!! THis is a WIP that is far from finished !!

Link to file: China Context

China is ancient and huge, and as a result extremely complex. Arthur Kroeber, author of a book that I’m inspired by in this post, likens China with a vast, deep ocean. What we see are the waves on top, but underneath all the intensity at the surface, there is a deep ocean of culture that just goes on and on - and has done so for millenia. I don’t pretend to understand much about China, but I’m trying to learn. This page is a summary of what I’ve learned so far. I’ve divided it into four parts:

  • Ancient History (1046 BCE - 1796 AD)
  • Modern History (1796 AD - 2025 AD)
  • Historical Patterns
  • Predictions

Ancient China

The Mandate of Heaven, 1046 BCE

The earliest agricultural societies in present day China emerged along the Yellow River about 5000 years ago. Around 1000 BCE, the period of the Zhou Dynasty begun. It was one of the most important, early eras in Chinese political and intellectual history. The Zhou established foundational concepts like the Mandate of Heaven and the feudal order, both of which influenced Chinese governance for thousands of years. The Zhou were originally a vassal state, but rose to power by defeating the incumbents. The previous dynasty was seen as corrupt and decadent, so the Zhou invented a new ideological justification for conquest: the Mandate of Heaven (天命 or tiānmìng). The idea is that Heaven grants legitimacy to a just ruler. If a king becomes tyrannical or fails to uphold Virtue, Heaven withdraws its Mandate, which justifies his overthrow. This is significant, as it embedded the principle that legitimacy is conditional. Their moral-political cosmology included Heaven (天 or tiān) as a moral force (not a deity), the idea of Virtue (德 or dé) as a political requirement, and Ritual (礼 or lǐ) as a means to maintain order and hierarchy. These ideas laid the groundwork for Confucius (551-479 BCE).

Confucius, 551–479 BCE

As the Zhou kings lost political power, the central states fractured into several independent feudal states. During the Spring and Autumn Period, 770-476 BCE, around 150 major wars took place. The instability of this period created demand for new ideas about how to govern and restore harmony. This resulted in one of the richest philosophical periods in human history: the Hundred Schools of Thought. It’s in this context that Kongzi, or Confucius, was born in 551 BCE. Although his ideas were not adopted during his lifetime, Confucius became one of the most influental figure in Chinese history. Confucius ideal society was orderly, hierarchical, and ethical, led by rulers who governed by virtue, not coercion. The core concepts he taugth included:

  • Li (礼). By adhering to ritual propriety, i.e. everyday manners, etiquette, and moral discipline, you preserves social order. People should act appropriately in every role.
  • Ren (仁). Often translated as “benevolence” or “humaneness.” The inner moral quality that motivates righteous behavior. The goal of ethical cultivation.
  • Tian (天). Heaven, not as a deity but a moral force. Confucius believed Heaven aligned with virtue and protected those who lived morally.
  • Xiao (孝). Filial piety, i.e. reverence for parents, elders, and ancestors. Seen as the foundation of moral behavior and loyalty to the state.
  • Junzi (君子). The “noble person” or “gentleman.” Not someone born into nobility, but someone who becomes virtuous through self-cultivation.
  • Zhengming (正名). Every role in society has a name and function. Rulers must rule, merchants must trade, peasants must farm. Social harmony depends on people fulfilling their roles correctly.

It’s worth nothing that several rival philosophies emerged in response to the same crisis:

  • Legalism (Han Feizi). People are selfish; laws and punishments must ensure order. Strong, centralized rule. Eventually adopted by the Qin dynasty.
  • Confucianism (Confucius). Ethics, hierarchy, ritual, virtue-restore harmony through moral leadership and proper relationships.
  • Mohism (Mozi). Universal love, meritocracy, anti-war, anti-ritualism. A sort of hippie Confucianism.
  • Daoism (Laozi, Zhuangzi). Let nature take its course. Spontaneity, non-interference, anti-authoritarian. Also pretty hippie.

Unsuprusingly, the two authoritharian schools won…

Warring States Period and Qin’s unification of China, 221 BCE

The Warring States Period was a time of intense military conflict in ancient China. As the Zhou kings lost all their authority, seven major states competed for supremacy. Warfare became more professionalized, with mass infantry armies, iron weapons, and strategic fortifications. The Qin state emerged as the most ruthless and efficient, embracing Legalist reforms that centralized power, standardized administration, and militarized society. This brutal but creative era ended with Qin’s unification of China in 221 BCE, laying the foundations for imperial rule.

The Qin Dynasty (221–206 BCE) was China’s first unified imperial state, established by Qin Shi Huang. The Qin government implemented major reforms to standardize currency, script, weights and measures. This included aggressively centralizing authority through a Legalist system that emphasized absolute obedience and harsh punishment. Massive infrastructure projects, including the early Great Wall and a vast road network, were built using conscripted labor. Despite its administrative brilliance, the Qin regime’s brutality, book burnings, and forced labor provoked widespread resentment. The dynasty collapsed just 15 years after its founding, overthrown by rebellion and civil war. But, it laid the institutional foundations for 2000 years of imperial rule.

After the fall of the Qin Dynasty, Liu Bang, a former peasant and rebel leader, proclaims himself Emperor Gaozu of Han in 206 BCE, establishing the Han Dynasty. Early Han emperors focused on economic recovery from a long period of war and oppression by reducing taxes, encouraging agriculture, and stabilizing rural life. The dynasty’s most famous ruler, Emperor Wu (141–87 BCE), dramatically expanded the empire’s power and cultural influence. He declared Confucianism the official state ideology, establishing imperial academies and promoted a Confucian-based civil service examination system that would define Chinese governance for centuries. It was also under his reign that the Silk Road was formally opened, linking China to Persia, India, and eventually the Roman world. At this time, China was among the most technologically advanced civilizations in the world. In several domains, particularly astronomy, engineering, medicine, metallurgy, and cartography, Han China either led or was on par with the most advanced societies globally. The legacy of the Han Dynasty was substantial. The ethnic Han identity still used by the majority of Chinese people today traces its roots to this era.

Fragmentation Again: Three Kingdoms Era and the Jin, Northern and Southern Dynasties, 221–618 AD

As the Han Dynasty collapsed, another period of fragmentation and civil war begun. This period began with the famous Three Kingdoms era (220–280), when the rival states of Wei, Shu, and Wu competed for supremacy in a long civil war. Although the Jin Dynasty briefly reunified the empire in 280, it soon fractured again under pressure from internal conflicts and external invasions. This ushered in the Northern and Southern Dynasties period (420–589), during which northern China was dominated by non-Han nomadic peoples such as the Xianbei, while the southern states preserved many aspects of Han Chinese culture, Confucian governance, and classical traditions.

