When China introduced the “Made in China 2025” (MIC2025) initiative in 2015, many Western policymakers and academics initially reacted with a mix of alarm and skepticism, with some believing it would lead to a Soviet Union-style central planning collapse.
The “Failed History” of Central Planning (Soviet Model)
Western observers often viewed China’s Made in China 2025 (MIC2025) initiative through the lens of Cold War-era assumptions about centrally planned economies, drawing analogies to the Soviet Union’s collapse. The Soviet system was widely criticized for its inherent inefficiencies, which were believed to stifle innovation, misallocate resources, and ultimately fail to meet consumer demands or compete effectively on the global stage.
Central to these critiques was the concept of “soft budget constraints,” whereby enterprises were bailed out by the state regardless of performance, creating perverse incentives, overcapacity, and misinvestment. MIC2025, with its explicit government targets, subsidies, and state-led support for strategic industries, appeared to many as a revival of this discredited model. Analysts assumed that top-down planning would inevitably distort markets, foster bureaucratic overreach, and impede the coordination of complex technological innovation in areas such as AI, semiconductors, robotics, and new energy.
The historical analogy was further reinforced by the perception that, like the Soviet Union, a state-directed approach might prioritize heavy industry and strategic technologies at the expense of consumer goods and civilian innovation, producing a technologically advanced but economically rigid system incapable of adapting to market demands or generating genuine breakthroughs. However, this comparison overlooked a critical distinction: unlike the rigid, quota-driven plans of the USSR, MIC2025 is goal-driven, seeking to strategically guide innovation rather than enforce uniform production targets.
Underestimation of Chinese Technocratic Capacity
Western observers often operate under the misconception that only free markets foster innovation and that state involvement inevitably stifles creativity. They have historically underestimated China’s technocratic capacity, assuming that the government is too bureaucratic, corrupt, or top-heavy to implement complex technological strategies effectively.
Critics predicted that subsidies would be wasted, inter-ministerial coordination would fail as it did in the Soviet Union, and local implementation would be mismanaged. In reality, however, the Chinese state has demonstrated remarkable technocratic execution, adaptive feedback mechanisms, and the strategic use of pilot zones. Decades of industrial learning under the Chinese Communist Party have cultivated a level of policy sophistication and implementation capacity that Western analysts frequently overlook.
Underestimation of China’s “Hybrid” Model and Adaptive Capacity
Western analysis often mischaracterized China’s economic model by conflating it with the rigid central planning of the Soviet Union. Unlike the USSR, whose COMECON framework functioned largely as a closed system insulating socialist economies from capitalist competition, China had already embraced market mechanisms, managed competition, and global integration.
MIC2025 operated within this socialist market economy rather than representing a return to a command economy. It was not a rigid, top-down plan; rather, it prioritized strategic sectors such as semiconductors, electric vehicles, and artificial intelligence while fostering public-private cooperation and dynamic feedback. Implementation was flexible, with local experimentation encouraged, and guidance came primarily through funding and market incentives rather than administrative decrees.
The Chinese government consciously studied the Soviet collapse, incorporating reforms to avoid similar pitfalls by emphasizing incentives, competition, and integration into global supply chains. Moreover, China’s massive industrial base, vast domestic market, and substantial financial resources provided a scale of capability that the resource-constrained Soviet Union lacked. By concentrating on targeted, high-tech sectors, MIC2025 allowed for focused allocation of effort and resources, combining ambitious goals with adaptive execution in a way that Western observers frequently failed to recognize.
Intellectual Complacency and Hubris
Despite growing authoritarianism in China, the so-called “liberal bet”—the belief that economic liberalization would inevitably lead to political opening—continued to influence much Western analysis. MIC2025, with its explicit state-led approach, directly challenged this assumption. Rather than being recognized as a coherent alternative development model, it was often dismissed as an unsustainable anomaly or a sign of impending failure.
This response was reinforced by long-standing ideological biases against industrial policy. Western neoliberal economists, influenced by thinkers such as Hayek and Friedman, have traditionally viewed state intervention in markets as distortionary and prone to inefficiency. Since the 1980s, both academic orthodoxy and policy frameworks in the United States and Europe have emphasized privatization, deregulation, and market-led innovation, celebrating the market as the optimal allocator of resources. From this perspective, any large-scale, state-directed industrial initiative—particularly one as ambitious and explicit as MIC2025—was inherently suspect. Critics argued that governments are generally poor at “picking winners,” that heavy subsidies encourage corruption, and that domestic content targets or protectionist measures would provoke inefficiency. MIC2025, with its goal of achieving 70 percent self-sufficiency in core components by 2025, seemed to exemplify all these perceived risks. Observers also noted its potential conflict with WTO rules and the broader norms of free trade, reinforcing the belief that China’s approach was both unfair and likely to provoke international pushback.
Western policymakers and analysts, operating within the assumptions of the Washington Consensus, expected that China’s strategy would alienate trading partners, create economic inefficiencies, and ultimately collapse under its own weight. They largely failed to grasp that China was practicing strategic coupling, leveraging global trade to build domestic champions such as CATL, BYD, and Huawei. MIC2025, as a state-guided high-tech strategy, ran counter to entrenched Western assumptions and was therefore reflexively treated as misguided or doomed.
This underestimation extended to China’s ambition and the CCP’s long-term strategic vision. The aspiration to transform from the “world’s factory” into a global manufacturing and technological superpower was often interpreted as hubris rather than a deliberate, actionable plan. In some cases, hope that China’s model would fail may have introduced an element of wishful thinking into Western assessments, further biasing interpretations of MIC2025’s feasibility and trajectory.
