China’s commitment to domestic substitution extends beyond technological or economic considerations; it is a strategic choice shaped by historical lessons, contemporary threats, systemic security, and the imperatives of a civilization with 1.4 billion people. This focus on self-reliance is fundamentally about the right to survival and development, a rational response to technological bottlenecks and external pressures that seek to limit China’s options. Domestic production is not pursued for its own sake, but as a means to build strategic redundancy, systemic resilience, and civilizational autonomy, enabling China to chart its own path in a world where others may seek to constrain it.
Innovation Under Constraint: Domestic Substitution Driven by the Risk of Supply Disruption
The fundamental motivation behind domestic substitution is not an intrinsic desire to displace foreign technologies, but a rational response to the persistent risk of being cut off from critical supplies. In many cases, substitution begins not with strategic ambition, but with compulsion. When upstream suppliers abruptly terminate access—as illustrated by a Japanese photoresist firm unilaterally announcing it would cease sales—firms are left with no viable alternative but to develop domestic capabilities. This is a defensive reaction to vulnerability, not an ideological choice.
At a structural level, this vulnerability is rooted in an asymmetric international technology power structure. Successive export-control regimes, evolving from COCOM to the Wassenaar Arrangement, have institutionalized technology blockades. Although framed as multilateral, these mechanisms are dominated by a small group of advanced economies and increasingly target China across an expansive range of dual-use technologies, including advanced materials, semiconductors, artificial intelligence, and quantum technologies. The scope and precision of these controls now exceed those imposed during the Cold War, and they are enforced not through total decoupling but through targeted, high-leverage restrictions on key nodes—such as EUV photoresist, EDA software, and advanced manufacturing equipment—where disruption can paralyze entire industrial chains at relatively low cost.
The consequences of such precision strikes are evident in concrete cases. After Huawei was cut off from key suppliers, the global Android ecosystem effectively imposed a “silent siege”: the loss of Google Mobile Services triggered application ecosystem fragmentation, leading to a collapse in overseas market share from roughly 20 percent to less than 1 percent. Similarly, in the medical device sector, imported cardiac stents once sold for around 130,000 yuan. Following the emergence of domestic alternatives, foreign suppliers rapidly slashed prices—first to 50,000 yuan, and later to about 700 yuan under centralized procurement—revealing that prior pricing largely reflected monopoly-driven technology rents rather than underlying costs.
In this context, domestic substitution should be understood as a corrective mechanism rather than an act of exclusion. It is a pragmatic response to the geopoliticization of technology and the systemic risk created by external dependence. When access to essential technologies can be withdrawn at any moment, building domestic alternatives becomes a matter of industrial survival and market normalization, aimed at restoring resilience and reducing the distortions created by coercive control over supply.
Scale as Destiny: Why a Nation of 1.4 Billion Cannot Prosper on Residual Value
Prosperity is not scale-neutral. What works for a small, highly specialized economy cannot be mechanically extended to a civilization-sized nation. Denmark, with five million people, can sustain high living standards by excelling in a handful of globally dominant firms such as Lego or Novo Nordisk. China, with a population roughly 280 times larger, faces a fundamentally different constraint: prosperity must be generated across an immense labor force with diverse skill levels. For such a population, development cannot be built on “leftovers” from global value chains or on narrow industrial niches; it must rest on a comprehensive, internally coherent economic structure capable of supporting mass employment, rising incomes, and social stability.
This reality gives rise to the great power development paradox. Even in an extreme hypothetical—absorbing the entire GDP of the United States, Germany, Japan, and France—the resulting per capita income for 1.4 billion people would only reach about USD 13,000, barely crossing the high-income threshold and still far from the lived standard of mature developed economies. The constraint is not ambition but arithmetic. Per capita prosperity at this scale demands not marginal participation in global production, but the ability to generate value across the full industrial spectrum, at volumes large enough to sustain hundreds of millions of livelihoods.
Industrial structure therefore becomes a matter of survival rather than choice. Low-end manufacturing, despite limited per capita value creation, remains indispensable because of its high employment elasticity and its role in anchoring social stability; tens of millions of jobs must exist simply to absorb the workforce. Mid-range manufacturing—capital- and technology-intensive but still labor-absorbing—is the critical bridge for expanding the middle-income group and preventing industrial hollowing-out. High-end manufacturing, though employing fewer people, is essential for supply-chain security and value-added sovereignty, requiring a workforce of engineers and skilled technicians larger than that of any single developed country. At the apex, research, design, and standards-setting provide the greatest value per worker, but demand extreme talent density and long-term institutional commitment. Together, these layers imply a structural need for well over 150 million high-quality industrial and innovation jobs—far beyond what fragmented integration into global supply chains can provide.
