Why China's Industrial Strategy Is Reshaping Global Competition
The Association of Foreign Press Correspondents (AFPC-USA) hosted “Why China's Industrial Strategy Is Reshaping Global Competition,” a Foreign Press Podcast episode produced in partnership with the Hinrich Foundation.
In a new white paper for the Hinrich Foundation titled “Is the West better than China?” Robert Atkinson, a senior fellow at the Information Technology and Innovation Foundation (ITIF) who founded ITIF in 2006 and was the science and technology policy think tank's president for 20 years, explained how China's state-directed economic model is reshaping global competition and challenging long-held assumptions about innovation, industrial policy, and technological leadership. His research covers why China has become a manufacturing powerhouse, where the West still holds key advantages, and why he believes the United States and its allies must adopt a more coordinated industrial strategy to remain competitive.
Atkinson elaborated on his findings in conversation with journalist Jennifer Freedman, who for more than two decades has contributed reporting on trade and global markets for different outlets.
This podcast episode was produced in partnership with the Hinrich Foundation. AFPC-USA is solely responsible for the content of this episode. The podcast transcript can be found HERE.
Freedman opened the discussion by asking what she described as the central question of Atkinson's paper: what is the single greatest structural advantage China has built through its techno-economic model, and what remains the West's strongest competitive advantage. Atkinson argued that China's biggest advantage is not simply the size of its economy but the dense industrial ecosystem it has spent more than three decades constructing. Rather than having isolated factories, China has built "deep, deep supply chains all the way through their system," making production networks extraordinarily difficult to replicate elsewhere. He said this explains why attempts by American and multinational companies to shift manufacturing out of China have been so challenging, describing China's industrial base as "very sticky." On the Western side, he identified two primary strengths: the continued dominance of well-capitalized multinational companies — particularly in technology, biotechnology, and aerospace — and the United States' entrepreneurial culture. Because Western economies are "not going to become a state-backed [economies]," he said success depends on innovative private firms, adding that America still has "a stronger and better entrepreneurial culture" than Europe, Japan, or South Korea. Atkinson noted that the West is "a hodgepodge of different techno-economic systems and policy approaches," making it difficult to identify a single defining strength. Nevertheless, he argued that the West's greatest shared advantage remains its commitment to freedom, saying that the ability to think, speak, and experiment freely helps generate new ideas, innovative business models, and entrepreneurial activity that continue to distinguish democratic societies.
Freedman then shifted the conversation toward innovation, observing that many Western governments frame strategic competition with China primarily as an innovation race. She asked whether the West's innovation ecosystem is still capable of outpacing China or whether Beijing has already surpassed it in critical sectors. She also questioned how effectively the West translates scientific breakthroughs into industrial production.
Atkinson argued that the United States, in particular, places too much emphasis on invention while neglecting manufacturing capability. He said Americans are "hyper-fixated on innovation," but stressed that developing new technologies matters little if a country cannot produce them competitively and at scale. He pointed to industries such as telecommunications equipment, high-speed rail, and drones as examples where Western innovators pioneered technologies only for China to dominate production. "It's not just enough to innovate," he said, emphasizing that industrial capacity ultimately determines long-term competitiveness. He rejected the notion that China merely imitates Western technology, arguing instead that China's innovation ecosystem is now "close to ours, if not ahead of ours." Citing research from the Australian Strategic Policy Institute, he said China leads the United States in many measures of scientific output, including research papers and patents across key technologies, adding that "China's way more innovative than we think." He also referenced research from the Information Technology and Innovation Foundation, which found China already leads globally in electric vehicles and nuclear power while rapidly closing the gap in industries such as robotics and display technology. Even where China has not yet overtaken the West, he argued, it is advancing at a faster pace, suggesting that the technological competition is increasingly shifting in Beijing's favor.
Robert Atkinson
Freedman turned the discussion to China's economic model, asking Atkinson to explain what he means by "state-directed capitalism" and how that system enables Beijing to expand strategic industries far more quickly than Western economies. She also asked where he believes the model's limitations lie.
