China’s Development Strategy

By

 


New Chinese Nuclear Power Plant

 

Development of new technology is the key strategy for domestic economic growth and increasing exports. China leads the world in the production of EVs, batteries, solar panels, other renewable energy technologies, rare earth metals, robotics and automated production, and many other areas. They see global competition with the United States as much as a geoeconomic and technological struggle as a geopolitical competition.

 


While exports continue to be a key part of China's development and growth strategy, two other past strategies are less important now. Domestic investment in housing and construction was an important driver of growth in the past. Housing construction has fallen, down 17% in 2025. Now, digital services generates more revenue. Another past driver, foreign investment in China, has probably turned negative. In addition, exports to the United States has fallen from 22% of total exports in 2017 to 10% in 2025.  Chinese exports to the rest of the world have risen dramatically to make up for the decrease in exports to the United States. In 2025, China had a record $1.2 trillion trade surplus in goods, $200 billion more than in 2024.


 

China’s government identifies areas of the economy that it thinks will drive economic growth. Since 2015, those areas have been new or emerging technologies the government decides will drive economic growth and technological dominance in the global economy. The government backs its objectives with massive investment in infrastructure, education, and new companies in targeted industries. 

  

 

China begins by building infrastructure, concentrating on transportation. China has the world's largest high-speed rail network. The latest expansion is a new high-speed rail network linking all cities and ports in the Pearl River megapolis of 72 million people. This is part of a plan to link all of China's 132 large cities (population over one million) with high-speed rail. China also directs resources and personnel into research and early development of the favored technologies. Colleges and incoming students are directed into programs that will support the future development of these technologies.


Using its experience building high-speed railroads at home, Chinese companies are building high-speed railroads in other countries, including Pakistan, Ethiopia, Kenya, Nigeria, and across South America.


China concentrates resources and personnel into research and early development of the favored technologies. Colleges and incoming students are directed into programs that will support the future development of these technologies.

  

 

When it is time to turn research and inventions into innovations, the different levels of government compete for new companies. They offer companies free or cheap land, subsidies, and tax breaks. Companies then compete on the basis of reaching scale, lowering unit costs, and continuously innovating.

 

In earlier stages of development in the past, China imported foreign technology by joint ventures with foreign companies, buying or stealing the technology, and then trying to improve on it. No longer. Foreign direct investment (FDI) has turned negative. Now, more and more, China originates the technology and then rapidly develops it. Many of the new technologies are interrelated and can be applied to other products and markets. After rapid development because of fierce competition at home, the surviving companies have high market share at home and may become major exporters.

 

The outstanding example is electric vehicles. China is the world’s largest producer of electric vehicles (EVs). It is also the world’s largest market as EVs are rapidly replacing gas-powered cars. China also has a large program testing robotaxis in 50 cities.

 

Chinese companies are beginning to export electric vehicles. Effectively banned in the U.S. and somewhat restricted in Europe by high tariffs, Chinese companies are concentrating on markets in Southeast Asia and Latin America. For example, Chinese EV companies have built three assembly plants in Brazil, two of which are former Mercedes and Ford plants, and one in Thailand. In 2026, Chinese EV companies intend to build plants in Hungary, Turkey, and Indonesia.


China’s development strategy is based on a division of labor between an authoritarian government and competitive private companies. Almost half of workers do not have a permanent resident permit for where they work. They do not have access to education or social services.

 

One weakness in China’s development strategy is the government’s reluctance to close companies and reduce overcapacity. In older industries, state-owned companies account for much of the production. This policy becomes a barrier to progress when an existing technology is replaced by a new technology, as is the case of automobiles. Similar problems might arise when fossil fuel companies, especially coal, are replaced by renewable energy companies. The national government is politically sensitive to the social and political instability caused by unemployment. Plus, local governments fight to keep open unprofitable companies and coal mines.   

 

China’s manufacturing output is higher than the next four countries combined. If the United States does not radically change its domestic policies, China's dominance of the interconnected group of high-tech products will make China even more the dominant technology and manufacturing country in the world. China will dominate the global economy by exporting its high-growth products at falling prices and developing joint production in many countries. Because some of these products are effectively banned in the United States or subject to high tariffs, and President Trump favors fossil fuels and thinks global warming and climate change are a "con job," "scam," and "hoax," America could become a high-cost, high-price economy.

