened the foundations of global software hegemony, and Chinese firms are positioning themselves to exploit the opening.
From Mature Nodes to Advanced Frontiers: China’s “Encircling the Cities” Semiconductor Strategy
China’s response to the 2018 trade war offers a contemporary metaphorical parallel to the strategy of “encircling the cities from the countryside.” At the outset of the confrontation, China’s semiconductor sector was largely barren: manufacturing capacity was weak, critical equipment was imported, and raw materials as well as electronic design automation tools were dominated by foreign suppliers. What China did possess, however, was the world’s largest and most dynamic market—an asset that became the foundation for stabilization and eventual counter-mobilization.
For a time, China maintained the hope that tensions might recede. Even by 2020, many expected the United States would soften its stance. But Washington’s 2020 prohibition on TSMC producing chips for Huawei extinguished those illusions. It revealed that waiting for reprieve was futile, and from 2021 onward China initiated a genuine, large-scale reconstruction of its semiconductor capabilities. What followed was four years of concentrated effort to build an entire supply chain—equipment, materials, design tools, and fabrication capacity.
This investment has since yielded a near-complete domestic industry architecture. China can now design and produce virtually the full range of semiconductor equipment, including lithography tools; it has secured domestic alternatives for most essential materials; and it has nurtured indigenous design software. With these foundations, China has expanded its footprint in mature-node manufacturing while methodically building capacity for advanced processes. In effect, it has begun the strategic advance from the “countryside”—the mature segments of the industry—toward the “cities,” the core technologies historically dominated by the United States and its allies.
As this base consolidates, China’s leverage grows. Possessing the world’s largest chip market, China can increasingly respond to external pressure by asserting strength in mature-node production, where cost, scale, and supply-chain completeness allow it to reshape global competition. In the coming years, China expects to achieve secure, sustainable production at the 28nm and eventually 14nm levels—security defined not by full autarky but by stable, diversified, domestically supported supply. By 2026, China is projected to operate more than sixty fabrication plants, surpassing the global total today. This expansion compels other nations not only to reconsider manufacturing strategies, but also to seek markets for their own output.
Looking ahead, China frames 2035 as the horizon at which it may effectively dominate much of the semiconductor value chain—from mature nodes to mass-produced advanced chips such as 5nm or 3nm. Even under more conservative expectations, maintaining robust 7nm capacity and abundant 14nm output would secure national needs while pressuring Europe and the United States to concentrate resources into the most extreme, high-cost frontiers of sub-2nm technology. In that scenario, Western efforts at the cutting edge may have limited impact on China’s security, yet will confront the economic challenge of immense investment with a shrinking pool of customers willing to pay premium prices.
Thus, through methodical accumulation of capacity, experience, and industrial ecosystems—beginning at the periphery and pushing steadily toward the core—China aims to transform the semiconductor struggle into a long-term strategic contest. The chip war may not yet have entered its final phase, but the direction of China’s advance has been firmly set.
China’s Full-Stack AI Export: Leveraging Industrial Might to Power Global Adoption
The emergence of general artificial intelligence has exposed a strategic divergence between the United States and China. While major American AI companies have increasingly shifted toward closed-source models, their Chinese counterparts—exemplified by DeepSeek—have embraced full openness. This divergence has reshaped global technological dynamics: by lowering access barriers, China has enabled developers, firms, and governments worldwide to “free-ride” on Chinese models, gradually drawing the global periphery into its own technological orbit. In effect, China is applying an “encircling the cities from the countryside” logic to the international AI landscape, building influence from the margins toward the core.
DeepSeek’s 2025 breakthroughs illustrate this shift. By driving inference costs down to a fraction of previous state-of-the-art levels, it accelerated a transition from an AI environment dominated by expensive, proprietary U.S. systems to one in which AI becomes a widely accessible production tool. Thousands of vertical applications—ranging from medical diagnostics and industrial inspection to financial risk assessment—have already been built upon DeepSeek’s open-source foundation. This rapid proliferation underscores the strategic importance of usability, applicability, and economic accessibility in AI adoption. While U.S. firms retain strength in fields like biomedicine and software engineering, the decisive contests in global markets increasingly hinge not on technology alone but on entire industrial ecosystems and the ability to operationalize AI at scale.
This is where China’s structural advantages matter. Its manufacturing sector is unparalleled in depth, breadth, and cost efficiency. That capacity enables China to offer full-stack, end-to-end AI solutions—from open-source foundational models and cloud services to hardware, chips, power systems, robotics, and physical infrastructure. Crucially, these offerings extend not only to advanced economies but also to developing regions across Southeast Asia, Central Asia, the Middle East, Latin America, and Africa. China can pair digital solutions with energy projects, telecommunications equipment, and industrial goods, often supported by financing mechanisms that make deployment feasible for countries at different stages of development. This integrated stack allows recipient states to adopt AI in their public governance, industrial upgrading, and consumer markets without relying on fragmented suppliers.
In contrast, the United States faces structural constraints that complicate the commercialization of AI. Energy shortages, deindustrialization, and concentrated chip fabrication outside its borders limit its capacity to apply AI at industrial scale. As Jensen Huang has argued, winning the AI race requires reindustrialization—because large-scale deployment depends on robust manufacturing, stable supply chains, and abundant power. Without these foundations, AI risks becoming decoupled from the real economy, inhibiting the emergence of the “AI+” industries needed to transform productivity.
As the U.S. and China move toward a rough strategic parity, direct confrontation becomes less likely. Instead, competition increasingly manifests as a contest to build ecosystems in third-party markets, where states choose between alternative technological and governance models. For many of these countries, China’s ability to deliver complete, interoperable AI-industrial packages—rather than isolated software solutions—offers a pragmatic pathway to modernization. Whichever nation implements its technology stack most broadly and rapidly will shape the global AI ecosystem and become the indispensable hub others rely upon.
In this evolving landscape, China’s strategy—anchored in open models, industrial strength, and full-stack export capability—positions it as a central architect of the next wave of AI globalization.
Final Thoughts
In sum, the logic of “encircling the cities from the countryside” offers a unifying lens through which to understand the rise of China’s most influential companies and technologies. From Huawei’s rural footholds to Tencent’s grassroots user base, from Taobao’s adaptive localization to Temu and Shein’s global flank attacks, from semiconductors to AI, the pattern is consistent: start where incumbents are weak, build strength through scale and iteration, and advance methodically toward the industry core. This periphery-to-core strategy—rooted in flexibility, ecosystem thinking, and an acute sensitivity to real-world conditions—has become a defining strategic advantage. As global competition intensifies across digital, industrial, and geopolitical domains, it is increasingly this approach, rather than sheer technological prowess alone, that will shape how influence is built, how markets are transformed, and how the next generation of global leaders will emerge.