History reinforces this logic. Japan’s experience in the late twentieth century showed that industrial success without control over finance, standards, and strategic autonomy leaves a nation vulnerable to external constraint. Likewise, remaining confined to assembly roles at the bottom of the “smile curve” yields employment but not shared prosperity, as evidenced by the razor-thin margins of contract manufacturing compared with the profits captured by brand and platform owners. For a super-large country, full-chain industrial capability is not a strategic preference but a hard constraint imposed by scale. Only by controlling high value-added segments—through domestic substitution, technological autonomy, and institutional capacity—can the development dividends be broadly shared. At the scale of 1.4 billion people, this is not merely an economic strategy; it is the foundation of long-term stability and the right to development itself.
The Safety Bottom Line of Industrial Systems: When the Loss of a Single Node Becomes Systemic Failure
Modern industrial systems operate on a safety bottom line that is qualitative rather than incremental: the difference between the presence and the absence of a critical capability is the difference between continuity and collapse. In highly coupled production networks, “good enough” substitutes or partial access are often irrelevant. What matters is whether a key node exists at all. Once that node disappears, the system does not merely degrade—it can cease to function entirely.
History offers repeated illustrations of this reality. Extreme costs incurred to secure condensate oil export pipelines ultimately forced the creation of the world’s first “pillar storage” system, not for efficiency but for survival. A trivial-looking example—three imported screws sold for five dollars each—reveals the same logic: until domestic production existed, the entire downstream process was hostage to a single external supplier. Once that node was present locally, prices collapsed and control was restored. The issue was never price; it was the risk embedded in absence.
This single point of failure problem defines modern industrial chains. Contemporary manufacturing resembles a precision clock: remove one gear and the whole mechanism stops. A disruption in photoresist supply can shut down wafer fabrication, triggering chip shortages that cascade through consumer electronics and automotive industries. The failure of high-end bearings can halt wind turbines, reduce renewable energy output, and undermine long-term carbon neutrality goals. These are not isolated technical setbacks but systemic breakdowns caused by missing links.
Crucially, resilience does not require perfect substitution across the board. What it requires is a viable Plan B for key nodes—backup capabilities that prevent total stoppage. Process pathways such as N+1 or N+2 fabrication, advanced packaging architectures like Xtacking, or offshore platforms designed to operate for decades without docking all embody the same principle: transform external maintenance dependence into internal control. The objective is not optimization under ideal conditions, but operability under hostile or constrained ones.
At its core, domestic substitution is not an exercise in industrial pride or cost competition. It is the construction of resilient national infrastructure. Energy, transportation, communications, healthcare, and advanced manufacturing must remain functional even under extreme external pressure. The strategic bottom line is simple and unforgiving: in critical systems, the absence of a single node is not a marginal loss—it is a qualitative break that determines whether the system survives at all.
The Technological Gap Trap: How Falling Behind Locks Economies Out of Innovation
The technological gap trap describes a structural dilemma in which latecomers to advanced industries are effectively locked out of markets by the very dynamics of technological progress. When a country or firm falls two or more generations behind the global frontier, the economics of catching up become prohibitive. Research and development costs can no longer be recovered through market returns, demand has already shifted to newer standards, and the laggard faces what can be described as a “market black hole”: massive upfront investment with little prospect of near-term commercial viability.
This trap is reinforced by deliberate strategies employed by technological leaders. Core technologies are enclosed within dense patent fences that last up to twenty years, preventing latecomers from accessing critical know-how. At the same time, incumbent firms often dump previous-generation products at low prices, saturating the market and eliminating the narrow window in which domestic entrants might otherwise survive. The combination of legal exclusion and price-based suppression ensures that even technically feasible catch-up efforts struggle to achieve scale or profitability.
China’s experience in semiconductors illustrates this dynamic clearly. When Chinese foundries achieved mass production at the 28nm node around 2015, the global industry had already transitioned to 14nm. Without sustained and coordinated national investment, it would have been impossible to accumulate the process knowledge and engineering experience required for FinFET and subsequent generations. The problem was not merely technological delay, but the absence of a viable market environment in which learning-by-doing could occur.
