China’s resistance to financialization at the corporate level is not a moral stance but a systemic survival strategy. In sectors where technological competition has become a protracted war of attrition—such as semiconductors, 5G, and high-speed rail—short-term financialism equates to strategic suicide. The enduring strength of China’s manufacturing lies in its institutional resilience, which allows for long-term losses, encourages redundancy and backup, and tolerates suboptimal paths. This “strategic redundancy capability” contrasts sharply with American industry under the Jack Welch era, which sacrificed long-term robustness for short-term financial efficiency.
Corporate Resilience: How Chinese Firms Resist Financialization in Practice
Chinese leading enterprises generally adopt a cautious or resistant stance toward excessive financialization, embedding this approach deeply in their corporate culture. Finance is treated primarily as a tool to support industrial and technological capability rather than as a replacement for engineering, manufacturing, or technological accumulation. The dominant ethos explicitly opposes strategies that prioritize “making money with money” or substituting financial operations for genuine technological strength.
This approach does not reflect an anti-market or anti-capital ideology. Capital markets are recognized and utilized, but always conditionally: financial returns are viewed as a byproduct of industrial and technological success, not as the primary goal. In other words, profits are a measure of efficiency, not a substitute for innovation or long-term capability.
The core principle guiding Chinese firms is the preservation of engineering capacity and sustained innovation. Financial activity is carefully circumscribed to ensure it never undermines long-term technological development or strategic industrial goals. This careful balance allows companies to participate in financial markets without compromising the robustness and resilience of their core operational capabilities.
Through these practices, Chinese firms maintain a form of corporate culture that prioritizes industrial endurance over short-term financial gain. By embedding resistance to financialization into organizational norms and decision-making processes, these companies preserve their capacity for innovation, technological leadership, and strategic flexibility in the face of global competitive pressures.
Industrial Patriotism: Strategic Narrative and Entrepreneurial Ethos in Chinese Leading Firms
Leading Chinese enterprises exemplify a strategic narrative and entrepreneurial ethos centered on long-term industrial and technological development, often framed as “serving the nation through industry.” Huawei, for instance, has long refused to go public, a decision that shields it from short-term shareholder pressures and prevents the distortion of research and development priorities. Ren Zhengfei’s guiding principles emphasize that financial indicators are outcomes, not objectives, and that revenue should come from customer value rather than capital manipulation. This engineering-centric culture prioritizes system integration, process mastery, and technological depth over financial speculation.
Huawei’s approach also incorporates a deliberate “backup plan” logic, seen in initiatives like HiSilicon chips and HarmonyOS, which often require 10–15 years of sunk investment before yielding returns. These long-term projects act as strategic hedges against systemic technological and financial shocks, reflecting a disciplined bottom-line thinking that prioritizes resilience over immediate profit.
Similarly, CATL demonstrates that even publicly listed firms can maintain a non-financialized growth trajectory. Its expansion emphasizes physical production capacity, iterative battery chemistry innovation, and deep integration with original equipment manufacturers, exemplified by initiatives like the Chocolate Battery Swapping system. Capital is strategically allocated to factories, R&D, and supply-chain control rather than leveraged for speculative mergers or financial engineering. Financial discipline is evident in consistently high returns on invested capital relative to the cost of capital, signaling industrial profitability rooted in operational effectiveness rather than accounting gains.
Together, Huawei and CATL illustrate how Chinese firms embed a strategic narrative and entrepreneurial ethos that places national and industrial objectives above short-term financial incentives. By linking corporate purpose to technological mastery and long-term innovation, these companies cultivate resilience, mitigate financial vulnerability, and sustain industrial leadership on a global stage.
Engineering-Led Incentives: How Chinese Firms Suppress Financial Arbitrage Culture
A defining feature of many Chinese industrial enterprises is the deliberate design of organizational incentives that block the rise of a financial-arbitrage culture. At the leadership level, senior management is typically dominated by engineers, production veterans, and internally promoted executives with long tenures inside the firm. Individuals with purely financial backgrounds are rarely admitted into core decision-making circles, ensuring that strategic authority remains anchored in technical knowledge, operational experience, and long-term industrial logic rather than short-term capital optimization.