Reunification and The Flourishing of Tang, 618–907 AD

Following nearly 400 years of civil war after the Han Dynasty’s fall, China was reunified again under the Sui Dynasty (589–618). The Sui laid the groundwork for the golden age that followed under the Tang Dynasty. Though the Sui was short-lived, toppled after costly military failures and overambitious infrastructure projects, it restored central authority and set the stage for imperial consolidation. The Tang Dynasty built upon this legacy and produced one of the most prosperous periods in Chinese (and world) history. The Tang Dynasty was marked by political stability, commercial expansion, artistic flourishing, and global influence. The Tang court revived and refined the civil service examination system, patronized literature, painting, and Buddhist art, and oversaw a vibrant and diverse empire whose capital, Chang’an, was the largest and most cosmopolitan city in the world at the time. With embassies, markets, and religious centers from Persia, India, Central Asia, and beyond, Tang China was the hub of Silk Road trade and cultural exchange.

Technologically, Tang China far outpaced most other societies. By the 8th century, it had developed woodblock printing, mechanical clocks, advanced steel production, and improved agricultural tools such as the curved iron plow. The Grand Canal, expanded under both the Sui and Tang, allowed for massive internal grain redistribution, something unmatched in the West. In medicine, astronomy, and hydraulic engineering, Tang scholars produced sophisticated treatises and instruments. In contrast, Western Europe during this period was in the early medieval phase: fragmented, rural, and technologically modest by comparison. It was only the Islamic world that rivaled China in scientific and cultural sophistication at this time, developing algebra, optics, and libraries in places like Baghdad.

The Song Dynasty: Commercial Revolution, 960-1279

The Song Dynasty (960–1279) was another era with huge impact thanks to its pioneering of a market-driven, urbanized, and technologically advanced society. China continued to stay centuries ahead of its global peers. Song rulers pulled off a massive commercial revolution, marked by the widespread use of paper money, the expansion of credit and banking, and the rise of trade guilds and large-scale manufacturing. Several cities swelled into metropolises. Technological innovations such as gunpowder weapons, the magnetic compass, printing technology, and advanced metallurgy spread widely, accelerating both military and civilian development. Culturally, the Song refined Confucian philosophy into Neo-Confucianism, which would dominate Chinese elite thought for centuries. Though militarily weaker than their predecessors and increasingly pressured by northern invaders, the Song demonstrated that a vibrant economy and an efficient civilian bureaucracy could generate prosperity and stability without imperial expansion. In global terms, the Song’s technological and economic sophistication placed China at the apex of world development at the turn of the second millennium.

The Northern Threat: The Mongal-led Yuan Dynasty (1279-1368)

Since early imperial times, the Central Plains dynasties faced pressure from peoples of the northern steppes. These groups, which included the Mongols, were highly mobile, militarized societies whose power was based on cavalry warfare and control over important trade routes. The Great Wall was built in response to this threat. While the Song were economically rich and technologically advanced, they were also militarily weak. The decisive blow came in 1276, when the Mongols captured the Song capital of Lin’an (Hangzhou).

The Yuan Dynasty, established by Kublai Khan, marked a radical shift in governance, culture, and China’s relationship with the broader world. The Mongols brought with them an expansive, Eurasia-spanning vision of empire. They incorporated foreign administrators, promoted Buddhism and Islam alongside Confucianism, and expanded China’s engagement in intercontinental trade, particularly via the Silk Road. Under Yuan rule, Marco Polo and other foreigners visited China, and Chinese goods, technologies, and ideas reached new audiences as far away as Europe and the Middle East.

The Ming and Qin Dynasties

The Yuan Dynasty, led by the Mongols, managed to alienate large parts of the Chinese population through ethnic hierarchies, heavy taxation, and reliance on foreign administrators. In the midst of widespread famine, rebellion, and internal decay, a charismatic rebel leader named Zhu Yuanzhang rose to power. A former peasant and Buddhist novice, Zhu capitalized on millenarian religious movements and rural discontent. He captured Nanjing and then drove the Mongols northward, formally declaring the Ming Dynasty in 1368 as the Hongwu Emperor.

The Ming Dynasty’s lasting impact on China was profound. It reasserted Han Chinese cultural and political identity, reestablished Confucian orthodoxy as the backbone of governance, and dramatically strengthened the imperial bureaucracy, especially through the civil service examination system. The Ming centralized authority, launched monumental building projects such as the Forbidden City and the reconstructed Great Wall, and codified administrative practices that would persist into the Qing. Early Ming rulers also sought to assert China’s dominance abroad, most notably through the Zheng He voyages (1405–1433), which projected Chinese naval power across the Indian Ocean to Africa. These expeditions demonstrated a technological capacity that rivaled or exceeded that of any other naval power of the era.

The Ming Dynasty, like many previous dynasties, fell apart due to internal corruption, factionalism, economic disasters, and famine. After several peasant rebellions, a Ming general famously opened the gates of the Great Wall to the Manchus. Their conquest of China took decades, facing resistance from Ming loyalists, ethnic Han generals, and local warlords. Through a combination of military force, strategic marriages, ethnic accommodation, and bureaucratic continuity, the Manchus established one of the largest and most durable imperial systems in Chinese history. Though foreign conquerors, the Manchus governed by adopting and adapting Confucian statecraft, maintaining the civil service examination system, and preserving Han administrative practices. At the same time, they preserved a distinct Manchu identity through the Eight Banners, language, dress codes, and military privilege.

The High Qing Era (roughly 1680s to 1790s) marked the political and cultural peak of the Qing Dynasty, under the reigns of emperors Kangxi, Yongzheng, and Qianlong. This period was defined by imperial consolidation, territorial expansion, and relative internal peace. The Qing state expanded China’s borders to their largest extent in history, incorporating Tibet, Xinjiang, Mongolia, and Taiwan. The Qing skillfully managed their huge, multiethnic empire through a combination of Confucian governance and frontier policies. Domestically, the population soared from roughly 150 million to over 300 million as agricultural output increased, and a rich commercial and literary culture flourished. The state promoted Confucian scholarship and enforced cultural orthodoxy through massive projects like the Siku Quanshu, an imperial compilation of classical texts. Despite these achievements, the High Qing was also a period of growing bureaucratic rigidity, economic inequality, and complacency.

The End of Dyanstic Era, 1796-1911

We’re now moving into more “recent” Chinese history. In 1796 emperor Qianlong abdicated after almost 61 years on the throne, marking the end of the High Qing Era. During this time, trade with Europe has expanded. China and Europe had started trading already in the mid 16th century when the Portuguese Empire leased an outpust from the Ming Dynasty in Macau. China mandated that Chinese goods could only be exported in exchange for silver bullion, so the Spanish and Portuguese empires brought silver from South America to China. The Qing made Guangzhou the center for foreign trade with China.