A similar vicious cycle characterizes industrial software such as CAD, CAE, and EDA tools. Overseas firms control roughly 95 percent of the market, leaving domestic alternatives with too few users to generate meaningful feedback. Without feedback, products cannot iterate; without iteration, they cannot attract users. Market forces alone reinforce monopoly, even when domestic capabilities exist in principle.
The strategic implication is that domestic substitution in such sectors cannot rely solely on market logic. It requires state-led, non-market innovation investment aimed at bridging foundational R&D gaps—areas where private firms are unwilling to invest and cannot bear the costs alone. Strategic patience, sustained funding, and coordinated demand creation are essential to escape the technological gap trap and to prevent long-term exclusion from the innovation frontier.
System-Level Innovation: How Scale and Real-World Scenarios Accelerate Technological Leadership
China’s innovation momentum is best understood not as a collection of isolated breakthroughs, but as a system-level advantage formed by the interaction of a vast domestic market and scenario-driven development. The sheer scale of demand enables rapid commercialization and iteration, while diverse and demanding application scenarios continuously refine technology. Together, these forces compress innovation cycles and transform complexity into a competitive accelerator.
Market scale creates a powerful feedback loop between production, usage, and research. An annual output of more than 35 million vehicles allows advanced features—once reserved for premium segments—to be standardized at mass-market price points, while real-world usage generates high-frequency data for rapid technological validation. This dynamic shortens iteration cycles dramatically, as seen in areas such as battery technology, where improvements can move from deployment to redesign in under a year. Scale, in this sense, is not merely volume but a mechanism for learning at speed.
Equally important is the role of application scenarios in defining technological direction. Extreme and specialized needs—such as deep-sea oil and gas extraction, sub-zero high-speed rail operation, or rural power grid constraints—do not simply apply existing technologies but actively shape new ones. These scenario-driven demands force engineering solutions that are robust, adaptable, and often globally leading, turning local challenges into sources of transferable technological capability.
Finally, dense industrial clusters translate these advantages into systemic efficiency. Highly integrated regional ecosystems enable near-frictionless collaboration across design, manufacturing, testing, and equipment supply, often within hours. This clustering supports full-stack development in fields ranging from semiconductors to drones, reinforcing resilience and speed. The strategic outcome is not inward-looking substitution, but the creation of exportable system competitiveness—an approach already validated by the global leadership of China’s new energy vehicles, photovoltaics, and 5G technologies.
Jingwei’s Resolve: Civilizational Resilience, Historical Memory, and Bottom-Line Thinking
The ancient myth of Jingwei—who carried twigs day after day in a futile yet unwavering attempt to fill the sea—captures a distinctive strand of civilizational resilience rooted in Chinese historical consciousness. It is not a story of immediate success, but of bottom-line thinking: an unyielding commitment to survival and renewal despite overwhelming odds. This spiritual gene, forged through accumulated memory rather than abstract theory, continues to shape strategic choices in modern China.
Modern historical experience has repeatedly reinforced this mindset. From 1840 to 1949, technological backwardness translated directly into national humiliation and loss of sovereignty, embedding a painful lesson that material weakness invites existential risk. In the 1960s, the abrupt withdrawal of Soviet experts and aid—at a critical moment in industrial and defense development—turned vulnerability into doctrine. “Self-reliance” ceased to be a slogan and became a policy gene, crystallized during the crisis surrounding the “Two Bombs, One Satellite” program, where continuity under pressure mattered more than short-term efficiency.
This historical memory underpins a distinctive civilizational time perspective. Western political and economic systems often operate within the constraints of electoral cycles and quarterly metrics, encouraging short-term optimization. By contrast, China’s strategic horizon is frequently measured in decades or generations. The capacity to endure “ten years of silence” in pursuit of a decisive breakthrough is not accidental; it is an inherited tolerance for delay rooted in civilizational continuity. The 26-year construction of the BeiDou satellite navigation system exemplifies this patience, where persistence outweighed immediate returns.
Institutionally, this long-term orientation is reinforced by structural arrangements designed to protect continuity. Mixed-ownership enterprises, national laboratories, and the “new national system” form an ecosystem that buffers strategic projects from cyclical disruption. Such arrangements ensure sustained investment in foundational capabilities, even when short-term profitability is uncertain or absent.