BYD offers a clear illustration of this incentive structure in practice. Its internal cultural mantra—“technology is king, innovation is fundamental”—is reinforced by founder Wang Chuanfu’s self-identification as a “cost engineer” rather than a capital allocator. Corporate strategy prioritizes vertical integration, process innovation, and manufacturing efficiency, with explicit rejection of asset securitization or valuation inflation through financial structuring. As a result, managerial success is measured by cost control, technological improvement, and production scalability, not by financial engineering.
State-owned and mixed-ownership enterprises, such as Changan Automobile, apply a similar logic while cautiously incorporating market mechanisms. These firms retain a “national mission community” framework that aligns corporate objectives with broader industrial and strategic goals. Partnerships with firms like Huawei and CATL are structured not for financial synergy but to close technological gaps and build tangible production capacity. Managerial evaluation systems emphasize industrial-chain security, core technology self-sufficiency, and long-term capability accumulation over short-term stock price performance.
Collectively, these organizational arrangements ensure that incentives reward industrial competence rather than financial arbitrage. By embedding engineering authority, production experience, and national-industrial objectives into leadership selection and performance evaluation, Chinese firms systematically suppress speculative behavior and preserve strategic focus. This incentive design functions as a structural safeguard, reinforcing long-term resilience and insulating core industries from the corrosive effects of financialization.
Institutional Firewalls: How China Constrains Financialization to Protect the Real Economy
China has constructed multiple institutional firewalls to prevent excessive financialization and to ensure that finance remains subordinate to the real economy. At the macro level, this stance was clearly articulated at the 2017 National Financial Work Conference, which reaffirmed that finance must “return to its original purpose” and serve industrial and productive activity. After 2020, this principle was reinforced through tighter regulation, including crackdowns on excessive leverage and restrictions on speculative expansion into financial activities. These measures imposed spillover discipline on manufacturing firms, limiting their ability to divert resources toward purely financial pursuits.
Beyond regulatory pressure, corporate self-correction has played an important role in reinforcing these boundaries. Haier provides a notable example by renaming “Haier Financial Holdings” as “Haier Industrial Finance,” explicitly redefining finance as a scenario-based, industrial-chain service rather than an independent profit engine. This repositioning clarified that financial activities exist to support manufacturing ecosystems, logistics, and customer use cases, not to generate detached financial returns.
Gree Electric illustrates a parallel dynamic through internal and shareholder-driven correction. The controversy surrounding its acquisition of Yinlong triggered resistance from minority shareholders concerned about strategic drift away from core industrial strengths. In response, the firm recalibrated its strategy, shifting back toward conservative industrial synergies and reaffirming manufacturing as the center of corporate value creation.
At the subnational level, changes in local government performance metrics further reinforce these institutional constraints. Greater weight is now placed on indicators such as tax revenue per unit of land, R&D intensity, and domestic substitution rates. These criteria discourage financial “report beautification” and speculative behavior, while rewarding tangible industrial output and technological progress. Together, regulatory discipline, corporate self-correction, and incentive realignment form a layered system of institutional firewalls that contain financialization and sustain long-term industrial resilience.
A Cautionary Tale: GE under Jack Welch and the Perils of Financialized Management
General Electric under Jack Welch is frequently cited in Chinese policy and industrial discourse as a warning case of excessive financialization. During the Welch era, GE Capital contributed more than half of the company’s total profits, allowing financial income to subsidize losses or stagnation in manufacturing divisions. While this model produced a sustained surge in stock price and market valuation, it coincided with a gradual erosion of GE’s underlying industrial capabilities and technological depth.
