The belief that China would inevitably follow the path of political and economic liberalization after the collapse of the Dissolution of the Soviet Union proved misguided. This expectation rested on the assumption that market reforms would naturally lead to democratization and that Chinese firms lacked the capacity to innovate or compete technologically. In reality, this view failed to account for China’s unique historical trajectory, institutional design, and civilizational foundations, which enabled it to chart a different developmental path.
Misreading Historical Resilience And Governance Logic
In the 1980s, many Western economists and policymakers interpreted China’s gradual reforms with deep skepticism. They saw the country as existing in a “half-reformed” state—neither fully socialist nor fully capitalist—trapped between incompatible systems. Drawing analogies to the experiences of Eastern European countries, they assumed that without political liberalization, market mechanisms could not function effectively in the long run. This view gave rise to expectations that China’s political system would eventually face the same pressures that undermined other socialist regimes. The student protests and subsequent crackdown in 1989 seemed to many to confirm that China was on an inevitable path toward political crisis or regime change.
The collapse of the Soviet Union in the early 1990s reinforced this assumption. Western observers interpreted the disintegration of the USSR as proof that one-party socialist systems were inherently unsustainable in the face of market reforms and globalization. They expected that China, following a similar trajectory of economic opening without political liberalization, would soon experience comparable political and institutional unraveling. This belief was underpinned by the conviction that authoritarian political structures were incompatible with sustained market-based economic growth.
What these interpretations overlooked was the profound difference between the Chinese and Soviet political traditions. The Communist Party of China inherited and adapted a state structure shaped by more than two millennia of centralized governance, rooted in a Confucian political philosophy that emphasized meritocracy, moral authority, and pragmatic rule. Unlike the Soviet Union, whose political system was a top-heavy, militarized structure with weak historical foundations, China’s party-state drew strength from a deeply institutionalized bureaucratic tradition. The CPC fused revolutionary legitimacy with a flexible and adaptive mode of governance, allowing it to pursue market reforms while maintaining political stability and control.
This historical continuity enabled the CPC to avoid the fate of the Soviet Union. While the Soviet model was ideologically rigid and structurally brittle, the Chinese system proved resilient, capable of adjusting policies without fundamentally undermining the party’s authority. Western observers misread this resilience, projecting the Soviet experience onto China and failing to grasp the distinctive governance logic that allowed the Chinese state to sustain economic transformation without political collapse. In doing so, they underestimated both the depth of China’s institutional capacity and the strategic adaptability of its ruling elite.
Strategic Hybridization Of Economy And State
Western observers long underestimated China’s ability to integrate market mechanisms with robust state oversight, assuming that partial liberalization would inevitably lead to economic inefficiency and technological stagnation. This assumption proved profoundly mistaken. The establishment of powerful regulatory and ownership structures, notably State-Owned Assets Supervision and Administration Commission (SASAC) and China Banking Regulatory Commission (CBRC) in 2003, fundamentally redefined the relationship between the state and the economy. These institutions allowed state-owned enterprises (SOEs) to modernize their governance, pursue technological upgrading, and compete globally while remaining tightly aligned with national strategic objectives. Far from being a relic of the planned economy, the SOE sector became a dynamic instrument of state-directed modernization. Through coordinated industrial policy, foreign partnerships, and expanding domestic R&D capabilities, China successfully leapfrogged in critical sectors such as renewable energy, high-speed rail, electric vehicles, and information technology.
This institutional transformation unfolded against a backdrop of misplaced foreign confidence in the early 2000s. Following China’s accession to the World Trade Organization, many Western firms believed that foreign competition would dominate the Chinese market, capturing high-value segments and leaving only low-end manufacturing to domestic firms. These expectations rested on the assumption that Chinese SOEs lacked the technological sophistication and innovative capacity to survive in an open market. China’s strategic response dismantled this narrative. Drawing inspiration from the centralized and commercially oriented ownership model of Temasek Holdings in Singapore, SASAC introduced professionalized management, performance evaluation mechanisms, and governance structures that combined market discipline with political oversight. SOEs became key agents of state strategy, integrating infrastructure, finance, and industrial development in a mutually reinforcing, symbiotic manner.
Over the following decade, China deepened this hybrid model by incorporating private enterprises more explicitly into state-led development. Under the leadership of Xi Jinping, private firms have been increasingly aligned with national objectives through both institutional incentives and political guidance. This alignment is especially visible in strategic sectors such as artificial intelligence, semiconductors, renewable energy, and defense-adjacent technologies. Participation in these areas brings access to subsidies, financing, and government contracts, but noncompliance can invite regulatory scrutiny. As a result, private enterprises are no longer peripheral actors in the industrial landscape; they are embedded within state plans, including Five-Year Plans and initiatives such as Made in China 2025, as indispensable partners in advancing national technological and economic goals.