 

This includes renewable energy. China is the world's largest and lowest-cost producer of most renewable energy technology, especially solar panels and batteries. Chinese companies are selling cheap, stand-alone solar panels in less-developed countries. 

 

China is making a huge investment in next-generation nuclear power plants. China is also developing the technology for large-scale production of hydrogen-based energy. 

 

These strategies have geopolitical aspects. China fears that the U.S. could cut off oil imports coming from the Middle East through the Strait of Malacca. China cannot count on always receiving discounted oil from Russia, Iran, and Venezuela. The United States has cut off Venezuelan oil bound for China. Current political turmoil in Iran might threaten Iranian oil exports to China. 


China mines about 70% of the world's rare earth minerals and processes about 90%; many countries send their rare earth minerals to China to be processed. Chinese companies are major investors in mineral and raw material extraction and processing around the world. China has used the threat of a rare earth minerals embargo to the U.S. to get the U.S. to back down on some of its extreme tariffs and narrow its ban on Nvidia chip exports to China.

 

If current American energy policies favoring fossil fuels continue and China follows through in its promise to greatly reduce coal production, America will replace China as the largest emitter of greenhouse gases.

 

China is the world’s largest user of industrial robotics; domestic production is increasing rapidly. New manufacturing plants are highly automated; older plants are being modernized. This is also a possible solution to the future decrease in the size of China’s labor force.

 

 

Because of America’s punitive tariffs on Chinese imports, the American market now accounts for only 10% of China’s total global trade. The decrease in exports to the U.S. has been made up with increased exports to the rest of the world. Combined with China's surge in exports to the world outside of the United States, as a reaction to American tariffs and bans on Chinese exports, most of the world's advanced technology will be based on Chinese technology.


China has spent $168 billion in the last three years on foreign direct investments in large renewable energy projects around the world. Two examples are hydroelectric dams in Africa and solar panel farms, storage batteries and EV assembly in Saudi Arabia.


Chinese companies are building EV assembly plants around the world including three in Brazil. One was a former Mercedes plant and another a former Ford plant.


There is an important exception. AI development. The chain of ASML, TSMC, and Nvidia dominate the design and production of the world’s most advanced chips. Both countries are building new data centers but American data centers and foreign centers using Nvidia chips will contain the most advanced chips and supporting technology. China’s current strategy is a “work-around;” use massive amounts of less-powerful chips and concentrate on AI applications.

 

China will have to deal with internal, domestic problems. The housing crisis continues. Lower housing prices are destroying family savings, which in turn negatively impacts domestic demand. Residential construction, in the past a major driver of economic growth, was down 17% in 2025.


Youth unemployment is high. Even recent college graduates are finding it hard to obtain good jobs. Consequences are delayed marriages, fewer marriages as males cannot come up with dowries, and a continuing very low birth rate. 


The long-term problem will be the decline in population, especially the shrinking of the working age cohort. China is not adequately supporting its large and growing older population. Pensions are low and health care facilities outside of Beijing and Shanghai are inadequate. One possible solution is a massive use of telemedicine, taking advantage of China’s huge telecom companies and incorporating AI chatbots. Chinese pharmaceutical companies have become a major source of new drug discovery, another industry driven by a huge aging population.

 

 

This essay is based on data and analysis in the following essays:

 

The Strange Political Economics of the Chinese Auto Industry

 

China's Economy, Politics, and Demography

 

China's Economic Statistics

 

Robots:  The Future is Arriving

 

 

 

 

 

 

 

 

 


 

Comments

Post a Comment

Most Popular Posts

Adam Smith's Pin Factory

By
Image
Adam Smith - Our Founding Father ADAM SMITH VISITS A PIN FACTORY   Adam Smith’s description of a pin factory is on the first page of  The Wealth of Nations .  (Chapter 1 – “Of the Division of Labour”)  Drawings of pin factories of this period show workers using hand tools. Smith says the process can be broken down into 18 distinct steps, including packaging the pins. Smith mentions that pin factory workers were poorly paid, despite their high productivity.    Adam Smith says he visited a pin factory employing 10 men who produced 48,000 pins per day. If each of the ten workers had done all the steps themselves, Smith says each worker could produce only 10 or 20 pins per day. So the pin factory supposedly replaces 2,400 to 4,800 pin makers. The increase in labor productivity (output per person per day) is as high as 50 times that of individual pin makers.     This reduction in unit cost or average cost (AC) and the huge increase in ...
Read more