The apparent success of this strategy rested on the masking of industrial weakness through financial performance. Manufacturing no longer needed to demonstrate genuine competitiveness as long as financial operations delivered earnings growth. This internal cross-subsidization distorted investment incentives, shifted managerial attention away from engineering and production, and created a structural dependency on financial profits rather than real industrial cash flow. The global financial crisis of 2008 ultimately exposed this fragility, revealing how vulnerable the conglomerate had become once financial conditions reversed.
In mainstream Chinese critiques, the Welch-era GE model is often framed as a textbook example of the “disorderly expansion of capital” and a source of systemic risk. Explicit warnings are issued against turning manufacturing firms into financial cash cows or using capital narratives to conceal technological hollowing. The lesson drawn is not merely historical but strategic: financial performance that detaches from industrial strength undermines long-term competitiveness.
Public discourse in China has therefore reinterpreted Welch’s management approach as one defined by financial short-termism, narrative-driven leadership, and accounting-oriented governance. This model is routinely contrasted with alternative principles centered on engineering discipline, cash discipline, and real profitability. In this contrast, GE’s experience serves less as a success story than as a cautionary benchmark illustrating the long-term dangers of subordinating industry to finance.
From Short-Term Metrics to System Resilience: Competing Logics of Corporate Governance
Welch-style corporate culture is widely associated with an extreme form of short-termism. Its defining features include an obsession with quarterly earnings, the widespread use of rank-and-yank layoffs, and a strategic preference for mergers, acquisitions, and share buybacks over sustained investment in research and development. Managerial success under this model was often driven by narrative construction and financial “storytelling,” rather than by operational execution or long-term capability building.
In contrast, Chinese corporate governance has increasingly emphasized corrective mechanisms aimed at strengthening system resilience. The principle of “breaking the four onlys”—initially applied in scientific and technical evaluation—has been extended into corporate assessment frameworks. In state-owned enterprises, performance evaluation now incorporates indicators such as industrial-chain security and breakthroughs in key technologies, shifting attention away from narrow financial metrics toward structural robustness and strategic capability.
This reorientation places priority on operational truth, physical problem-solving, and long-term resilience. By rewarding firms for solving real production constraints and building durable technological capacity, Chinese corrective trends seek to counteract the distortions of short-termism and align corporate behavior with sustained industrial competitiveness rather than transient financial performance.
Manufacturing as Strategy: Why China Rejects the Path of De-Industrialization
China’s determination to avoid a de-manufacturing path is shaped by comparative lessons drawn from the experience of major U.S. corporations such as GE, Boeing, IBM, and HP. In Chinese policy and industrial discourse, these firms are often cited as symbols of industrial hollowing, where the erosion of manufacturing capability followed an excessive shift toward financialization, outsourcing, and asset-light models. The central conclusion is that manufacturing is not merely an economic activity but a core strategic capability that underpins national competitiveness and technological autonomy.
This perspective rests on a deep appreciation of tacit knowledge embedded in production. Manufacturing is understood as a continuous feedback loop in which design, engineering, and production constantly inform one another. It serves as an accumulator of process know-how and a crucible for engineering intuition—forms of knowledge that cannot be easily codified, outsourced, or reconstructed once lost. As a result, China places sustained emphasis on lighthouse factories, mother factories, and the cultivation of large pools of process-engineer talent.
At the firm level, companies such as CATL and BYD exemplify this manufacturing-centered logic. Both pursue extensive vertical integration and relentless process innovation to retain control over critical production stages. Rather than adopting “factory on a barge” outsourcing models that separate design from manufacturing, these firms deliberately anchor innovation within physical production systems, ensuring rapid iteration and cumulative learning.
By maintaining manufacturing as the core of industrial strategy, China seeks to preserve the institutional and cognitive foundations of technological progress. Avoiding de-manufacturing is therefore not a nostalgic commitment to heavy industry, but a forward-looking strategy aimed at sustaining system-level learning, engineering depth, and long-term industrial resilience in an era of intensified global competition.
