China pursued an industrial strategy that emphasized protecting national sovereignty, learning progressively, and implementing changes gradually, in stark contrast to countries that opted for rapid liberalization and consequently lost influence over their industrial development.
Sovereignty and Control Over Foreign Capital
China has consistently prioritized maintaining national sovereignty in its economic development, in contrast to countries that fully opened their markets to foreign investment after the Cold War. Many nations in Eastern Europe, the former Soviet Union, and parts of Latin America pursued rapid privatization and allowed unregulated foreign capital entry. While this approach brought initial inflows of investment, it often resulted in foreign companies dominating key industries, rapid capital outflows, weakened local enterprises, and the collapse of domestic industrial capacity.
In contrast, China has implemented carefully designed rules to regulate foreign participation, ensuring that economic development aligns with national priorities. One key strategy is the requirement for foreign companies to form joint ventures with Chinese firms. These partnerships allow foreign investors to contribute technology and management expertise while ensuring that Chinese partners retain control over domestic operations and supply chains. A notable example is BMW Brilliance Automotive Ltd., where such collaboration has enabled knowledge transfer while safeguarding local control.
China also enforces local content requirements to promote domestic industry. Imported products cannot dominate the market; instead, a significant portion of components or production must be sourced domestically. This approach incentivizes technology transfer and the growth of local industries. For instance, Tesla’s Shanghai Gigafactory announced on May 6, 2025, that over 95% of the parts used in Model 3 and the revamped Model Y are sourced domestically, demonstrating the high degree of localization within its China-based supply chain.
Through these measures, China has managed to attract foreign investment without compromising control over key sectors, fostering sustainable industrial growth while maintaining national economic sovereignty.
Special Economic Zones (SEZs) as Controlled Openings
China’s Special Economic Zones (SEZs), including Shenzhen, Zhuhai, and Xiamen, represented a carefully controlled approach to economic opening. Unlike the rapid liberalization experienced in Eastern Europe and the former Soviet Union, where domestic industries were immediately outcompeted, China opted for a staged strategy. By allowing foreign investment under strict conditions, SEZs balanced access to capital and advanced technology with the protection of domestic industries, ensuring that key sectors remained under national control.
These zones functioned as experimental laboratories for management practices, industrial processes, and export-oriented production. Foreign firms operated under controlled conditions, facilitating technology transfer and management learning for domestic enterprises. At the same time, limited competition encouraged Chinese firms to improve performance without overwhelming them, allowing state-owned and private enterprises to gradually build capabilities.
Through this strategic “controlled exposure” approach, China was able to absorb foreign knowledge incrementally while retaining industrial sovereignty. SEZs not only provided a platform for learning and innovation but also ensured that domestic firms were prepared to compete both nationally and internationally. In essence, China’s selective opening allowed it to harness the benefits of globalization while avoiding the risks of uncontrolled liberalization.
Learning from Multinational Corporations (MNCs)
China’s industrial rise has been closely linked to its strategic engagement with multinational corporations (MNCs). Chinese managers and engineers, such as Huawei’s Ren Zhengfei, actively learned from foreign companies, absorbing advanced management techniques, corporate structures, R&D processes, and international best practices. Crucially, this knowledge was not confined to working for MNCs; professionals took it back to China, applying it to build indigenous enterprises. This approach went beyond providing a labor force—it was a deliberate strategy of knowledge acquisition and capability building.
Joint ventures further institutionalized this learning process. Beyond simple investment, they served as mechanisms for domestic firms to observe and adopt foreign management practices, production techniques, and quality standards. Over time, Chinese companies accumulated the skills and experience needed to produce competitive products independently. In the telecom sector, for example, Huawei began in the 1980s as a small assembly plant often dismissed as a “copycat,” but it gradually increased domestic content, enhanced production expertise, and strengthened the local supply chain.
Similar patterns occurred in the home appliance industry. Early Japanese dominance prompted China to impose tariffs and attract private investment in domestic manufacturing. Chinese firms imported foreign production lines—even if initially inferior—and steadily improved product quality. Eventually, these firms were able to compete with, and in some cases surpass, Japanese and Korean competitors. Through this combination of learning from MNCs and capability-building joint ventures, China systematically transformed foreign knowledge into domestic industrial strength.
Cultural Driver: “East And West, Home Is The Best”
A distinctive cultural driver underpinning China’s rapid economic ascent is encapsulated in the adage, “East and West, home is the best.” This sentiment reflects a deep-seated preference among Chinese professionals for building and leading within their own national context, rather than pursuing senior roles under foreign management. Despite often excelling in multinational corporations (MNCs), many encountered invisible ceilings—barriers that limited their upward mobility regardless of talent or performance. Recognizing that true agency and influence were unlikely within foreign-controlled hierarchies, they increasingly turned inward, choosing instead to found their own ventures or join domestic enterprises where they could shape strategy and outcomes directly.
This mindset has fostered a culture of entrepreneurial risk-taking and self-reliance. Rather than viewing employment at a prestigious MNC as the apex of professional success—as is often the case in other emerging economies, such as India—many Chinese professionals have prioritized autonomy and national contribution over external validation. This shift has not only fueled the rise of homegrown innovation but also enabled Chinese firms to develop endogenous capabilities, from research and development to global branding, without depending on multinational oversight or technology transfer.