The Stock Market Crash of 1929 and the Beginning of the Great Depression

By
Image
Famous Headline Before You Begin If you don't know the background of this complicated story, you might want to first read a shorter version that introduces some of the key factors explaining the Crash and the Depression. See, Introduction to the Stock Market Crash of 1929 and the Beginning of the Great Depression Before reading this essay, I strongly recommend you see the PBS video on YouTube. Type in Stock Market Crash 1929. Look for US – The Crash of 1929 (PBS), ALLHISTORIES – PLAYLIST.  Documentary broken into 6 parts to show commercials. Or buy the video on Amazon Prime. Great documentary with wonderful photos, videos, and scenes from movies of the 1920s and the crash. Shows what a crazy time it was. The video is also a great introduction to Andrew Ross Sorkin, 1929:  Inside the Greatest Crash in Wall Street History - and How It Shattered a Nation.  This book concentrates on the roles played by a small number of key men; the video also focuses on these me...
Read more

Bilateral Oligopoly

By
Image
The best movie about the Gunfight at the O.K. Corral is titled My Darling Clementine. A great western - great cast, great photography.  DEFINITION OF A BILATERAL OLIGOPOLY Models of market structure assume that the demand side is represented by a large number of buyers.  The structure of the market, and the assumed market outcomes, depends on the number of suppliers and how they compete.  Suppliers either post one price or exploit their knowledge of buyer categories by using price discrimination.  Despite the comments about the key role of consumers in determining economic performance, consumers are fairly passive when the discussion focuses on imperfectly-competitive industries.  But many markets are not structured this way; the buyers are not passive consumers but large corporations that do not passively accept suppliers’ prices.  Net prices are actively negotiated.  These markets are often bilateral oligopolies. In a bilateral oligo...
Read more

List of Posts By Topic

By
Image
FIND POSTS BY CATEGORY The Beginning of the Industrial Revolution The theme of the following four sections of the blog is that innovation, not price competition, is the basis for understanding economic growth, competition, and analysis. Basic Concepts and Theory Market Behavior and Structure Market Dynamics and Information:  How Markets Work Economic Theory and Markets Corporate Strategies There is beginning a historic change in future populations and their demographics. This will interact with other variables and have a serious, maybe profound, effect on future economic growth. Demographics and Economics China Geopolitics and the Global Economy American Economic History Management The world seems to be in the midst of radical political and social change. Where are we going? Can studying past periods and countries facing disrupting change help us navigate our times? Maybe. History American History World War I:  The Beginning of the 20th Century The Roman Republic and Amer...
Read more

Government Finance 101. Fiscal Policy: Welcome to Alice in Wonderland

By
Image
Secretary of the Treasury PRELIMINARY SUMMARY OF FISCAL YEAR 2025 BUDGET   The Congressional Budget Office (CBO) made their latest projection in January, 2025. The projected deficit in fiscal year 2025 will be around $1.8 trillion, the difference between about $5.2 trillion in revenue and $7.0 trillion in expenses. Interest on the national debt this year will be around $950 billion, over twice the interest expense in the fiscal year 2021 budget and equal to the defense budget. By 2035, the CBO expects the  yearly  budget deficit to increase to $2.7 trillion.   Interest expense this year passed budgeted outlays for the military. It is about equal to Medicare, and also to total non-defense discretionary spending.   Leaving aside Social Security and Medicare, interest expense is  about 20% of total budget outlays. Interest expense is about half the budget deficit.   The $1.8 trillion budget deficit is 6-7% of total GDP, or approximately 10% of consume...
Read more

