From the 1990s through the 2010s, many Western policymakers believed that China’s rapid economic modernization would naturally result in political liberalization—or else lead to stagnation. This view, grounded in liberal teleology, modernization theory, and the triumphalism that followed the Cold War, proved misguided. It bred complacency in Western strategy, postponed effective policy responses, and ultimately enabled China to gain a strategic advantage in the trade and technology conflicts of the 2020s.
Liberal Teleology and Modernization Theory
After the Cold War, Western elites widely embraced Francis Fukuyama’s “End of History” thesis, which posited that liberal democracy and capitalism represented the final stage of societal evolution. This conviction—rooted in liberal teleology and modernization theory—held that as countries grew wealthier and more urbanized, they would inevitably develop a middle class that would demand liberal rights, rule of law, and democratic governance, following the trajectories of South Korea, Taiwan, and Chile, where economic liberalization in the 1980s preceded democratic transition.
Guided by this framework, Western policymakers assumed that China’s economic modernization would naturally lead to political liberalization. China’s accession to the WTO in 2001 was thus heralded as a decisive step toward convergence with the liberal international order. Market reforms, deeper global integration, and the rise of the internet were expected to unleash market forces and information flows that would cultivate an autonomous middle class, erode state control, and ultimately challenge the Communist Party of China (CPC)’s one-party rule.
This expectation was reinforced by the “Responsible Stakeholder” theory, which held that as China became more prosperous and embedded within global institutions, it would gradually internalize and uphold international norms, including those related to human rights and political openness.
Underlying all these assumptions was a deep faith in the inherent superiority and universality of the Western economic and political model. Western policymakers believed that exposure to markets and globalization would make China more like the West—liberal, pluralistic, and rule-based. The core fallacy, however, was the belief that economic openness would automatically yield political openness—a misjudgment that fostered complacency and obscured the resilience of China’s state-led developmental model.
Misreading the CPC’s Adaptability
Western analysts consistently underestimated the Communist Party of China’s ideological resilience and capacity for institutional innovation. They failed to foresee that the CPC could fuse Leninist political control with capitalist instruments—state-owned enterprises, government-linked corporations, industrial policy, and surveillance technology—to create a hybrid system of “authoritarian capitalism.” Contrary to widespread assumptions, this model proved dynamic, adaptive, and capable of generating sustained growth.
Post–Cold War optimism bred complacency: many in the West believed the CPC was “on borrowed time,” assuming that modernization would inevitably lead to liberalization or regime collapse. Instead, the Party used economic reform to strengthen its rule. The immediate economic gains of engagement with China—access to its vast market, inexpensive goods, and lucrative investments—further discouraged critical scrutiny of its political trajectory.
Underlying this misjudgment was a deep-seated belief in the limits of authoritarian governance. Western policymakers assumed that a highly centralized regime would eventually face stagnation, unable to sustain innovation or efficiency without loosening political control. China’s experience has profoundly challenged this assumption, revealing that authoritarian systems can evolve, adapt, and sustain growth far longer than liberal orthodoxy once imagined.
Focus on Short-Term Gains
Western democracies, constrained by short electoral cycles, often prioritized immediate economic gains over long-term strategic considerations in their engagement with China. Unlike China’s one-party system, where the CPC’s continuity in power enables sustained policy execution, democratic governments in the West frequently deferred structural responses to the challenges posed by China’s state-led development model. This short-term bias fostered reluctance to impose stricter conditions on trade, investment, and technology transfer—decisions that ultimately strengthened China’s industrial ascent.
The same temporal asymmetry is reflected in the corporate sphere. The U.S. model of “quarterly capitalism” emphasizes short time horizons, with firms judged primarily by quarterly earnings and immediate shareholder returns. Rooted in Milton Friedman’s doctrine that a company’s sole responsibility is to maximize shareholder value, this model incentivizes financial performance over productive innovation. Critics argue that such narrow metrics erode stakeholder trust, weaken worker morale, and undermine long-term community and industrial investment.