In 1757, authorities had created the Canton (Guangzhou) System, which helped make trade extremely lucrative for both European and Chinese merchants. Goods like tea, procelain and silk were valued highly enough in Europe to justify the expenses of travelling to China. But there were strong restrictions: Foreign traders could only do business with officially designated Chinese merchant guilds, known as the Cohong. These Cohong were intermediaries who took on financial and legal responsibility. Traders lived and worked in designated compounds (“factories”) outside the city walls, under strict surveillance. They couldn’t bring families or freely enter Chinese society. The Qing government appointed a special customs officer, the Hoppo, to oversee all trade and ensure taxes, bribes, and duties were collected. Foreign merchants could only stay during the trading season (roughly October–March). They had to leave after. The Qing viewed trade as a privilege, not a right. The Confucian worldview saw China as a self-sufficient empire in which foreign goods were rarely needed, and trade was tolerated mostly to control barbarians. The Cohong system allowed the court to profit without needing to deal directly with foreigners.

Trade prospered between China and Europe for over a century under the Canton System, but trading heavily favored the Chinese and resulted in European nations sustaining large trade deficits. This deficit was possible due to cheap silver mined by Spain, Great Britain and France in South America. Foreign silver flooded into China, and as a result the Chinese economy grew fast. At the same time, influx of silver caused inflation and created a reliance on European trade to keep the economic engine humming. Britain, durting this time, came to dominate Sino-European trade with help from the strength of the Royal Navy.

By the beginning of the 19th the system became unstable due to several pressures, most important of which was the huge British trade deficit: it wanted tea and silk, but China didn’t want British goods. Silver was also less abundant, and European domestic demand for silver started competing with the demand from China. Add to that several large-scale wars between Great Britain and Spain that disrupted the silver market. Eurpean governments got more and more angry with their Chinese trade partners. The Cohong also became corrupt and financially overstretched. They couldn’t manage the growing scale of trade or diplomatic tensions.

1839: The First Opium War and the start of the “Century of Humiliation”

Enter opimum. Britain had taken control over vast poppy plantations in India and after 1816, when Britain occupied Java, British merchants became the primary traders of opium. As access to cheap silver declined, opium became a profitable substitute. British merchants started selling opium into China, and using the proceeds to buy tea to bring back to England. The Qing dynasty initially tolerated this as it worked as a sort of tax. Chinese citizens bought opium with silver, the British then bought tea from the Qing with that silver. Since the Qing had a monopoly on tea exports, wealth was transferred from the populiation to the imperial treasury. This obviously turned out to be a devils bargain.

As opium usage accelerated in China it started to lead to social instability. By the early 19th century, more and more Chinese were smoking British-supplied opium as a recreational drug. For many, it became a punishing addiction. In 1780, the Qing government issued an edict against the drug, and then outright banned it in 1796. By 1799, all trade of opium through Guangzhou was forbidden. The attentive reader will notice that we are now back at the end of the High Qing Era. American and French traders also joined, making opium cheaper and cheaper in China. This caused a reversal of the previous trade balance, with China suddenly exporting silver to pay for opium, rather than Europeans paying for Chinese goods with silver. The Qing continued to tolerate this as they need to finance e.g. putting down the White Lotus Rebellion and other internal conflicts.

At the beginning of the 18th century, European and American governments started favoring free trade over mercantilism, inspired by e.g. Adam Smith. Countries like Britan started seeking free trade with China. The Qing dynasty, in contrast, continued to favor a sort of Neo-Confucian approach that called for keeping the restricted Canton System in place. They reasoned that strict government control was necessary for the sake of preserving societal stability (sound familiar?!). China’s rigid hierarchy blocked efforts to open more ports, and pressure from Britain (and others) grew to end the Canton System. Western nations wanted the opening of China’s huge consumer market to free trade, be it to trade opium or other goods. Britain, in particular, wanted to export to China to fuel its rapidly industrialising economy. As tensions were growing, Britain started sending more and more warships to the South China Sea. Their garrison in Macau got larger and larger.

By 1838, the British were selling 1.4 million kilos of opium per year to China. Things finally reached a breaking point in 1839 when the Daoguange Emperor tasked an official with ending the opium trade. During the fall of that year, several skirmishes and naval battles between Chinese and British war ships took place. And then, in 1840, Britain declared war on China in what became known as The First Opium War. British war goals included ending the Canton System and gaining “most favored nation status” with the Chinese government. To ensure continued trade, they also sought to secure islands along the Chinese coast that could be easily defended and provisioned. After two years of fighting the war ended with the Treaty of Nanjing. It was the first of what the Chinese later termed the “unequal treaties”. The deal included China ceding Hong Kong to Britan in perpetuity (it wasn’t returned until 1997). As a result of this treaty, and imilar treaties signed in Nanjing, Whampoa, Aigun and Shimonoseki, China lost tariff autonomy due to the establishment of treaty ports, i.e. ports in China opened to foreign trade according to unequal treaties forced upon them by Western powers. Such ports included Shanghai, Guangzhou, Ningbo, Fuzhou and Xiamen. Western powers also etablished extraterritorial concessions, i.e. areas governed and occupied by foreign powers, in these treaty ports. This practice was not limited to the British - negotiations with the Americans and the French led to similar concessions. The Bund in Shanghai was the largest and most famous of these “concessions”. Another one is The French Concession, also in Shanghai. Britain actually did not relinquish rights to these concessions until 1943, and then only did it as a way to bolster Chinese support in World War II…

China’s Internal Struggles: The Younger Brother of Jesus Christ

As if foreign invasions weren’t enough, the Qing dynasty also faced a nearly fatal civil war during the 19th century: the Taiping Rebellion (1850–1864). It began with Hong Xiuquan, a failed examination candidate from southern China, who after a series of visions proclaimed himself to be the younger brother of Jesus Christ (!!). Mixing Christianity with Chinese millenarianism and anti-Manchu nationalism, he launched a movement that promised to establish a utopian kingdom of equality, land redistribution, and moral reform. Actually, their values weren’t that different from what the CCP based their power grab on. To a population tired of corruption, poverty and imperial weakness, this seemed much better than the Qing dynasty.

Hong and his followers declared the founding of the Taiping Heavenly Kingdom. By 1853, they had captured Nanjing, which became their capital for over a decade. At its height, the Taiping state ruled over an area with a population of 30 million people. It wasn’t just a rebellion, it was a parallel government. It spread across 16 provinces, raised one of the largest armies in the world at the time, and challenged the core of the Qing dynasty. Foreign powers, though hostile to the Qing in other contexts, watched nervously: the Taipings were anti-Confucian, radically theocratic, and unpredictable.