This mobilization is not merely rhetorical. Firms like Siasun Robot & Automation Co., Ltd. and DJI have driven domestic capabilities in industrial automation and unmanned aerial vehicle technologies, reducing dependence on foreign suppliers and establishing China as a global leader in emerging technologies. In semiconductors, Semiconductor Manufacturing International Corporation and HiSilicon, a subsidiary of Huawei, have invested heavily in R&D to close critical technology gaps. These developments reveal a coherent, state-directed strategy in which both SOEs and private firms operate within a shared national framework. China’s success in strategically hybridizing market mechanisms with state power has not only defied Western expectations but also produced a distinctive model of state-capital interaction—one that blends political control with economic dynamism in a way that conventional liberal market theories struggled to anticipate.
Incremental, Pragmatic Reforms
One of the most distinctive features of China’s economic rise is the strategic use of incremental and pragmatic reforms to achieve modernization without compromising political sovereignty or national stability. Instead of following a Western-style trajectory of rapid liberalization, China developed an independent and comprehensive scientific system, maintained nuclear sovereignty, and enforced strict capital controls. These pillars gave the state an unparalleled degree of policy independence and room to maneuver. From the late 1970s, under the reform vision of Deng Xiaoping, the Communist Party of China (CPC) embraced the concept of a “socialist market economy.” This framework allowed for strategic openness to foreign trade and investment while ensuring that ultimate control over the pace and direction of reform remained in domestic hands. Many Western observers misread this as “incomplete liberalization,” expecting political opening to follow economic reform, especially in the wake of the 1989 Tiananmen moment. But this interpretation ignored China’s civilizational approach to combining growth, stability, and ideological continuity—a model rooted in sovereignty and statecraft rather than external validation.
This strategic autonomy was reinforced by carefully designed mechanisms of controlled economic integration. China never allowed unconditional free entry of foreign capital. Instead, it relied on joint ventures, technology transfer, and domestic content requirements to build indigenous industrial capacity. This approach ensured that foreign capital contributed to skill acquisition and technological upgrading without eroding national control. Such prudence was backed by strong political principles. The “Four Cardinal Principles” articulated by Deng safeguarded the political core of the socialist system, preventing economic liberalization from transforming into foreign dependence or political fragmentation. The sequencing of reforms followed a deliberate logic: “growth first, reform later.” Initial breakthroughs in agricultural reform created consensus and prosperity, laying the social and fiscal foundation for subsequent, more painful restructuring. When tens of millions of SOE workers were laid off in the 1990s, the prior wave of growth absorbed the shock, avoiding the mass unrest that many foreign economists had predicted. This gradualism, often underestimated abroad, became a defining characteristic of China’s transformation.
The contrast with German reunification after 1990 is striking. In an effort to secure political support, Helmut Kohl declared a one-to-one exchange rate between East and West German marks, ignoring economic fundamentals. This effectively turned reunification into a vast fiscal transfer, giving East Germans strong currency without competitive industries. East German firms—many of them technologically advanced but embedded in Eastern Bloc trade networks—lost both their domestic markets to Western goods and their export markets to the hard-currency shock. Even robust enterprises like Carl Zeiss AG either collapsed or were absorbed. Unions’ insistence on wage equalization eliminated cost competitiveness, while massive fiscal transfers strained West Germany’s economy, raised interest rates, and destabilized the European monetary system. The “shock therapy” approach led to rapid deindustrialization and enduring economic disparity between East and West. China observed these lessons closely. Instead of abrupt convergence or liberalization, it implemented a dual-track reform—combining planned and market mechanisms—and adopted “one country, two systems” for Hong Kong, buying time for adaptation, institutional learning, and preservation of competitiveness.
China’s gradualism also relied on a distinctive blend of economic forms that produced both dynamism and stability. Whereas Reagan-Thatcher liberalization in the West was built on the premise that private enterprises are inherently more efficient than state-owned ones, China fostered a mixed economy that leveraged the complementary strengths of different ownership structures. The private sector brought innovation, speed, and flexibility. State-owned enterprises provided strategic stability, long-term vision, and infrastructure investment. Foreign multinationals contributed capital and technology, while collective enterprises supported social stability and rural development. This pluralistic competition within a coordinated framework produced an economic structure far more resilient and adaptive than a purely liberal or purely planned model. It also helped China maintain policy independence in the face of global financial volatility, insulating its domestic development trajectory from external shocks.