By contrast, East Asian economies such as Japan, South Korea, and China operate under long-term developmental visions structured around multi-decade industrial goals and national technological strategies. Stakeholder-oriented models—exemplified by Germany’s co-determination system or Japan’s keiretsu networks—seek to align industrial stability with social welfare, balancing corporate growth with national resilience.
The dominance of shareholder value maximization in the U.S. has encouraged firms to pursue profits through financial engineering—stock buybacks, dividend payouts, and balance-sheet manipulation—rather than through investment in workers, R&D, or manufacturing renewal. This “financialization trap,” as described by economists like Mariana Mazzucato, creates the illusion of prosperity through inflated stock valuations while hollowing out the nation’s productive base.
Over time, this short-termism contributed to deindustrialization, especially in sectors requiring long gestation and sustained state support, such as semiconductors, energy, and advanced materials. The resulting erosion of supply chain resilience became starkly evident during the COVID-19 pandemic and the subsequent U.S.–China technology rivalry. In essence, the fixation on financial returns over industrial strategy has placed the U.S. at a structural disadvantage in areas demanding patience, coordination, and long-term national vision—precisely the domains where China’s state-backed, mission-oriented capitalism excels.
Strategic Patience vs. Western Hubris
While Western economies prioritized short-term market gains and shareholder returns, China pursued a long-term strategy rooted in state-guided capitalism. Beijing methodically leveraged globalization to acquire foreign technology, protect domestic champions such as Huawei, BOE, and Tencent, and construct entire industrial ecosystems under coherent national plans.
The United States and Europe, driven by faith in liberal convergence, allowed extensive technology transfers, joint ventures, and offshoring—believing economic integration would bind China into the liberal international order. Western corporations, motivated by profit, became powerful advocates of engagement, reinforcing this illusion and blinding policymakers to the geopolitical consequences. In effect, China exploited globalization on its own terms, while the West assumed rule convergence was inevitable.
This complacency stemmed from two critical misjudgments. First, Western policymakers underestimated CPC’s institutional resilience and adaptive capacity. The CPC successfully compartmentalized economic liberalization from political reform, sustaining rapid growth while maintaining strict political control. Through disciplined governance, managed succession, and meritocratic promotion, Beijing strengthened rather than weakened its authoritarian system.
Second, the “liberal bet” reflected a deeply Western-centric worldview that failed to grasp China’s own strategic calculus. The CPC never intended to remain subordinate to a U.S.-led order; instead, it viewed economic engagement as a means to national rejuvenation and technological sovereignty. While the West saw interdependence as a path to convergence, China treated it as a tool for leverage—transforming integration into autonomy and ultimately gaining a strategic upper hand.
Belief in China’s Growth Plateau
Many Western analysts long assumed that China would “grow old before it grew rich.” They believed that structural constraints—such as an aging population, rising debt, environmental degradation, and endemic corruption—would eventually stall its ascent. Yet China repeatedly defied these predictions. Leveraging strong state capacity, macro-control tools, and a high-savings, high-investment model, it sustained growth even through external shocks such as the 2008 global financial crisis, when Western economies faltered.
This reflected a broader underestimation of China’s ability to recalibrate its development model in the face of constraints. Western observers often misread the nature of China’s technological trajectory, dismissing it as derivative and unsustainable. Stereotypes of a “copycat culture,” reliance on forced technology transfers, weak intellectual property protection, rote learning, and deference to authority reinforced the belief that China would plateau at the stage of imitation, unable to achieve genuine innovation in a system that prioritized social stability and conformity over creativity.
