Commentary: Revisiting the Logic and Challenges of the 'China Model'
Clarifying misconceptions on Western views of China’s development approach.
What exactly is the China Model? This question has long commanded significant attention. For the Chinese Communist Party (CCP), defining and interpreting the success of the China Model is intimately linked to the legitimacy of its rule. For the Western world, understanding the essence of the China Model can facilitate more effective engagement and competition with China. Yet, even after years of Western observers exclaiming that “we got China so wrong,” contemporary understanding and interpretation of the China Model remain markedly detached from reality.
In the recently published Foreign Affairs article The Real China Model: Beijing’s Enduring Formula for Wealth and Power, Dan Wang and Arthur Kroeber argue that the China Model’s success hinges on state-led economic development and industrial policy, which have facilitated the creation of extensive infrastructure and a comprehensive industrial ecosystem. Despite challenges such as inefficiency, resource misallocation, overcapacity, and underdeveloped services, these limitations have not undermined its long-term effectiveness. More importantly, the model embodies a holistic development strategy, enabling China to develop and scale new technologies faster than any other nation, while providing resilience for technological innovation, industrial upgrading, and responses to both domestic and external economic risks. Even in the face of economic slowdown or U.S. sanctions, the China Model demonstrates high stability and continuity. Regarding U.S.-China competition, the article contends that the United States cannot rely solely on ineffective export controls, tariffs, or ad hoc industrial policies; it must instead draw on China’s ecosystem-oriented thinking through deep infrastructure investment, support for capital-intensive industries, regulatory reform, innovation ecosystem strengthening, and attraction of global talent to establish a sustainable, long-term technological and industrial competitiveness.
While Wang and Kroeber provide constructive suggestions for effective competition with China, their analysis overemphasizes the efficacy and sustainability of the state-led model while downplaying the political-institutional conditions underpinning it and the deep, systemic problems and contradictions it generates.
The question of what exactly constitutes the China Model has long been contested. Proponents often depict it as an effective alternative to Western developmental models or a uniquely and effective Chinese pathway that is difficult to replicate. Critics, however, view it as a discursive instrument rather than a systematic theory—serving domestically to reinforce regime legitimacy and externally to project an image. Domestically, it represents a compromise between pragmatic market forces and Party control; internationally, it is framed as an alternative to liberal capitalism. Its defining characteristics include large-scale state-led infrastructure investment, centrally planned and controlled economic and social policies, and extensive suppression and disregard for public and individual rights and interests.
Underlying these defining features are profound distortions and imbalances in China’s taxation and resource allocation. Political economy research on China suggests that China’s growth model can be summarized as follows: within a party-state centralized economic management framework, private enterprises in downstream manufacturing operate under intense and highly marketized competition, while central and local governments engage in international and domestic “bottom-line competition”—i.e., competition that progressively lowers standards, costs, or requirements to attract investment, enterprise settlement, or market share. Local land markets play a central role in this competition: by controlling commercial, residential, and industrial land, local governments shape which private enterprises thrive, promoting industrial growth while also generating inefficiencies and structural distortions.
Structurally, this is coupled with state-owned enterprises (SOEs) in upstream sectors, state banks in finance, and local governments maintaining “administrative monopolies” over commercial and residential land. This bottom-line competition by central and local governments strongly supports the rapid growth and export of private enterprises in marketized competition, ultimately generating tax revenue for central and local governments and enabling upstream SOEs, state banks, and local governments to extract high rents via administrative monopolies.
Within this uniquely Chinese “local developmentalist” framework, cities have established highly monopolized local “seller markets” for commercial and residential land, while industrial land, influenced by domestic bottom-line competition, becomes a nationwide “buyer market.” This industrial land buyer market, together with local labor and environmental policies, and central policies on exchange rates and export rebates, has driven extraordinary growth in Chinese manufacturing and exports, rapid accumulation of foreign reserves, excessive RMB issuance, and ultimately widespread urban real estate bubbles. Consequently, cities across different regions and tiers exhibit extremely low efficiency in industrial land use, while housing supply in major population-inflow cities remains severely inadequate. Local governments’ strategic land supply decisions and fiscal maximization under the current development model are key drivers of this outcome.
Overall, China’s growth model exhibits financial and labor suppression, investment-driven growth, insufficient domestic demand, and export orientation, alongside large-scale environmental degradation, widening income and wealth disparities, incomplete urbanization, and severe distortions in urban-rural land use.
After four decades of transformation, the China Model has gradually established a relatively stable, centralized, semi-market economic system. Yet this system presents significant challenges to the sustainability of China’s economy, society, and environment. Centralized land quota management and local monopolization of construction land have resulted in increasingly non-market land prices, underpriced industrial land, overpriced commercial and residential land, and growing “land dependency” among local governments. Similarly, under a relaxed monetary environment, local governments can borrow extensively to expand infrastructure, which not only limits the ability of market forces to constrain them but also distorts the market according to local development priorities.