It took the Qing government 14 years, aided eventually by Western-trained armies, to crush the rebellion. The death toll was staggering: an estimated 25 million people died (mostly civilians) from war, famine, and disease. That makes it one of the bloodiest conflicts in human history, rivaling World War I in absolute casualties. The rebellion left vast regions of central China depopulated and devastated. For the Qing, it was a hollow victory. Although the dynasty survived, it never fully recovered its legitimacy after this.

The end of the Qing Dynasty

China proceeded to suffer many partial or complete military defeats between 1839 and 1949, both at the hands of foreign invaders and as part of internal rebellions. The Qing dynasty was eventually forced to acknowledge they faced a crisis. We can’t go into detail about each defeat, but instead just list them for awareness: The Sino-French War (1884-1885), The British Sikkim Expedition (1888), The First Sino-Japanese War (1894-1895), The Pavlov Agreement (1898), The Supression of the Boxer Rebellion (1899-1901), The Russian invasion of Manchuria (1900), The Twenty-One Demands issued by Japan during World War I (1915), The Treaty of Versaille which handed German territories in China to Japan (1919), The Japanese invasion of Manchuria (1931-1932), The Soviet Invasion of Xinjiang (1934) and finally the Second Sino-Japanese War (1937-1945) during which Japanese forces committed numerous war crimes, such as the Nanjing Massacre.

It gradually became clear that the Qing military was outclassed by both British, French, American, Japanese and Russian forces. Attempts to modernize were made, e.g. as part of the Tongzhi Restorations in the 1860s, and the Self-Strengthening Movement. Chinese scholars at the time identified the dynasty’s lacking military technology and outdated organization as a major contributing factor to their many defeats. So, these programs included a wide range of reforms such as the establishment of military arsenals and shipbuilding dockyards. They also tried to modernize their military organization and structure.

But, the Manchu court elite in China resisted changes. As a result, reforms were poorly executed and frequently blocked Qing rulers. The reason court elite resisted change was that they derived their legitimacy from a sort of neo-Confucian order in which agriculture, moral cultivationa and bureaucratic examination defined status. A move towards a modernized army, heavy industry and merchant economy challenged that hierarchy. In particular, military modernization threatend the so called Eight Banners system. The Eight Banners were a hereditary military-social caste created in the 17th century by the Manchu. The Self-Strengthening Movement proposed replacing this system with modern units based on mass conscription, and equipped with modern rifles, artillery and steam-powered logistics. For the Manchu elite, this was considered an existential threat. Reform meant replacing an ethnic warrior caste with a merit-based, Han-dominated and - perhaps most importantly - potentially rebelliuous national army. The result was a fractured state with modern weapons but feudal politics. The Manchu leadership repeatedly made choices that protected its status at the expense of national capabilities. In contrast, Japan went ahead with the Meiji Restorations, which supports the counterfactual: had the Qing elite accepted some loss of central control to modernize, they may have avoided a deeper collapse.

In 1900, anti-foreign Boxers killed many Chinese Christians and foreign missionaries. In retaliation, the Eight-Nation Alliance (Britain, France, Germany, Russia, the US, Japan, Italy and Austria-Hungary) invaded northern China. They quickly crushed the rebellion, looted parts of Beijing and imposed the Boxer Protocol. This required China to pay a huge compensation of 450 million taels of silver with interest over 39 years. It also required the Qing dynasty to allow foreign troops to be stationed in Beijing and other key areas. All Chinese officials who had supported the Boxers were executed or removed. The shock of the Boxer defeat and the humiliating terms of the Boxer Protocol forced the Qing dynasty to acknowledge its weakness. Elites started recognizing that China would not survive without modernization of its bureaucracy, military and fiscal system. They started taking radical steps to reform the 2000 year old imperial system, such as allowing local, provincial and national assemblies. These were intended to prepare China for a constitutional monarchy. They also introduced a modern legal code instead of the traditional Confucian moral principles. This included comissioning Japanese and European legal experts. The goal was to create predictable, non-arbitrary law - something that was important both for domestic stability and to deal with foreign powers. Finally, and perhaps most revolutionary, they abolished the imperial examination system in 1905. The civil service examsn had been the foundation of Chinese bureaurcracy for over 1000 years. But, the tests were completely outdated and focused on memorizing Confucian classics instead of learning practical skills. The government replaced it with modern schools and Western-style education hoping to produce a more capable, educated elite.

Unfortunately for the Qing, the New Policies enacted between 1901 and 1911, were top-down, inconsistent and resented by many groups. Confucian elites lost their career parths through the exams but weren’t integrated in the new bureaucracy. Provincial gentry feared loosing control through new laws and army reforms. Intellectuals thought the Qing were too slow and insincere. Ultimately, the 1911 revolution had strong ethno-nationalist overtones. It was led by reform-minded Han elites who wanted to finally get rid of their Manchu rulers. The collapse of the dynasty was accelerated by financial collapse. Paying off the Boxer Protocol penalties put them deeply in debt. A trigger for the revolution was an attempt to take control of railway projects in order to centralize tax collection. On top of that, the newly trained Beiyang Army was loyal to it’s leader, Yuan Shikai - not the throne. The Qing, who had long claimed the Mandate of Heaven, lost its imperial mystique. Repeated humiliation by foreign powers shattered the image of a competent, divine dynasty. After the Wuchang Uprising in October 1911 province after province declared independent from the Qing.

The Warlord Era

A few years after the fall of the Qing dynasty, the country entered the Warlord Era (1916-1928). This was the most serious peacetime fragmentation of China in over 1000 years, and the country came dangerously close to dissolving as a unified state. The first ruler after 1911 was a Qing general, Yuan Shikai, who ruled as President of the Republic of China. But he ruled autocratically and even tried to restor monarchy in 1915. He died in 1916 leaving a major power vacuum. At this point, China lacked a unified military chain of command, no constitution, no real enforcement of national laws and no stable institutions with legitimacy. As a result, provincial military commanders took control over their regions and goverend indepdenently. They collected taxes, ran their own armies and fought each other. They funded their rules by trading opium, confiscating money from their subjects and arms deals with foreign powers. This led to growing social instability with banditry and famine. Regular people suffered greatly during this period. Mongolia and Tibet declared outright independence. Manchuria was goverened independently. Japan, Britain, France and Russia all backed different warlords. The only thing that kept the country together was the persistant idea of “One China” among both elites and the population. Without strong, underlying cultural unity, it would likely have dissolved. I.e. if China was a collection of countries unified through war, it would have most likely dissolved again. But since the country had been unified for so long before this crisis, it managed to stay together.