Atkinson argued that much of the debate in the United States and Europe is framed too simplistically, with analysts assuming there are only two economic systems: free-market capitalism or Soviet-style central planning. He contended that China represents a third model — state-directed capitalism — where most companies operate as capitalist enterprises but ultimately align their activities with government priorities. Although China has state-owned enterprises, he said even private firms are encouraged, financed, and supported when their activities advance national objectives. Unlike Western governments, which largely allow companies to pursue their own commercial interests regardless of broader strategic outcomes, Beijing actively directs investment toward industries it considers essential. As he put it, the West often takes the attitude of "pursue your own interests," whereas China expects firms to align with state goals. He stressed that Chinese companies are not micromanaged on day-to-day decisions such as pricing, but they are expected to support broader national priorities. To help achieve those goals, the government provides "massive, massive subsidies" while also using trade policy to shield domestic firms from foreign competition. Once these companies have matured, Beijing then encourages them to "go out" by providing additional subsidies to expand into Belt and Road countries, Eastern Europe, and other overseas markets. In Atkinson's view, this coordinated approach gives China a significant strategic advantage over more market-driven economies.
Freedman then suggested that Western policymakers often underestimate the degree of coordination behind China's industrial strategy and asked what blind spots continue to shape policymaking in the United States and Europe.
Atkinson argued that one of the biggest obstacles is the continued dominance of neoclassical, free-market economics, which he said assumes market outcomes are inherently superior to government intervention. He described this belief as being accepted almost as "a religion" rather than something grounded in evidence. Because of that mindset, many Western policymakers dismiss the Chinese model as fundamentally ineffective simply because the government plays such a prominent role. He acknowledged that Beijing makes costly mistakes, recounting a conversation with a senior Chinese policymaker who described China's investment in the VCR industry just as DVDs emerged as one of the country's "tragedies." When Atkinson asked what lesson the government drew from the failure, the official replied that China simply needed to "make better bets," not abandon state-directed industrial policy in favor of free markets. Atkinson continued by arguing that another Western blind spot is judging China by Western standards rather than Chinese ones. Western analysts tend to focus on questions such as whether government spending is efficient or whether public money has been wasted. China, by contrast, places far less emphasis on avoiding waste than on achieving long-term technological and industrial dominance. He also pointed to concerns frequently raised in the West — including China's slowing economic growth, declining birth rate, troubled real estate sector, and mounting debt — as examples of issues that, while real, are not Beijing's primary focus. Chinese leaders would prefer not to have these problems, he said, but their overriding objective is "to take over the world in these advanced industries." As a result, Atkinson concluded that if Western observers judge China according to Western economic benchmarks, it appears less threatening. However, if China is evaluated according to its own strategic objectives, "then they do" appear far more formidable.
Freedman asked Atkinson how he separates criticism of China's industrial strategy from criticism of the Chinese people, noting that debates over Beijing's policies are often portrayed as attacks on China itself. Atkinson dismissed the notion that criticism of the Chinese Communist Party (CCP) amounts to prejudice against Chinese people. He argued that this accusation frequently comes from what he described as the progressive left in the United States, which he said wrongly equates criticism of China's government with anti-Asian racism. To illustrate his point, he noted that he strongly supports Taiwan, Japan, and South Korea, asking rhetorically how he could be accused of hostility toward Asians while simultaneously advocating closer ties with those countries. He described the argument as "kind of a ridiculous point." Instead, he said the real concern is with the CCP and the way it structures China's economy. "Our gripe is not against the Chinese people," he said, "it's against the CCP" and what he called its systematically unfair economic practices. He added that if China were ever to move beyond Communist Party rule, he believes tensions would decline dramatically and relations between China and the West would become far more cooperative.
