10 Ways to Think About China
China is optimised for survival, not efficiency
Last week, I dissected the American operating system—a high-variance machine that attracts extraordinary talent and capital but now traps them in dysfunction.
My goal was to explain how the mechanisms that drive US innovation also create a “lock-in” that blocks industrial capacity, leaving the country reliant on crises to force necessary change.
Next week, I will turn to Europe, exploring how a continent defined by borders and deep cultural differences might finally learn to turn its fragmentation into a strategic asset.
But today, we land in the middle to examine the most complex and misunderstood player of them all: China. This is the second installment of my end-of-year trilogy on the world’s great powers.
Western observers often fail to grasp China because they judge it by the wrong metrics—quarterly GDP growth or stock market efficiency. This kind of misses the point. As we will see, China is not a market economy with a government attached; it is a managed engineering state (echoing Dan Wang) optimised for survival. From the trauma of the Opium Wars to the dominance of the electric vehicle supply chain, the Chinese system is built to ensure that the Century of Humiliation never returns. It prioritises control over efficiency, and national stability over individual freedom.
Here are ten systemic lenses to help you see the machine as it actually is 🇨🇳
1/ China acts to prevent a return to humiliation
To understand modern China, start with loss. From the Opium Wars through the Japanese invasion, China once lost land, wealth, and control. Foreign powers forced drugs on its people, seized ports, burned palaces, and carved out legal rights on Chinese soil.
This history sits at the centre of how both the Chinese state and Chinese society as a whole see risk, power, and time. The shared aim since the 19th century has been simple: never again accept weakness in front of others. Strength, unity, and control follow from that aim. The fact that China is, at least facially, a communist regime is almost irrelevant. Any government in charge of the country today would pursue exactly the same objectives.
This lens also cuts through the tired question of whether China is socialist or capitalist. China works through something else:
China is highly entrepreneurial. New firms form fast. People copy, adapt, and push ideas into the market with speed. Both legendary investors Paul Graham and Michael Moritz note that the drive to start and build in China rivals, and may exceed, that of the US. Historian Stephen Kotkin makes an even sharper point: to him, the economic gains since the late 1970s came from Chinese people, not the Party. Deng Xiaoping’s key move was to step back after the disastrous Mao era, and let China’s entrepreneurial drive work and deliver.
China is also deeply pragmatic. Policies are tools, not beliefs. Leaders test, keep what works, and drop what fails. Labels matter less than results. This is probably Deng’s most important contribution to what China has achieved over the past 60 years.
All of this serves a deeper motive. China seeks to restore control and standing after a long period of enforced weakness. Seen this way, its behaviour is coherent, persistent, and rooted in memory. This is the first fact to grasp if you want to understand China today.
2/ China solved economic development step by step
When Mao died in 1976, China was poor, inward, and stalled. It lagged far behind the world it faced. The Party knew this. Deng Xiaoping’s response from 1978 was not a grand plan, but a change in method. He kept party rule, then solved the economic problem one step at a time:
The first step was agrarian reform. The state broke up collective farming and let families keep the surplus they produced. Output rose fast and hunger eased, delaying labour moving off the land and toward the yet-to-be-industrialised coastal cities. Joe Studwell shows this move as the base of every successful Asian development story.
Next came industry, but only in small spaces. Deng set up special zones, with Shenzhen the best known. These zones let firms export, hire, and price with far less control. The rest of the country stayed under tight rule. What worked spread. What failed stopped. Access to rich markets forced firms to meet price and quality tests. Copying came first, improvement followed. This path, which Studwell calls “export discipline”, built skill fast.
Then there was the financial repression (about which I wrote in greater detail in an earlier edition). Money stayed under state grip. Banks paid savers little and lent cheap to favoured firms. The currency stayed weak. Capital flowed to factories, not homes or finance. Under financial repression, returns mattered less than scale and learning.
The Party also changed how it judged itself. Cadres rose by hitting growth targets, not by quoting doctrine—all under a regime providing longer-term perspectives through the succession of five-year plans and a clearly laid-out succession plan as to who would become paramount leader (which, to be accurate, current paramount leader Xi Jinping has consistently dismantled).
3/ China’s size shapes everything it does
China is not just a big country. It is closer to a world of its own. Back in the day, my source for such statements was Martin Jacques’s masterful When China Rules the World, but more recently Adam Tooze also wrote about it in a riveting edition of his newsletter Chartbook.
Indeed, the scale of modern China is unprecedented. It has 160 urban centres with more than a million people, 18 megacities over ten million, and nearly all of its housing stock built since the 1980s. By comparison, the US has ten cities above a million and only two megacities (New York City, and Los Angeles). China’s sheer population and urban mass reshape everything: the way cities are planned, factories built, and energy consumed.
Scale extends to industry and energy. BYD alone employs over 900,000 people. China produces nearly 30% of global electricity and dominates solar panel manufacture. Adam notes that China’s rapid industrialisation and energy use have “blown away every conceivable alternative centre of relevance in the last twenty-five years.” The size of the population and domestic market gives the state leverage to experiment, invest, and scale at a speed and scope impossible elsewhere.
This mass is paired with a unique, state-driven approach. China’s “engineering state” (to quote Dan Wang again) blends strong oversight with private initiative, applies rigorous export discipline, and channels savings into strategic sectors. For Chinese leaders, policy is “a process rather than a program,” as Henry Kissinger once analysed in his book On China—incremental and iterative. The Party maintains control while capturing real-time knowledge of the economy and making sure to respond when it can.
China’s scale is exceptional in every sense. Its size defies conventional statistical models and resists classification within any preexisting category. Understanding China requires recognising that its industrial, urban, and economic strategies are shaped first and foremost by its sheer magnitude. In short, China is not just “big”—its vastness is the framework through which all of its development must be interpreted. This perspective is often unfamiliar to the West, where analyses tend to rely on models and categories designed for much smaller nations.
4/ China is building the world’s first electrostate
I met the China analyst Arthur Kroeber, head of research at Hong Kong-based asset manager Gavekal, in New York in May. At the very end of our conversation he said (quoting from memory):
By the way, there’s a topic we haven’t discussed, but which I think is the most important trend in the world right now: China has just passed France in terms of electricity’s share of final energy consumption… and that will change everything.
A few days earlier I had read venture capitalist Jonas Janssen’s essay on electricity becoming programmable infrastructure. And days later the Financial Times published an article describing China as “the first electrostate.”
Hearing the same point three times in a week convinced me: Electrification, starting in China, is absolutely the defining technological trend of our time.