The Koumintang and the Communists

From this chaose rose the Kuomintang. A Western-educated physician and revolutionary who opposed the Qing dynasty, Sun Yat-Sen, founded the Revive China Society in Hawaii (of all places) in 1894. He joined forces with other anti-monarchist groups in Japan to form the Tongmenghui (同盟會), or Chinese Revolutionary Alliance. The Tongmenghui was a secret society with the goal of overthrowing the Qing dynasty. The group supported the 1911 Revolution and the founding of the Republic of China, and Sun was at one point elected provisional president of the new Chinese republic. He ceded power to Yuan Shikai, the guy we mentioned earlier that ruled autocratically. As it became clear that Yuan was not exactly a “success”, Sun Yat-Sen was part of forming the Nationalist Party, or Guómíndǎng (國民黨) or Kuomintang (KMT). The name is a combination of 國 (Guó - nation or country), 民 (Mín - people) and 黨 (Dǎng - political party), i.e. National People’s Party or more commonly The Nationalists. During the Warlord Era, Sun moved the KMT to Guangzhou and worked to reunify China under republican principles.

In 1921, a small group of Chinese intellectuals, students and activists, including Mao Zedong (an activist from Hunan), Chen Duxiu (The Dean of Beijing University) and Li Dazhao (A librarian at Beijing University), founded the Chinese Communist Party (CCP). They got help from Grigori Voitinsky, who was a Soviet Comintern agent. He provided them with inspiration and information about Marxism, the Russian Revolution and anti-imperialist nationalism. The First Party Congress was held in secret 1921 in a house in the French Concession in Shanghai. The CCP declared itself a Marxist-Leninist organization aiming to unite the working class, end imperialism, and revolutionize China through class struggle. At the time, Shanghai was China’s largest industrial city and its most international. It was home to a growing urban working class, including thousands of textile workers, dock laborers and railway employees. Harsh working conditions, low wages and foreign imperial overreach made it susceptible to labour mobilization. In 1925, British-led police in Shanghai had shot and killed 13 students and workers during anti-imperialist demonstrations. This sparked nation wide strike and protests, known as the May 30th Movement. In Shanghai, the CCP stepped in to organize and lead many of the strikes.

Now, the paths of the KMT and CCP cross. Lacking a strong army to unify the country, the KMT turned to the Soviet Union for assistance. The Soviets, eager to expand their revolution, agreed on the condition that the KMT cooperated with the Chinese Communist Party (CCP). And so, they formed the First United Front (1923). This unusual alliance aimed to unite China, overthrow warlords, and resist imperialism. After Sun’s death in 1925, leadership passed to Chiang Kai-shek, a military officer trained in Japan and the Soviet Union. Chiang Kai-shek launched the Northern Expedition (1926–1928). The KMT and CCP cooperated militarily during the campaign. However, tensions grew quickly. Many KMT leaders, especially Chiang Kai-shek, feared Communist influence over labor unions, the military, and peasant movements. They were particularly worried about urban centers like Shanghai, where Communist-led unions were powerful. Rightfully so, as it will turn out.

In 1927, in an attempt to stop Communist influence, Chiang purged the CCP in Shanghai in an event known as the White Terror where thousands where killed (White is the color traditionally associated with anti-communist forces). This event violently ended their alliance and marked the collapse of the First United Front. Instead, it started a bloody civil war that would last, in some form, for over two decades. The CCP was pushed into rural gurerilla resistance.

With the Communists driven underground, Chiang Kai-shek pressed on with his campaign to unify China under Nationalist rule. In 1928, the Northern Expedition successfully captured Beijing, ending the rule of many warlords and allowing Chiang to establish the capital in Nanjing. The Republic of China, at least on paper, now governed a unified nation. But in reality, the KMT’s grip was tenuous. The countryside remained fragmented, warlords still held real power in many regions, and the Communists had not disappeared-they had simply retreated.

Over the next few years, the CCP regrouped in rural areas, most notably in Jiangxi province, where Mao Zedong and Zhu De helped establish a revolutionary base known as the Jiangxi Soviet. There, the CCP began experimenting with land reform and peasant mobilization, laying the foundation for Mao’s rural insurgency strategy. Meanwhile, Chiang launched a series of military campaigns-known as the Encirclement Campaigns-to eradicate the Communists. After heavy losses and near annihilation, the CCP made a desperate decision: escape.

This was the beginning of the Long March (1934–1935), one of the most mythologized episodes in Chinese Communist history. Over 80,000 Red Army soldiers set out on a brutal 9000-kilometer journey through mountains, swamps, and enemy territory. Fewer than 10,000 survived. But amid the hardship, Mao Zedong emerged as the dominant leader of the CCP. His authority solidified at the Zunyi Conference in 1935, where he gained control over the Party’s military and political strategy. The Communists ultimately settled in Yan’an, in the northwest, where they would remain for the next decade, rebuilding their strength.

While the KMT was preoccupied with fighting the Communists, a far greater threat was brewing. In 1937, a skirmish between Japanese and Chinese troops at the Marco Polo Bridge outside Beijing escalated into a full-scale invasion. Japan launched a brutal campaign to conquer China, capturing cities like Shanghai, Nanjing, and Wuhan. In what became known as the Second Sino-Japanese War, the Chinese people suffered unspeakable atrocities-none more infamous than the Nanjing Massacre, where hundreds of thousands of civilians were killed.

Faced with existential danger, the KMT and CCP formed a shaky Second United Front. The alliance was more about mutual necessity than trust. While the KMT bore the brunt of conventional warfare, the CCP expanded its influence behind enemy lines, especially in the countryside. In these areas, the Communists organized militias, distributed land, and won popular support. Their ranks swelled, not through conscription, but through volunteerism and ideological appeal.

By the time Japan surrendered in 1945, China was exhausted. The KMT reoccupied the major cities with help from American airlifts, but their control was brittle. The CCP, now numbering in the millions, controlled vast rural territories in the north. The Second United Front collapsed almost immediately, and the civil war resumed-this time with both sides far stronger than before.

From 1946 to 1949, the Chinese Civil War raged again. The United States backed the KMT with weapons and funding, but corruption, inflation, and military incompetence plagued Chiang’s government. In contrast, the Communists-disciplined, ideologically unified, and supported by a mobilized peasantry-fought a more effective campaign. They captured Manchuria, then swept south. City after city fell with surprising speed.

In January 1949, the Communists captured Beijing. By October, Mao Zedong stood atop the Gate of Heavenly Peace in Tiananmen Square and declared the founding of the People’s Republic of China. Chiang Kai-shek and the remnants of the KMT fled to Taiwan, where they would remain, claiming to be the legitimate government of all China.