On the subject of what a realistic and politically feasible strategy would look like for the United States and Europe, Atkinson said the United States and Europe require somewhat different approaches but argued that America, in particular, must first reform its financial system. He said even companies that want to invest for the long term are discouraged from doing so because financial markets reward short-term returns and punish firms that prioritize domestic manufacturing, risky technological investments, or large capital expenditures. Referring to an earlier report by his organization titled From Financial Capitalism to National Power Capitalism, he argued that incentives must be shifted toward long-term national competitiveness rather than quarterly profits. He emphasized that he was not advocating stakeholder capitalism, but rather creating conditions that encourage businesses to invest strategically instead of penalizing them for doing so. He further recommended that the United States adopt a truly coordinated national industrial strategy. He argued that trade policy, scientific research funding, workforce development, and environmental regulations should all be aligned around the common objective of preserving leadership in advanced industries. As an example, he pointed to Taiwan Semiconductor Manufacturing Company's new fabrication plants in Phoenix, saying the company has encountered regulatory delays under the Clean Air Act because permitting systems were not designed with semiconductor manufacturing in mind. Given the strategic importance of domestic chip production, he questioned why those obstacles had not already been addressed.
Atkinson argued that both the United States and Europe must reverse what he described as an increasingly "anti-technology, anti-progress, anti-business ideology." He criticized a recent letter signed by several prominent economists calling for stricter regulation of artificial intelligence, saying many Western policymakers have become overly focused on limiting technological change instead of encouraging it. In his view, Europe has been particularly aggressive in seeking to regulate AI. He concluded that the West must return to its traditional strengths by embracing innovation, technological progress, and "creative destruction" rather than fearing them.
Freedman next asked which industries Atkinson believes are most likely to fall under Chinese dominance over the coming decade if Western countries fail to adapt. Atkinson said that China already dominates several important sectors, including high-speed rail, telecommunications equipment, and drones. Looking ahead, however, he warned that semiconductors — particularly memory chips — remain vulnerable, along with computer peripherals, electronic displays, electrical appliances, electric vehicles, auto parts, industrial motors, automation equipment, and robotics. He described these industries as a broader constellation of electromechanical and digital manufacturing technologies where China is already highly competitive and continues to strengthen its position. Looking further into the future, he said aerospace and biotechnology represent the next major battlegrounds, arguing that Beijing is investing aggressively to challenge Boeing, Airbus, and leading Western pharmaceutical companies.
Asked whether China's ambitions in aerospace and biotechnology represent genuine competitive threats or merely aspirational goals, Atkinson said that they are very real threats, though he stressed they are not inevitable if Western governments choose to act. He cited China's state-owned aircraft manufacturer COMAC as an example, arguing that the company could never have survived without extensive government subsidies. He recalled that President Trump had previously threatened to block the sale of American jet engines to COMAC, a move that would have crippled the company because China still lacks the ability to manufacture comparable engines. According to Atkinson, Beijing responded by threatening to cut off exports of rare earth minerals, prompting Trump to retreat. He argued this demonstrated that China already possesses substantial leverage over the United States. Even so, he believes COMAC will likely become a significant global competitor because its aircraft are already commercially viable and the remaining challenge is simply increasing production capacity — an engineering problem he expects China will eventually solve. Atkinson said China is investing heavily in genomics, personalized medicine, and advanced pharmaceuticals, noting that Chinese firms already have numerous cancer drugs in clinical trials. While acknowledging that China still trails the United States, he warned that without a more strategic Western response, Beijing could eventually emerge as the world's leading biotechnology power. He did note that some industries, such as advanced semiconductor manufacturing equipment — where firms like the Dutch company ASML maintain an enormous technological lead — may prove far more difficult for China to overtake because the engineering challenges remain exceptionally complex and the technology continues advancing rapidly. Even so, he concluded that many other advanced industries remain well within China's reach if current trends continue.
