In their August 19, 2025 Foreign Affairs article, “The Real China Model: Beijing’s Enduring Formula for Wealth and Power,” Dan Wang and Arthur Kroeber challenge a set of simplified and reassuring beliefs that long shaped Western interpretations of China’s rise. What they call “The Real China Model” is not a new doctrine but a corrective: an effort to dismantle an idealized framework through which policymakers, analysts, and business leaders in the West understood China from the 1990s through the late 2010s. Their argument only becomes clear once this imagined model—implicit, comforting, and ultimately misleading—is made explicit and set against China’s actual political-economic system.
This idealized China model was never a coherent theory. Rather, it was a loose bundle of assumptions blending ideology, economic orthodoxy, and wishful thinking: that market liberalization would steadily overpower state control, that integration into global capitalism would produce political convergence, and that China’s growth was driven primarily by forces familiar to Western experience. Wang and Kroeber push back against these assumptions, arguing that they obscured the durability of a distinct, state-centered development model that continues to underpin China’s wealth and power.
The Real China Model: Infrastructure, Electrification, and Enduring Power
China’s technological rise cannot be explained simply by subsidies or state-directed industrial planning such as Made in China 2025. While targeted support mattered, the deeper driver of China’s success is its long-term investment in “deep infrastructure”: transportation networks, digital systems, energy capacity, and—most critically—a massive, highly skilled industrial workforce. These foundations enable rapid innovation, iterative improvement, and large-scale production across sectors ranging from electric vehicles and clean energy to telecommunications and artificial intelligence. China’s firms are able not just to invent, but to commercialize and scale new technologies faster than competitors.
Electrification sits at the center of this model. Over decades, China built the world’s largest and most resilient power system, with abundant, cheap electricity delivered through ultra-high-voltage transmission and storage systems. This has unlocked power-intensive industries such as EVs, batteries, hydrogen, and AI, positioning China to become the first major economy primarily driven by electricity. Combined with dense manufacturing ecosystems and accumulated “process knowledge,” this energy advantage allows Chinese companies to pivot quickly into new industries, as illustrated by Xiaomi’s rapid and successful entry into high-performance electric vehicles.
The model, however, carries costs. Heavy subsidies have encouraged overcapacity, intense price competition, and thin profit margins, which can suppress wages and long-term R&D. At the same time, Beijing’s tight regulation of services—finance, education, healthcare, and internet platforms—has weakened job creation and consumer demand. The result is slower overall growth, deflationary pressure, and a ballooning trade surplus that fuels global tensions. Still, Chinese leaders appear willing to accept these downsides in exchange for technological self-sufficiency and industrial dominance.
U.S. efforts to counter China—through export controls, tariffs, and fragmented industrial policy—have largely failed. Restrictions have often pushed Chinese firms to innovate around bottlenecks rather than collapse, while America’s own industrial base continues to erode due to weak infrastructure, regulatory barriers, policy instability, and cuts to research and immigration. The authors (Dan Wang and Arthur Kroeber) argue that the U.S. cannot win by trying to slow China down. Instead, it must rebuild its own deep infrastructure—especially energy, transmission, and industrial ecosystems—adopt a coherent, long-term strategy, and accept that some waste and failure are the price of competing in future-defining technologies.
Beyond the Assembly Line: Rethinking China’s Role in Innovation
For many years, a dominant Western assumption held that China’s economic success rested primarily on its role as a low-cost assembler within global supply chains rather than as a genuine source of innovation. In this view, China’s rise was attributed to cheap labor, access to foreign technology, and the large-scale assembly of products conceived and designed elsewhere. Innovation, by contrast, was presumed to remain the preserve of advanced economies such as the United States, Europe, and Japan.
This assumption carried a clear implication: China’s competitiveness was fragile and temporary. As wages increased and demographic pressures mounted, China was expected to lose its advantage, ceding manufacturing leadership to other low-cost economies. Chinese firms were widely seen as adept imitators rather than creators—capable of copying existing technologies but incapable of originating new ones or reshaping industrial frontiers.
This interpretation, however, fundamentally misunderstood the nature of innovation itself. China did not merely assemble foreign designs; it accumulated deep process knowledge across entire production networks. Continuous experimentation on factory floors—improving yields, reducing defects, accelerating scale-up, and integrating complex supplier ecosystems—generated forms of innovation that were incremental, cumulative, and industrial rather than laboratory-based. Iterative manufacturing, at the scale China achieved, became a powerful engine of technological advancement in its own right.
As a result, China moved beyond refining existing products to creating entirely new industries, particularly where manufacturing intensity and rapid iteration were decisive. The Western focus on visible markers of innovation—such as formal R&D labs, patents, and academic research—obscured this reality. By overlooking the innovative capacity embedded in production itself, Western observers misread China’s trajectory, mistaking a dynamic and evolving innovation system for a static model of low-cost assembly.