Mao Zedong’s Reign, 1949-

The Korean War and International Isolation (1950–1953)

China’s first major act on the world stage came just one year after the founding of the PRC. In 1950, the Korean War broke out, and when American-led UN forces approached the Chinese border at the Yalu River, Mao made the fateful decision to intervene. Chinese troops, called the People’s Volunteer Army, entered Korea and pushed UN forces back below the 38th parallel.

The war ended in stalemate in 1953, but it had significant consequences: China gained stature in the communist world but also faced long-term isolation from the West, particularly the United States, which imposed diplomatic and trade sanctions. At home, the war strengthened the state’s argument for rapid militarization and total social mobilization.

The First Five-Year Plan (1953–1957)

With Soviet aid and advisors, Mao launched China’s First Five-Year Plan in 1953, focused on heavy industry, infrastructure, and central planning. The state poured investment into steel production, coal, machinery, and railways. Urban industrial output rose sharply, and large-scale collectivization of agriculture began.

This phase resembled the Soviet model: centralized planning, ideological conformity, and rapid state-led development. But beneath the surface, tensions were building. The leadership became divided between those who wanted pragmatic economic modernization and those, like Mao, who sought continual revolutionary transformation.

The Hundred Flowers Campaign (1956–1957)

In a surprising move, Mao encouraged intellectuals to speak openly and criticize the Party under the slogan “Let a hundred flowers bloom, let a hundred schools of thought contend.” For a brief moment, criticism poured out-of corruption, bureaucracy, censorship, and ideological dogma.

But this openness quickly turned into a trap. Mao, shocked by the volume and venom of dissent, reversed course and launched the Anti-Rightist Campaign, branding hundreds of thousands of critics as enemies of the state. Many were sent to labor camps, silenced, or persecuted. The message was clear: dissent would not be tolerated.

The Great Leap Forward (1958–1962)

Determined to bypass the gradualism of the Soviet model and vault China into communism “within a few years,” Mao launched the Great Leap Forward in 1958. The plan aimed to rapidly increase both agriculture and steel production through the mobilization of rural communes and the mass labor of peasants.

Backyard furnaces were built to smelt steel. Communes were formed to pool labor and resources. But the plan was a disaster. Unrealistic targets led to falsified data. Centralized grain requisitions left peasants starving. And when signs of crisis emerged, officials feared reporting the truth. The result was one of the deadliest famines in human history, with estimates of deaths ranging from 20 to 45 million.

Retreat and Recovery (1962–1965)

After the catastrophe, Mao stepped back from day-to-day governance. More pragmatic leaders like Liu Shaoqi, Deng Xiaoping, and Zhou Enlai worked to stabilize the country. They reversed some of Mao’s policies, allowed modest market incentives in agriculture, and improved food distribution.

Economically, these years were more stable-but politically, Mao was preparing a comeback. He saw the retreat from radicalism as a betrayal of the revolution. His solution was to launch a new movement that would target both party elites and cultural norms.

The Cultural Revolution (1966–1976)

In 1966, Mao launched the Great Proletarian Cultural Revolution, a nationwide political campaign aimed at purging “capitalist roaders” and reinvigorating revolutionary fervor. Students formed Red Guard units, attacking teachers, officials, and intellectuals. Schools closed. Temples, books, art, and historical monuments were destroyed in a frenzy of ideological purification.

Mao positioned himself as the infallible revolutionary leader, and chaos engulfed the country. Senior leaders like Liu Shaoqi and Deng Xiaoping were purged. The party, army, and government were paralyzed as factional violence erupted nationwide. Millions were persecuted, imprisoned, or killed. Families were torn apart.

By the early 1970s, the Cultural Revolution lost momentum, and pragmatists within the party began regaining influence. But the scars it left-psychologically, economically, and socially-would endure for decades.

Mao’s Death and the End of an Era

Mao Zedong died on September 9, 1976, at the age of 82. His death marked the end of a political era defined by revolution, trauma, and relentless ideological experimentation. In his final years, Mao grew increasingly isolated and physically frail. His chosen successor, Hua Guofeng, lacked Mao’s stature. In the power vacuum that followed, Deng Xiaoping and other pragmatists would soon reorient China toward economic reform.

While Mao remains revered in official narratives as the founder of the nation, his reign is now widely understood-both inside and outside China-as a period of immense contradiction: a leader who unified the country and inspired millions, but whose policies also brought famine, repression, and civil chaos on an unimaginable scale.

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Capital allocation models:

China’s allocation model operates like a long-horizon options strategy. It channels vast savings into large, strategic bets, whether on semiconductors, solar, or railways. It does it through policy banks, SOEs, and public-private funds. The state absorbs risk that markets would otherwise avoid on the logic that certain capabilities are necessary regardless of immediate profitability. Waste is not just tolerated but sometimes planned for as an acceptable price of national resilience or geopolitical positioning. The state’s role as allocator allows for long-term orientation, but introduces political feedback loops and a weaker mechanisms for identifying and terminating failed bets.

The Western allocation model operates as a high-churn, market-driven portfolio: many small bets, fast feedback, and convex payoffs. Capital is allocated by private actors seeking high internal rates of return within a bounded time horizon, typically seven to ten years. This incentivizes funding of asset-light businesses that can scale quickly, such as software and digital services, but creates a structural reluctance to fund long-term, capital-intensive businesses. The model excels at identifying outliers and pushing the frontier, but often struggles with scale-up and infrastructure, particularly in the physical domain.

China’s model: State-directed “patient capital” designed to achieve national development goals

Since the late 1970s, China has pursued a capital allocation model built on using its high domestic savings through state-controlled channels to achieve national development goals. At its core, this system directs long-horizon, large-scale investment through a network of policy banks, state-owned enterprises (SOEs), local-government financing vehicles (LGFVs), and government-guided funds (GGFs). The state plays the role of both strategic allocator and backstop, using capital not just to seek financial returns, but to build industrial depth, technological independence, and physical capability.

The scale and coordination of this effort is impressive. From the construction of a national high-speed rail network to the creation of entire EV and battery supply chains in the Pearl River Delta, China has used its financial system to industrialize rapidly and close gaps with the West. Subsidies and directed lending have fueled the rise of global players in sectors like photovoltaics, telecom, and heavy manufacturing.

The Chinese model has a high tolerance for duplication, waste, and overcapacity in the short term. The implicit logic is that misallocation is acceptable if the outcome is strategic capability at scale. Their financial plumbing reflects this logic. Policy banks such as the China Development Bank provide below-market financing to priority sectors. LGFVs raise off-balance-sheet capital to fund infrastructure even when official budgets tighten. Government-guided funds, i.e. public-private investment vehicles seeded by the state, take equity stakes in high-tech startups and manufacturing ventures, aiming to fill capital gaps that private markets would avoid. As of 2022, guidance funds had raised over RMB 6 trillion in capital, targeting deep-tech and industrial upgrading.