Such assumptions blinded many to the depth of China’s technological ambitions and strategic intent. Initiatives like “Made in China 2025”—which charted a path toward leadership in advanced manufacturing, AI, semiconductors, and green technology—were often dismissed as propaganda or protectionism. In reality, they signaled a coordinated national drive toward indigenous innovation, long-term planning, and technological self-reliance. Western complacency, rooted in outdated perceptions of China’s limits, thus left policymakers unprepared for the scope and speed of its rise as a global technological power.
Ace Up the Sleeve: China’s GFC Response Exposed Western Complacency
China’s response to the 2008 Global Financial Crisis (GFC) demonstrated the resilience and adaptability of its political and economic system, while highlighting the limitations of Western financial liberalism. Unlike high-income economies that suffered deep recessions and sluggish recoveries, China’s centralized political structure and state-dominated financial system enabled a rapid, coordinated, and effective counter-cyclical response.
China’s refusal to adopt the Western model of financial sector liberalization proved advantageous during the crisis. The government’s control over major financial institutions allowed it to channel credit directly into the real economy and sustain investment momentum. This system strength underpinned the country’s decisive 2008–09 emergency stimulus package—a ¥4 trillion (approximately USD 586 billion) plan centered on infrastructure, housing, and social welfare.
The scale and speed of implementation were unprecedented. State-owned and major commercial banks, under government direction, financed a vast wave of infrastructure projects spanning transportation, energy, and water supply. While critics argued that this investment binge delayed the transition toward a more consumption-driven growth model, the long-term benefits were substantial. The improved infrastructure elevated productivity, attracted foreign investment, and enhanced living standards across regions, reducing disparities and improving public welfare nationwide.[1]
Globally, China’s stimulus became a cornerstone of economic stabilization. Between 2009 and 2011, China accounted for over half of total global GDP growth, effectively serving as the engine of recovery when advanced economies stagnated. Beijing also hoped that domestic demand expansion would sustain exports from high-income countries, indirectly supporting global growth.
In contrast, the fiscal and monetary responses of advanced economies—particularly in the U.S. and Europe—primarily inflated asset prices rather than generating real-sector recovery. Output remained flat, unemployment persisted, and inequality deepened. The crisis discredited the Western model of deregulated finance and underscored the advantages of China’s state-coordinated capitalism.[1]
China’s performance during the GFC elevated its global standing, portraying the Chinese model as an alternative source of economic stability and policy innovation. Yet despite these developments, U.S. policy under the Obama administration emphasized “strategic reassurance” and a largely rhetorical “pivot to Asia,” without implementing serious measures to reduce dependency on China or safeguard technological advantages. Western leaders, still guided by pre-crisis assumptions about liberal convergence, missed the opportunity to fundamentally reassess China’s rise and the resilience of its governance system.
In sum, the GFC revealed not only China’s institutional strengths—centralized decision-making, financial control, and state-led investment—but also the West’s strategic complacency in recognizing the systemic adaptability of Chinese state capitalism.
Consequence: China’s Upper Hand in the 2020s
By the 2020s, China had consolidated its industrial dominance across strategic sectors such as electric vehicles, solar energy, telecommunications, and rare earths. It had nurtured powerful national technology champions, reduced reliance on U.S. digital platforms, and advanced initiatives like the Digital RMB and AI-driven governance. Through the Belt and Road Initiative, China also extended its global economic and technological reach.
In contrast, the United States had allowed its manufacturing base to erode, remained politically divided on technology policy, and failed to respond with coherent long-term strategy.
Final Thought
By the 2020s, China had built industrial dominance in key sectors such as electric vehicles, solar energy, telecommunications, and rare earths. It had developed national technology giants and significantly reduced reliance on U.S. platforms, while establishing the Digital RMB, AI-driven governance systems, and an extensive global network through the Belt & Road Initiative. In contrast, the United States had hollowed out its manufacturing base, remained divided on technology policy, and lost critical time. What initially appeared as complacency gradually evolved into strategic vulnerability.
References:
[1] Finance and the Real Economy: China and the West Since the Asian Financial Crisis, Peter Nolan, 2020