This incremental, experiment-based approach was institutionalized through regional pilot programs and phased reforms. The Household Responsibility System in the countryside mobilized grassroots initiative, allowing farmers to retain surplus production and accelerating rural prosperity. Regional experiments—such as the establishment of Special Economic Zones—tested new policies in controlled environments, enabling the state to refine successful models before scaling them nationally. By avoiding the all-at-once “shock therapy” that devastated post-socialist economies in Eastern Europe and the former Soviet Union, China minimized social dislocation and maintained political stability. The combination of strategic sovereignty, gradual opening, and institutional experimentation allowed the CPC to pursue modernization on its own terms—achieving growth without ceding control, and reform without collapse. This model defied conventional economic orthodoxy and reshaped global understandings of how late-developing states can chart alternative paths to modernization.
Modular Borrowing: China as a “Great Synthesizer”
China’s modern development trajectory can be understood as an unparalleled exercise in what may be called “modular borrowing,” a strategic practice of selectively importing, adapting, and integrating global institutional and technological models into its own national framework. Rather than adhering to a single ideological or institutional template, China has acted as a “great synthesizer,” combining elements from diverse origins to construct a hybrid system that maximizes state capacity while retaining flexibility. In science and education, the country initially drew heavily from Soviet models, which themselves were grounded in German intellectual traditions of research and technical education. Its financial architecture, by contrast, borrowed extensively from American structures, incorporating features such as stock exchanges, central banking mechanisms, and securities regulation. In the sphere of business management, reform-era China absorbed Japanese approaches to lean production and quality control, blending these with lifetime employment practices that became embedded in many state-owned enterprises. Similarly, its dual vocational training programs reflected the influence of Germany’s apprenticeship model, emphasizing practical skill formation and industry linkage.
This pragmatic eclecticism extended into other domains of governance and economic development. In agriculture, China studied and absorbed water-saving irrigation technologies pioneered in Israel, tailoring them to its own resource-scarce regions. Even its land policy reflects a carefully calibrated synthesis rather than a wholesale importation. Drawing on the leasehold system of Hong Kong, China engineered a mechanism that enabled the state to capture land value increments, turning land leasing and sales into a central pillar of local government revenue. Each of these domains illustrates a distinctive pattern: foreign institutional models are never transplanted wholesale but are instead modularized, adapted, and embedded within China’s political economy in ways that reinforce the primacy of state control and strategic coordination.
This hybridization strategy confounded many external observers during the reform era. Throughout the 1980s and 1990s, prevailing Western assumptions held that an economy that was neither fully socialist nor fully capitalist would inevitably reach a breaking point. Analysts often expected systemic collapse once partial liberalization exposed the contradictions of the hybrid structure. Yet, contrary to these expectations, China’s model not only persisted but displayed remarkable resilience. Its pragmatic and experimental approach, rather than rigid adherence to any ideological orthodoxy, allowed for dynamic adjustment in response to shocks, crises, and shifting global conditions. The result was not a fragile halfway house but a robust, evolving system capable of sustaining rapid growth and institutional transformation.
In comparative perspective, China’s model blends Soviet-style ambition and state mobilization capacity, East Asian industrial planning techniques reminiscent of Japan and Korea, and market-driven dynamism rooted in selective liberalization. But it departs sharply from each of these precedents in crucial ways. It is more state-guided than Japan or Korea, less rigid and brittle than the Soviet system, and far more strategically unified than India’s more pluralistic development path. Through modular borrowing and hybrid construction, China forged a system that combines centralized political authority with adaptive economic governance—a unique configuration that helps explain both its unexpected durability and its transformative impact on the global political economy.
Civilizational And Psychological Dimensions
China’s contemporary strategic orientation cannot be understood without acknowledging the profound imprint left by its historical experience of invasion, colonization, and national humiliation. The memory of the so-called “Century of Humiliation” functions not merely as a historical reference point but as a civilizational trauma that has been systematically internalized into state ideology and national identity. While Western analysts in the post–Cold War era often projected the collapse of the Soviet Union onto China—expecting political liberalization and systemic breakdown—they underestimated the depth of China’s historical consciousness and its capacity for strategic resilience. Unlike the Soviet case, where internal dysfunction and ideological rigidity made liberalization seem inevitable, China’s leadership drew upon a powerful narrative of historical injustice to cultivate internal cohesion and policy discipline.