At its core, the strategic essence is clear: domestic substitution is not merely an economic tactic but a foundational project of civilizational revival. Technological independence provides the material basis for cultural confidence, institutional confidence, and confidence in development paths. Like Jingwei’s endless journey, the logic is not about quick victories, but about refusing to accept vulnerability as destiny—accumulating small, deliberate acts of resilience until the balance itself begins to shift.
Efficiency Built on Trust, Resilience Built on Autonomy: Divergent U.S. and Chinese Industrial Strategies
The United States and China have pursued fundamentally different industrial strategies, shaped by distinct historical experiences, risk perceptions, and assumptions about the international system. China’s push for domestic substitution is rooted in a strategic imperative to ensure survival, continuity, and autonomy across its full industrial chain. The United States, by contrast, has long favored industrial dispersion across allied and partner countries, prioritizing efficiency, specialization, and geopolitical influence over comprehensive self-sufficiency. These approaches reflect not merely economic choices, but deeply embedded strategic worldviews.
Following World War II and throughout the Cold War, the United States deliberately promoted the relocation of manufacturing to allied economies such as Japan, South Korea, Taiwan, and Western Europe. This strategy was not driven solely by cost considerations, but by security logic: rebuilding allied industrial capacity created economic buffers against adversarial influence and bound partner nations tightly to the U.S.-led order. Over time, this evolved into a broader embrace of globalization, in which the United States offshored labor-intensive and mid-range manufacturing while retaining dominance in high-value activities such as research and development, advanced design, aerospace, and defense. Control over technology standards and critical intellectual property allowed U.S. firms to maintain leverage even as physical production became globally dispersed.
This globally optimized model delivered substantial short-term gains. Consumers benefited from lower prices, corporations improved margins, and supply chains became faster and more specialized. However, the same dispersion gradually hollowed out domestic manufacturing capacity. The United States grew increasingly dependent on foreign suppliers for semiconductors, batteries, rare earth elements, pharmaceuticals, and electronics assembly. Over decades, this dependence eroded industrial skills, weakened regional economies, and reduced the nation’s ability to rapidly scale production during crises.
The risks of this approach have become increasingly visible. Globalized supply chains are inherently vulnerable to geopolitical conflict, trade restrictions, natural disasters, and systemic shocks, as demonstrated during the COVID-19 pandemic and ongoing semiconductor shortages. The U.S. model assumes a baseline of geopolitical stability and sustained allied cooperation—assumptions that may not always hold. Strategic chokepoints, such as advanced chip fabrication concentrated in Taiwan or rare earth processing dominated by China, expose the United States to potential disruptions that directly affect economic performance and military readiness.
China’s strategy reflects a different calculus. With limited trust in external goodwill and a far lower tolerance for systemic disruption, China prioritizes domestic redundancy, full-chain industrial coverage, and internal substitution, even at the cost of short-term inefficiency. This approach aims to preserve industrial continuity, employment stability, and strategic autonomy for a population of over one billion people. Whereas the U.S. trades resilience for efficiency under the expectation of a stable international order, China treats self-sufficiency as strategic insurance against uncertainty. The contrast underscores a central reality: industrial dispersion functions effectively only in a predictable and cooperative global environment, while domestic redundancy becomes essential when such conditions cannot be assumed.
Final Thoughts
China’s pursuit of domestic substitution should not be mistaken for isolationism. Rather, it reflects a strategy of “controlled openness” shaped by structural realities: as the world’s manufacturing superpower and a civilization of 1.4 billion people, China cannot outsource the foundations of its survival and development. As Richard Baldwin observes, while the United States remains the sole military superpower, China’s manufacturing scale surpasses that of the next nine countries combined. Within this context, domestic substitution is not an ideological obsession but a rational safeguard—building bottom-line resilience in critical sectors such as semiconductors, energy, aviation, and networks, while preserving an open, competitive market in which firms like Huawei, Apple, BYD, and Tesla coexist.
This strategy operates on three levels: ensuring supply-chain continuity through credible “Plan B” capabilities, using open-market competition to drive technological upgrading, and ultimately delivering mature, cost-effective solutions to global markets. Far from closing itself off, China has used openness to catalyze competition and innovation, while correcting distortions created by external administrative restrictions. By contrast, the United States’ recent reliance on bans, executive orders, reshoring, and “friend-shoring” reflects a deeper systemic vulnerability and a growing, deep-seated anxiety as its relative dominance erodes. In this sense, China’s domestic substitution is not retreat, but a proactive move toward strategic autonomy within an open global system.