Consequently, China’s corporate landscape has evolved with a strong emphasis on indigenous leadership and institutional confidence. The preference for “home” as the locus of ambition has accelerated the maturation of domestic industries, allowing them to compete globally on their own terms. This cultural orientation—rooted in both historical identity and pragmatic career calculus—has been instrumental in transforming China from a manufacturing subcontractor into a hub of independent enterprise and strategic innovation.
Catching Up Through Indigenous Innovation
China’s development strategy embodies a deliberate and phased approach to “catching up while protecting core capacity.” This model begins with shielding nascent domestic industries from overwhelming foreign competition, creating the space necessary for local firms to absorb knowledge and build foundational capabilities. Through mechanisms such as joint ventures, technology licensing, and close observation of global best practices, Chinese enterprises have systematically acquired advanced know-how. Over time, this has enabled them to deepen their participation in both domestic and global supply chains, eventually transitioning from assembly and adaptation to genuine indigenous innovation.
This calibrated strategy has yielded significant results across multiple sectors. China has cultivated globally competitive industries in automotive manufacturing, consumer electronics, and home appliances—fields once dominated by Western and East Asian incumbents. Crucially, by maintaining strategic control over key economic sectors while selectively engaging with globalization, China avoided the “resource drain” and deindustrialization that plagued many post-socialist economies, such as those in Eastern Europe and Russia. The state’s role in orchestrating market access and industrial policy ensured that integration into the global economy served national development goals rather than undermining them.
The outcome is not mere imitation but a robust process of capability accumulation. Firms like Huawei, ZTE, BYD, DJI, CATL, and Haier exemplify this trajectory: they initially leveraged foreign technology and management practices but rapidly evolved into innovators in their own right. Huawei’s emergence as a world leader in 5G technology—despite facing stringent U.S. national security restrictions—underscores both the success of China’s innovation model and its geopolitical limits. Capabilities alone do not guarantee unfettered global market access; nonetheless, China’s blend of selective openness, cultural emphasis on technical mastery, and entrepreneurial dynamism has enabled a distinctive and effective path to technological and industrial advancement.
Industrial Policy as a Strategic Tool
Industrial policy has served as a cornerstone of China’s strategic development model, deliberately countering the assumption—common among some Chinese economists—that superior products alone guarantee global success. In reality, geopolitical barriers and regulatory restrictions often impede market access irrespective of quality or competitiveness. China’s rise, therefore, cannot be attributed solely to technological advancement but also to its deliberate integration of political strategy, economic sovereignty, and state-guided industrial planning. Without such strategic autonomy and protective policies, China risked falling into a pattern of dependency akin to that of former Soviet satellites or historical colonies, where domestic industries remained subordinate to foreign interests.
China’s approach to industrial policy has been both active and protective, rejecting the laissez-faire prescriptions of Western neoliberal orthodoxy. In its early reform era, for instance, the state shielded nascent sectors—such as home appliances—from formidable Japanese and Korean competitors through tariffs and market access controls. This temporary insulation allowed domestic firms to absorb imported technology, refine production processes, and ultimately build indigenous capabilities. Rather than embracing passive openness, China combined market incentives with clear policy direction, ensuring that foreign know-how served as a springboard for self-reliance rather than perpetual dependence.
This strategy aligns with Dani Rodrik’s “political trilemma of the world economy,” as articulated in The Globalization Paradox, which posits that full hyper-globalization, national democracy, and national sovereignty cannot coexist simultaneously—nations must prioritize two at the expense of the third. By choosing to safeguard sovereignty and democratic (or in China’s case, state-led) policy autonomy, China accepted limits on unfettered globalization. Its industrial policy thus reflects a pragmatic recognition that economic development in a competitive international system requires not just efficiency, but strategic control. In doing so, China has demonstrated that state-guided development, far from being obsolete, remains a potent instrument for navigating the contradictions of global capitalism.
Conclusion
China’s industrial and technological ascent is the product of a deliberate, state-guided development strategy that prioritized selective openness over blind liberalization. Rather than embracing unfettered market integration, China carefully managed foreign influence through mechanisms like joint ventures and Special Economic Zones (SEZs), which facilitated technology transfer and managerial learning while shielding nascent domestic industries from premature competition. This controlled exposure enabled Chinese firms—both state-owned and private—to absorb global best practices, build capabilities, and gradually evolve into globally competitive enterprises without compromising national sovereignty or strategic autonomy.
This transformation was further propelled by a potent synergy of policy, culture, and enterprise behavior. Strategic state guidance provided the institutional scaffolding for industrial upgrading, while a cultural ethos emphasizing self-reliance, collective progress, and national development motivated professionals and entrepreneurs to take risks and innovate. The result is a development model in which technological catch-up is treated not as a byproduct of market forces alone, but as an outcome of coordinated political vision, adaptive learning, and sustained industrial policy—evident today in China’s leadership in sectors such as 5G, electric vehicles, and consumer electronics.