Beyond Waste and Winners: Reassessing China’s Industrial Policy
A common Western critique portrayed China’s industrial policy as inherently crude, wasteful, and ultimately unsustainable. It was often described as a system in which top-down bureaucrats “picked winners,” propping up favored firms through inefficient subsidies that distorted markets and suppressed genuine competition. From this perspective, China’s industrial strategy appeared politically motivated rather than technically informed.
This interpretation led to a confident prediction: that accumulated inefficiencies would eventually overwhelm growth. Misallocated capital, excess capacity, and failed projects were taken as signs of an approaching reckoning, reinforcing the belief that market forces would, in time, expose the fragility of China’s state-led approach. Waste was not seen as incidental but as proof of structural failure.
Yet this view mistook the surface features of China’s industrial policy for its core logic. Subsidies, while visible and sometimes excessive, were only one component of a much broader system. The deeper strength of the strategy lay in sustained investment in foundational capabilities—dense logistics networks, reliable and cheap power, data and digital infrastructure, and a large, technically trained workforce. These elements created an environment in which firms could scale rapidly, experiment, and absorb losses while building long-term competence.
Waste undeniably existed, but it functioned less as evidence of dysfunction than as the cost of accelerated capability-building. Western critics focused narrowly on individual cases of failed investment and ignored the system-level payoff that emerged over time. By fixating on inefficiency at the margin, they overlooked how China’s industrial policy transformed its productive base and reshaped global manufacturing, demonstrating durability where collapse had long been predicted.
The Limits of Chokepoints: Why Sanctions Failed to Halt China’s Technological Trajectory
A widespread assumption in Western policy circles held that sanctions and export controls could permanently cripple China’s technological and economic development. China was widely seen as structurally dependent on Western technology—especially advanced semiconductors, manufacturing tools, and software—and therefore uniquely vulnerable to externally imposed chokepoints. From this perspective, restricting access to critical inputs promised a decisive and lasting constraint on China’s rise.
This belief framed China as a fragile system whose progress rested on uninterrupted integration with Western supply chains. Once cut off, it was assumed, Chinese firms would be unable to substitute for sophisticated foreign technologies, leading to stagnation or long-term decline. Export controls were therefore expected to function not merely as a slowing mechanism but as a strategic stop sign.
In practice, these restrictions produced a different outcome. Sanctions forced Chinese firms to substitute, adapt, and learn under pressure, accelerating domestic innovation rather than suppressing it. Companies such as Huawei and SMIC did not collapse when access to advanced inputs was curtailed; instead, they reorganized supply chains, invested heavily in indigenous capabilities, and accepted short-term performance losses in exchange for long-term autonomy.
The underlying error lay in treating China as if it were a single firm rather than a continent-sized industrial ecosystem. While individual companies and sectors suffered setbacks, the system as a whole absorbed shocks, redirected resources, and reduced external dependence over time. Export controls thus reshaped China’s technological path, but they did not freeze it. Instead of permanent crippling, they catalyzed a more self-reliant and resilient development model than Western policymakers had anticipated.
Beyond GDP Fetishism: Why Slower Growth Does Not Signal China’s Failure
A persistent Western assumption equated China’s political stability and technological progress with rapid economic growth. Under this growth-first lens, high headline GDP expansion was seen as essential to maintaining social order, sustaining innovation, and legitimizing the political system. Any meaningful slowdown, therefore, was interpreted as a sign of looming political stress or technological stagnation.
This framework also presumed that innovation depended primarily on rising domestic consumption and expanding private-sector profitability. If growth slowed and demand weakened, analysts expected investment to contract, firms to retreat from risk, and technological momentum to fade. China’s economy was thus evaluated using incentives and constraints derived from market democracies, where growth, profits, and political legitimacy are tightly intertwined.
Yet this reading misjudges the priorities embedded in China’s development model. Beijing places far greater emphasis on industrial capability, self-sufficiency, and strategic control than on maximizing short-term GDP growth. Even amid slower expansion, the state continues to channel vast resources into manufacturing, infrastructure, and technology-intensive sectors, accepting lower returns as the price of long-term capacity building.
Crucially, the system is designed to tolerate outcomes that would be politically or financially untenable in Western economies. Low profits, prolonged consolidation, and intense price competition are not viewed as failures but as mechanisms for forcing efficiency, scale, and technological learning. By projecting growth-centered, market-democratic expectations onto a state-capability-driven system, Western observers mistook deceleration for decline—overlooking the resilience and strategic intent that allow China to advance even when growth slows.