This historical trauma underpins the legitimacy of the Communist Party of China, which has positioned itself as the force that ended national humiliation and restored sovereignty. The Party’s claim to leadership is not only institutional but deeply symbolic: it casts itself as the guardian of national dignity and the agent of rejuvenation. This narrative has been instrumental in unifying the population around a shared sense of historical grievance and collective purpose, transforming national memory into a powerful political resource. Through education, media, and official discourse, the memory of humiliation is reframed as a moral imperative to build a strong, technologically advanced, and sovereign state.
This ideological foundation shapes China’s strategic ambitions in multiple domains. Economic and technological modernization are portrayed as essential not just for development but for securing the nation’s dignity and overcoming structural vulnerabilities. The push to climb the global value chain, expand investment in R&D, and drive high-end innovation is tied to the conviction that only through technological strength can China avoid the “middle-income trap” and ensure its autonomy in a competitive global order. Foreign policy is likewise infused with this historical consciousness. Territorial issues such as Taiwan, the South China Sea, and Hong Kong are framed not merely as geopolitical disputes but as part of a larger project of reversing historical injustices and completing national rejuvenation.
In this way, the trauma of the “Century of Humiliation” has been transformed from a narrative of weakness into an engine of national resolve. It provides the emotional and ideological coherence behind China’s long-term strategic vision, sustaining its emphasis on sovereignty, resilience, and self-reliance. This fusion of historical memory and political strategy has enabled China to pursue its rise with a structured, disciplined, and internally motivated logic that is fundamentally distinct from Western liberalization models or external validation.
Outcome Versus Expectation
Between 2000 and 2022, China’s economic trajectory diverged sharply from prevailing Western expectations. Over this period, China’s real GDP expanded at an average annual rate of 8.5%, vastly outpacing the 1.4% growth recorded by G7 economies. This sustained acceleration underpinned a profound restructuring of global manufacturing: China emerged as the world’s largest producer, accounting for 32% of global manufacturing value-added by 2021. This was double the output of the United States and equivalent to that of the entire G7 combined. In parallel, the global economic center of gravity shifted decisively. Developing and emerging economies increased their share of global GDP from 37% in 1980 to 58% in 2022, with China alone representing 18.7% of global output. These developments upended long-held assumptions about the persistence of Western industrial and technological primacy.
China’s rapid ascent was not confined to output volumes. The country advanced swiftly in key technological and infrastructural domains, leapfrogging several stages of development. It established global leadership in renewable energy, smart grids, high-speed rail, electric vehicles, batteries, and urban mass transit. This transformation was made possible in large part by the Chinese state’s capacity for centralized, long-term planning and the ability of the governing system to implement transformative industrial and ecological policies at scale. Contrary to expectations that state-led economies would be inefficient or technologically stagnant, Chinese state-owned enterprises became internationally competitive, often out-innovating Western firms in strategic industries. As Richard Baldwin observed in January 2024, “China is now the world’s sole manufacturing superpower. Its production exceeds that of the nine next largest manufacturers combined.”
This economic and technological rebalancing has been accompanied by a deeper shift in global power relations. In the framework of Immanuel Wallerstein, China is best understood as a semi-peripheral power in transition toward the core. It has not yet supplanted existing core powers in setting the rules of the global economy, but it has eroded their once uncontested dominance. This transitional position gives China systemic weight and influence, making it a structural challenger to the existing world order. The scale and speed of this transformation—accomplished within a single generation—defied Western expectations that China would remain technologically dependent, politically constrained, or economically subordinate to advanced economies.
Beneath the structural shifts lies an equally important psychological dimension. Western disbelief that China could successfully combine state leadership, market mechanisms, and technological modernization under a socialist framework has generated a persistent unease. The psychological roots of this unease are anchored in historical zero-sum thinking, fears of relative decline, and an inability to reconcile China’s success with Western development narratives. What was once regarded as an improbable experiment has now become a geopolitical and economic reality, challenging both material power structures and deeply held assumptions about the trajectory of modernity. Western responses to China’s rise, therefore, reflect not only competition over tangible resources and markets but also an anxious reckoning with the collapse of once-stable hierarchies and worldviews.
Conclusion
The belief in the West that China would inevitably mirror the Soviet path—marked by political liberalization and economic stagnation—proved fundamentally misguided. This assumption overlooked China’s distinctive historical endurance, pragmatic civilizational outlook, adaptive institutional strategies, and its carefully engineered hybrid economic system. As a result, containment efforts were built on flawed premises, Chinese industrial and technological strength was consistently underestimated, and Beijing’s sustained rise has continued to generate deep strategic and psychological unease in Western policymaking circles.