This scale comes at a cost. China’s incremental capital-output ratio (ICOR) (a proxy for investment efficiency) has risen sharply since 2008, meaning more capital is required to generate each additional unit of GDP. Studies estimate that misallocation in China’s manufacturing sector could suppress productivity by 30-50% compared to a free-market system. Many projects have low or negative returns but are maintained to meet employment, growth, or geopolitical targets. Off-balance-sheet debt, particularly at the local level, makes the system fragile. And private firms, especially SMEs, often struggle to access financing under a system geared toward state priorities and politically safe investments.

So, in summary: China’s capital system behaves like a nation-state options portfolio: the state accepts high variance and long incubation times in exchange for national capabilities. It is a model optimized not for annual IRR, but for coverage, scale, and control.

The outcomes are visible if you travel around China: towering physical assets, deep manufacturing ecosystems, and rising technological ambition.

But so too are the downsides: persistent inefficiency, high debt, and the risk that political priorities override economic fundamentals.

Historical Patterns

  • Moral Rules + Coercive Capacity China coalesces around riverine agriculture and centralized bureaucracy (Qin–Han), embedding a Confucian‑Legalist duality: moral rule plus coercive capacity. Legitimacy in China has historically rested on the concrete: Delivery of food, flood control, and price stability. When leaders meet these expectations, they can access a deep reservoir of public passivity; when they fail, they face rebellion. Economic performance and social provisioning remain existential for the CCP.

  • Cycles of Consolidation and Fragmentation. Dynasties (Sui‑Tang, Song, Ming, Qing) repeatedly reach high equilibrium, i.e. they become administratively sophisticated, commercially vibrant and technologically advanced, only to then face fiscal stress and foreign pressures that expose institutional rigidity. Dynasties frequently expand territorially and culturally but overshoot demographic and fiscal limits.

  • Long-lasting Institutions China has several enduring institutions:

  • A state that sees itself as custodian of the people’s welfare

  • An all‑embracing civil bureaucracy

  • A national examination system

  • The Confucian moral order

  • Relationship with free markets: strategic ambivalence and cyclical adaptation

Foreign Engagement Is a Constant

The past is curated to legitimize present agendas

The CCP draws on Confucian harmony when preaching social order, on anti‑imperialist resentment when confronting the West, and on socialist triumphalism when extolling economic miracles.

Ethnic Pluralism Shape the State

t China’s greatest territorial expansions arose when rulers married Confucian civil governance to robust martial incorporation of Inner Asian peoples (Qing banners, Ming garrisons, PRC paramilitary corps). The price of empire is ongoing tension at the periphery (Xinjiang, Tibet, Hong Kong), reminding us that China’s territorial map is as much a product of steppe diplomacy and military culture as of Han agrarian civilization.

Innovation Surges-and Stalls

The Western model: Venture-capital designed to fund fast-scaling, asset-light businesses

The dominant capital allocation model in the United States is built around private venture capital. Since the 1970s, this system has evolved to channel institutional capital (primarily from pension funds, university endowments, and family offices) into high-risk, high-growth startups through limited-life funds.

Venture capital firms operate on a time-limited model: they typically raise 10-year funds, deploy capital over the first few years, and aim to exit investments via IPOs or acquisitions within five to seven years. This structure creates strong incentives to back companies that can scale rapidly, achieve product-market fit quickly, and deliver large, liquid returns without long holding periods or infrastructure commitments.

This model has proven extraordinarily effective in domains where marginal costs collapse with scale. Software, internet services, and digital platforms dominate U.S. venture portfolios because they require low upfront capital, have minimal physical footprint, and can achieve global reach without owning fixed assets. Returns are amplified by the capital-light nature of these businesses: with a few million dollars, a team can build and ship a product to millions of users, often generating exponential growth long before profitability. In such conditions, the venture model’s short time horizon and demand for high internal rates of return (IRR) are aligned with the underlying economics of the business.

But this does not work well for businesses targeting the physical domain. Advanced manufacturing, clean energy infrastructure, semiconductors, and hardware-intensive deep tech all require tens to hundreds of millions in upfront capital, long development timelines, and exposure to regulatory and geopolitical risk. These sectors rarely produce venture-scale returns within a 7-10 year horizon. As a result, they are systematically underfunded by traditional VC. In 2017, hardware received just 3% of U.S. venture capital; manufacturing even less. Other historical channels for financing capital-intensive innovation, such as corporate R&D, bank lending, and diversified conglomerates, have also declined, leaving a financing gap for scale-up projects with long time-to-maturity.

This structural bias has created a persistent pattern: the U.S. invents, but often fails to build at scale. Startups that prototype breakthrough technologies domestically frequently scale their manufacturing overseas, particularly in East Asia where patient capital and government support are available. This dynamic has contributed to the hollowing out of American industrial capability, even as its innovation engine remains dominant.

The model is now facing friction. The rise of AI, robotics, and climate tech is pushing even software-native firms into capital-heavy territory. Building data centers, chip foundries, or gigafactories requires multibillion-dollar commitments and long time horizons-conditions poorly suited to the venture model as currently structured. This is driving a shift: a growing ecosystem of crossover funds, growth equity, and public-private partnerships is emerging to fill the scale-up gap. But the underlying logic remains: U.S. venture capital is a short-horizon, risk-seeking portfolio designed for asset-light innovation. It is a system optimized for velocity, not mass. Its greatest strength is its ability to discover and amplify new ideas; its greatest limitation is what happens after product-market fit.

An analytical framework for evaluating capital allocation systems

To evaluate the long-term societal impact of China’s state-directed capital system versus the West’s venture-driven model, we need an analytical framework that goes beyond simple comparisons of GDP or patent counts. At the core, this is a question of portfolio logic: the two systems represent fundamentally different approaches to allocating capital under uncertainty.

  • Capital efficiency vs resource mobilisation. Measure how many units of output-GDP, productive capacity, or technological advance-are generated per unit of investment, and how quickly capital is recycled when returns disappoint.

  • What gets built. Identify whether the system directs money toward firm-level, easily monetised products or toward shared infrastructure and strategic capabilities whose benefits are diffuse or hard to appropriate.

  • Who benefits: Living standards and broad-based welfare. Track how investment translates into wages, consumption, life expectancy, environmental quality, and other indicators of well-being for the median citizen, not just for shareholders or the state.

  • Correction mechanisms. Examine the speed and reliability with which bad bets are recognised and capital is redeployed, including bankruptcy regimes, political oversight, and feedback loops that discipline decision-makers.