Institutional Foundations of Resistance: Why China Can Constrain Financialization
China’s capacity to resist excessive financialization is rooted in structural institutional differences rather than in firm-level preferences alone. State capital plays a central role by tolerating long-term losses in strategically important sectors, as illustrated by firms such as SMIC and YMTC, where sustained investment is prioritized over short-term profitability. Local governments further reinforce this approach by supporting industrial clusters, infrastructure, and supply-chain depth, rather than focusing narrowly on corporate valuations or stock market performance.
Regulatory authorities in China also possess tools that enable active intervention in financial flows. Through a combination of structural monetary instruments and administrative guidance, regulators can redirect capital toward priority industries and limit speculative diversion. This capacity allows the financial system to be aligned, at least partially, with long-term industrial strategy rather than being governed solely by market sentiment.
In contrast, the U.S. institutional environment imposes strong constraints on such resistance. Corporate governance is highly decentralized and subject to persistent pressure from shareholders, boards, investment banks, and credit rating agencies. Quarterly reporting requirements entrench short-term performance benchmarks, reinforcing path dependence toward financial optimization and limiting managerial latitude to sustain long-horizon industrial investments. Together, these institutional contrasts help explain why China is structurally better positioned to prioritize industrial resilience over financial immediacy.
Firm-Level Resistance to Financialized Management: Chinese Alternatives to Welch’s Logic
Chinese firms resist Welch-style financial logic through company-specific institutional designs that anchor strategy in long-term industrial missions rather than short-term financial optimization. CRRC exemplifies a mission-anchored national executor model, characterized by highly concentrated state ownership and performance metrics focused on delivery reliability, localization rates, and overseas project fulfillment. Its stable workforce, minimal layoffs, and sustained R&D investment—exceeding six percent of revenue, including in low-return strategic technologies—reflect a deliberate tolerance for suboptimal market returns in exchange for strategic capability. This model preserves niche capacities but also faces limitations, including slower innovation cycles and the risk of administrative inertia.
Huawei represents a contrasting but equally deliberate form of resistance rooted in ownership and incentive design. As a non-listed company with full employee ownership, Huawei operates without a cash-out culture and relies on long-term incentive mechanisms such as the Time Unit Plan (TUP) to align individual effort with extended corporate horizons. Institutionalized internal dissent through the “Blue Army,” combined with an exceptional tolerance for sunk R&D costs, reinforces an engineering-driven culture in which finance is explicitly excluded as an independent profit source. However, this model remains vulnerable to extreme external blockades that test its financial and operational sustainability.
SMIC illustrates a more constrained and adaptive form of resistance shaped by capital-market exposure. As a listed firm, it initially compromised by aligning with financial KPIs, which limited its capacity to sustain long-term technological bets. Following 2019, state intervention through the National Integrated Circuit Fund enabled a strategic shift toward a dual-track model: mature process nodes generate cash flow, while advanced nodes absorb long-term, state-backed losses. Talent retention is prioritized over cost optimization, reflecting a recalibration toward capability preservation.
Taken together, CRRC, Huawei, and SMIC demonstrate that resistance to Welch’s logic is neither uniform nor costless. Their approaches range from mission-driven stability to incentive-based endurance and defensive adaptation. While each model carries structural vulnerabilities, they collectively illustrate how Chinese firms experiment with institutional arrangements that prioritize industrial resilience and technological continuity over short-term financial performance.
Structural Foundations of China’s Anti-Financialization Industrial Culture
China’s resistance to excessive financialization is rooted in deep structural drivers rather than in temporary policy preferences. One critical factor is historical memory. The experiences of deindustrialization in parts of Latin America and in the United States are widely interpreted in Chinese policy and academic discourse as cautionary tales, demonstrating how premature financialization and offshoring can hollow out manufacturing capacity and undermine long-term national competitiveness.
Institutional design further reinforces this orientation. The party-managed cadre system and mechanisms for industrial policy coordination align political incentives with long-horizon economic objectives. Officials and corporate leaders are evaluated not solely on short-term growth or financial indicators, but also on their ability to sustain industrial capacity, advance key technologies, and maintain systemic stability. This governance structure reduces pressure for immediate financial returns and supports persistence in capital-intensive, low-yield phases of industrial development.