Thus, China’s economic achievements do not stem from top-down, linear central government planning, but rather from complex interactions of local governments and social entities within an authoritarian system, responding dynamically to the structure of power and interests of the ruling class. In this context, the so-called China Model functions more as a mechanism for maintaining governance through continuous adjustment of power and interest structures than as a coherent, long-term development strategy. Consequently, it is fundamentally unsustainable, with problems manifesting not only as inefficiency, resource waste, and environmental degradation, but also as deep structural imbalances and distortions.
Within this context, the China Model demonstrates powerful state mobilization in infrastructure development and integration into global industrial chains, but it simultaneously produces highly imbalanced political, economic, and social structures. Its core characteristics include extreme inequality in resource and wealth distribution, prolonged over-control of the private sector by the state, and a fiscal- and export-oriented industrial structure. Maintaining this system requires the state to continuously provide massive, efficient infrastructure to ensure capital flows, industrial operations, and export chains remain uninterrupted. This driving force, however, derives not from market efficiency or social fairness but from the self-perpetuating logic of political power and fiscal interests. Institutional inefficiency and waste are therefore not incidental, but intrinsic components of the China Model’s operational logic.
Regarding the problems generated by the China Model, Wang and Kroeber acknowledge their severity but argue that Beijing can overcome them as it has in the past—for example, by reducing excessive subsidies, allowing inefficient firms to exit the market, or consolidating the electric vehicle industry. However, the motivations behind these measures are often misinterpreted. For instance, although private enterprises have historically been far more efficient than SOEs over the past decades, recent trends show that, under CCP guidance, inefficient SOEs are rapidly expanding while private enterprise space is continuously shrinking, due both to political suppression and state-driven expansion. Firms like Tencent and Huawei have long transcended the state-private boundary, evolving into massive conglomerates under state control.
In the electric vehicle sector, Chinese-style “involution” has made it impossible for smaller enterprises to survive and has significantly undermined the overall health of the domestic industry. Widespread issues such as exaggerated advertising and cost-cutting at the expense of vehicle safety have prompted state interventions, ostensibly for social stability, to suppress and punish critics of Chinese EV brands. Xiaomi Motors, lauded by the authors, has faced scandals over false advertising, consumer deception, and product safety issues.
In the development of the Internet, China pursues goals and logic fundamentally different from, or even opposed to, those of open Western societies—complete control over personal and public information, and total disregard for individual privacy and public interest at the ruling-class level. In the U.S. and other Western countries, these factors—which are entirely ignored by the Chinese government—represented constraints that made it inconceivable to Clinton that China could “stick jelly to the wall.” In fact, to this day, many critical devices and core technologies used for Internet control in China continue to rely on companies from the U.S. and other Western countries.
Similarly, Western interpretations of China’s AI development remain trapped in the “China Model” mindset. As shown in the report, Western observers often interpret China’s rapid AI rise as an inevitable outcome of “state control + industrial mobilization,” even regarding it as evidence of Beijing’s institutional advantage. Yet this interpretation overlooks deep contradictions within China’s AI sector: early innovation was almost entirely driven by private companies but in recent years, tightening policies and regulatory frameworks have forced these companies’ R&D paths to align with state political-security and social-control objectives. Consequently, China’s AI innovation is increasingly redirected to serve regime stability rather than global technological competitiveness.
Crucially, the “whole-nation system” logic embedded in China’s AI development has produced massive redundancy and involution: local governments compete to support similar AI firms, leading to resource dispersion, repeated investments, and widespread bubbles. Meanwhile, China continues to rely heavily on U.S. and other Western technology and equipment in key areas such as AI computing power, chip design, and semiconductor manufacturing. U.S. export controls since 2019 have directly curtailed China’s access to core computing power for large-scale frontier model training. Therefore, China’s AI sector is not the self-sufficient, state-driven innovation system imagined externally, but rather a hybrid dependent on global markets yet heavily distorted by political logic.
Hence, if the China Model could mask structural problems through mobilization and capital accumulation in infrastructure and manufacturing, its fragility and unsustainability are starkly exposed in frontier high-tech fields such as AI. It reveals not institutional advantage, but the systemic constraints of authoritarian logic: politics prioritized over markets, security over efficiency, governance over innovation.
Regarding how to compete more effectively with China, the article suggests attracting global talent and immigrants, increasing basic research investment, reforming regulatory environments, and restoring reasonable tariffs to enhance domestic technological innovation and industrial competitiveness. These measures align more closely with U.S. institutional and social realities and can improve research ecosystems and capital utilization without sacrificing market efficiency or social fairness. For instance, combining increased R&D funding and infrastructure investment with talent attraction can enhance innovation capacity, while restoring reasonable tariffs and removing uncertain trade policies can stabilize industrial investment and supply chain decisions, providing a sustainable foundation for long-term technological and industrial development.
In summary, the internal logic of the China Model and the power structures behind it define its uniqueness and non-replicability. While it demonstrates astonishing economic development capabilities, the systemic impacts and pronounced, enduring distortions it generates make it inherently unsustainable. A clear understanding of these dynamics is essential for effectively competing and interacting with China.
If you value our work, please consider becoming a paid subscriber or buying us a coffee. Your support sustains independent, in-depth analysis and helps us build toward future offerings—like exclusive reports and interactive Q&As. Every contribution keeps this project thoughtful, ad-free, and accountable to you.
Thank you!