Performance of the two models along the four axes

1. Capital efficiency vs resource mobilisation. United States: VC funds deploy roughly 60 billion USD per year yet VC-backed firms account for ≈20 percent of public-equity market value and 44 percent of corporate R&D-evidence of high output per dollar invested. Fund life cycles force rapid recycling when ventures fail.

China: Aggregate investment exceeds 40 percent of GDP; the incremental capital-output ratio has tripled since 2007, showing diminishing returns. State lenders continue to refinance low-return SOEs to preserve employment, expanding the capital base but lowering efficiency.

2. What gets built. United States: Portfolio skews toward software, biotech platforms, fintech, and AI services-asset-light fields with quick revenue ramps and clean exits. Less than 3 percent of annual VC flows reach hardware or advanced manufacturing, leaving a scale-up gap for fabs, batteries, or grid infrastructure. China: Policy banks, local-government vehicles, and guidance funds finance rail networks, ports, solar and battery supply chains, and semiconductor clusters-projects with large spill-overs that private investors might avoid. The downside is frequent duplication, stranded assets, and politically chosen “national champions.”

3. Who benefits: living standards and broad-based welfare.

United States: Households capture a high share of national income; per-capita consumption and service quality are among the world’s highest. VC-driven innovation diffuses quickly through consumer markets, though wealth gains concentrate among founders and investors and regional inequality remains significant.

China: Between 1990 and 2024 real incomes rose roughly ten-fold and extreme poverty collapsed, yet consumption remains under 40 percent of GDP and per-capita spending sits near the global median. Large slices of output are retained as corporate or government savings, delaying the arrival of consumption-led affluence.

4. Correction mechanisms

United States: Venture portfolios are marked to market; weak start-ups close, under-performing funds struggle to raise the next vintage, and Chapter 11 bankruptcy reallocates assets swiftly. The discipline encourages experimentation but disfavours decade-long hardware bets.

China: No hard exit clocks exist for state loans; projects can be extended or restructured indefinitely to meet political or employment goals. This supports patience in strategic sectors but also entrenches “zombie” enterprises and local-government debt, slowing the reallocation of capital to higher-return uses.

From Catch-Up to Consumerism: Can China pivot to efficiency?

China’s state-directed model excelled at the catch-up phase because the returns to building factories, ports, and housing were extraordinarily high relative to a low starting base. As those “easy” gains flatten-urbanisation is past its peak and basic infrastructure is largely built-the growth equation changes. Capital accumulation now adds less to output, while debt and ageing demographics sap momentum. At this stage, history suggests that merely doubling down on manufacturing capacity will not sustain rapid growth: Japan in the 1990s, Korea in the 2000s, and more recently China itself all saw incremental capital-output ratios spike once the investment share of GDP stayed above 40 percent for too long.

The United States offers a cautionary analogue. In the nineteenth century it, too, pursued scale: railroads, steel, and mass production were financed by bond markets and industrial barons seeking land and resource rents. But after the Second World War, the U.S. moved steadily toward a consumption-led, service-heavy economy. Household spending rose from roughly 60 percent of GDP in 1950 to over 70 percent today, while manufacturing’s share of employment fell from one-third to less than one-tenth. That transition forced capital to hunt for returns in intangibles-brands, software, biotech-where marginal costs fall with scale and consumer demand is elastic. Venture capital flourished because the economy had already shifted toward high discretionary spending, deep financial markets, and strong intellectual-property rights. In other words, VC was largely a by-product of a prosperous, consumption-driven society, not the prime mover of that prosperity.

China has not yet made that pivot. Household consumption remains below 40 percent of GDP, and the financial system still rewards capacity expansion over productivity gains. Continuing to push credit into manufacturing without boosting domestic demand risks chronic overcapacity, deflationary pressure, and rising debt burdens. To avoid that trap, Beijing will need to re-orient incentives toward efficiency: hard budget constraints on SOEs, genuine competition for capital, and policies that let households capture a larger share of national income. Only then can “patient” state capital focus on frontier innovation-where efficiency, not just volume, determines success-rather than propping up ever more factories for a world that may no longer need them.

Tesla, BYD and China’s industrial model

It feels impossible to write about this topic without dragging Mr. Musk and Tesla into the discussion. I have a complicated relationship with Mr. Musk. On the one hand, he is one of the best brilliant innovators of our time. On the other hand, I don’t share his view on what is right and wrong. But, putting that aside, I can’t help drawing parallells between China’s industrial policy and the strategy endorsed by Mr. Musk at both Tesla, SpaceX and xAI.

To reason about this, I want to start by making it clear that the rivalry between Tesla and China’s EV champions, above all BYD, has been two‑way exchange. The idea that “China just copied America” is too simplistic a view. BYD, which was founded in 1995, was already a vertically‑integrated battery powerhouse when it bought a bankrupt carmaker in 2003 (the same year Tesla was founded) and in 2008 launched the F3DM, the world’s first mass‑produced plug‑in hybrid. It learned by dismantling Toyotas and Lexuses but grew by inventing its own playbook. BYD decided to keep the core technologies, such as battery cells, electronics and semiconductors, in‑house and drove down costs through scale. Tesla arrived a few years after BYD with a premium, software‑centric vision and quickly set new benchmarks for performance and brand. Yet the BYDs earlier start in batteries and cost engineering meant that learning flowed both ways.

As an example, BYD’s early commitment to lithium‑iron‑phosphate (LFP) chemistry culminated in the 2020 Blade Battery. It’s a long, thin cell‑to‑pack design that offers high safety at low cost. By 2021, Tesla had switched its China‑made Model 3 and global entry models to LFP packs sourced from CATL and, more recently, actually even from BYD itself.

Another example is that Chinese brands first introduced features such as in‑car karaoke, mini‑apps, and seamless over‑the‑air upgrades for everything from infotainment to suspension tuning. Tesla has since incorporated “Caraoke,” in‑cabin gaming, and a growing suite of paid software options that mirror the Chinese emphasis on a continuous, service‑based engagement. I think most people think this started with Tesla, but that’s wrong.

Mr. Musk has openly praised China’s rapid industrial development. In a 2021 social media post, he praised China’s “truly amazing” economic progress, “especially in infrastructure”. He has also constrated China’s work ethic with Western entitlement, remarking that “The energy in China is great”. In January 2024, during a post-earnings call, he said that “Chinese automakers will demolish global rivals without trade barriers”. He also said that “Chinese car companies are the most competitive in the world and will have significant success outside of China, depending on what kind of tariffs or trade barriers are established.”

The experience of building Gigafactory 3 in Shanghai in 2019 appears to have been especially inspiring. Thanks to strong local support, Tesla’s Shanghai plant went from permits to a fully operational factory in about 10 months. Musk, at the time, acknowledged that the “great resources and capabilities in Shanghai” was what allowed Tesla to set a new construction speed record.