Explaining Derivatives - An Analogy

By
Image
You go around to farmers with cows. You buy all the cows and pay the farmers a small fee to milk the cows and sell the milk. You pay for the cows with ass(et)-backed securities called MBSs (Milked Bovine Securities) that you tell investors are udderly safe. But some of the cows don't give enough milk (cow flow problems) or give no milk at all. You take some of the asset-backed securities, say they're backed by the subprime cows, and use them as collateral to sell another set of securities called CMOs (Cow Milk Obligations). Then you buy CDSs (Cow Dried-up Swaps) from AIG (Angus Insurance Company) to insure the CMOs when the cows stopped giving milk. If you work it right, you collect more on the CDSs than you pay out to retire the CMOs. The money you get from selling the dead cows go to pay the CLOs (cow leather obligations). You could also sell CDOs (cow dung obligations) that depend on how much cow dung is produced. This is a typical Wall Street product - turning s...
Read more

Josiah Wedgwood, the Wedgwood Pottery Company, and the Beginning of the Industrial Revolution in England

By
Image
Wedgwood Anti-Slavery Cameo A better introduction to the beginning of the Industrial Revolution than Adam Smith is the history of Josiah Wedgwood and the Wedgwood Pottery Company. This is how one company actually ushered in the Industrial Revolution. The revolutionary generation that first adopted steam engines saw the following trends and changes: Manufacturing was being modernized by a small group of entrepreneurs. Much of the new raw material processing and manufacturing was concentrated in a small area in the middle of England, away from London. These modernizing entrepreneurs formed a new economic, intellectual and social network. Modernizing entrepreneurs like Wedgwood tended to be members of Dissenting sects (like Quakers) or Nonconformist churches (not members of the Church of England), Whigs (liberals) in politics, and believers in “progress.” They were optimistic about the future, influenced by the ideas of Hume, Rousseau, Locke and Adam Smith. They believed...
Read more

John von Neumann Sees the Future

By
Image
John von Neumann JOHN VON NEUMANN CREATES THE FUTURE If you want to understand the world we live in, you have to know about the thinking of three men – Alan Turing, Claude Shannon and John von Neumann.   I’ve talked a little about Alan Turing in an earlier essay.   All three men knew each other, discussed their thinking with each other, and promoted each other’s ideas. John von Neumann has been called the smartest individual of the 20 th Century (by his brother-in-law, who won a Nobel Prize in Physics).   A n outline of von Neumann's accomplishments, which you can read about in  Wikipedia, is hard to believe.   He invented game theory, which I discussed in two earlier posts.   He belonged to a group of mathematicians who invented new statistical techniques at Los Alamos that made the atomic bomb possible. He invented game theory. In 1944, he wrote a memo that outlined the structure of the modern computer.   He then managed the design a...
Read more

The English East India Company (EIC): Trade with Asia

By
Image
The Mughal emperor Shah Alam hands a scroll to Robert Clive, the governor of Bengal, which transferred tax collecting rights in Bengal, Bihar and Orissa to the East India Company.  Illustration: Benjamin West (1738–1820)/British Library INTRODUCTION   The English East India Company (EIC) was an innovative new type of corporation. It is a model for the modern limited-liability, stockholder-funded modern corporation. The EIC also illustrates that the prototype of the modern multinational corporation was created to develop global trade.   HISTORIC BACKGROUND   The creation of the English East India Company (EIC) and its Dutch equivalent (the VOC) were part of the 400-year expansion of European power, trade, and influence. Much  of the rest of the world became colonies, part of imperial empires. By 1600, both England and Holland had a wealthy merchant and shipping class, bankers, substantial liquid capital (wealth) not tied up in land, and risk-takers. These categor...
Read more

The Roman Republic Commits Suicide: A Cautionary Tale for America

By
Image
Roman Legion Why Study Rome? Americans have focused on comparisons between Rome and America twice in American history.  The first time was during the period from before the Revolution to after the ratification of the Constitution and Bill of Rights, when the founding fathers and others looked to the Roman Republic for ideas and inspiration on how to structure the new government. After the American Revolution, the founding fathers, having read the Roman authors detailing the collapse of the Roman republic, worried about internal threats to the survival of their new republic.   The second time was when the United States became a superpower, especially after WWII, and then again after the collapse of the Soviet Union in 1991. Commentators compared America to the Roman Empire at the height of its power. There was some discussion about how America became a permanent warfare state and how it affected domestic democracy and civil society. ...
Read more