Freedman asked how Western economies should compete against a system like China's that can deliberately tolerate inefficiencies because the state is willing to direct enormous amounts of capital toward strategic industries. Rather than treating inefficiency as a weakness, she noted that Beijing often appears willing to absorb those costs if they strengthen China's long-term industrial position. Atkinson argued that the West needs a two-pronged response. First, he said Western governments should adopt a far more aggressive trade policy toward Chinese companies that benefit from what he views as unfair state support. He was careful to distinguish between Chinese firms that operate independently and those that receive extensive government backing. Some Chinese companies, he said, are legitimate businesses that finance themselves and compete fairly. However, many others succeed internationally because of "massive subsidies," stolen intellectual property, or government policies that shut foreign competitors out of China's domestic market. In those cases, he argued that Europe, Japan, and the United States should respond with a "tit-for-tat" strategy by denying access to their own markets. "Any Chinese company that's systematically unfair, we'll close our market to you," he said, arguing such measures would reduce Chinese companies' revenues while giving Western firms more room to compete.
Atkinson's second recommendation was for Western allies to cooperate much more closely. While he credited President Trump with elevating concerns about China during his first term, he criticized the administration for alienating many traditional allies. In his view, the United States is no longer large enough to confront China on its own. Instead, he said the US must coordinate with Europe, Japan, and other allied countries on export controls, technology cooperation, commercial counterintelligence, and broader economic security initiatives. He also argued that the United States needs to significantly increase investment in research and development through tax incentives, direct government funding, and other programs. He warned that US research spending has fallen to its lowest share of the economy since the 1950s and said there is "just no way to win" if the country refuses to adequately fund innovation, even if doing so requires politically difficult decisions on taxes or government spending.
When asked whether Western democracies' difficulty sustaining long-term industrial policy stems primarily from governance, culture, or structural weaknesses within liberal democratic systems, Atkinson replied that the problem is "all of the above," while adding a fourth factor he believes has become increasingly important: cultural selfishness. Citing The Rise of Selfishness in America, he argued that Americans have become increasingly focused on how policies affect them personally rather than considering broader national interests. Whether the issue involves tariffs, new data centers, or other infrastructure projects, he said the instinctive reaction has become, "It might affect me negatively. I'm opposed to it." He contrasted that mindset with President John F. Kennedy's famous call to "ask not what your country can do for you — ask what you can do for your country," arguing that Western societies need to recover a stronger sense of collective purpose. Beyond culture, Atkinson argued that policymaking itself has become overly fragmented. Referencing political scientist Theodore Lowi's concept of "interest group liberalism," he said US policy is too often shaped by competing lobbying groups rather than long-term strategic goals. On issues such as export controls against China, he said various business interests pull policymakers in different directions, producing weak or inconsistent outcomes. The prevailing assumption, he argued, is that as long as every interest group has been heard, the process has succeeded — even if the final policy falls short of what national competitiveness requires.
Atkinson said the United States has previously shown it can organize around long-term national priorities, pointing to the post-World War II national security framework established through the National Security Act. During the Cold War, he argued, policymakers were willing to override competing interests because containing the Soviet Union required a coordinated national effort. Today, he believes that the same strategic approach should be expanded beyond defense to encompass a broader range of "dual-use industries" critical to technological leadership. He also argued that the United States lacks the institutional capacity to design and execute modern industrial policy. Compared with countries such as South Korea, he said the US government has very few agencies capable of collecting data, analyzing industrial competitiveness, or developing long-term technology strategies. While organizations such as the National Institute of Standards and Technology and parts of the Defense Department perform some of this work, he described the overall system as "extremely thin." He added that political polarization has become one of the greatest barriers to developing an effective industrial strategy. While stopping short of describing the situation as a civil war, he said it often "feels like that." He criticized what he sees as a Democratic Party increasingly focused on redistribution, skeptical of large corporations, and hostile toward technological development, while arguing that many Republicans — particularly members of the Freedom Caucus — remain committed to shrinking government at all costs. According to Atkinson, those competing ideological extremes leave little room for the pragmatic, center-ground industrial policy he believes the United States needs to effectively compete with China.