Geopolitical realities provide an additional and increasingly powerful driver. Technology blockades, export controls, and supply-chain disruptions have transformed manufacturing and technological self-sufficiency into matters of national security. Under these conditions, financial optimization that weakens industrial depth is perceived as a strategic liability. Together, historical lessons, institutional arrangements, and geopolitical pressures shape an anti-financialization culture that prioritizes resilience, control over critical technologies, and long-term industrial survival over short-term financial gain.
Acknowledged Limits: Caveats in China’s Resistance to Financialization
China’s resistance to financialization does not imply the complete absence of financial distortions. Implicit forms of financialization persist within the system, including reliance on subsidies, the securitization of receivables, and profit shifting through related-party transactions. These practices can obscure underlying operational performance and, in some cases, introduce inefficiencies or moral hazard. Their presence underscores that China’s industrial system is not immune to financial pressures or misaligned incentives.
Nevertheless, these distortions operate within clear structural boundaries. Financial mechanisms are generally tolerated as auxiliary tools rather than elevated to primary drivers of corporate strategy. Even where financialization appears, it rarely displaces engineering authority or fundamentally reshapes managerial priorities. The dominant logic within most leading firms continues to emphasize production capability, technological accumulation, and operational execution over financial arbitrage.
In comparative terms, China’s corporate governance remains distinct from Western finance-led models. Engineering discipline retains institutional primacy, and long-term industrial commitment remains mainstream rather than exceptional. Acknowledging these caveats therefore strengthens, rather than weakens, the broader argument: while financialization exists at the margins, it has not supplanted the industrial core that anchors China’s economic and technological strategy.
Divergent Logics of Capitalism: Cultural and Political-Economic Differences Between China and the United States
The contrast between Chinese and U.S. approaches to corporate governance and industrial strategy reflects deep cultural and political-economic differences rather than marginal policy variation. In the United States, limited government intervention and a strong commitment to market fundamentalism define the operating environment. Shareholder primacy dominates corporate governance, with finance acting as both allocator and judge of value. Corporate purpose is narrowly framed around financial metrics such as return on equity, earnings per share, and stock price appreciation.
Within this system, manufacturing is treated as one asset class among many. It is expected to meet prevailing financial benchmarks and is readily outsourced, divested, or exited if returns fall below market expectations. This logic encourages capital mobility and efficiency but also weakens the institutional attachment to production, eroding long-term manufacturing capability and the accumulation of tacit industrial knowledge.
China operates under a markedly different political-economic logic. Strong state coordination and a developmental government framework embed enterprises within broader national strategies. Finance is subordinated to industrial objectives rather than elevated as an autonomous arbiter of value. Corporate legitimacy is derived not primarily from shareholder returns, but from contributions to industrial security, technological self-reliance, employment stability, and long-term capability building.
Accordingly, manufacturing in China is viewed as strategic infrastructure rather than a disposable asset. It is recognized as a source of tacit knowledge, an anchor of technological learning, and a foundation of national sovereignty and systemic resilience. These differences help explain why China prioritizes industrial continuity and resists excessive financialization, while the U.S. system more readily accepts deindustrialization as a market outcome.
Summary & Implications
China’s resistance to Welch-style financial logic is neither moral nor ideological, but a systemic survival strategy in an era of prolonged technological competition. The decisive issue is not whether to resist financialization, but who bears the cost of failure, whether losses are institutionally tolerable, and whether talent is willing to commit to delayed returns. China’s core advantage lies in a system that can absorb long-term losses, encourage redundancy and backup, and accept inefficiency in exchange for resilience. This capacity for strategic redundancy—essential to endurance in technology-intensive competition—is precisely what U.S. industry eroded under the financialized governance of the Welch era.
References
- The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America―and How to Undo His Legacy. David Gelles. 2022