The Myth of Inevitable Convergence: Why China Resisted a Consumption-Led Path
For decades, Western analysts assumed that China’s development trajectory would naturally culminate in a shift toward services, household consumption, and economic liberalization. As incomes rose, China was expected to rebalance away from industry, open its financial system, loosen control over data and information, and gradually converge toward the economic structures of advanced Western economies. This expectation was often summarized in the belief that modernization inevitably produces convergence.
This assumption rested on a linear view of development in which industrialization is merely a transitional stage, eventually supplanted by services and consumer-led growth. Under this logic, China’s persistence in manufacturing-heavy investment and state control appeared temporary—an incomplete journey rather than a deliberate destination. Liberalization was seen not as a political choice but as an economic necessity.
In reality, China consciously constrained the expansion of services and consumption to preserve industrial focus and strategic capacity. Manufacturing dominance, not consumer welfare, remained the core priority. Tight control over finance, data, and digital platforms was not an institutional lag but a calculated strategy to prevent capital misallocation, maintain coordination, and protect the state’s leverage over critical sectors.
The deeper analytical error was the conflation of economic development with political and institutional alignment. Western observers mistook rising income levels for a commitment to liberalization, assuming that prosperity would naturally erode state control. China instead chose power, resilience, and long-term industrial strength over convergence, demonstrating that modernization need not follow a Western script.
The Hollowed-Out Advantage: Why Industrial Capacity Still Matters
A critical mirror-image assumption in U.S. strategy was the belief that America could compete with China without rebuilding its own industrial base. Policymakers and business leaders assumed that leadership in intellectual property, finance, and higher education would suffice to sustain technological dominance, even as manufacturing was steadily outsourced. Production was treated as a low-value activity, separable from innovation itself.
This view encouraged reliance on legal and financial instruments—patent regimes, tariffs, export controls, and regulatory pressure—rather than on engineers, factories, and physical infrastructure. The United States came to believe it could shape outcomes through rules and restrictions while leaving the difficult work of large-scale production to others. Manufacturing decline was seen as an acceptable trade-off for efficiency and specialization.
In practice, innovation detached from production proved fragile. When factories disappear, the feedback loops between design, manufacturing, and improvement weaken or vanish entirely. Process knowledge—the tacit expertise gained through making things at scale—erodes over time and cannot be fully captured in blueprints, patents, or academic research.
Moreover, industrial ecosystems and deep infrastructure cannot be recreated quickly or cheaply once dismantled. Supply chains, skilled labor pools, and manufacturing know-how accumulate over decades, not policy cycles. By underestimating the centrality of production, the United States overestimated the durability of its advantage—misreading competition with China not only as a challenge of technology and rules, but as one of physical capacity and industrial depth.
Inside the Real China Model: Power Through Industrial Ecosystems
What distinguishes the “real China model” is not any single policy instrument but the architecture of the system as a whole. Rather than targeting individual industries in isolation, China builds dense, interconnected industrial ecosystems in which firms, suppliers, infrastructure, and local governments co-evolve. The emphasis is placed first on foundational capacity—power generation, logistics, land, data networks, and workforce scale—creating an environment in which entire sectors can expand rapidly and simultaneously.
This model is driven less by labor cost advantages than by electricity, scale, and coordination. Abundant energy, massive throughput, and tightly integrated supply chains enable continuous process improvement at levels difficult to replicate elsewhere. Innovation emerges not solely from formal research and development but from production itself, where iterative manufacturing generates deep process knowledge and accelerates learning across the system.
Crucially, the model is designed for resilience rather than efficiency in the narrow, textbook sense. It can absorb sanctions, supply disruptions, and external pressure because dependence is diffused across a broad domestic base. The state tolerates waste, low profits, and intense competition as acceptable costs of securing long-term industrial dominance. The result is a system that is neither elegant nor market-optimal, but one that consistently delivers scale, capability, and strategic power—demonstrating that effectiveness, not theoretical efficiency, is its defining feature.
Summary & Implications
At its core, the misunderstanding distilled by Dan Wang and Arthur Kroeber is stark: Western observers assumed that China was playing the same economic and strategic game as the West, only less efficiently. The “real China model,” as articulated in their August 19, 2025 Foreign Affairs article, reveals instead that China was pursuing a fundamentally different logic—one centered on state capacity, industrial ecosystems, and long-term power rather than market efficiency or convergence. It is this misreading, more than any discrete policy error, that the authors argue has left the United States strategically unprepared, responding to China with the wrong tools, expectations, and timelines.
References
- “The Real China Model: Beijing’s Enduring Formula for Wealth and Power”, Dan Wang and Arthur Kroeber. Foreign Affairs. August 19, 2025. https://www.foreignaffairs.com/china/real-china-model-wang-kroeber