Freedman asked Atkinson what he believes is the single biggest misconception Western policymakers still hold about China's economic model and which misunderstanding most urgently needs to be corrected. Atkinson answered that the most damaging misconception is the long-standing belief that all industries are economically equal. Referring to the oft-cited quote attributed to former Council of Economic Advisers Chairman Michael Boskin — "potato chips, computer chips, what's the difference?" — he argued that this mindset has shaped decades of US economic policy. While Boskin's remark was intended to suggest that markets naturally determine which industries succeed, Atkinson said the Chinese government operates from the exact opposite assumption. Beijing deliberately distinguishes between industries that generate long-term national power and those that do not. He pointed to China's treatment of internet platforms, social media, and private tutoring, saying authorities dramatically restricted those sectors because they were viewed as contributing little to China's broader strategic objectives. By contrast, industries that enhance technological and industrial strength receive overwhelming government support.
Atkinson said that China has developed a consistent industrial "playbook" that it applies across nearly every advanced manufacturing sector. The process, he explained, begins by encouraging large numbers of firms to enter an industry before gradually reducing the field to a handful of national champions. The government then heavily funds research, supports pre-commercial development, protects domestic firms from foreign competition, and provides additional subsidies to help successful companies expand internationally. He emphasized that China has repeated this formula in sectors ranging from high-speed rail and drones to electric vehicles and numerous other advanced industries. Even in frontier technologies such as artificial intelligence, quantum computing, and biotechnology — where no country has yet established overwhelming dominance — China follows a similarly aggressive strategy centered on massive public investment. Using quantum technology as an example, Atkinson said the Chinese government now spends more on quantum research than "the rest of the world's governments combined." He acknowledged that some of that investment is undoubtedly wasted but argued that even if "half of that money's wasted," China's total spending still far exceeds that of any competitor. In his view, many Western policymakers simply fail to grasp "the level of commitment" Beijing has made or the enormous financial resources it is willing to devote to achieving technological leadership.
He pushed back against what he described as arguments from "China apologists," who contend that China is simply exercising its right as a developing country to compete economically. He agreed that China absolutely has the right to compete, but argued that the real issue is "how they compete." According to him, the concern is not China's economic success itself but the systematic use of state subsidies, market protections, and other policies that create what he views as fundamentally unfair advantages. He further argued that many Western governments, particularly in Europe, have been "asleep at the switch" in recognizing the strategic nature of China's ambitions. To underscore his point, Atkinson said that Chinese Communist Party writings make Beijing's objectives clear. While acknowledging the sensitivity of historical comparisons, he argued that just as Adolf Hitler plainly outlined his expansionist ambitions in Mein Kampf, the CCP has openly stated its desire to "dominate," "win the battle," and "take over" advanced industries. He stressed that China's ambitions differ fundamentally from those of previous economic competitors such as Japan or Germany, which largely concentrated on excelling in a handful of sectors like automobiles, steel, or consumer electronics. China, by contrast, seeks leadership "across almost every advanced industry." In Atkinson's assessment, that broad pursuit of technological and industrial dominance — combined with what he considers unfair competitive practices — constitutes one of the greatest long-term strategic challenges facing both the United States and the broader West.
Atkinson concluded with a warning that the West's window to respond to China's growing technological and industrial strength is closing much faster than many policymakers realize. Reflecting on his experience chairing a White House US-China experts group during the Obama administration, he said the role gave him firsthand exposure to China's economic strategy through meetings with businesses, government officials, and policymakers. Looking back, he recalled realizing just how significant China's long-term ambitions were, describing his reaction as, "Whoa, this is amazing. What's going on?" Atkinson said that when he was serving in that role, he believed the United States and its allies still had time before reaching a strategic "tipping point." At that stage, he argued, the West still maintained considerable leverage and China had not yet established dominance across so many industries. Today, however, he believes "that timeline, that runway is rapidly shrinking." While cautioning against alarmist claims that China will "take over everything" within a few years, he stressed that the amount of time available for an effective response is now "nowhere near as much time as people think." He urged the West to move decisively over the next "three, four years," emphasizing that coordinated action must come not only from the United States but from the broader Western alliance. Without what he described as a "very serious and committed" response, Atkinson warned that the opportunity to maintain technological and industrial competitiveness "may be too late."