In sum, the reflexive dismissal of MIC2025 reflected a combination of ideological predispositions, adherence to the Washington Consensus framework, and a persistent underestimation of China’s strategic capacity and long-term vision.
But the U.S. Accepts/Glorifies Its Own State-Led Programs
The United States has long celebrated and glorified its own state-led programs when they serve national objectives. The Manhattan Project, for example, involved massive government coordination to achieve a decisive technological breakthrough in the context of national security, and U.S. scholars generally regard it as a heroic and transformative achievement. Similarly, the Apollo Program, a state-directed, goal-oriented initiative aimed at space exploration and national prestige, is widely praised in American academia as visionary and inspirational, demonstrating the government’s ability to drive technological progress and mobilize the nation around an ambitious objective. The development of the Internet, beginning with ARPANET and other DARPA projects, was likewise funded and coordinated by the government, later generating extensive private-sector spillovers. U.S. academic opinion consistently highlights these efforts as exemplary cases of how government R&D can catalyze innovation, create new industries, and foster broad technological advancement.
By contrast, China’s MIC2025 initiative, a state-directed industrial strategy targeting strategic sectors such as semiconductors, robotics, and artificial intelligence, is frequently framed in U.S. discourse as a form of “unfair competition” or a techno-nationalist threat. It is often criticized for market distortion, forced technology transfer, and an ambition to dominate global high-tech industries. While U.S. state-led projects are celebrated for their transformative impact, similar state coordination in China is viewed with suspicion, reflecting a striking double standard in the perception of government-driven technological and industrial policy.
The “VC fund” Analogy
China’s industrial policy can be likened to a venture capital fund operating at a national scale. Like a VC fund that invests in a diversified portfolio of startups, China channels resources simultaneously into multiple industries and firms. It recognizes that not every investment will succeed, but the few that do can generate transformative effects, reshaping entire sectors and creating new technological frontiers. This approach is underpinned by long-term patience: the state can afford to sustain substantial losses over extended periods, free from the short-term profitability pressures that typically constrain private investors.[1]
China’s advantage lies not only in its scale but also in its ability to coordinate policies across production, research and development, and consumption. Unlike private VC funds, the state can maintain loss-making ventures for decades while systematically nurturing domestic capabilities. The ultimate goal is not immediate financial return but the cultivation of strategic industrial capacity—building integrated supply chains, fostering industrial commons, developing a dynamic innovation ecosystem, promoting leading firms, and reducing reliance on foreign technology.
This strategy is reminiscent of the old advertising maxim: “Half of it works, but you don’t know which half.” Whereas U.S. initiatives such as Solyndra and A123 or Europe’s Northvolt faltered, China’s LONGi, CATL, and BYD—competitors to those projects—have succeeded. In essence, China’s industrial policy functions as a mega-venture capital fund, capable of tolerating uncertainty, experimenting at scale, and committing resources without the expectation of immediate returns.
Backlash Confirmed China’s Strength, Not Its Collapse
Western academia and policymakers often misinterpreted China’s MIC2025 initiative, conflating strategic coordination with rigid central command. Many observers assumed the program would fail, projecting onto it the shortcomings of the Soviet model and reinforcing the long-standing belief that authoritarian systems cannot innovate. This expectation of failure was not purely analytical; it functioned as a form of strategic denial, a psychological defense aimed at preserving the comforting illusion that China could not catch up in high-end manufacturing and advanced technology. MIC2025, by signaling China’s ambition to ascend the global value chain and challenge Western technological dominance, directly confronted these narratives, prompting some policymakers to hope that the initiative would collapse under its own weight.
Ironically, U.S. policy responses ultimately underscored MIC2025’s effectiveness. Campaigns to restrict Chinese access to critical sectors such as semiconductors, 5G, and artificial intelligence—through Trump-era tariffs, chip export controls, and other measures—implicitly acknowledged that China had succeeded sufficiently to be perceived as a strategic competitor. The backlash revealed that China was not collapsing but advancing enough to pose a tangible threat. In turn, the CHIPS and Science Act (2022) and the Inflation Reduction Act (2022) can be understood as American attempts to replicate aspects of China’s state-driven industrial policy, selectively adapted to the institutional and political constraints of the U.S. economic system. This interplay highlights both the efficacy of MIC2025 and the ways in which global competitors have sought to respond to a model of coordinated, long-term technological development.
Conclusion
In retrospect, while MIC2025 has encountered challenges—such as overcapacity in certain sectors and continued dependence on foreign core components—it has clearly not resulted in a Soviet-style collapse. On the contrary, the initiative has substantially accelerated China’s industrial upgrading and technological self-reliance, bringing the country closer to its objectives in several key strategic industries. Rather than undermining China’s development, these challenges have been absorbed and managed within a broader framework of state-guided market integration, reflecting a distinctive model of economic governance that combines long-term planning, selective intervention, and competitive market mechanisms.
The early reactions of Western academia and policymakers, which often predicted failure, reveal more about ideological rigidity and strategic denial than about the inherent viability of China’s approach. By analogizing MIC2025 to the discredited Soviet economic model, many analysts overlooked the fundamental differences in China’s institutional and market context. China’s blend of state direction, industrial policy, and capitalist tools defied conventional Western economic assumptions, producing results that contradicted expectations. The belief that MIC2025 would inevitably fail was less a product of rigorous analysis than a form of wishful thinking, reflecting a broader underestimation of China’s capacity to pursue complex, technologically ambitious strategies within a globalized economic system.
References
[1] Dwarkesh Patel, Arthur Kroeber, “Why China’s manufacturing economy is dominating — Arthur Kroeber”, Jun 20, 2025, https://www.dwarkesh.com/p/arthur-kroeber